UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number: 001-12351
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 30, 1998 19,244,750 shares of the registrant's common stock,
par value $.01 per share, were outstanding.
METRIS COMPANIES INC.
FORM 10-Q
TABLE OF CONTENTS
September 30, 1998
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..........................................18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...................................30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................31
Item 2. Changes in Securities...................................32
Item 3. Defaults Upon Senior Securities.........................32
Item 4. Submission of Matters to a Vote of Security Holders.....32
Item 5. Other Information.......................................32
Item 6. Exhibits and Reports on Form 8-K.....................32
Signatures...............................................34
Part I. Financial Information
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands) (Unaudited)
September December
30, 1998 31, 1997
Assets:
Cash and due from banks $ 19,049 $ 21,006
Federal funds sold 13,713 27,089
Short-term investments 473 128
Cash and cash equivalents 33,235 48,223
Retained interests in loans securitized 546,419 471,831
Less: Allowance for loan losses 350,864 244,084
Net retained interests in loans
securitized 195,555 227,747
Loans held for securitization 38,916 8,795
Premises and equipment, net 20,945 15,464
Accrued interest and fees receivable 5,297 4,310
Prepaid expenses and deferred charges 34,904 18,473
Deferred income taxes 129,216 80,787
Customer base intangible 42,176 36,752
Other receivables due from credit card
securitizations, net 149,133 77,486
Other assets 25,090 20,625
Total assets $674,467 $ 538,662
Liabilities:
Short-term borrowings $214,000 $ 144,000
Long-term debt 100,896 100,000
Accounts payable 32,174 35,356
Current income taxes payable 16,761 9,701
Deferred income 69,113 49,204
Accrued expenses and other liabilities 25,167 24,363
Total liabilities 458,111 362,624
Stockholders' Equity:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized, none
issued or outstanding
Common stock, par value $.01 per share;
100,000,000 shares authorized,
19,242,000 and 19,225,000 shares
respectively, issued and outstanding 192 192
Paid-in capital 107,331 107,059
Retained earnings 108,833 68,787
Total stockholders' equity 216,356 176,038
Total liabilities and stockholders'
equity $674,467 $ 538,662
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data) (Unaudited)
Three Months Nine Months Ended
Ended
September 30, September 30,
1998 1997 1998 1997
Interest Income:
Credit card loans and retained interests
<S> <C> <C> <C> <C>
in loans securitized $ 28,234 $ 16,490 $ 80,494 $ 42,645
Federal funds sold 197 515 977 1,270
Other 133 210 902 568
Total interest income 28,564 17,215 82,373 44,483
Interest expense 8,902 2,398 21,733 5,930
Net Interest Income 19,662 14,817 60,640 38,553
Provision for loan losses 17,154 11,106 58,586 28,589
Net interest income
after provision for loan losses 2,508 3,711 2,054 9,964
Other Operating Income:
Net securitization and credit
card servicing income 30,499 14,706 95,454 59,533
Credit card fees, interchange
and other income 18,961 10,488 47,707 28,324
Fee-based services revenues 26,399 16,085 77,501 42,331
75,859 41,279 220,662 130,188
Other Operating Expense:
Credit card account and other product
solicitation and marketing expenses 7,818 5,942 29,245 22,419
Employee compensation 12,940 8,318 42,612 24,455
Data processing services and communications 8,822 3,628 25,792 12,893
Third-party servicing expense 2,895 2,233 7,953 7,972
Warranty and debt waiver underwriting
and claims servicing expense 3,059 1,689 8,479 4,077
Credit card fraud losses 1,034 1,121 3,354 2,700
Other 14,162 4,925 39,231 20,117
50,730 27,856 156,666 94,633
Income Before Income Taxes 27,637 17,134 66,050 45,519
Income taxes 10,641 6,597 25,430 17,525
Net Income $ 16,996 $ 10,537 $ 40,620 $ 27,994
Earnings Per Share:
Basic $ .88 $ .55 $ 2.11 $ 1.46
Diluted $ .85 $ .52 $ 2.03 $ 1.38
Shares used to compute EPS:
Basic 19,231 19,225 19,227 19,225
Diluted 20,063 20,299 19,973 20,224
</TABLE>
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,
1998 1997
Operating Activities:
Net income $ 40,620 $ 27,994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,428 8,572
Change in allowance for loan losses 106,780 94,957
Changes in operating assets and liabilities:
Accrued interest and fees receivable (987) (803)
Prepaid expenses and deferred charges (30,216) (15,966)
Deferred income taxes (48,429) (31,269)
Accounts payable and accrued expenses (2,378) 13,813
Other receivables due from credit card
securitizations, net (75,202) (13,939)
Current income taxes payable 7,060 5,720
Deferred income 19,909 23,747
Other (10,969) (2,768)
Net cash provided by operating activities 39,616 110,058
Investing Activities:
Proceeds from sales of loans 590,928 923,750
Net loans originated or collected (599,322) (738,004)
Credit card portfolio acquisition (108,164) (369,402)
Additions to premises and equipment (8,640) (6,470)
Net cash used in investing activities (125,198) (190,126)
Financing Activities:
Decrease in interest-bearing deposit (1,000)
Net increase in short-term borrowings 70,000 98,836
Issuance of term loans 896
Cash dividends paid (574) (385)
Net proceeds from issuance of common stock 272
Net cash provided by financing activities 70,594 97,451
Net (decrease)increase in cash and cash
equivalents (14,988) 17,383
Cash and cash equivalents at beginning of period 48,223 32,082
Cash and cash equivalents at end of period $ 33,235 $ 49,465
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. ("Metris") and its subsidiaries (collectively, the "Company").
The Company is an information-based direct marketer of consumer credit
products and fee-based services primarily to moderate-income consumers.
All significant intercompany balances and transactions have been eliminated
in consolidation. During the third quarter of 1998, Fingerhut Companies, Inc.
("FCI") received formal written approval from the Internal Revenue Service to
complete the tax-free spin off of FCI's remaining 83% interest in the Company
(the "Spin Off".) The FCI Board of Directors approved the Spin Off and
completed the distribution of Metris shares on September 25, 1998 to FCI
shareholders of record on September 11, 1998.
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 ("SEC") 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 annual
report on Form 10-K for the fiscal year ended December 31, 1997. 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.
Reclassifications
Certain reclassifications have been made to prior periods' consolidated
financial statements to conform to the current period presentation. Such
reclassifications did not have any effect on net income or stockholders' equity.
Securitization, Retained Interests in Loans Securitized and Securitization
Income
The Company securitizes and sells a significant portion of its credit card
loans to both public and private investors through the Metris Master Trust (the
"Trust") and third-party bank sponsored, multi-seller receivables conduits (the
"Conduits"). The Company retains participating interests in the credit card
loans under "Retained interests in loans securitized" on the consolidated
balance sheets. The Company's retained interests in loans securitized are
subordinate to the interests of investors in the Trust and Conduit
portfolios. Although the Company continues to service the securitized 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.
Beginning in 1997, the sales of these loans have been recorded in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." The adoption of SFAS 125 did not have a material effect on the
Company's consolidated financial statements. Upon sale, the sold credit card
loans are removed from the balance sheet and the related financial and servicing
assets controlled and liabilities incurred are initially measured at fair value,
if practicable. SFAS 125 also requires that servicing assets and other retained
interests in the transferred assets be measured by allocating the previous
carrying amount between the assets sold, if any, and retained interests, if any,
based on their relative fair values at the date of the transfer.
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 revenue is reported in the statements of income. For securitized and sold
credit card loans, amounts that otherwise would have been recorded as interest
income, interest expense, fee income and provision for loan losses are instead
reported in other operating income as "Net securitization and credit card
servicing income." The Company has various receivables from the Trust or
Conduits and other assets as a result of securitizations, including: amounts
deposited in an investor reserve account held by the Trust for the benefit of
the Trust's security holders; amounts due from interest rate caps, swaps and
floors; accrued interest and fees on the securitized receivables; servicing fee
receivables; and various other receivables. These amounts are reported as
"other receivables due from credit card securitizations, net" on the
consolidated balance sheets. The provision for loan losses reflected on the
statements of income in "Net securitization and credit card servicing income"
was $117.6 million and $331.6 million for the three and nine-month periods ended
September 30, 1998, respectively, compared to $76.9 million and $182.3 million
for the same periods of 1997.
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
loan portfolio, effectively reducing the Company's retained interests in loans
securitized to a fair value presentation.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
Cash paid for interest during the nine month periods ended September 30,
1998 and 1997, was $8.5 million and $5.8 million, respectively. Cash paid for
income taxes for the same periods was $66.8 million and $43.1 million,
respectively.
Earnings Per Share
The following table presents the computation of basic and diluted weighted
average shares used in the per share calculations:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Income available to common stockholders $ 16,996 $ 10,537 $ 40,620 $ 27,994
Weighted average common shares
outstanding 19,231 19,225 19,227 19,225
Adjustments for dilutive securities:
Assumed exercise of outstanding stock
options 832 1,074 746 999
Diluted common shares 20,063 20,299 19,973 20,224
Earnings per share:
Basic $ .88 $ .55 $ 2.11 $ 1.46
Diluted $ .85 $ .52$ 2.03$ 1.38
</TABLE>
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $324,157 $ 139,825 $244,084 $ 95,669
Allowance related to assets acquired,net 12,555 1,378 13,361
Provision for loan losses 17,154 11,106 58,586 28,589
Provision for loan losses (1) 117,582 76,891 331,554 182,330
Loans charged-off 112,390 50,880 295,480 132,160
Recoveries 4,361 1,129 10,742 2,837
Net loan charge-offs 108,029 49,751 284,738 129,323
Balance at end of period $350,864 $ 190,626 $350,864 $190,626
</TABLE>
(1) Amounts are included in "Net securitization and credit card servicing
income".
NOTE 4 - SHORT-TERM BORROWINGS
On June 30, 1998, the Company executed a new $200 million, three-year
revolving credit facility and a $100 million five-year term loan (the "New
Credit Facility") with a syndicate of banks and money market mutual funds. This
agreement became effective upon the Spin Off from FCI on September 25, 1998.
The New Credit Facility which is not guaranteed by FCI replaced the Company's
$300 million, five-year revolving credit facility (the "Old Credit Facility").
The New Credit Facility is secured by receivables and subsidiary stock and
guaranteed by a Company subsidiary. Financial covenants in the New Credit
Facility include, but are not limited to, requirements concerning minimum net
worth, minimum tangible net worth to net managed receivables and tangible net
worth plus reserves to delinquent receivables. At September 30, 1998, the
Company was in compliance with all financial covenants under this agreement. At
September 30, 1998, the Company had outstanding borrowings of $214 million under
the New Credit Facility. At December 31, 1997, the Company had outstanding
borrowings of $144 million under the Old Credit Facility. The weighted average
interest rates on the borrowings at September 30, 1998, and December 31, 1997,
were 8.0% and 6.5%, respectively.
NOTE 5 - DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN
TRADING
Prior to the Spin Off, the Company had entered into interest rate cap and
swap agreements to hedge the cash flow and earnings impact of fluctuating
interest rates on the spread between the floating rate loans owned by the Trust
and the floating and fixed rate securities issued by the Trust to fund the
loans. In connection with the issuance of the Trust Series 1998-1 securities on
July 30, 1998, the Company entered into term interest rate cap agreements with
highly rated bank counterparties in a total notional amount of $753 million,
effectively capping the potential impact to the Trust of increases in the
floating interest rate of the securities at 9.2%. Due to the Spin Off, the
Company terminated interest rate swap agreements guaranteed by FCI related to
the Trust Series 1996-1 and 1997-1 fixed rate securities issuances. Proceeds
were utilized to purchase interest rate floors which did not require a FCI
guaranty. The floors were in the same notional amounts and maturities as the
previous swaps to hedge the potential impact on the Company's cash flow and
earnings of a low market interest rate environment where the yield on the
Trust's floating rate loans might decline causing the margin over the fixed rate
funding to compress. During October 1998, the Company terminated the interest
rate floors related to the 1997-1 Trust Series. The gain on this termination
will be amortized into income over the remaining life of the hedged 1997-1
Series Securities. The cash proceeds of approximately $43.4 million were used
to reduce borrowings under the New Credit Facility.
NOTE 6 - CHANGE IN ACCOUNTING METHOD
During the quarter ended September 30, 1998, the Company changed its
method of recognizing revenue for certain fee-based services for which a
cancellation period with a full refund exists. This change was made to be
consistent with recent revenue recognition policy changes made by others in the
Company's industry. Previously, the Company had recognized a portion of the
revenue, net of estimated cancellations, associated with such services during
the refund period. The Company now defers the recognition of revenue until the
expiration of the cancellation period at which time revenue relating to the full
refund period is recognized. The remaining revenue is recognized over the
remaining term of the membership. The Company continues to defer qualifying
direct-response advertising costs and amortizes these expenses in proportion to
revenue recognized. This change resulted in a cumulative one-time reduction in
revenues of approximately $3.0 million and a corresponding reduction in expenses
of approximately $3.1 million, or a $68,000 increase in net income. This
cumulative impact is reflected in the consolidated statements of income for the
three and nine-month periods ended September 30, 1998.
NOTE 7 - PNC CREDIT CARD PORTFOLO ACQUISITION
On September 8, 1998, the Company announced that it had entered into a
definitive agreement with PNC National Bank ("PNC"), a wholly owned subsidiary
of PNC Bank Corp., to acquire a portfolio of approximately $1 billion of credit
card receivables. The Company has agreed to purchase the portion of PNC's
national portfolio that was originated outside PNC's traditional retail
footprint, which is comprised of Pennsylvania, New Jersey, Delaware, Kentucky
and parts of Ohio and Indiana. PNC is retaining all accounts in this
footprint, as well as any accounts that are part of an existing co-branded or
affinity program andaccounts of customers with other PNC relationships. With
the exception of the six state area described above, the acquired portfolio
has a geographic distribution similar to that of the Company's existing
portfolio. The consideration to be paid by the Company to PNC will be based
on the par value of the receivables in the PNC portfolio at the time of the
closing, subject to certain adjustments. The Company intends to finance the
PNC portfolio acquisition with proceeds from the sale of the portfolio's
credit card receivables to one or more Conduits and the proceeds of a private
financing (See Note 8). The PNC portfolio acquisition is expected to close
in the fourth quarter of 1998.
NOTE 8 - SUBSEQUENT EVENTS
On October 29, 1998, the Company declared a cash dividend in the amount of
$.01 per share, aggregating approximately $.2 million, payable on November 23,
1998 to shareholders of record as of the close of business on November 16, 1998.
On November 13, the Company entered into agreements with the Thomas H. Lee
Company (together with its affiliates, the "Lee Company") to make a total
investment of $300 million in the Company. Affiliates of the Lee Company
have agreed to purchase 805,369 shares of Series C Perpetual Convertible Stock
(the "Series C Preferred") which will be convertible into common shares at a
conversion price of $37.25 common share subject to adjustment in certain
circumstances. The series C Preferred will have a 9% divident payable in
additional Series C Preferred and will also receive any dividends paid on the
Company's common stock on an as converted basis. The cumulative payment-in-
kind dividends are effectively guaranteed for a seven year period.
Assuming conversion of the Series C Preferred into common stock, the Lee
Company would initially own approximately 28.7% of the Company on a
diluted basis (using the diluted shares for the nine month period ended
September 30, 1998). The Company's Board of Directors will be expanded to a
total of 11 members and the Series C Preferred will entitle the holders to
elect four members. Issuance of the Series C Preferred is subject to a
number of conditions including but not limited to approval of the Office
of the Comptroller of the Currency and Company shareholder approval.
In order to provide the Company funding for the PNC portfolio acquisition
(See Note 7) as well as for general corporate purposes prior to regulatory and
shareholder approval of the Series C Preferred, the Lee Company has agreed
to purchase $200 million in Seriew B Perpetual Stock (the "Series B Preferred")
and $100 million in 12% Senior Notes due 2006 (the "Senior Notes"). The
Company will also issue the Lee Company ten-year 3.75 million purchase
Metris shares of common stock for $30 subject to adjustment in
certain circumstances. The Series B Preferred will have a
12.5% dividend payable in additional share of Series B Preferred for ten years,
then converting to a dividend payable in cash. Upon issuance of the
Class B Preferred, the Company's Board of Directors will be expanded from
7 to 9 members. The Company has agreed to nominate two Lee Company
representatives to fill these seats. Issuance of the Series B Preferred
and the Senior Notes is subject to a number of conditions including
but not limited to, satisfactory re-negotiation of the Company's
inter-company agreements with FCI and an amendment of the New Credit Facility
to either increase the change in control ownership percentage from 30 to 35
or otherwise exempt the Lee Company from the change of control provision.
Upon regulatory and shareholder approval of the Series C Preferred
issuance, the Series B Preferred and Senior Notes shall automatically convert
into Series C Preferred, and the warrants will be canceled. In the event
that regulatory or shareholder approval is not obtained, the Series B
Preferred, Senior Notes and warrants will remain outstanding and the Series
B Preferred dividend rate and the Senior Notes interest rate will both
increase to 15%.
The Lee Company is a Boston-based private equity firm founded in 1974
which manages approximately $6 billion of committed capital.
NOTE 9 - LONG-TERM DEBT
During the second quarter of 1998, the Company received loans from the
State of Maryland and the County of Baltimore totaling approximately $.9 million
in connection with an expansion of the Company's facilities in Baltimore,
Maryland.
In November 1997, the Company privately issued and sold $100 million of 10%
Senior Notes due 2004 (the "Senior Notes") pursuant to an exemption under the
Securities Act of 1933, as amended. In March 1998, the Company completed an
exchange offer of virtually all of the Senior Notes. The terms of the new
Senior Notes are identical in all material respects to the original private
issue. The Senior Notes are unconditionally guaranteed on a senior basis,
jointly and severally, by the Company's wholly owned subsidiary Metris Direct,
Inc. (the "Guarantor"). The guarantee is an unsecured obligation of the
Guarantor and ranks pari passu with all existing and future unsubordinated
indebtedness.
Metris Direct, Inc. has various subsidiaries which have not guaranteed the
Senior Notes. The following condensed consolidating financial statements of the
Company, the Guarantor subsidiary and the non-guarantor subsidiaries are
presented for purposes of complying with SEC reporting requirements. Separate
financial statements of Metris Direct, Inc. and the non-guaranteeing
subsidiaries are not presented because management has determined that the
subsidiaries' financial statements would not be material to investors.
METRIS COMPANIES INC.
Supplemental Consolidating Balance Sheets
September 30, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Subsidiaries Subsidiaries Eliminations Consolidated
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ (2,205) $ (56) $ 35,496 $ $ 33,235
Retained interests in loans
securitized 546,419 546,419
Allowance for loan losses (149) (350,715) (350,864)
Loans held for
securitization 1,749 37,167 38,916
Premises and equipment, net 17,294 3,651 20,945
Prepaid expenses and
deferred charges 751 17,005 17,148 34,904
Deferred income taxes 847 16,212 112,157 129,216
Customer base intangible 42,176 42,176
Other receivables due from
credit card
securitizations, net 13 149,120 149,133
Other assets 6,481 7,156 16,750 30,387
Investment in subsidiaries 550,007 561,206 (1,111,213)
Total assets $ 557,494 $ 618,817 $ 609,369 $(1,111,213) $ 674,467
Liabilities:
Interest-bearing deposit
with affiliate $ (1,000) $ $ 1,000 $ $
Borrowings, intercompany
balances and accounts
payable 217,376 9,953 18,845 246,174
Long-term debt 100,000 896 100,896
Current income taxes
payable 20,356 674 (4,269) 16,761
Deferred income 5 39,961 29,147 69,113
Accrued expenses and other
liabilities 4,401 17,326 3,440 25,167
Total liabilities 341,138 68,810 48,163 458,111
Total stockholders' equity 216,356 550,007 561,206 (1,111,213) 216,356
Total liabilities and
stockholders' equity $ 557,494 $ 618,817 $ 609,369 $(1,111,213) $ 674,467
</TABLE>
METRIS COMPANIES INC.
Supplemental Consolidating Balance Sheets
December 31, 1997
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 336 $ 390 $ 47,497 $ $ 48,223
Retained interests in loans
securitized 471,831 471,831
Allowance for loan losses (611) (243,473) (244,084)
Loans held for
securitization 8,140 655 8,795
Premises and equipment, net 13,899 1,565 15,464
Prepaid expenses and
deferred charges 138 15,075 3,260 18,473
Deferred income taxes 682 12,638 67,467 80,787
Customer base intangible 1,567 35,185 36,752
Other receivables due from
credit card
securitizations, net 66 77,420 77,486
Other assets 3,498 6,983 14,454 24,935
Investment in subsidiaries $ 349,730 366,977 (716,707)
Total assets $ 363,546 $ 415,962 $ 475,861 $(716,707) $ 538,662
Liabilities:
Interest-bearing deposit
with affiliate $ (1,000) $ $ 1,000 $ $
Borrowings, intercompany
balances and accounts
payable 176,511 15,951 (13,106) 179,356
Long-term debt 100,000 100,000
Current income taxes
payable (90,003) (486) 100,190 9,701
Deferred income 33 35,044 14,127 49,204
Accrued expenses and other
liabilities 1,967 15,723 6,673 24,363
Total liabilities 187,508 66,232 108,884 362,624
Total stockholders' equity 176,038 349,730 366,977 (716,707) 176,038
Total liabilities and
stockholders'' equity $ 363,546 $ 415,962 $ 475,861 $ (716,707) $ 538,662
</TABLE>
METRIS COMPANIES INC.
Supplemental Consolidating Statements of Income
Three Months Ended September 30, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 26 $ $ 28,538 $ $ 28,564
Interest Expense/(Income) 2,913 6,516 (527) 8,902
Net Interest Income/(Expense) (2,887) (6,516) 29,065 19,662
Provision for loan losses (4) 17,158 17,154
Net Interest Income/(Expense)
After Provision for
Loan Losses (2,883) (6,516) 11,907 2,508
Other Operating Income:
Net securitization and credit
card servicing income 2,720 5 27,774 30,499
Credit card fees, interchange
and other income 3 (1) 18,959 18,961
Fee-based services revenues 8,621 17,778 26,399
2,723 8,625 64,511 75,859
Other Operating Expense:
Credit card account and other
product solicitation and
marketing expenses 3,748 4,070 7,818
Employee compensation 11,669 1,271 12,940
Data processing services and
communications 1,390 7,432 8,822
Third-party servicing expense (13,583) 16,478 2,895
Warranty and debt waiver
underwriting and claims
servicing expense 477 2,582 3,059
Credit card fraud losses 1,034 1,034
Other 62 4,667 9,433 14,162
62 8,368 42,300 50,730
Income/(Loss) Before Income
Taxes and Equity in Income
of Subsidiaries (222) (6,259) 34,118 27,637
Income taxes (85) (2,637) 13,363 10,641
Equity in income of
subsidiaries 17,133 20,755 (37,888)
Net Income/(Loss) $ 16,996 $ 17,133 $ 20,755 $ (37,888) $ 16,996
</TABLE>
8)
METRIS COMPANIES INC.
Supplemental Consolidating Statements of Income
Three Months Ended September 30, 1997
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ (236) $ $ 17,451 $ $ 17,215
Interest Expense/(Income) 2,840 166 (608) 2,398
Net Interest Income/(Expense) (3,076) (166) 18,059 14,817
Provision for loan losses (126) 11,232 11,106
Net Interest Income/(Expense)
After Provision for Loan
Losses (2,950) (166) 6,827 3,711
Other Operating Income:
Net securitization and credit
card servicing income 1,422 13,284 14,706
Credit card fees, interchange
and other income 572 9,916 10,488
Fee-based services revenues 2,094 13,991 16,085
1,994 2,094 37,191 41,279
Other Operating Expense:
Credit card account and other
product solicitation and
marketing expenses (4,722) 10,664 5,942
Employee compensation 7,704 614 8,318
Data processing services and
communications 744 2,884 3,628
Third-party servicing expense 10 (6,953) 9,176 2,233
Warranty and debt waiver
underwriting and claims
servicing expense 203 1,486 1,689
Credit card fraud losses 25 1,096 1,121
Other 92 1,364 3,469 4,925
127 (1,660) 29,389 27,856
Income/(Loss) Before Income
Taxes and Equity in Income
of Subsidiaries (1,083) 3,588 14,629 17,134
Income taxes (385) 1,786 5,196 6,597
Equity in income of
Subsidiaries 11,235 9,433 (20,668)
Net Income/(Loss) $ 10,537 $ 11,235 $ 9,433 $ (20,668) $ 10,537
</TABLE>
METRIS COMPANIES INC.
Supplemental Consolidating Statements of Income
Nine Months Ended September 30, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 480 $ $ 81,893 $ $ 82,373
Interest Expense/(Income) 12,992 10,934 (2,193) 21,733
Net Interest
Income/(Expense) (12,512) (10,934) 84,086 60,640
Provision for loan losses 79 58,507 58,586
Net Interest
Income/(Expense) After
Provision for Loan
Losses (12,591) (10,934) 25,579 2,054
Other Operating Income:
Net securitization and
credit card servicing income 9,115 (19) 86,358 95,454
Credit card fees,
interchange and other
income 92 47,615 47,707
Fee-based services
revenues 24,030 53,471 77,501
9,207 24,011 187,444 220,662
Other Operating Expense:
Credit card account and
other product
solicitation and
marketing expenses 11,480 17,765 29,245
Employee compensation 37,860 4,752 42,612
Data processing services
and communications 3,877 21,915 25,792
Third-party servicing
expense (266) (37,419) 45,638 7,953
Warranty and debt waiver
underwriting and claims
servicing expense 1,480 6,999 8,479
Credit card fraud losses 18 3,336 3,354
Other 279 13,310 25,642 39,231
31 30,588 126,047 156,666
Income/(Loss) Before
Income Taxes
and Equity in Income of
Subsidiaries (3,415) (17,511) 86,976 66,050
Income taxes (1,315) (7,187) 33,932 25,430
Equity in income of (95,764)
subsidiaries 42,720 53,044
Net Income/(Loss) 42,720 53,044 (95,764)
$ 40,620 $ 42,720 $ 53,044 $ (95,764) $ 40,620
</TABLE>
METRIS COMPANIES INC.
Supplemental Consolidating Statements of Income
Nine Months Ended September 30, 1997
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-Guarantor
Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated
<C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 1,208 $ $ 43,275 $ $ 44,483
Interest Expense/(Income) 7,467 294 (1,831) 5,930
Net Interest
Income/(Expense) (6,259) (294) 45,106 38,553
Provision for loan losses 307 28,282 28,589
Net Interest
Income/(Expense)
After Provision for
Loan Losses (6,566) (294) 16,824 9,964
Other Operating Income:
Net securitization and
credit card servicing
income 10,727 48,806 59,533
Credit card fees,
interchange and other
income 346 (21) 27,999 28,324
Fee-based services
revenues 3,101 39,230 42,331
11,073 3,080 116,035 130,188
Other Operating Expense:
Credit card account and
other product
solicitation and
marketing expenses (1,001) 23,420 22,419
Employee compensation 22,615 1,840 24,455
Data processing services
and communications 2,030 10,863 12,893
Third-party servicing
expense 33 (14,087) 22,026 7,972
Warranty and debt waiver
underwriting and claims
servicing expense 193 3,884 4,077
Credit card fraud losses 64 2,636 2,700
Other 184 9,388 10,545 20,117
281 19,138 75,214 94,633
Income/(Loss) Before
Income Taxes
and Equity in Income
of Subsidiaries 4,226 (16,352) 57,645 45,519
Income taxes 1,480 (4,560) 20,605 17,525
Equity in income of
subsidiaries 25,248 37,040 (62,288)
Net Income/(Loss) $ 27,994 $ 25,248 $ 37,040 $ (62,288) $ 27,994
</TABLE>
METRIS COMPANIES INC.
Supplemental Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 1998
(Dollars in thousands)
Unaudited
<TABLE>
Non-
Metris Guarantor Guarantor
Companies Inc. Subsidiaries Subsidiaries Consolidated
Operating Activities:
Net cash provided by (used in) operating
<S> <C> <C> <C> <C> <C> <C> <C>
activities $ 107,473 $ (8,961) $ (58,896) $ 39,616
Investing Activities:
Proceeds from sales of loans 590,928 590,928
Net loans originated or collected 8,155 (607,477) (599,322)
Credit card portfolio acquisition (108,164) (108,164)
Additions to premises and equipment (6,402) (2,238) (8,640)
Net cash provided bu (used in) investing
activities 8,155 (6,402) (126,951) (125,198)
Financing Activities:
Net (decrease) increse in short-term
borrowings/intercompany balances 39,688 (2,350) 32,662 70,000
Issuance of term loans 896 896
Cash dividends paid 12,926 (13,500) (574)
Issuance of common stock 272 (50) 50 272
Capital contributions (171,055) 16,421 154,634
Net cash (used in) provided by financing
activities (118,169) 14,917 173,846 70,594
Net increase (decrease) in cash and cash
equivalents (2,541) (466) (12,001) (14,988)
Cash and cash equivalents at beginning of
period 336 390 47,497 48,223
Cash and cash equivalent at end of period $ (2,205) (56) $ 35,496 $ 33,235
</TABLE>
METRIS COMPANIES INC.
Supplemental Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 1997
(Dollars in thousands)
Unaudited
<TABLE>
Metris Guarantor Non-
Companies Inc. Subsidiaries Guarantor Consolidated
Operating Activities:
Net cash provided by (used in)
<S> <C> <C> <C> <C> <C> <C> <C>
operating activities $ (1,296) $ 4,269 $ 107,085 $ 110,058
Investing Activities:
Proceeds from sales of loans 923,750 923,750
Net loans originated or collected 8,506 (746,510) (738,004)
Credit card portfolio acquisition (369,402) (369,402)
Additions to premises and equipment (5,914) (556) (6,470)
Net cash provided by (used in)
investing activities 8,506 (5,914) (192,718) (190,126)
Financing Activities:
Decrease in interest-bearing (1,000) (1,000)
deposit
Net (decrease) increase in short-term
borrowings/intercompany balances 102,828 2,207 (6,199) 98,836
Cash dividends paid 12,242 (12,627) (385)
Capital contributions (125,219) 125,219
Net cash (used in) provided by
financing activities (11,149) 2,207 106,393 97,451
Net (decrease) increase in
cash and cash equivalents (3,939) 562 20,760 17,383
Cash and cash equivalents at
beginning of period 4,375 84 27,623 32,082
Cash and cash equivalents at $ 436 $ 646 $ 48,383 $ 49,465
end of period
</TABLE>
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 management
believes to be relevant to understanding the financial condition and results of
operations of Metris Companies Inc. and its subsidiaries (collectively, the
"Company"). This discussion should be read in conjunction with the following
documents for a full understanding of the Company's financial condition and
results of operations: Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1997 Annual Report to
Shareholders; the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and the Proxy Statement for the 1997 Annual Meeting of
Shareholders. In addition, this discussion should be read in conjunction with
the Company's Quarterly Report on Form 10-Q for the period ended September 30,
1998, of which this commentary is a part, and the condensed consolidated
financial statements and related notes thereto.
Results of Operations
Net income for the three months ended September 30, 1998, was $17.0
million, or $.85 per share, up 61% from $10.5 million, or $.52 per share for the
third quarter of 1997. 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 $4.1 billion
for the third quarter 1998 from $2.3 billion for the third quarter 1997, an
increase of 79%. In addition, credit card charge volume was $1.1 billion for
the third quarter of 1998, an 83% increase over the same period of 1997.
Net income for the nine months ended September 30, 1998, was $40.6 million,
or $2.03 per share, up 45% from $28.0 million, or $1.38 per share for the first
nine months of 1997. 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 $3.8 billion for
the nine months ended September 30, 1998, from $2.0 billion for the same period
in 1997, an increase of 92%. In addition, credit card charge volume was $2.7
billion for the first nine months of 1998, a 61% increase over the same period
in 1997.
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'
share of securitized credit card loans. The investors' share of
securitized credit card loans is not an asset of the Company, and therefore, it
is not shown on the Company's consolidated balance sheets. The following tables
summarize the Company's managed loan portfolio:
September 30,
1998 1997
Dollars in thousands
Period-end balances
Credit card loans:
Loans held for securitization $ 38,916 $ 14,696
Retained interests in loans 546,419 344,821
securitized
Investors' interests in securitized 3,657,433 2,324,360
loans
Total managed loan portfolio $ 4,242,768 $ 2,683,877
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Dollars in thousands
Average balances
Credit card loans:
<S> <C> <C> <C> <C> <C> <C>
Loans held for securitization $ 85,737 $ 92,206 $ 58,636 $ 78,282
Retained interests in loans 530,625 248,676 511,662 227,935
securitized
Investors' interests in 3,466,443 1,934,034 3,228,742 1,673,740
securitized loans
Total managed loan portfolio $4,082,805 $2,274,916 $3,799,040 $1,979,957
</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 statements of income for
each of the periods presented, as well as selected financial information on both
an owned and a managed loan portfolio basis:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Dollars in thousands
Statements of Income (owned
basis):
<S> <C> <C> <C> <C>
Net interest income $ 19,662 $ 14,817 $ 60,640 $ 38,553
Provision for loan losses 17,154 11,106 58,586 28,589
Other operating income 75,859 41,279 220,662 130,188
Other operating expense 50,730 27,856 156,666 94,633
Income before income taxes $ 27,637 $ 17,134 $ 66,050 $ 45,519
Adjustments for Securitizations:
Net interest income $103,680 $ 63,989 $302,269 $ 166,285
Provision for loan losses 117,582 76,891 331,554 182,330
Other operating income 13,902 12,902 29,285 16,045
Other operating expense
Income before income taxes $ $ $ $
Statements of Income (managed
basis):
Net interest income $123,342 $ 78,806 $362,909 $ 204,838
Provision for loan losses 134,736 87,997 390,140 210,919
Other operating income 89,761 54,181 249,947 146,233
Other operating expense 50,730 27,856 156,666 94,633
Income before income taxes $ 27,637 $ 17,134 $ 66,050 $ 45,519
Other Data:
Owned Basis:
Average interest-earning assets $637,029 $394,395 $615,673 $ 352,068
Return on average assets 10.1% 10.5% 8.8% 10.6%
Return on average equity 32.0% 25.8% 28.0% 24.5%
Net interest margin (1) 12.2% 14.9% 13.2% 14.6%
Managed Basis:
Average interest-earning assets $4,107,219 $2,328,429 $3,845,677 $2,025,808
Return on average assets 1.6% 1.8% 1.4% 1.8%
Return on average equity 32.0% 25.8% 28.0% 24.5%
Net interest margin (1) 11.9% 13.4% 12.6% 13.5%
</TABLE>
(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 and nine month periods ended September
30, 1998, was $123.3 million and $362.9 million compared to $78.8 million and
$204.8 million for the same periods in 1997. These increases were primarily due
to a $1.8 billion increase in average managed loans over the comparable periods
in 1997.
Managed net interest margin was 11.9% and 12.6% for the three and nine
month periods ended September 30, 1998, compared to 13.4% and 13.5% for the same
periods in 1997. Included in the third quarter 1998 net interest margin were
one-time, non-recurring expenses of approximately $4 million related to the
termination of the Old Credit Facility and old asset-backed commercial paper
program. Financing costs as a percent
of borrowings for the third quarter of 1998 were 6.7%, reflecting the previously
mentioned one-time expenses, compared with 6.2% in the third quarter of 1997.
For the nine month periods ended September 30, 1998, financing costs as a
percent of borrowings were 6.5% and 6.1% in 1998 and 1997, respectively.
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, 1998 and 1997:
Analysis of Average Balances, Interest and Average Yields and Rates
<TABLE>
Three Months Ended September 30,
1998 1997
Average Yield Average Yield
/ /
Balance Interest Rate Balance Intere Rate
st
Dollars in thousands
Owned Basis
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $14,306 $ 197 5.5% $ 37,191$ 515 5.5%
Short-term investments 10,108 133 5.2% 16,322 210 5.1%
Credit card loans and
retained interests in
loans 612,615 28,234 18.3% 340,88216,490 19.2
securitized %
Total interest-earning $637,029 $ 28,564 17.8% $ 394,395$17,21 17.3
assets 5 %
Other assets 370,612 175,523
Allowances for loan (341,169) (169,886)
losses
Total assets $666,472 $ 400,032
Liabilities and Equity:
Interest-bearing $345,866 $ 8,902 10.2% $ 125,087$2,398 7.6%
liabilities
Other liabilities 110,184 112,661
Total liabilities 456,050 237,748
Stockholders' equity 210,422 162,284
Total liabilities and $666,472 $ 400,032
equity
Net interest income and
interest margin (1) $ 19,662 12.2% $14,81 14.9
7 %
Net interest rate spread 7.6% 9.7%
(2)
Managed Basis
Credit card loans $4,082,8 $187,385 18.2%$2,274,9 $110,03 19.2
05 16 9 %
Total interest-earning 4,107,21 187,715 18.1% 2,328,429110,76 18.9
assets 9 4 %
Total interest-bearing
liabilities 3,816,05 64,373 6.7% 2,059,12131,958 6.2%
6
Net interest income and
interest margin (1) $123,342 11.9% 78,806 13.4
%
Net interest rate spread 11.4% 12.7
(2) %
</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 annualized funding rate on average interest-bearing
liabilities.
Analysis of Average Balances, Interest and Average Yields and Rates
<TABLE>
Nine Months Ended September 30,
1998 1997
Average Yield Average Yield
/ /
Balance Interes Rate Balance Interes Rate
t t
Dollars in thousands
Owned Basis
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold $23,947 $ 977 5.5% $ 31,287 $ 1,270 5.4%
Short-term investments 22,690 902 5.3% 14,564 568 5.2%
Credit card loans and
retained interest in
loans 569,036 80,49418.9% 306,217 42,64518.6%
securitized
Total interest-earning $615,673 $ 82,37317.9% $ 352,068 $ 44,48316.9%
assets
Other assets 313,897 137,038
Allowance for loan (311,914) (136,776)
losses
Total assets $617,656 $ 352,330
Liabilities and Equity:
Interest-bearing $302,946 $ 21,733 9.6% $ 110,490 $ 5,930 7.2%
liabilities
Other liabilities 119,805 89,092
Total liabilities 422,751 199,582
Stockholders' equity 194,905 152,748
Total liabilities and $617,656 $ 352,330
equity
Net interest income and
interest margin (1) $ 60,64013.2% $ 38,55314.6%
Net interest rate spread 8.3% 9.7%
(2)
Managed Basis
Credit card loans $3,799,0 $531,84 18.8% $ 1,979,957 $ 284,13819.2%
40 1
Total interest-earning 3,845,67 533,72118.6% 2,025,808 285,97618.9%
assets 7
Total interest-bearing
liabilities 3,532,95 170,812 6.5% 1,784,230 81,138 6.1%
0
Net interest income and
interest margin (1) 362,90 12.6% 204,83813.5%
9
Net interest rate spread 12.1% 12.8%
(2)
</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 annualized funding rate on average interest-bearing
liabilities.
Other Operating Income
Other operating income contributes substantially to the Company's results
of operations, representing 73% of owned revenues for the three and nine month
periods ended September 30, 1998, respectively. The following table presents
other operating income on an owned basis:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in thousands 1998 1997 1998 1997
Other Operating Income:
Net securitization and credit
<S> <C> <C> <C> <C> <C> <C>
card servicing income $ 30,499 $ 14,706 $ $ 59,533
95,454
Credit card fees, interchange
and 18,961 10,488 28,324
other income 47,707
Fee-based services revenues 26,399 16,085 42,331
77,501
Total $ 75,859 $ 41,279 $ $130,188
</TABLE>
220,662
Other operating income increased $34.6 million and $90.5 million for the
three and nine month periods ended September 30, 1998, over the comparable
periods in 1997, primarily due to income generated from the growth in average
securitized credit card loans, offset by provision for loan losses. In addition,
credit card fees, interchange and other income for the three and nine month
periods ended September 30, 1998, increased $8.5 million and $19.4 million,
respectively, over the comparable periods in 1997. These increases were
primarily due to the growth in total accounts and loans in the managed credit
card portfolio and the change in policy related to the billing of over-limit
fees which occurred in the first quarter of 1998 which has resulted in a
significant increase in over-limit fee revenue over the prior year.
Additionally, fee-based services revenues (including net extended service plan
revenues) increased by $10.3 million and $35.2 million for the three and nine-
month periods ended September 30, 1998, respectively. This increase is
attributed to the Company's debt waiver product and the change in operations for
the extended service plan business whereby the Company assumed the
responsibility for claims processing and underwriting on contracts sold on or
after January 1, 1997. As a result of this operating change, all extended
service plan revenues and the related operating margins have been deferred and
are recognized over the life of the related extended service plan contracts. In
addition, PurchaseShieldSM revenues contributed to the increase in fee-based
services revenues.
The fee-based services revenues reported for the three and nine-month
periods ended September 30, 1998, reflect the Company's recently announced
change in revenue recognition. This change was made to be consistent with
recent revenue recognition policy changes made by others in the Company's
industry. This change resulted in a cumulative one-time reduction in revenues
of approximately $3.0 million and a corresponding reduction in expenses of
approximately $3.1 million, or a $68,000 increase in net income (See Note 6 to
the condensed consolidated financial statements).
On September 28, 1998, the SEC issued a press release and stated the "SEC
will formulate and augment new and existing accounting rules and interpretations
covering revenue recognition, restructuring reserves, materiality, and
disclosure;" for all publicly-traded companies. Until such time as the SEC
staff issues such interpretative guidelines, it is unclear what, if any, impact
such interpretative guidance will have on the Company's current accounting
practices. However, the potential changes in accounting practice being
considered by the SEC Staff could have a material impact on the manner in which
the Company recognizes revenue. Any such changes would have no effect on
reported cash flow or the economic value of the Company's business.
<TABLE>
Other Operating Expense
Three Months Ended Nine Months Ended
September 30, September 30,
Dollars in thousands 1998 1997 1998 1997
Other Operating Expense:
Credit card account and other
product solicitation and
<C> <S> <C> <C> <C> <C>
marketing expenses $ 7,818 $ 5,942 $ $22,419
29,245
Employee compensation 12,940 8,318 24,455
42,612
Data processing services and
communications 8,822 3,628 12,893
25,792
Third-party servicing expense 2,895 2,233 7,972
7,953
Warranty and debt waiver
underwriting and claims
servicing expense 3,059 1,689 8,479 4,077
Credit card fraud losses 1,034 1,121 3,354 2,700
Other 14,162 4,925 20,117
39,231
Total $ 50,730 $ 27,856 $ $94,633
</TABLE>
156,666
Total other operating expenses include direct and allocated expenses from
FCI for administrative services provided to the Company under the Administrative
Services Agreement. Total other operating expenses for the three and nine month
periods ended September 30, 1998, increased $22.9 million and $62.0 million,
respectively, over the comparable periods in 1997, primarily due to 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 and other functions. 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 the business lines and
building an infrastructure to support the growth.
Income Taxes
The Company's provision for income taxes includes both federal and state
income taxes. Applicable income tax expense was $10.6 million and $25.4 million
for the three and nine month periods ended September 30, 1998 respectively,
compared to $6.6 million and $17.5 million for the same periods in 1997,
respectively. This tax expense represents an effective tax rate of 38.5% for
the periods ended September 30, 1998 and 1997.
Asset Quality
The Company's delinquency and net loan charge-off rates at any point in
time reflect, among other factors, the credit risk of loans, the average age of
the Company's various credit card account portfolios, the success of the
Company's collection and recovery efforts, and general economic conditions. The
average age of the Company's credit card portfolio affects the stability of
delinquency and loss rates of the portfolio. The Company 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, 1998, 57% of managed accounts and 50% of managed loans were less
than 24 months old. 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, 1998, the Company's managed net
charge-off ratio was
10.5% compared to 8.7% for the quarter ended September 30, 1997. For the nine
months ended September 30, 1998, the net charge-off ratio stood at 10.0%
compared to 8.7% for the nine months ended September 30, 1997. The charge-off
ratio for the quarter ended September 30, 1998, was favorably impacted by the
purchase accounting for the two portfolio acquisitions in late 1997 reducing the
reported rate by 30 basis points. 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, risk-based pricing so that an acceptable
profit margin is maintained based on the perceived risk of each credit card
account and continual focus on collections. 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 affect earnings in the form of
net loan losses, but are also costly in terms of the personnel and other
resources dedicated to their resolution. 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:
<TABLE>
Managed Loan Delinquency
September % of September % of
30, 30,
1998 Total 1997 Total
Dollars in thousands
<S> <C> <C> <C> <C>
Managed loan portfolio $4,242,768 100% $2,683,877 100%
Loans contractually
delinquent:
30 to 59 days 101,350 2.4% 59,334 2.2%
60 to 89 days 71,530 1.7% 38,419 1.5%
90 or more days 156,377 3.7% 72,807 2.7%
Total $ 329,257 7.8% $ 170,560 6.4%
</TABLE>
The above numbers reflect the continued seasoning of the Company's managed
loan portfolio. The Company intends to continue to focus its resources on its
collection efforts to minimize the negative impact to net loan losses that
results from increased delinquency levels.
Net Charge-Offs
Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balances, as well as bankrupt and deceased
cardholders, less current period recoveries. Net charge-offs exclude 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:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Dollars in thousands
Owned basis:
Average loans and retained
<S> <C> <C> <C> <C>
interests in $612,615 $340,882 $ $306,217
loans securitized outstanding 569,036
Net charge-offs 20,386
16,564 7,459 42,226
Net charge-offs as a percentage
of average loans and retained
interests in loans securitized,
outstanding (1) 8.7% 9.9% 8.9%
10.7%
Managed basis:
Average loans outstanding $4,082,8 $2,274,91 $ $1,979,95
05 6 3,799,040 7
Net charge-offs
108,029 49,751 284,738 129,323
Net charge-offs as a percentage
of average loans outstanding(1) 10.5% 8.7% 10.0% 8.7%
(1) Annualized
</TABLE>
Provision and Allowance for Loan Losses
The allowance for loan losses is maintained for the retained interest in
loans securitized. For securitized loans, anticipated losses and related
provision for loan losses are reflected in the calculations of net
securitization and credit card servicing income.
The provision for loan losses on a managed basis for the three and nine
month periods ended September 30, 1998, totaled $134.7 million and $390.1
million, respectively. This compares to provisions of $88.0 million and $210.9
million for the three and nine month periods ended September 30, 1997,
respectively. The increases for the three and nine month periods ended September
30, 1998, as compared to the three and nine month periods ended September 30,
1997, are primarily reflective of the overall maturation of the portfolio and
the increase in delinquent loans. The following table presents the change in
the Company's allowance for loan losses and other ratios for the periods
presented:
Analysis of Allowance for Loan Losses
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Dollars in thousands
Managed Basis:
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 324,157 $139,825 $244,084 $ 95,669
Allowance related to assets 12,555 1,378 13,361
acquired, net
Provision for loan losses 134,736 87,997 390,140 210,919
Loans charged-off 112,390 50,880 295,480 132,160
Recoveries 4,361 1,129 10,742 2,837
Net loan charge-offs 108,029 49,751 284,738 129,323
Balance at end of period $ 350,864 $190,626 $350,864 $190,626
Ending allowance as a percent of 8.3% 7.1% 8.3% 7.1%
loans
</TABLE>
Derivatives Activities
The Company uses derivative financial instruments for the purpose of
managing its exposure to interest rate risks and has a number of mechanisms in
place to monitor and control both market and credit risk from these derivatives
activities. All derivatives strategies and transactions are managed under a
hedging policy approved by the senior management of the Company.
Prior to the Spin Off, the Company had entered into interest rate cap and
swap agreements to hedge the cash flow and earnings impact of fluctuating
interest rates on the spread between the floating rate loans owned by the Trust
and the floating and fixed rate securities issued by the Trust to fund the
loans. In connection with the issuance of the the Trust Series 1998-1
securities on July 30, 1998, the Company entered into term interest rate cap
agreements with highly-rated bank counterparties in a total notional amount of
$753 million, effectively capping the potential impact to the Trust of increases
in the floating interest rate of the securities at 9.2%. Due to the Spin Off,
the Company terminated interest rate swap agreements guaranteed by FCI
related to the Trust Series 1996-1 and 1997-1 fixed rate securities
issuances. Proceeds were utilized to purchase interest rate floors which did
not require a FCI guaranty. The floors were in the same notional amounts and
maturities as the previous swaps to hedge the potential impact on the
Company's cash flow and earnings of a low market interest rate environment
where the yield on the Trust's floating rate loans might decline causing the
margin over the fixed rate funding to compress. During October 1998, the
Company terminated the interest rate floors related to the 1997-1 Trust
Series. The gain on this termination
will be amortized into income over the remaining life of the hedged 1997-1
Series Securities. The cash proceeds of approximately $43.4 million were used
to reduce borrowings under the New Credit Facility.
Liquidity, Funding and Capital Resources
The Company finances the growth of its credit card loan portfolio
through cash flow from operations, asset securitization, bank financing,
long-term debt issuance and equity issuance.
At September 30, 1998 and 1997, the Company received cumulative net
proceeds of approximately $3.7 billion and $2.3 billion, respectively, from
sales of credit card loans to the Trust and Conduits. Cash generated from
these transactions was used to reduce short-term borrowings and to fund
The Company relies upon the securitization of its credit card loans to fund
portfolio growth and, to date, has completed securitization transactions on
terms that it believes are satisfactory. The Company's ability to securitize
its assets depends on the favorable investor demand and legal, regulatory and
tax conditions for securitization transactions, as well as continued favorable
performance of the Company's securitized portfolio of receivables. Any adverse
change could force the Company to rely on other potentially more expensive
On June 30, 1998, the Company executed a new $200 million, three-year
revolving credit facility and a $100 million five-year term loan (the "New
Credit Facility") with a syndicate of banks and money market mutual funds.
This agreement became effective upon the Spin Off from FCI on September 25,
1998. The New Credit Facility which is not guaranteed by FCI replaced the
Company's $300 million, five-year revolving credit facility (the "Old Credit
Facility"). The New Credit Facility is secured by receivables and subsidiary
stock and guaranteed by a Company subsidiary. Financial covenants in the New
Credit Facility include, but are not limited to, requirements concerning
minimum net worth, minimum tangible net worth to net managed receivables and
tangible net worth plus reserves to delinquent receivables. The minimum
tangible net work to net managed receivables ratio increases to 5.0%
from 4.0% on the earlier of the issuance of public equity on December
24, 1998. At September 30, 1998, the Company was in compliance with all
financial covenants under this agreement. At September 30, 1998, the
Company had outstanding borrowings of $214 million under the New Credit
Facility. At December 31, 1997, the Company had outstanding borrowings of
$144 million under the Old Credit Facility. As a result of its lower
credit rating, the Company expects the New Credit Facility to result in
approximately $8 million in additional funding expense on an annualized basis.
In addition to asset securitizations and bank funding, the Company
requires additional equity to fund both portfolio acquistions and
continued organic growth. While the Company planned
to issue common equity shares in a public offering after the Spin Off during the
fourth quarter, volatility in the stock market and in the Company's stock price
caused the Company to announce on October 14, 1998 that it would seek
alternatives to public issuance through either private issuance of equity or
public or private issuance of equity-like securities. After a review of several
alternatives and discussions with several advisors and investors, the Company
executed a definitive agreement for private financing from the Thomas H. Lee
Company on November 14, 1998 (See Note 8 to the Company's condensed
consolidated financial statements).
There are several conditions to closing the agreement with the Thomas H. Lee
Company, and there can be no assurances that the investment will be funded.
The Company currently expect5s the net proceeds of approximately $275 million
to be received in early December. If the Company is unable to obtain this
investment, it may not be able to close the PNC portfolio acquisition
(see Note 7 to the Company's condensed consolidated financial statements.)
and it could have a material adverse effect on the Company's results of
operations, financial conditions and prospects.
Newly Issued Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments. It requires public enterprises
to recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company is evaluating the financial impact the adoption of
this statement will have on in its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
public enterprises report information about operating segments in annual
financial statements and interim financial reports. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. The Company is evaluating the
effect the adoption of this statement will have on the reporting of its
financial information.
Year 2000
The "Year 2000 Problem" is a result of software systems or hardware systems
utilizing two digits instead of four digits to define the year. Software or
hardware with only two digit capacity may interpret the year 00 as 1900 when
calculating age, length of a phone call, financing period for a loan, or
expiration for a credit card. The problem is not limited to computers and
computer software. Anything that contains a processor that utilizes date
information needs to be assessed to insure it will work correctly in the Year
2000 (i.e. heating/cooling systems, telephones, elevators, alarm systems, vaults
with time locks). Vendors must be evaluated to insure their compliance,
otherwise materials essential to business operation may not be delivered on
time.
The Company, like all database marketing companies and financial services
institutions, depends heavily upon computer systems for all phases of its
operations. The Company processes data through its own systems and obtains data
and processing services from various vendors. The Company, therefore, must
concern itself not only with its own systems, but also with the status of Year
2000 compliance with respect to those vendors that provide data and processing
services to the Company.
Most of the Company's existing information systems are less than three
years old and were originally designed for Year 2000 compliance, but as a
cautionary measure, the Company has begun testing such internal systems for Year
2000 compliance. The Company has created a Year 2000 project team to identify,
address, and monitor internal systems and vendor issues related to Year 2000
issues. The Company believes that it has adequate resources to achieve Year
2000 compliance for its systems, which currently may be compliant, and the
evaluation of vendors.
The following phases are used in managing the Year 2000 project for the
Company. These phases are consistent with the Office of the Comptroller of the
Currency (the "OCC") and the Federal Financial Institutions Examination Council
(the "FFIEC") recommendations for project organization.
The Awareness Phase was completed in October, 1997. The goal was to define
the Year 2000 problem and gain executive level support.
The Assessment Phase was completed in March, 1998. The goal was to
complete an inventory of possible Year 2000 exposure points to gain an
understanding of the size and complexity of the issue.
The Renovation Phase began March, 1998 with a targeted completion of March,
2000. This phase of the project cannot be considered successful and complete
until the systems have experienced the leap year transition and any problems
have been addressed. The goal of this phase is code enhancement, hardware and
software upgrades, system replacements, vendor certification and other
associated changes.
The Validation Phase and Implementation Phase began in April, 1998 with a
targeted completion of March, 2000. Again, this phase of the project cannot be
considered successful and complete until the systems have experienced the leap
year transition and any problems have been addressed. The goal of this phase
is testing of items to ensure Year 2000 compliance, implementation of renovated
systems, and certification of Year 2000 compliance by business users.
The following milestones are a part of the Company's plan to achieve Year
2000 compliance consistent with FFIEC guidelines.
September 30, 1998 Complete development of a proactive customer
awareness program
September 30, 1998 Complete organization planning guidelines and
business impact analysis for Business
Resumption Contingency Planning
December 31, 1998 Testing of internal mission critical systems
should be substantially complete
December 31, 1998 Complete contingency planning and validation
for Business Resumption Contingency Planning
March 31, 1999 Testing with service providers for mission
critical systems should be substantially
complete
June 30, 1999 Testing of mission-critical systems should be
complete and implementation should be
substantially complete.
The Company is dependent on databases maintained by FCI, and card and
statement generation, among other services, provided by First Data Resources
("FDR"). In addition, the Company is dependent on MasterCard and Visa for
clearinghouse activities associated with credit card use. The project teams
have been working with its identified material vendors, including FCI, FDR,
MasterCard, and Visa to determine the status of each vendor's plans for becoming
Year 2000 compliant. The project team is striving to obtain test results
showing Year 2000 compliance by material vendors by the end of the first quarter
1999 and has developed high level contingency plans to address non-compliance by
its material vendors, which may include replacing such vendors.
Although the Company cannot ensure compliance by all of its vendors on a
timely basis, the Company believes that it is taking appropriate steps to
identify exposure to Year 2000 problems and to address them on a timely basis.
The Company believes that the costs of Year 2000 compliance will not be
material to the Company's consolidated financial position, results of
operations, or cash flows.
The most reasonably likely worst case scenario that may impact the
Company's results of operations, financial condition and prospects is the
failure of FDR, VISA, or MasterCard to provide services. The Company's
cardholders would be unable to use their credit cards or otherwise access their
accounts. Due to several unknown contributing factors, and the scope of the
Year 2000 issue, the impact this worst case scenario would have on the Company's
results of operations, financial condition and prospects, is an uncertainty.
This scenario will be analyzed and addressed in the Company's contingency plans.
The Company views contingency planning from a remediation and business
resumption perspective. Remediation Contingency Planning refers to mitigating
the risks associated with the failure to successfully complete renovation,
validation, and implementation of mission critical systems and vendor services.
Resumption Contingency Planning is the process of identifying core business
processes and critical information systems that support those processes, and
developing plans to enable those processes to be resumed, or alternatives
instituted, in the event of a disruption.
The Company has completed high level Remediation Contingency Plans for
mission critical applications and vendors. The contingency plans include
identification of the product/service provided, the current vendor, other
vendors that could provide the product/service, estimated timeline and cost to
convert services to another vendor, and any business reasons why the backup
vendors could not provide the services. These plans are reviewed periodically
for accuracy.
The Year 2000 team is in the process of developing Resumption Contingency
Plans and expects to have the plans complete for Mission Critical Business
Processes by December 31, 1998.
Forward-Looking Statements
This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, 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
limited experience with respect to originating and servicing credit card
accounts, including limited delinquency, default and loss experience; the lack
of seasoning of the Company's 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;
risks associated with acquired portfolios; interest rate risks; dependence on
the securitization of the Company's credit card loans or the capital markets to
fund operations; the nature and timing of the funding of the Lee Company
investment; 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; the highly-
competitive industry in which the Company operates and the uncertainty
surrounding the effect the Year 2000 Problem will have on the Company or any
of it vendors. Each of these factors is more fully discussed in Exhibit 99
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's principal market risk is due to interest rates. This
affects the Company directly in its lending and borrowing activities, as well as
indirectly as interest rates may impact the payment performance of Company
cardholders.
To manage the Company's direct risk to market interest rates, management
actively monitors the interest sensitive components of the Company's owned and
managed balance sheet as well as market interest rates to minimize the impact
changes in interest rates on the fair market of assets, net income and cash
flow.
The Company's primary owned and managed assets are credit card loans, which
are virtually all priced at rates indexed to the variable Prime Rate. On-
balance sheet loans are funded through a combination of cash flow from
operations, the Company's 1998 Credit Facility, on which pricing is indexed to
LIBOR and prime, $100 million in 10% Senior Notes, and stockholders equity.
The Company's off-balance sheet managed loans are owned by single-seller and
multi-seller trusts, which have committed current funding indexed to variable
commercial paper rates, as well as term funding which is either directly
indexed to LIBOR or at fixed rates. At September 30, 1998, nearly 35% of the
trust funding of off-balance sheet receivables was funded with fixed rate
certificates issued by one of the trusts.
The Company receives cash flow and recognizes securitization income from
its retained interest in the loans owned by the trusts and Conduit net of
funding expenses. Because this interest is dependent in part on the
difference between the floating rate yield on the loans and the portion of
their funding from fixed rate term asset-backed certificates, the Company had
entered into interest rate floor contracts with several bank counterparties in
a notional amount equal to the total amount of the trust's fixed rate funding
to offset the impact of the fixed rate trust funding on the Company's expected
cash flow and income in a low interest rate environment. Combining these
floors with the total trust funding, 100% of the funding for the off-balance
sheet loan portfolio is indexed to floating commercial paper and LIBOR rates
at September 30, 1998. On a total managed receivables basis, 91% of the total
managed receivables were funded, including the interest rate floor agreements,
with floating rate debt indexed to commercial paper, prime or LIBOR at
September 30, 1998.
One approach used by management to quantify interest rate risk is a
sensitivity analysis. This approach calculates the impact on net income from
an instantaneous and sustained change in interest rates by 200 basis points.
A 200 basis point increase in interest rates affecting the Company's floating
rate financial instruments, including both debt obligations and loans, will
result in an increase in net income of approximately $12.8 million relative to
a base case over the next 12 months; while a decrease of 200 basis points will
result in a reduction in net income of approximately $10.8 million. Based
upon the Company's recent termination of the interest rate floor related to
the 1997-1 Trust Seriews, the sensitivity analysis does not include these
floors. The Company's use of this methodology to quantify the market risk
of financial instruments should not be construed as an endorsement of its
accuracy or the accuracy of the related assumptions. The quantitative
information about market risk is necessarily limited because it does not
take into account operating transactions or other costs associated with
managing immediate changes in interest rates.
Part II. Other Information
Item 1. Legal Proceedings
The Company is a party to various legal proceedings resulting from the
ordinary business activities relating to its operations. In October, 1998, two
complaints were filed in United States District Court for the District of
Minnesota against Metris Companies Inc., Fingerhut Companies Inc. and certain
officers and directors of each company. The complaints seek damages in
unascertained amounts and purport to be class actions on behalf of all persons
who acquired stock of the Company during a specified time period. The
complaints generally allege that the Company issued a series of false and
misleading statements concerning the financial position of the Company in
violation of federal securities laws. Specifically, the complaints claim that
the Company prematurely recognized revenue and improperly recognized expenses
relating to its fee-based services.
Although the complaints have been filed, to date, they have not been
served on the Company. In the event that the complaints are served, the Company
believes that the allegations are without merit and it has numerous
substantive legal defenses to these claims and is prepared to vigorously
defend the cases. There can be no assurance that defense or
resolution of these matters will not have a material adverse effect on the
Company's financial position.
The Company is a party to another legal proceeding resulting from
ordinary business activities relating to its operations. See Part II, Item 1
of the Company's report on Form 10-Q for the period ended June 30, 1998.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Shareholders Rights Agreement dated as of September 10,
1998 among Metris Companies Inc. and Norwest Bank
Minnesota, NA (incorporated by reference to
Exhibit 4.1 of the Company's Form 8-K filed September 24,
1998).
10.1 Amended and Restated Pooling and Servicing Agreement
dated as of July 30, 1998 among Metris Receivables, Inc.
("MRI"), as Transferor, Direct Merchants
Credit Card Bank, N.A. ("DMCCB") as Servicer, and the
Bank of New York (Delaware) ("BONY") as Trustee
(Incorporated by reference to Exhibit 4(a) to
Registration Statement on Form S-1 (No. 333-61343).)
(i) Series 1998-1 Supplement dated as of July 30, 1998
among MRI and Wilmington Trust Company.
(ii) An Owner Trust Agreement dated as of July 30, 1998
among MRI and Wilmington Trust Company;
(iii)A Liquidity Agreement dated July 30, 1998 among
Metris Owner Trust, the lenders thereto and the
Administrative agent. (Two such agreements which
are substantially identical have been executed.
Registrant has elected to file one pursuant to
Instruction 2 to Item 601 of Regulation S-K with an
accompanying schedule setting forth the parties on
the other agreement and the differences.
(iv) Amended and restated Bank Receivables Purchase
Agreement dated as of July 30, 1998 among Metris
Companies Inc. and DMCCB (incorporated by reference
to Exhibit 4(c) to Registration Statement on Form
S-1 (No. 333-61343).)
(v) Amended and restated Receivables Purchase Agreement
dated as of July 30, 1998 among Metris Companies
Inc. and MRI (incorporated by reference to Exhibit
4(d) to Registration Statement on Form S-1
(No. 333-61343).)
(vi) Series 1998-A Supplement dated as of September
15, 1998, among MRI, DMCCB and BONY.
10.2 A Change of Control Agreement dated as of May 15, 1998 by
and between the Company and Ronald Zebeck. Filed
herewith is a schedule of executive officers
also having such an agreement indicating the differences
from such agreement.
These agreements are not being filed in reliance upon
Instruction 2 to Items 601 of Regulation S-K.
10.3 Purchase and Sale Agreement dated as of September 4, 1998
between PNC National Bank and DMCCB.
(i) Amendment letter from David J. Williams to Ronald N.
Zebeck and Paul Runice dated November 13, 1998.
11. Computation of Earnings Per Share
27. Financial Date Schedule
(b) Reports on Form 8-K:
On September 24, 1998, the Company filed a Current Report on
Form 8-K to report the adoption of a Stockholders Rights
Agreement. Pursuant to such Agreement, the Company made a
dividend distribution of one preferred stock purchase right for
each outstanding share of a Common Stock as of the close of
business on September 25, 1998.
On October 7, 1998, the Company filed a Current Report on Form 8-K
to reconfirm the Company's commitment to prudent accounting and
report that the Company has changed its revenue recognition policy
on fee-based services for which a full refund period exists.
On October 15, 1998, the Company filed a Current Report on Form 8-
K to report the Company's earnings release for the third quarter
of 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METRIS COMPANIES INC.
Signature Title Date
Principal financial officer: Sr. Vice President, November 16, 1998
Treasurer, Acting Chief
Financial Officer
/s/ Paul T. Runice _
Paul T. Runice
Principal accounting officer: Vice President of Finance, November 16, 1998
Corporate Controller
/s/ Jean C. Benson
Jean C. Benson
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,
1998 1997 1998 1997
Basic:
Net income available to
<S> <C> <C> <C> <C> <C> <C> <C> <C>
common stockholders $ 16,996 $ 10,537 $ 40,620 $ 27,994
Weighted average number of
common shares outstanding 19,231 19,225 19,227 19,225
Net income per share $ .88 $ .55 $ 2.11 $ 1.46
Diluted:
Net income available to
common stockholders $ 16,996 $ 10,537 $ 40,620 $ 27,994
Weighted average number of
common shares outstanding 19,231 19,225 19,227 19,225
Net effect of assumed exercise
of stock options based on
treasury stock method using
average market price 832 1,074 746 999
20,063 20,299 19,973 20,224
Net income per share $ .85 $ .52 $ 2.03 $ 1.38
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,049
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,713
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 585,335
<ALLOWANCE> 350,864
<TOTAL-ASSETS> 674,467
<DEPOSITS> 0
<SHORT-TERM> 214,000
<LIABILITIES-OTHER> 143,215
<LONG-TERM> 100,896
0
0
<COMMON> 192
<OTHER-SE> 216,164
<TOTAL-LIABILITIES-AND-EQUITY> 674,467
<INTEREST-LOAN> 80,494
<INTEREST-INVEST> 977
<INTEREST-OTHER> 902
<INTEREST-TOTAL> 82,373
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 21,733
<INTEREST-INCOME-NET> 60,640
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</TABLE>
AMENDED AND RESTATED POOLING AND SERVICING AGREEMENT, dated as of
July 30, 1998 (the "Pooling and Servicing Agreement") by and
among METRIS RECEIVABLES, INC., a corporation organized and
existing under the laws of the State of Delaware, as Transferor,
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a
national banking organization organized and existing under the
laws of the United States of America, as Servicer, and THE BANK
OF NEW YORK (DELAWARE), a Delaware banking corporation organized
and existing under the laws of the State of Delaware, as Trustee.
WHEREAS, Direct Merchants Credit Card Bank, National
Association, a national banking association with its principal
place of business in Phoenix, Arizona is the successor by merger
to Direct Merchants Credit Card Bank, National Association, a
national banking association with its principal place of business
in Salt Lake City, Utah (the "Predecessor Servicer").
WHEREAS, Metris Receivables, Inc., as transferor (the
"Transferor"), the Predecessor Servicer, and The Bank of New York
(Delaware), as trustee (the "Trustee"), entered into a Pooling
and Servicing Agreement, dated as of May 26, 1995, as amended to
the date hereof (the "Previous Pooling and Servicing Agreement");
WHEREAS, Direct Merchants Credit Card Bank, National
Association, the Transferor and the Trustee previously entered
into the Amendment and Assumption Agreement (the "Assumption
Agreement") dated as of July 13, 1998 (the "Assumption Date") in
which the Direct Merchants Credit Card Bank, National Association
assumed all of the rights and obligations of the Predecessor
Servicer hereunder;
WHEREAS, Metris Receivables, Inc., as Transferor,
Direct Merchants Credit Card Bank, National Association, as
Servicer and The Bank of New York (Delaware), as Trustee desire
to amend and restate the Pooling and Servicing Agreement in
accordance with the provisions of subsection 13.1(b) of the
Pooling and Servicing Agreement to read in its entirety as set
forth below;
NOW, THEREFORE, pursuant to subsection 13.1(b) of the
Pooling and Servicing Agreement, the parties hereto hereby agree
that effective on and as of the date hereof, the Pooling and
Servicing Agreement is hereby amended to read in its entirety as
follows:
In consideration of the mutual agreements herein
contained, each party agrees as follows for the benefit of the
other parties and the Securityholders:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used in this
Agreement, the following words and phrases shall have the
following meanings:
"Account" shall mean each revolving credit consumer
credit card account established pursuant to a Contract between a
Credit Card Originator and any Person, which on the Initial
Closing Date was an Eligible Account or, with respect to accounts
transferred to the Trust after the Initial Closing Date, each
Additional Account or Supplemental Account. The definition of
Account shall include each Transferred Account but shall not
include any Accounts containing Ineligible Receivables and
reassigned to the Transferor pursuant to Section 2.4. The term
"Account" shall be deemed to refer to an Additional Account or
Supplemental Account only from and after the Addition Date with
respect thereto, and the term "Account" shall be deemed to refer
to any Removed Account only prior to the Removal Date with
respect thereto.
"Addition Date" shall mean each date as of which
Receivables under Additional Accounts or Supplemental Accounts
are included in the Trust as Accounts pursuant to Section 2.6.
"Additional Account" shall mean (a) for the period
from the Initial Closing Date through the day preceding the
Amendment Closing Date, each revolving credit consumer credit
card account owned by a Credit Card Originator coming into
existence after the Initial Closing Date which is an Approved
Account that the Transferor has not elected to exclude from the
Trust after June 7, 1996 and prior to the Amendment Closing Date,
or (b) on and after the Amendment Closing Date, each revolving
credit consumer credit card account in which a Credit Card
Originator acquires rights that is an Approved Account and is not
an Excluded Account; provided, however, that a revolving credit
consumer credit card account that does not satisfy the definition
of Approved Account on the date of its creation shall be an
Additional Account on the date that it satisfies the definition
of Approved Account. Any election to exclude certain Approved
Accounts shall be made by the Transferor or the Servicer
providing to the Trustee a written notice thereof clearly
identifying such excluded accounts.
"Adjustment Payment" shall have the meaning specified
in subsection 3.8(a).
"Affiliate" means, with respect to a particular Person,
any Person that, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person.
"Aggregate Invested Amount" shall mean, as of any date
of determination, the sum of the Invested Amounts of all Series
of Securities issued and outstanding on such date of
determination.
"Aggregate Investor Percentage" with respect to each of
Principal Collections, Finance Charge Collections and Defaulted
Receivables, as the case may be, shall mean, as of any date of
determination, the sum of such Investor Percentages of all Series
of Securities issued and outstanding on such date of
determination; provided, however, that the Aggregate Investor
Percentage shall not exceed 100%.
"Aggregate Principal Receivables" shall mean, for any
day, the aggregate amount of Principal Receivables at the end of
such day.
"Agreement" shall mean this Pooling and Servicing
Agreement and all amend ments hereof and supplements hereto,
including any Supplement.
"Amendment Closing Date" shall mean July 30, 1998.
"Amortization Period" shall mean, with respect to any
Series, the period following the Revolving Period for such
Series, which shall be the Amortization Period, the Early
Amortization Period, or other amortization or accumulation
period, in each case as defined with respect to such Series in
the related Supplement.
"Amortization Period Commencement Date" shall mean with
respect to any Series, the date on which the Amortization Period
commences with respect thereto as set forth in the related
supplement.
"Applicable Tax State" shall mean, as of any date of
determination, each state as to which any of the following is
then applicable: (a) a state in which the Trustee maintains its
principal corporate trust office, (b) a state in which the
Transferor maintains its principal executive offices, and (c) a
state in which the Servicer regularly conducts servicing and
collection operations which are not limited to ministerial
activities and which relate to a material portion of the
Receivables.
"Applicants" shall have the meaning specified in
Section 6.7.
"Appointment Day" shall have the meaning specified in
subsection 9.2(a).
"Approved Account" shall mean each (i) Eligible Account
that is a MasterCard or VISA account or (ii) any other revolving
credit consumer credit card account the inclusion in the Trust of
which would not cause a Ratings Event.
"Authentication Agent" shall have the meaning specified
in Section 6.8.
"Authorized Newspaper" shall mean a newspaper of
general circulation in the Borough of Manhattan, The City of New
York printed in the English language and customarily published on
each Business Day, whether or not published on Saturdays, Sundays
and holidays.
"Automatic Addition Suspension Date" shall mean the
Business Day specified in subsection 2.6(b).
"Automatic Addition Termination Date" shall mean the
Business Day specified by the Transferor pursuant to subsection
2.6(b) as of which new open end credit card accounts designated
by the Transferor shall cease to become Additional Accounts.
"Bank Receivables Purchase Agreement" shall mean the
Amended and Restated Bank Receivables Purchase Agreement dated as
of July 30, 1998 by and among Metris, as purchaser, and DMCCB, as
Seller, as amended from time to time.
"Base Rate" shall mean, with respect to any outstanding
Series, the amount which the related Supplement specifies as the
"Base Rate".
"Bearer Securities" shall have the meaning specified in
Section 6.1.
"Bearer Rules" shall mean the provisions of the
Internal Revenue Code, in effect from time to time, governing the
treatment of bearer obligations, including sections 163(f), 871,
881, 1441, 1442 and 4701, and any regulations thereunder
including, to the extent applicable to any Series, proposed or
temporary regulations of the Internal Revenue Service.
"Benefit Plan" shall mean (i) an employee benefit plan
(as defined in Section 3(3) of ERISA that is subject to the
provisions of Title I of ERISA, (ii) a plan described in Section
4975(e)(1) of the Code or (iii) any entity whose underlying
assets include plan assets by reason of a plan's investment in
the entity (each, a "Benefit Plan").
"Book-Entry Securities" shall mean securities
evidencing a beneficial interest in the Investor Securities,
ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 6.10;
provided, that after the occurrence of a condition whereupon book-
entry registration and transfer are no longer authorized and
Definitive Securities are to be issued to the Security Owners,
such securities shall no longer be "Book-Entry Securities."
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which banking institutions in New
York, Minnesota, Arizona, Nebraska, Oklahoma or Delaware (or,
with respect to any Series, any additional city or state
specified in the related Supplement) are authorized or obligated
by law or executive order to be closed, and such other days in
each year designated by the Servicer in writing to the Trustee by
the first day of December in the preceding year.
"Cash Equivalents" shall mean, unless otherwise
provided in the Supplement with respect to any Series, (a)
negotiable instruments or securities represented by instruments
in bearer or registered form which evidence (i) obligations of or
fully guaranteed by the United States of America; (ii) time
deposits, promissory notes, or certificates of deposit of any
depositary institution or trust company; provided, however, that
at the time of the Trust's investment or contractual commitment
to invest therein, the certificates of deposit or short-term
deposits of such depositary institution or trust company shall
have a credit rating from Standard & Poor's of A-1+ and from
Moody's of P-1; (iii) commercial paper having, at the time of the
Trust's investment or contractual commitment to invest therein, a
rating from Standard & Poor's of A-1+ and from Moody's of P-1;
(iv) bankers acceptances issued by any depositary institution or
trust company described in clause (a)(ii) above; and (v)
investments in money market funds rated AAA-m or AAA-mg by
Standard & Poor's and Aaa by Moody's or otherwise approved in
writing by Moody's and Standard & Poor's; (b) time deposits and
demand deposits in the name of the Trust or the Trustee in any
depositary institution or trust company referred to in clause
(a)(ii) above; (c) securities not represented by an instrument
that are registered in the name of the Trustee or its nominee
(which may not be Metris or an Affiliate) upon books maintained
for that purpose by or on behalf of the issuer thereof and
identified on books maintained for that purpose by the Trustee as
held for the benefit of the Trust or the Securityholders, and
consisting of (x) shares of an open end diversified investment
company which is registered under the Investment Company Act
which (i) invests its assets exclusively in obligations of or
guaranteed by the United States of America or any instrumentality
or agency thereof having in each instance a final maturity date
of less than one year from their date of purchase or other Cash
Equivalents, (ii) seeks to maintain a constant net asset value
per share, (iii) has aggregate net assets of not less than
$100,000,000 on the date of purchase of such shares and (iv)
which the Rating Agency designates in writing will not result in
a withdrawal or downgrading of its then current rating of any
Series rated by it or (y) Eurodollar time deposits of a
depository institution or trust company that are rated A-1+ by
Standard & Poor's and P-1 by Moody's; provided, however, that at
the time of the Trust's investment or contractual commitment to
invest therein, the Eurodollar deposits of such depositary
institution or trust company shall have a credit rating from
Standard & Poor's of A-1+ and P-1 by Moody's; (d) a guaranteed
investment contract (guaranteed as to timely payment) which each
Rating Agency designates in writing will not result in a
withdrawal or downgrading of its then current rating of any
Series rated by it; (e) repurchase agreements transacted with
either (i) an entity subject to the United States federal
bankruptcy code, provided, however, that (A) the term of the
repurchase agreement is consistent with the requirements with
regard to the maturity of Cash Equivalents specified herein or in
the applicable Supplement for the applicable account or is due on
demand, (B) the Trustee or a third party acting solely as agent
for the Trustee has possession of the collateral, (C) the Trustee
on behalf of the Trust has a perfected first priority security
interest in the collateral, (D) the market value of the
collateral is maintained at the requisite collateral percentage
of the obligation in accordance with standards of the Rating
Agencies, (E) the failure to maintain the requisite collateral
level will obligate the Trustee to liquidate the collateral as
promptly as practicable upon instructions from the Servicer, (F)
the securities subject to the repurchase agreement are either
obligations of, or fully guaranteed as to principal and interest
by, the United States of America or any agency or any
instrumentality or agency thereof, certificates of deposit or
bankers acceptances and (G) the securities subject to the
repurchase agreement are free and clear of any third party lien
or claim, or (ii) a financial institution insured by the FDIC, or
any broker-dealer with "retail-customers" that is under the
jurisdiction of the Securities Investors Protection Corp.
("SIPC"), provided, however, that (A) the market value of the
collateral is maintained at the requisite collateral percentage
of the obligation in accordance with the standards of the Rating
Agencies, (B) the Trustee or a third party (with a rating from
Moody's and Standard & Poor's of P-1 and A-1+, respectively)
acting solely as agent for the Trustee has possession of the
collateral, (C) the collateral is free and clear of third party
liens and, in the case of an SIPC broker, was not acquired
pursuant to a repurchase or reverse repurchase agreement and (D)
the failure to maintain the requisite collateral percentage will
obligate the Trustee to liquidate the collateral upon
instructions from the Servicer; provided, however, that at the
time of the Trust's investment or contractual commitment to
invest in any repurchase agreement the short-term deposits or
commercial paper rating of such entity or institution in
subsections (i) and (ii) above shall have a credit rating of P-1
or A-1+ or their equivalent from each Rating Agency; and (f) any
other investment if each Rating Agency confirms in writing that
such investment will not adversely affect its then current rating
of the Investor Securities.
"Cedel" shall mean Cedel Bank, societe anonyme.
"Class" shall mean, with respect to any Series, any one
of the classes of Securities of that Series as specified in the
related Supplement.
"Clearing Agency" shall mean an organization registered
as a "clearing agency" pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended.
"Clearing Agency Participant" shall mean a broker,
dealer, bank, other financial institution or other Person for
whom from time to time a Clearing Agency or Foreign Clearing
Agency effects book-entry transfers and pledges of securities
deposited with the Clearing Agency or Foreign Clearing Agency.
"Closing Date" shall mean, with respect to any Series,
the date of issuance of such Series of Securities, as specified
in the related Supplement.
"Collection Account" shall have the meaning specified
in subsection 4.2(a).
"Collections" shall mean all payments received by the
Servicer in respect of the Eligible Receivables in the form of
cash, checks or any other form of payment in accordance with the
Contract in effect from time to time on any Eligible Receivables.
"Contract" shall mean an agreement between a Credit
Card Originator and another Person for the extension of revolving
credit, including pursuant to a credit card, in the form of a
written contract, invoice, or revolving credit agreement (but
shall not include any agreement or plan relating to the extension
of credit on a closed-end basis).
"Corporate Trust Office" shall mean the principal
office of the Trustee at which at any particular time its
corporate trust business shall be administered, which office at
the date of the execution of this Agreement is located at White
Clay Center, Route 273, Newark, Delaware 19711, Attention:
Corporate Trust Specialized Agency Services.
"Coupon" shall have the meaning specified in Section
6.1.
"Credit and Collection Policy" means the written
policies and procedures of the applicable Credit Card Originator
relating to the operation of its consumer revolving credit card
business, including, without limitation, the written policies and
procedures for determining the creditworthiness of credit card
customers, the extension of credit to credit card customers and
relating to the maintenance of credit card accounts and
collection of receivables with respect thereto, as such policies
and procedures may be amended, modified, or otherwise changed
from time to time.
"Credit Card Originator" shall mean (i) DMCCB Utah and
(ii) DMCCB and its successors or assigns under the Bank
Receivables Purchase Agreement and/or any transferee of the
Accounts from DMCCB or (iii) any other originator of accounts
which enters into a receivables purchase agreement with DMCCB or
Metris (to the extent that rights therein are granted to the
Transferor directly or indirectly) or the Transferor in
accordance with the provisions of this Agreement and who has been
identified in a prior written notice to each Rating Agency.
"Daily Report" shall mean a report in the form
specified in subsection 1.2(e) as may be supplemented pursuant to
any Supplement.
"Date of Processing" shall mean, with respect to any
transaction, the date on which such transaction is settled
according to the Servicer's (or, in the case of a Credit Card
Originator, such Credit Card Originator's) computer master file
of revolving credit accounts.
"Default Amount" shall mean, (i) on any Business Day
other than the Default Recognition Date, the aggregate amount of
Principal Receivables in Accounts which became Defaulted Accounts
on such Business Day and (ii) on any Default Recognition Date the
aggregate amount of Principal Receivables in Accounts which
became Defaulted Accounts during the then current Monthly Period
(other than such Accounts which were included in clause (i)).
"Default Recognition Date" shall mean the last day of
each calendar month; provided, however that with respect to any
Monthly Period the "related Default Recognition Date" shall mean
the Default Recognition Date occurring closest to the last day of
such Monthly Period and any amounts allocated or applied on such
Default Recognition Date shall be deemed to apply to the related
Monthly Period.
"Defaulted Account" shall mean each Account with
respect to which, in accor dance with the Credit and Collection
Policy or the Servicer's customary and usual servicing
procedures, the Servicer has charged off the Receivables in such
Account as uncollectible; an Account shall become a Defaulted
Account on the day on which such Receivables are recorded as
charged off as uncollectible on the Servicer's computer master
file of consumer credit card revolving accounts. Notwithstanding
any other provision hereof, any Receivables in a Defaulted
Account that are Ineligible Receivables shall be treated as
Ineligible Receivables rather than Receivables in Defaulted
Accounts.
"Defeasance Account" shall have the meaning specified
in the applicable Supplement.
"Definitive Security" shall have the meaning specified
in Section 6.10.
"Depositary" shall have the meaning specified in
Section 6.10.
"Depositary Agreement" shall mean, with respect to each
Series, the agreement among the Transferor, the Trustee and the
applicable Clearing Agency, or as otherwise provided in the
related Supplement.
"Determination Date" shall mean the second Business Day
prior to each Distribu tion Date.
"Discount Option Receivables" shall mean, on and after
the date on which the Transferor's exercise of its discount
option pursuant to Section 2.8 takes effect, the sum of (a) the
aggregate Discount Option Receivables at the end of the prior day
(which amount, prior to the date on which the Transferor's
exercise of its discount option takes effect and with respect to
Receivables generated prior to such date, shall be zero) plus (b)
any New Discount Option Receivables created on such day minus (c)
any Discount Option Receivables Collections received on such Date
of Processing.
"Discount Option Receivable Collections" shall mean on
any Date of Processing, on and after the date on which the
Transferor's exercise of its discount option pursuant to Section
2.8 takes effect, the product of (a) a fraction the numerator of
which is the amount of Discount Option Receivables and the
denominator of which is the sum of the Principal Receivables and
the Discount Option Receivables in each case (for both numerator
and denominator) at the end of the prior Date of Processing, (b)
Collections of Principal Receivables and Discount Option
Receivables received on such Date of Processing and (c) a
fraction the numerator of which is the aggregate amount of
Principal Receivables arising on each Date of Processing falling
on or after the date on which the Transferor exercises its
discount option and the denominator of which is the Aggregate
Principal Receivables on such Date of Processing.
"Discount Percentage" shall mean the fixed percentage,
if any, designated by the Transferor pursuant to Section 2.8.
"Disposition" shall have the meaning specified in
Section 9.2(a).
"Distribution Account" shall have the meaning specified
in subsection 4.2(c).
"Distribution Date" shall mean, unless otherwise
specified in any Supplement for the related Series, the twentieth
day of each month or, if such twentieth day is not a Business
Day, the next succeeding Business Day.
"DMCCB" shall mean Direct Merchants Credit Card Bank,
National Association, a national banking organization organized
and existing under the laws of the United States of America and
the successor by merger to DMCCB Utah.
"DMCCB Utah" or "Predecessor Servicer" shall mean
Direct Merchants Credit Card Bank, National Association, a
national banking organization organized under the laws of the
United States and located in Salt Lake City, Utah which has been
merged into DMCCB.
"Dollars", "$" or "U.S. $" shall mean United States
dollars.
"Eligible Account" shall mean, as of the Initial
Closing Date (or, with respect to Additional Accounts, on the
date the Credit Card Originator acquires rights therein, or, with
respect to Supplemental Accounts, as of the date the Receivables
arising in such Accounts are designated for inclusion in the
Trust), each revolving credit consumer credit card account owned
by a Credit Card Originator:
(a) which is payable in Dollars;
(b) the Obligor on which has provided, as its initial
billing address, an address located in the United States or its
territories or possessions or a United States military address;
(c) which has not been identified by the applicable
Credit Card Originator or any of its Affiliates in its computer
files as stolen or lost;
(d) which is not at the time of transfer to the Trust
sold or pledged to any other party and which does not have
Receivables which, at the time of transfer to the Trust, are sold
or pledged to any other party (provided that Receivables which
were sold or pledged prior to the Closing Date, but were
repurchased free of all Liens or where all Liens were released
prior to the sale hereunder, shall not be disqualified under this
clause (d)); and
(e) the Receivables in which the applicable Credit
Card Originator has not charged off in its customary and usual
manner for charging off Receivables in such Accounts as of the
Initial Closing Date (or, with respect to Additional Accounts, as
of the date the Receivables of such Accounts are first designated
for inclusion in the Trust) unless such Account is subsequently
reinstated.
"Eligible Receivable" shall mean each Receivable that
satisfies each of the following criteria: (a) arises under an
Account, (b) it is not sold or pledged to any other party, (c) it
constitutes an "account," "chattel paper" or a "general
intangible" as each are defined in Article 9 of the UCC as then
in effect in each Relevant UCC State, (d) it is at the time of
its transfer to the Trust the legal, valid, and binding
obligation of, or is guaranteed by, a Person who is competent to
enter into a contract and incur debt and is enforceable against
such person in accordance with its terms, (e) it was created or
acquired in compliance, in all material respects, with all
Requirements of Law applicable to the Credit Card Originator and
pursuant to a Contract that complies, in all material respects,
with all Requirements of Law applicable to the Credit Card
Originator (including without limitation, laws, rules and
regulations relating to truth in lending, usury, fair credit
billing, fair credit reporting, equal credit opportunity and fair
debt collection practices), (f) all material consents, licenses,
or authorizations of, or registrations with, any Governmental
Authority required to be obtained or given in connection with the
creation of such Receivable or the execution, delivery, creation,
and performance of the related Contract have been duly obtained
or given and are in full force and effect as of the date of the
creation of such Receivables and (g) immediately prior to giving
effect to the sale, the Transferor or the Trust will have good
and marketable title free and clear of all Liens and security
interests arising under or through the Transferor (other than
Permitted Liens).
"Enhancement" shall mean, with respect to any Series,
any cash collateral account, cash collateral guaranty, guaranty,
collateral invested amount, letter of credit, guaranteed rate
agreement, maturity guaranty facility, tax protection agreement,
interest rate cap, interest rate swap, currency swap,
subordination of the rights of one Class or one Series to
another, or any other contract, agreement or arrangement for the
benefit of the Securityholders of such Series (or Securityholders
of any Class within such Series) as designated in the applicable
Supplement.
"Enhancement Provider" shall mean, with respect to any
Series, the Person, if any, designated as such in the related
Supplement.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"Euroclear Operator" shall mean Morgan Guaranty Trust
Company of New York, Brussels, Belgium office, as operator of the
Euroclear System.
"Excess Funding Account" shall have the meaning
specified in subsection 4.2(d).
"Exchange" shall mean either of the procedures
described in Section 6.9(b).
"Exchange Date" shall have the meaning, with respect to
any Series issued pursuant to an Exchange, specified in
subsection 6.9(b).
"Exchange Notice" shall have the meaning, with respect
to any Series issued pursuant to an Exchange, specified in
subsection 6.9(b).
"Exchangeable Transferor Security" shall mean the
security executed by the Transferor and authenticated by the
Trustee, substantially in the form of Exhibit A and exchangeable
as provided in Section 6.9; provided, that at any time there
shall be only one Exchangeable Transferor Security.
"Excluded Account" shall mean on any date of
determination (i) during any period on and after Restart Date and
prior to an Automatic Addition Suspension Date, any revolving
credit consumer credit card account which has been excluded from
addition to the Trust pursuant to subsections 2.6(b) or 2.6(g)
and any revolving credit consumer credit card account which the
Transferor has elected to exclude pursuant to subsection 2.6(h)
and (ii) during any period on and after an Automatic Addition
Suspension Date and prior to a Restart Date, all revolving credit
consumer credit card accounts other than accounts that were
Accounts on the Automatic Addition Suspension Date and
Supplemental Accounts previously added during such period.
"Extended Trust Termination Date" shall have the
meaning specified in subsec tion 12.1(a).
"FDIC" shall mean the Federal Deposit Insurance
Corporation, or any successor thereto.
"Finance Charge Collections" shall mean, with respect
to any Business Day, Collections received by the Servicer with
respect to Finance Charge Receivables on such Business Day.
"Finance Charge Receivables" shall mean the sum of (w)
all amounts billed from time to time to the Obligors on any
Account in respect of (i) Periodic Finance Charges, (ii)
overlimit fees, (iii) late charges, (iv) returned check fees, (v)
annual membership fees and annual service charges, if any, (vi)
transaction charges, (vii) cash advance fees and (viii) similar
fees and charges, excluding fees and charges for insurance and
insurance type products, plus (x) Recoveries, (y) investment
earnings on amounts credited to the Excess Funding Account and
(z) Discount Option Receivables, if any.
"Foreign Clearing Agency" shall mean Cedel and the
Euroclear Operator.
"Global Security" shall have the meaning specified in
Section 6.13.
"Governmental Authority" shall mean the United States
of America, any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"Holder" or "Securityholder" shall mean the Person in
whose name a Security is registered in the Security Register, and
if applicable, the holder of any Bearer Security or Coupon, as
the case may be.
"Ineligible Receivable" shall mean any Receivable that
does not satisfy the definition of Eligible Receivable.
"Initial Closing Date" shall mean May 30, 1995.
"Initial Invested Amount" shall mean, with respect to
any Series of Securities, the amount stated in the related
Supplement or, if not stated therein, the initial Invested
Amount.
"Insolvency Event" shall have the meaning specified in
subsection 9.2(a).
"Interest Funding Account" shall have the meaning
specified in subsection 4.2(b).
"Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
"Invested Amount" shall have, with respect to any
Series of Securities, the meaning stated in the related
Supplement.
"Investment Company Act" shall mean the Investment
Company Act of 1940, as amended from time to time.
"Investor Account" shall mean each of any Interest
Funding Account, any Principal Account, the Excess Funding
Account, any Distribution Account and any Series Account.
"Investor Exchange" shall have the meaning specified in
subsection 6.9(b).
"Investor Percentage" shall mean, with respect to
Principal Collections, Finance Charge Collections and Receivables
in Defaulted Accounts, and with respect to any Series of
Securities, the percentage specified in the related Supplement.
"Investor Security" shall mean any one of the
securities (including, without limitation, the Bearer Securities
or the Registered Securities) executed by the Transferor and
authenticated by the Trustee substantially in the form (or forms
in the case of a Series with multiple classes) of the investor
security or variable funding security attached to the related
Supplement.
"Investor Securityholder" shall mean the Holder of an
Investor Security.
"Lien" shall mean any lien, security interest or other
encumbrance; provided, however, that any assignment pursuant to
Section 7.2 shall not be deemed to constitute a Lien.
"Metris" shall mean Metris Companies Inc., a
corporation organized and existing under the laws of the State of
Delaware.
"Minimum Aggregate Principal Receivables" shall mean,
as of any date of determination, the sum of the numerators used
in the calculation of the Investor Percentages for Principal
Collections for all outstanding Series on such date of
determination.
"Minimum Retained Interest" shall mean the product of
the weighted average Minimum Retained Percentages for all Series
and the sum of the outstanding principal amounts of all Classes
of all Series.
"Minimum Retained Percentage" shall mean, for any
Series, the Minimum Retained Percentage specified in the
Supplement for that Series.
"Minimum Transferor Interest" shall mean, as of any
date of determination, the product of (i) the sum of (a) the
aggregate Principal Receivables and (b) the amounts on deposit in
the Excess Funding Account and (ii) the Minimum Transferor
Percentage.
"Minimum Transferor Percentage" shall mean the highest
Minimum Transferor Percentage specified in any Supplement.
"Monthly Investor Servicing Fee" shall mean the
Servicing Fee payable to the Servicer with respect to a Monthly
Period.
"Monthly Period" shall mean, unless otherwise defined
with respect to a Series in the related Supplement, the period
from and including the first day of each fiscal month of the
Transferor to and including the last day of such fiscal month.
"Moody's" shall mean Moody's Investors Service, Inc. or
its successor.
"MRI" shall mean Metris Receivables, Inc., a Delaware
corporation.
"New Discount Option Receivables" shall mean, on any
Date of Processing on and after the date on which the
Transferor's exercise of its discount option pursuant to Section
2.8 takes effect, the product of the amount of any Principal
Receivables created on such Date of Processing (without reducing
the amount of Principal Receivables by the amount of Financial
Charge Receivables which are Discount Option Receivables) and the
Discount Percentage.
"Obligor" shall mean a Person obligated to make
payments with respect to a Receivable arising under an Account
pursuant to a Contract.
"Officer's Certificate" shall mean a certificate signed
by any Vice President, Treasurer, Assistant Treasurer or more
senior officer of the Transferor or Servicer and delivered to the
Trustee.
"Opinion of Counsel" shall mean a written opinion of
counsel, who may be counsel for or an employee of the Person
providing the opinion, and who shall be reasonably acceptable to
the Trustee.
"Paying Agent" shall mean any paying agent appointed
pursuant to Section 6.6 and shall initially be the Trustee.
"Pay Out Commencement Date" shall mean, with respect to
each Series, the date on which (a) a Trust Pay Out Event is
deemed to occur pursuant to Section 9.1 or (b) a Series Pay Out
Event is deemed to occur pursuant to the Supplement for such
Series.
"Pay Out Event" shall mean, with respect to each
Series, a Trust Pay Out Event or a Series Pay Out Event.
"Periodic Finance Charges" shall have, with respect to
any Account, the meaning specified in the Contract applicable to
such Account for finance charges (due to periodic rate) or any
similar term.
"Permitted Lien" shall mean with respect to the
Receivables: (i) Liens in favor of the Transferor created
pursuant to the Purchase Agreement assigned to the Trustee
pursuant to this Agreement; (ii) Liens in favor of the Trustee
pursuant to this Agreement; and (iii) Liens that secure the
payment of taxes, assessments and governmental charges or levies,
if such taxes are either (a) not delinquent or (b) being
contested in good faith by appropriate legal or administrative
proceedings and as to which adequate reserves in accordance with
generally accepted accounting principles shall have been
established.
"Person" shall mean any legal person, including any
individual, corporation, partnership, limited liability company,
joint venture, association, joint-stock company, trust,
unincorporated organization, governmental entity or other entity
of similar nature.
"Pool Factor" shall mean, as of any Record Date, a
number carried out to seven decimals representing the ratio of
the applicable Invested Amount as of such Record Date (determined
after taking into account any reduction in the Invested Amount
which will occur on the following Distribution Date) to the
applicable Initial Invested Amount unless otherwise specified
with respect to a Series in the related Supplement.
"Pooling and Servicing Agreement" shall have the
meaning assigned in the preamble hereto.
"Portfolio Yield" shall mean, with respect to any
Monthly Period and any outstanding Series, the amount which the
related Supplement specifies as the "Portfolio Yield" for such
Monthly Period.
"Principal Account" shall have the meaning specified in
subsection 4.2(b).
"Principal Collections" shall mean, with respect to any
Business Day, the Collections received with respect to each
Principal Receivable on such Business Day.
"Principal Receivables" shall mean amounts shown on the
Servicer's records as amounts payable by Obligors with respect to
Eligible Receivables on any Account other than such amounts that
are Finance Charge Receivables (including Discount Option
Receivables) or Receivables in Defaulted Accounts and shall
include, without limitation, amounts payable for purchases of
goods or services or cash advances. A Receivable shall be deemed
to have been created at the end of the day on the Date of
Processing of such Receivable. In calculating the aggregate
amount of Principal Receivables on any day, the amount of
Principal Receivables shall be reduced by the aggregate amount of
credit balances in the Accounts on such day.
"Principal Shortfalls" shall mean, with respect to any
Business Day and any outstanding Series, the amount which the
related Supplement specifies as the "Principal Shortfall" for
such Business Day.
"Principal Terms" shall have the meaning, with respect
to any Series issued pursuant to an Exchange, specified in
subsection 6.9(c).
"Prospective Pay Out Event" shall have the meaning
specified in subsection 2.3(m).
"Publication Date" shall have the meaning specified in
subsection 9.2(a).
"Purchase Agreement" shall mean the amended and
restated purchase agreement dated as of July 30, 1998 between the
Transferor, as buyer of receivables, and Metris, as seller of
receivables, as amended from time to time.
"Qualified Institution" shall have the meaning
specified in subsection 4.2(a).
"Rating Agency" shall mean, with respect to each
Series, the rating agency or agencies, if any, specified in the
related Supplement.
"Ratings Event" shall mean, with respect to any Class
of any outstanding Series rated by a Rating Agency, a reduction
or withdrawal of the rating of any such Class by a Rating Agency.
"Reassignment Date" shall have the meaning specified in
subsection 2.4(e).
"Receivable" shall mean all of the indebtedness of any
Obligor under an Account, including the right to receive payment
of any interest or finance charges and other obligations of such
Obligors with respect thereto. Each receivable includes, without
limitation, all rights of the Transferor under the applicable
Contract.
"Record Date" shall mean, with respect to any
Distribution Date, unless otherwise specified in the applicable
Supplement, the Business Day preceding such Distribution Date,
except that, with respect to any Definitive Securities, Record
Date shall mean the fifth day of the then current Monthly Period.
"Recoveries" shall mean any amounts received by the
Servicer with respect to Receivables in Accounts that previously
became Defaulted Accounts.
"Registered Securities" shall have the meaning
specified in Section 6.1.
"Related Person" shall mean a Person that is an
Affiliate of Metris, any Investor Securityholder, any Enhancement
Provider, or any Person whose status would violate the conditions
for a trustee contained in Section (4)(i) of Rule 3a-7 under the
Investment Company Act of 1940, as amended.
"Relevant UCC State" shall mean each jurisdiction in
which the filing of a UCC financing statement is necessary to
perfect the ownership interest and security interest of the
Transferor pursuant to the Purchase Agreement or the ownership or
security interest of the Trustee established under this
Agreement.
"Removal Date" shall have the meaning specified in
subsection 2.7(b).
"Removal Notice Date" shall mean the day, no later than
the fifth Business Day prior to a Removal Date, on which the
Transferor gives notice to the Trustee pursuant to Section 2.7(a)
of its intention to remove Accounts from the Trust.
"Removed Accounts" shall have the meaning specified in
subsection 2.7(a).
"Requirements of Law" for any Person shall mean the
certificate of incorporation or articles of association and by-
laws or other organizational or governing documents of such
Person, and any material law, treaty, rule or regulation, or
determination of an arbitrator or Governmental Authority, in each
case applicable to or binding upon such Person or to which such
Person is subject.
"Responsible Officer" shall mean any officer within the
Corporate Trust Office (or any successor group of the Trustee),
including the President, any Vice President or any other officer
of the Trustee customarily performing functions similar to those
performed by any person who at the time shall be an above-
designated officer and who shall have direct responsibility for
the administration of this Agreement.
"Restart Date" shall mean the date specified in the
notice delivered by the Transferor to the Trustee pursuant to
subsection 2.6(b).
"Retained Interest" shall mean, on any date of
determination, the sum of the Transferor Interest and the
Invested Amount represented by any Transferor Retained Security.
"Retained Percentage" shall mean, on any date of
determination, the percentage equivalent of a fraction the
numerator of which is the Retained Interest and the denominator
of which is the aggregate amount of Principal Receivables at the
end of the day immediately prior to such date of determination
plus all amounts on deposit in the Excess Funding Account (but
not including investment earnings on such amounts).
"Revolving Period" shall have, with respect to each
Series, the meaning specified in the related Supplement.
"Secured Obligations" shall have the meaning specified
in Section 2.1.
"Securities Act" shall mean the Securities Act of 1933,
as amended from time to time.
"Security" shall mean any one of the Investor
Securities of any Series or the Exchangeable Transferor Security.
"Security Interest" shall mean interest payable in
respect of the Investor Securities of any Series pursuant to
Article IV of the Agreement as supplemented by the Supplement for
such Series.
"Security Owner" shall mean, with respect to a Book-
Entry Security, the Person who is the beneficial owner of such
Book-Entry Security, as may be reflected on the books of the
Clearing Agency, or on the books of a Person maintaining an
account with such Clearing Agency (directly or as an indirect
participant, in accordance with the rules of such Clearing
Agency).
"Security Principal" shall mean principal payable in
respect of the Investor Securities of any Series pursuant to
Article IV of this Agreement.
"Security Rate" shall mean, with respect to any Series
of Securities (or, for any Series with more than one Class, for
each Class of such Series), the percentage (or formula on the
basis of which such rate shall be determined) stated in the
related Supplement.
"Security Register" shall mean the register maintained
pursuant to Section 6.3, providing for the registration of the
Securities and transfers and exchanges thereof.
"Securityholder" or "Holder" shall mean the Person in
whose name a Security is registered in the Security Register and,
if applicable, the holder of any Bearer Security or Coupon, as
the case may be.
"Series" shall mean any series of Investor Securities
issued by the Trust pursuant to a Supplement, which may include
within any such Series a Class or Classes of Investor Securities
subordinate to another such Class or Classes of Investor
Securities.
"Series Account" shall mean any account or accounts
established pursuant to a Supplement for the benefit of the
related Series.
"Series Charge Off" shall have, with respect to each
Series, the meaning specified in the applicable Supplement.
"Series Default Amount" shall have, with respect to any
Series of Securities, the meaning stated in the related
Supplement.
"Series Pay Out Event" shall have, with respect to any
Series, the meaning specified in the related Supplement.
"Series Percentage" shall mean with respect to any
Series, on any date of determination, the percentage equivalent
of a fraction the numerator of which is the Invested Amount of
such Series and the denominator of which is the sum of the
Invested Amounts of all Series then outstanding.
"Series Servicing Fee Percentage" shall mean, with
respect to any Series, the amount specified as such in the
related Supplement.
"Series Termination Date" shall mean, with respect to
any Series of Securities, the date stated as such in the related
Supplement.
"Servicer" shall mean DMCCB in its capacity as
Servicer of the Receivables or any Person appointed as Successor
Servicer as herein provided to service the Receivables.
"Servicer Default" shall have the meaning specified in
Section 10.1.
"Servicing Fee" shall have the meaning specified in the
related Supplements.
"Settlement Statement" shall mean a report in the form
specified in subsection 1.2(e) as may be supplemented pursuant to
any Supplement.
"Shared Principal Collections" shall mean, with respect
to any Business Day, the aggregate amount of Principal
Collections for all outstanding Series that the related
Supplements specify are to be treated as "Shared Principal
Collections" available to be allocated to other Series for such
Business Day.
"Standard & Poor's" shall mean Standard & Poor's, a
Division of The McGraw- Hill Companies, or its successor.
"Successor Servicer" shall have the meaning specified
in subsection 10.2(a).
"Supplement" shall mean, with respect to any
outstanding Series, a supplement to this Agreement complying with
the terms of Section 6.9 of this Agreement, executed in
conjunction with any issuance of Securities of such Series.
"Supplemental Accounts" shall have the meaning
specified in subsection 2.6(c).
"Supplemental Security" shall have the meaning
specified in subsection 6.9(d).
"Termination Notice" shall have, with respect to any
Series, the meaning specified in Section 10.1.
"Transfer" shall mean transfer, sell, exchange, pledge,
hypothecate, participate, assign or otherwise dispose, in whole
or in part.
"Transfer Agent and Registrar" shall have the meaning
specified in Section 6.3 (a) and shall initially be The Bank of
New York (Delaware).
"Transfer Date" shall mean, with respect to any Series,
the Business Day immediately prior to each Distribution Date.
"Transferor" shall mean Metris Receivables, Inc., a
corporation organized and existing under the laws of the State of
Delaware, and any successor thereto.
"Transferor Exchange" shall have the meaning specified
in subsection 6.9(b).
"Transferor Interest" shall mean, on any date of
determination, the aggregate amount of Principal Receivables at
the end of the day immediately prior to such date of
determination plus all amounts on deposit in the Excess Funding
Account (but not including investment earnings on such amounts)
at the end of such immediately preceding day, minus the Aggregate
Invested Amount at the end of such immediately preceding day.
"Transferor Percentage" shall mean, on any date of
determination, when used with respect to Principal Collections,
Finance Charge Collections and Receivables in Defaulted Accounts,
a percentage equal to 100% minus the Aggregate Investor
Percentage with respect to such categories of Receivables.
"Transferor Retained Class" shall mean any Class of
Investor Securities of any Series which the Transferor retained
pursuant to the terms of any Supplement.
"Transferor Retained Securities" shall mean Investor
Securities of any Series which the Transferor is required to
retain pursuant to the terms of any Supplement.
"Transferred Account" shall mean an Account with
respect to which a new credit account number has been issued by
the applicable Credit Card Originator under circumstances
resulting from a lost or stolen credit card and not requiring
standard application and credit evaluation procedures under the
Credit and Collection Policy.
"Trigger Event" shall have the meaning specified in
subsection 9.2(a).
"Trust" shall mean the trust created by this Agreement,
the corpus of which shall consist of the Trust Property.
"Trust Extension" shall have the meaning specified in
subsection 12.1(a).
"Trust Pay Out Event" shall have, with respect to each
Series, the meaning specified in Section 9.1.
"Trust Property" shall have the meaning specified in
Section 2.1.
"Trust Termination Date" shall mean the earliest to
occur of (i) unless a Trust Extension shall have occurred, the
day after the Distribution Date with respect to any Series
following the date on which funds shall have been deposited in
the Distribution Account or the applicable Series Account for the
payment of Investor Securityholders of each Series then issued
and outstanding sufficient to pay in full the Aggregate Invested
Amount plus interest accrued at the applicable Security Rate
through the end of the day prior to the Distribution Date with
respect to each such Series and certain other amounts as may be
specified in any Series Supplement, (ii) if a Trust Extension
shall have occurred, the Extended Trust Termination Date, and
(iii) the date specified in subsection 12.1(a).
"Trustee" shall mean The Bank of New York (Delaware), a
banking corporation organized and existing under the laws of
Delaware, and its successors and any Person resulting from or
surviving any consolidation or merger to which it or its
successors may be a party and any successor trustee appointed as
herein provided.
"UCC" shall mean the Uniform Commercial Code, as
amended from time to time, as in effect in the applicable
jurisdiction.
"Undivided Interest" shall mean the undivided interest
in the Trust evidenced by an Investor Security.
"Variable Funding Securities" shall mean a Series of
Investor Securities, issued pursuant to Section 6.9 and a
Variable Funding Supplement, in one or more Classes.
"Variable Funding Supplement" shall mean a Supplement
executed in connection with the issuance of Variable Funding
Securities.
Section 1.2 Other Definitional Provisions.
(a) All terms defined in any Supplement or this
Agreement shall have the meanings ascribed to them herein when
used in any security, certificate or other document made or
delivered pursuant hereto unless otherwise defined therein.
(b) As used herein and in any security, certificate or
other document made or delivered pursuant hereto or thereto,
accounting terms not defined in Section 1.1, and accounting terms
partially defined in Section 1.1 to the extent not defined, shall
have the respective meanings given to them under generally
accepted accounting principles. To the extent that the
definitions of accounting terms herein are inconsistent with the
meanings of such terms under generally accepted accounting
principles, the definitions contained herein shall control.
(c) The agreements, representations and warranties of
DMCCB in this Agreement and in any Supplement in its capacity as
Servicer and of MRI in its capacity as Transferor shall be deemed
to be the agreements, representations and warranties of DMCCB and
MRI solely in each such capacity for so long as either of them
acts in each such capacity under this Agreement.
(d) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to any Supplement or this Agreement as a whole and not to any
particular provision of this Agreement or any Supplement; and
Section, subsection, Schedule and Exhibit references contained in
this Agreement or any Supplement are references to Sections,
subsections, Schedules and Exhibits in or to this Agreement or
any Supplement unless otherwise specified.
(e) The Daily Report and Settlement Statement shall be
in substantially the forms of Exhibits B and C, with such changes
as the Servicer may determine to be necessary or desirable;
provided, however, that no such change shall serve to exclude
information required by this Agreement or any Supplement and each
such change shall be reasonably acceptable to the Trustee. The
Servicer shall, upon making such determination and receiving the
consent of the Trustee to such change, deliver to the Trustee and
each Rating Agency an Officer's Certificate to which shall be
annexed the form of the related Exhibit, as so changed. Upon the
delivery of such Officer's Certificate to the Trustee, the
related Exhibit, as so changed, shall for all purposes of this
Agreement constitute such Exhibit. The Trustee may conclusively
rely upon such Officer's Certificate in determining whether the
related Exhibit, as changed, conforms to the requirements of this
Agreement.
[End of Article I]
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF SECURITIES
Section 2.1 Conveyance of Receivables. The Transferor
does hereby transfer, assign, set-over, and otherwise convey to
the Trust for the benefit of the Securityholders, without
recourse, all of its right, title and interest in, to and under
(i) the Receivables now existing and hereafter created and
arising in connection with the Accounts existing as of the
Initial Closing Date and any Additional Accounts, including
without limitation, all accounts, general intangibles, chattel
paper, contract rights, and other obligations of any Obligor with
respect to the Receivables, now or hereafter existing, (ii) all
monies and investments due or to become due with respect thereto
(including, without limitation, the right to any Finance Charge
Receivables, including any Recoveries), (iii) all proceeds of
such Receivables, (iv) the Purchase Agreement and (v) the Bank
Receivables Purchase Agreement to the extent that it relates to
the Receivables. Such property, together with all monies and
investments on deposit, from time to time, in the Collection
Account, the Excess Funding Account, the Series Accounts
maintained for the benefit of the Securityholders of any Series
of Securities, any Enhancement and all monies available under any
Enhancement, to be provided for any Series for payment to the
Securityholders of such Series, shall constitute the assets of
the Trust (collectively, the "Trust Property"). The foregoing
transfer, assignment, set-over and conveyance does not constitute
and is not intended to result in a creation or an assumption by
the Trust, the Trustee or any Investor Securityholder of any
obligation of the Transferor, the Servicer, the applicable Credit
Card Originator or any other Person in connection with the
Receivables or any agreement or instrument relating thereto,
including, without limitation, any obligation to any Obligors,
merchant banks, merchant clearance systems, VISA USA, Inc.,
MasterCard International Incorporated or insurers, or in
connection with the Purchase Agreement or the Bank Receivables
Purchase Agreement.
In connection with such transfer, assignment, set-over
and conveyance, the Transferor agrees to record and file, at its
own expense, one or more financing statements (including any
continuation statements with respect to such financing statements
when applicable) with respect to the Receivables now existing and
hereafter created for the transfer of accounts, chattel paper or
general intangibles (each as defined in Section 9-106 of the UCC
as in effect in the Relevant UCC State) meeting the requirements
of applicable state law in such manner and in such jurisdictions
as are necessary to perfect the assignment of the Receivables to
the Trust, and to deliver file-stamped copies of such financing
statements or continuation statements or other evidence of such
filing (which may, for purposes of this Section 2.1, consist of
facsimile confirmation of such filing) to the Trustee on or prior
to the date of issuance of the Securities, and in the case of any
continuation statements filed pursuant to this Section 2.1, as
soon as practicable after receipt thereof by the Transferor. The
foregoing transfer, assignment, set-over and conveyance to the
Trust shall be made to the Trustee, on behalf of the Trust, and
each reference in this Agreement to such transfer, assignment,
set-over and conveyance shall be construed accordingly.
To the extent that the transfer of the Receivables from
the Transferor to the Trust hereunder may be characterized as a
pledge rather than as a sale, the Transferor hereby grants and
transfers to the Trustee for the benefit of the Securityholders a
first priority perfected security interest in all of the
Transferor's right, title and interest in, to and under the Trust
Property to secure a loan in an amount equal to the unpaid
principal amount of the Investor Securities issued hereunder or
to be issued pursuant to this Agreement and the interest accrued
thereon at the related Security Rate and to secure all of the
Transferor's and Servicer's obligations hereunder, including,
without limitation, the Transferor's obligation to transfer
Receivables hereafter created or acquired to the Trust (the
"Secured Obligations"), and agrees that this Agreement shall
constitute a security agreement under applicable law.
Section 2.2 Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance, on
behalf of the Trust, of all right, title and interest previously
held by the Transferor in, to and under the Trust Property and
declares that it shall maintain such right, title and interest,
upon the Trust herein set forth, for the benefit of all
Securityholders.
(b) The Trustee shall have no power to create, assume
or incur indebtedness or other liabilities in the name of the
Trust other than as contemplated in this Agreement.
Section 2.3 Representations and Warranties of the
Transferor. The Transferor hereby represents and warrants to the
Trustee, on behalf of the Trust, as of the Initial Closing Date,
as of the Amendment Closing Date and, with respect to any Series
of Securities, as of the date of the related Supplement and the
related Closing Date for such Series:
(a) Organization and Good Standing. The Transferor is
a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware and has the
corporate power and authority and legal right to own its
properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to
execute, deliver and perform its obligations under this Agreement
and the Purchase Agreement and to execute and deliver to the
Trustee the Securities pursuant hereto.
(b) Due Qualification. The Transferor is duly
qualified to do business and is in good standing (or is exempt
from such requirements) as a foreign corporation in any state
required in order to conduct its business, and has obtained all
necessary licenses and approvals with respect to the Transferor
required under federal and Delaware law; provided, however, that
no representation or warranty is made with respect to any
qualifications, licenses or approvals which the Trustee would
have to obtain to do business in any state in which the Trustee
seeks to enforce any Receivable.
(c) Due Authorization. The execution and delivery of
this Agreement and the Purchase Agreement and the consummation of
the transactions provided for herein and therein, have been duly
authorized by the Transferor by all necessary corporate action on
its part.
(d) Binding Obligation. Each of this Agreement and
the Purchase Agreement, and the consummation of the transactions
provided for herein and therein, constitutes a legal, valid, and
binding obligation of the Transferor, enforceable in accordance
with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereinafter in effect, affecting the
enforcement of creditors' rights in general and as such
enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity).
(e) No Conflicts. The execution and delivery of this
Agreement and the Purchase Agreement and the performance of the
transactions contemplated hereby and thereby, do not (i)
contravene the Transferor's charter or bylaws, (ii) violate any
material provision of law applicable to it or require any filing
(except for the filings under the UCC), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect
having applicability to the Transferor, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect.
(f) Taxes. Except as specified on Schedule 1, the
Transferor and each prior owner of the Receivables has filed all
material tax returns required to be filed and has paid or made
adequate provision for the payment of all material taxes,
assessments and other governmental charges due from the
Transferor or such prior owner or is contesting any such tax,
assessment or other governmental charge in good faith through
appropriate proceedings.
(g) No Violation. The execution and delivery of this
Agreement and the Purchase Agreement and the execution and
delivery to the Trustee of the Securities, the performance of the
transactions contemplated by this Agreement and the Purchase
Agreement and the fulfillment of the terms hereof and thereof
will not violate any Requirements of Law applicable to the
Transferor, will not violate, result in any breach of any of the
material terms and provisions of, or constitute (with or without
notice or lapse of time or both) a default under any Requirement
of Law applicable to the Transferor or any material indenture,
contract, agreement, mortgage, deed of trust or other material
instrument to which the Transferor is a party or by which it or
its properties are bound.
(h) No Proceedings. There are no proceedings or
investigations pending or, to the best knowledge of the
Transferor, threatened against the Transferor, before any
Governmental Authority (i) asserting the invalidity of this
Agreement and the Purchase Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated hereby or
thereby, (iii) seeking any determination or ruling that would
materially and adversely affect the performance by the Transferor
of its obligations thereunder, (iv) seeking any determination or
ruling that would materially and adversely affect the validity or
enforceability thereof or (v) seeking to affect adversely the tax
attributes of the Trust.
(i) All Consents Required. All approvals,
authorizations, consents, orders or other actions of any
Governmental Authority required in connection with the execution
and delivery of this Agreement, the Purchase Agreement and the
Securities, the performance of the transactions contemplated by
this Agreement and the Purchase Agreement and the fulfillment of
the terms hereof and thereof, have been obtained.
(j) Bona Fide Receivables. Each Receivable is or will
be an account receivable arising out of the performance by the
applicable Credit Card Originator in accordance with the terms of
the Contract giving rise to such Receivable. The Transferor has
no knowledge of any fact which should have led it to expect at
the time of the classification of any Receivable as an Eligible
Receivable that such Receivable would not be paid in full when
due, and each Receivable classified as an Eligible Receivable by
the Transferor in any document or report delivered under this
Agreement satisfies the requirements of eligibility contained in
the definition of Eligible Receivable set forth in this
Agreement.
(k) Place of Business. The principal executive
offices of the Transferor are in Minnetonka, Minnesota, and the
offices where the Transferor keeps its records concerning the
Receivables and related Contracts are in Hennepin County,
Minnesota and St. Cloud, Minnesota.
(l) Use of Proceeds. No proceeds of the issuance of
any Security will be used by the Transferor to purchase or carry
any margin security.
(m) Pay Out Event. No Pay Out Event and no condition
that with the giving of notice and/or the passage of time
constitutes a Pay Out Event (a "Prospective Pay Out Event") has
occurred and is continuing.
(n) Not an Investment Company. The Transferor is not
an "investment company" within the meaning of the Investment
Company Act, or is exempt from all provisions of such Act.
(o) Solvency. The Transferor is not insolvent and
will not be rendered insolvent upon the transfer of the
Receivables to the Trust.
The representations and warranties set forth in this
Section 2.3 shall survive the transfer and assignment of the
respective Receivables to the Trust, and termination of the
rights and obligations of the Servicer pursuant to Section 10.1.
The Transferor hereby represents and warrants to the Trust, with
respect to any Series of Securities, as of its Closing Date,
unless otherwise stated in the related Supplement, that the
representations and warranties of the Transferor set forth in
Section 2.3, are true and correct as of such date (and for the
purposes of such representations and warranties, "Securities"
shall mean the Securities issued on the related Closing Date) and
that each representation and warranty set forth in this Section
2.3 and in Section 2.4(a)(i) with respect to the Agreement shall
be made at such time with respect to the applicable Supplement.
Upon discovery by the Transferor, the Servicer or a Responsible
Officer of the Trustee of a breach of any of the foregoing
representations and warranties, the party discovering such breach
shall give prompt written notice to the others.
Section 2.4 Representations and Warranties of the
Transferor Relating to the Agreement and the Receivables.
(a) Binding Obligation; Valid Transfer and Assignment.
The Transferor hereby represents and warrants to the Trustee, on
behalf of the Trust, that, as of the Initial Closing Date, as of
the Amendment Closing Date and, with respect to any Series of
Securities, as of the date of its related Supplement and Closing
Date, and, with respect to any matters involving Additional
Accounts, as of the date the Receivables of such Accounts are
first designated for inclusion in the Trust:
(i) The Purchase Agreement and this Agreement
each constitutes the legal, valid and binding obligation of
the Transferor, enforceable against the Transferor in
accordance with its terms, except (A) as such enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or
hereafter in effect, affecting the enforcement of creditors'
rights in general, and (B) as such enforceability may be
limited by general principles of equity (whether considered
in a suit at law or in equity).
(ii) The transfer of Receivables by the
Transferor to the Trust under this Agreement constitutes
either (A) a valid transfer, assignment, set-over and
conveyance to the Trust of all right, title and interest of
the Transferor in and to the Trust Property, and such Trust
Property will be held by the Trust free and clear of any
Lien of any Person claiming through or under the Transferor
or any of its Affiliates except for (x) Permitted Liens, (y)
the interest of the Transferor as Holder of the Exchangeable
Transferor Security and any other Class of Securities held
by the Transferor from time to time and (z) the Transferor's
right, if any, to interest accruing on, and investment
earnings, if any, in respect of any Interest Funding
Account, any Principal Account, the Excess Funding Account,
or any Series Account, as provided in this Agreement or the
related Supplement, or (B) a grant of a first priority
security interest (as defined in the UCC as in effect in the
Relevant UCC State) in, to and under the Trust Property,
which grant is enforceable with respect to the existing
Receivables and any Receivables in Additional Accounts
designated for inclusion in the Trust (other than
Receivables in Supplemental Accounts) and the proceeds
thereof upon execution and delivery of this Agreement, and
which will be enforceable with respect to such Receivables
hereafter created and the proceeds thereof, upon such
creation. If this Agreement constitutes the grant of a
security interest to the Trust in such property, upon the
filing of the financing statement described in Section 2.1
and in the case of the Receivables hereafter created and
proceeds thereof, upon such creation, the Trust shall have a
first priority perfected security interest in such property,
except for Permitted Liens. Except as contemplated in this
Agreement or any Supplement, neither the Transferor nor any
Person claiming through or under the Transferor shall have
any claim to or interest in the Collection Account, any
Principal Account, any Interest Funding Account, the
Distribution Account, the Excess Funding Account, any
principal funding account for any Series or any other Series
Account, except for the Transferor's rights to receive
interest accruing on, and investment earnings in respect of,
any such account as provided in this Agreement (or, if
applicable, any Series Account as provided in any
Supplement) and, if this Agreement constitutes the grant of
a security interest in such property, except for the
interest of the Transferor in such property as a debtor for
purposes of the UCC as in effect in the Relevant UCC State.
The Purchase Agreement constitutes a valid transfer,
assignment, set-over and conveyance to the Transferor of all
right, title and interest of Metris in and to the
Receivables purported to be sold thereunder, whether then
existing or thereafter created in the applicable Accounts
and the proceeds thereof.
(iii) The Transferor is (or, with respect to
Receivables arising after the date hereof, will be) the
legal and beneficial owner of all right, title and interest
in and to each Receivable and each Receivable has been or
will be transferred to the Trust free and clear of any Lien
other than Permitted Liens.
(iv) All consents, licenses, approvals or
authorizations of or registrations or declarations with any
Governmental Authority required in connection with the
transfer of Trust Property to the Trust have been obtained.
(v) Each Account classified as an "Eligible
Account" by the Transferor in any document or report
delivered hereunder will satisfy the requirements contained
in the definition of Eligible Account as of the time of such
document or report and each Receivable classified as an
"Eligible Receivable" by the Transferor in any document or
report delivered hereunder will satisfy the requirements
contained in the definition of Eligible Receivable as of the
time of such document or report.
(vi) Each Receivable then existing has been
conveyed to the Trust free and clear of any Lien of any
Person claiming through or under the Transferor or any of
its Affiliates (other than Permitted Liens) and in
compliance, in all material respects, with all Requirements
of Law applicable to the Transferor.
(b) Daily Representations and Warranties. On each day
on which any new Receivable is purchased by the Transferor, the
Transferor shall be deemed to represent and warrant to the Trust
that (A) each Receivable purchased by the Transferor on such day
has been conveyed to the Trust in compliance, in all material
respects, with all Requirements of Law applicable to the
Transferor and free and clear of any Lien of any Person claiming
through or under the Transferor or any of its Affiliates (other
than Permitted Liens) and (B) with respect to each such
Receivable, all consents, licenses, approvals or authorizations
of or registrations or declarations with, any Governmental
Authority required to be obtained, effected or given by the
Transferor in connection with the conveyance of such Receivable
to the Trust have been duly obtained, effected or given and are
in full force and effect.
(c) Notice of Breach. The representations and
warranties set forth in this Section 2.4 shall survive the
transfer and assignment of the respective Receivables to the
Trust. Upon discovery by the Transferor, the Servicer or a
Responsible Officer of the Trustee of a breach of any of the
representations and warranties set forth in this Section 2.4, the
party discovering such breach shall give prompt written notice to
the other parties mentioned above. The Transferor agrees to
cooperate with the Servicer and the Trustee in attempting to cure
any such breach.
(d) Designation of Ineligible Receivables. In the
event of a breach with respect to a Receivable of any
representations and warranties set forth in subsection 2.3(j) or
subsections 2.4(a)(iii) through (vi) or subsection 2.4(b), or in
the event that a Receivable is not an Eligible Receivable on the
date of its transfer to the Trust as a result of the failure to
satisfy the conditions set forth in the definition of Eligible
Receivable, such Receivable shall be designated an "Ineligible
Receivable" and shall be assigned a principal balance of zero for
the purpose of determining the aggregate amount of Principal
Receivables on any day; provided, however, that if such
representations and warranties with respect to such Receivable
shall subsequently be true and correct in all material respects
as if such Receivable had been created on such day or such
Receivable shall subsequently satisfy the conditions set forth in
the definition of Eligible Receivable, such Receivable shall be
designated an Eligible Receivable, and such Principal Receivables
shall be included in determining the Aggregate Principal
Receivables on such day. On and after the date of its
designation as an Ineligible Receivable, each Ineligible
Receivable shall not be given credit in determining the aggregate
amount of Principal Receivables used in the calculation of any
Investor Percentage, the Transferor Percentage or the Transferor
Interest. In the event that on any Business Day the exclusion of
an Ineligible Receivable from the calculation of the Transferor
Interest would cause the Transferor Interest to be reduced below
the Minimum Transferor Interest, the Transferor shall immediately
make a deposit in the Excess Funding Account (for allocation as a
Principal Receivable) in immediately available funds prior to the
next succeeding Business Day in an amount equal to the amount by
which the Transferor Interest would be reduced below the Minimum
Transferor Interest as a result of the exclusion of such
Ineligible Receivable. The portion of such deposit allocated to
the Investor Securities of each Series shall be distributed to
the Investor Securityholders of each Series in the manner
specified in Article IV.
(e) Reassignment of Trust Portfolio. In the event of
a breach of any of the representations and warranties set forth
in subsections 2.3(a), (b) and (c) and 2.4(a)(i) and (ii) with
respect to any Series, either the Trustee or the Holders of
Investor Securities evidencing Undivided Interests aggregating
more than 50% of the aggregate Invested Amount of such Series, by
notice then given in writing to the Transferor (and to the
Trustee and the Servicer, if given by the Investor
Securityholders of such Series), may direct the Transferor to
accept reassignment of an amount of Principal Receivables equal
to the face amount of the Invested Amount to be repurchased (as
specified below) within 60 days of such notice (or within such
longer period as may be specified in such notice), and the
Transferor shall be obligated to accept reassignment of such
Receivables on a Distribution Date specified by the Transferor
(such Distribution Date, the "Reassignment Date") occurring
within such applicable period on the terms and conditions set
forth below; provided, however, that no such reassignment shall
be required to be made, and no notice of such reassignment may be
given, if, at any time during such applicable period, the
representations and warranties contained in subsections 2.3(a),
(b) and (c) and subsections 2.4(a)(i) and (ii) shall then be true
and correct in all material respects. The Transferor shall, on
the Transfer Date (in next day funds) preceding the Reassignment
Date, deposit an amount equal to the reassignment deposit amount
for such Series in the related Distribution Account or Series
Account, as provided in the related Supplement, for distribution
to the Investor Securityholders pursuant to Article XII. The
reassignment deposit amount with respect to any Series, unless
otherwise stated in the related Supplement, shall be equal to (i)
the Invested Amount of such Series at the end of the day on the
Business Day preceding the Reassignment Date (provided, however,
that with respect to any Series issued pursuant to a Variable
Funding Supplement such amount shall be the Invested Amount of
such Series as of the Reassignment Date, less the amount, if any,
previously allocated for payment of principal to such
Securityholders on the related Reassignment Date, in the Monthly
Period in which the Reassignment Date occurs), plus (ii) an
amount equal to all interest accrued but unpaid on the Investor
Securities of such Series at the applicable Security Rate through
such last day, less the amount, if any, previously allocated for
payment of interest to the Securityholders of such Series on the
related Distribution Date in the Monthly Period in which the
Reassignment Date occurs plus any other amounts accrued and owing
as specified in the applicable Supplement. Payment of the
reassignment deposit amount with respect to any Series, and all
other amounts in the Distribution Account or the applicable
Series Account in respect of the preceding Monthly Period, shall
be considered a prepayment in full of the Receivables represented
by the Investor Securities of such Series. On the Distribution
Date following the Transfer Date on which such amount has been
deposited in full into the Distribution Account or the applicable
Series Account, the Receivables and all monies due or to become
due with respect thereto and all proceeds of the Receivables
shall be released to the Transferor after payment of all amounts
otherwise due hereunder on or prior to such dates and the Trustee
shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, representation or
warranty, as shall be prepared by and as are reasonably requested
by the Transferor to vest in the Transferor, or its designee or
assignee, all right, title and interest of the Trust in and to
such Receivables, all monies due or to become due with respect
thereto and all proceeds of such Receivables allocated to such
Receivables pursuant to the related Supplement. If the Trustee
or the Investor Securityholders of any Series give notice
directing the Transferor to accept reassignment as provided
above, the obligation of the Transferor to accept reassignment of
the applicable Receivables and pay the reassignment deposit
amount pursuant to this subsection 2.4(e) shall constitute the
sole remedy respecting a breach of the representations and
warranties contained in subsections 2.3(a), (b) and (c) and
2.4(a)(i) and (ii) available to the Investor Securityholders of
such Series or the Trustee on behalf of the Investor
Securityholders of such Series. The Trustee shall have no duty
to conduct any affirmative investigation as to the occurrence of
any condition requiring the repurchase of any Receivable by the
Transferor pursuant to this Agreement or any Supplement or the
eligibility of any Receivable for purposes of this Agreement or
any Supplement.
Section 2.5 Covenants of the Transferor. The
Transferor hereby covenants that:
(a) Receivables to be Accounts, Chattel Paper or
General Intangibles. The Transferor will take no action to cause
any Receivable to be evidenced by any instrument (as defined in
the UCC as in effect in the Relevant UCC State), except in
connection with the enforcement or collection of a Receivable.
Except in such circumstances, the Transferor will take no action
to cause any Receivable to be anything other than an "account,"
"chattel paper" or a "general intangible" (as defined in the UCC
as in effect in the Relevant UCC State).
(b) Security Interests. Except for the conveyances
hereunder, the Transferor will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Lien, on any Receivable, whether now existing
or hereafter created, or any interest therein; the Transferor
will immediately notify the Trustee of the existence of any Lien
on any Receivable; and the Transferor shall defend the right,
title and interest of the Trust in, to and under the Receivables,
whether now existing or hereafter created, against all claims of
third parties claiming through or under the Transferor; provided,
however, that nothing in this subsection 2.5(b) shall prevent or
be deemed to prohibit the Transferor from suffering to exist upon
any of the Receivables any Permitted Lien.
(c) Delivery of Collections. In the event that the
Transferor receives Collections, the Transferor agrees to deposit
such Collections into the Collection Account as soon as
practicable after the receipt thereof, but in no event later than
two Business Days after receipt thereof.
(d) Notice of Liens. The Transferor shall notify the
Trustee promptly after becoming aware of any Lien on any
Receivable other than Permitted Liens.
(e) Enforcement of Purchase Agreements. The
Transferor agrees to take all action necessary and appropriate to
enforce its rights and claims under the Purchase Agreement and
the Bank Receivables Purchase Agreement.
(f) Separate Business. The Transferor will not permit
its assets to be commingled with those of either DMCCB or Metris
and the Transferor shall maintain separate corporate records,
books of account and bank accounts from those of either DMCCB or
Metris. The Transferor will not conduct its business in the name
of either DMCCB or Metris and will cause either DMCCB or Metris
to conduct its business solely in its own name so as not to
mislead others as to the identity of the entity with which those
others are concerned. The Transferor will provide for its own
operating expenses and liabilities from its own funds, except
that the organizational expenses of the Transferor may be paid by
either DMCCB or Metris. The Transferor will not hold itself out,
or permit itself to be held out, as having agreed to pay, or as
generally being liable for, the debts of either DMCCB or Metris.
The Transferor shall cause either DMCCB or Metris not to hold
itself out, or permit itself to be held out, as having agreed to
pay, or as generally being liable for, the debts of the
Transferor except that the organizational expenses of the
Transferor may be paid by either DMCCB or Metris and that either
DMCCB or Metris will contribute to the Transferor on the Closing
Date a demand note. The Transferor will maintain an arm's length
relationship with either DMCCB or Metris with respect to any
transactions between the Transferor, on the one hand, and either
DMCCB or Metris, on the other.
(g) Purchase Agreement Notices. The Transferor (i)
shall promptly give the Trustee copies of any notices, reports or
certificates given or delivered to the Transferor under the
Purchase Agreement, (ii) shall not, without the consents,
approvals and opinions, if any, required by Section 13.1, as if
Section 13.1 related to the Purchase Agreement rather than this
Agreement, enter into any amendment, supplement or other
modification to, or waiver of any provision of, the Purchase
Agreement and (iii) shall not permit the addition or removal of
an Account or a Receivable to or from the operation of the
Purchase Agreement unless there is a corresponding right or
obligation of the Transferor to add or remove such Account or
Receivable to or from the Trust.
Section 2.6 Addition of Accounts.
(a) Except for Excluded Accounts, all revolving credit
consumer credit card accounts which meet the definition of
Additional Accounts shall be included as Accounts from and after
the date upon which the Credit Card Originator acquires rights in
such Additional Accounts and all Receivables in such Additional
Accounts, whether such Receivables are then existing or
thereafter created, shall be transferred automatically to the
Trust. For all purposes of this Agreement, all receivables of
such Additional Accounts shall be treated as Receivables upon the
Credit Card Originator acquiring rights therein.
(b) Notwithstanding the foregoing, the Transferor
may elect at any time, or may be required pursuant to subsection
2.6(g), to suspend the automatic inclusion in Accounts of new
accounts which would otherwise be Additional Accounts as of any
Business Day (the "Automatic Addition Suspension Date"), or
terminate any such inclusion as of any Business Day (an
"Automatic Addition Termination Date") until a date (the "Restart
Date") to be identified in writing by the Transferor to the
Trustee, the Servicer and each Rating Agency at least 10 days
prior to such Restart Date. Promptly after an Automatic Addition
Suspension Date or any Automatic Addition Termination Date, or a
Restart Date, the Transferor and the Trustee agree to execute and
the Transferor agrees to record and file at its own expense an
amendment to the financing statements referred to in Section 2.1
hereof to specify the accounts then subject to this Agreement
(which specification may incorporate a list of accounts by
reference) and may, except in connection with any such filing
made after a Restart Date, release any security interest in any
accounts created after the Automatic Addition Suspension Date or
any Automatic Addition Termination Date. In connection with any
Restart Date, the Transferor shall take all actions necessary to
grant the Trust a valid and perfected security interest in all
credit card accounts in which the Transferor acquired rights
since the preceding Automatic Addition Suspension Date.
(c) If the Transferor has elected to terminate or
suspend the inclusion of Additional Accounts and (i) on the tenth
Business Day prior to any Determination Date, the Transferor
Interest for the related Monthly Period is less than the Minimum
Transferor Interest, the Transferor shall designate additional
credit card accounts ("Supplemental Accounts") to be included as
Accounts in a sufficient amount such that the Transferor Interest
as a percentage of the Aggregate Principal Receivables for such
Monthly Period after giving effect to such addition is at least
equal to the Minimum Transferor Interest, or on any Record Date,
the Aggregate Principal Receivables is less than the Minimum
Aggregate Principal Receivables, the Transferor shall designate
Supplemental Accounts to be included as Accounts in a sufficient
amount such that the Aggregate Principal Receivables will be
equal to or greater than the Minimum Aggregate Principal
Receivables. Receivables from such Supplemental Accounts shall
be transferred to the Trust on or before the tenth Business Day
following such Record Date. On any day on which the Receivables
in Supplemental Accounts are to be transferred to the Trust, the
Receivables in such Accounts shall be included as Eligible
Receivables if they satisfy the requirements of the definition
of "Eligible Receivables".
(d) In addition to its obligation under subsection
2.6(c), the Transferor may, by giving ten Business Days notice to
the Trustee and each Rating Agency, but shall not be obligated
to, designate from time to time Supplemental Accounts of the
Transferor to be included as Accounts.
(e) Unless otherwise specified in a Series Supplement,
the Transferor agrees that any such transfer of Receivables from
Supplemental Accounts, under subsection 2.6(c) or (d), shall
satisfy the following conditions (to the extent provided below):
(i) on or before the fifth Business Day prior to
the Addition Date with respect to additions pursuant to
subsection 2.6(c) and on or before the twentieth Business
Day prior to the Addition Date with respect to additions
pursuant to subsection 2.6(d) (as applicable, the "Notice
Date"), the Transferor shall give the Trustee, each Rating
Agency and the Servicer written notice that such
Supplemental Accounts will be included, which notice shall
specify the approximate aggregate amount of the Receivables
to be transferred;
(ii) on or before the applicable Addition Date,
the Transferor shall have delivered to the Trustee a written
assignment (including an acceptance by the Trustee on behalf
of the Trust for the benefit of the Investor
Securityholders) in substantially the form of Exhibit H (the
"Assignment") and the Transferor shall have indicated in its
computer files that the Receivables created in connection
with the Supplemental Accounts have been transferred to the
Trust and, within five Business Days thereafter, the
Transferor shall have delivered to the Trustee or the bailee
of the Trustee a computer file or microfiche list containing
a true and complete list of all Supplemental Accounts,
identified by account number and the Principal Receivables
in such Supplemental Accounts, as of the Addition Date,
which computer file or microfiche list shall be as of the
date of such Assignment incorporated into and made a part of
such Assignment;
(iii) the Transferor shall represent and warrant
that (x) no selection procedure that is materially adverse
to the interests of the Investor Securityholders was
utilized in selecting the Supplemental Accounts and (y) as
of the applicable Addition Date, the Transferor is not
insolvent and will not be rendered insolvent upon the
transfer of Receivables to the Trust;
(iv) the Transferor shall represent and warrant
that, as of the Addition Date, the Assignment constitutes
either (x) a valid transfer and assignment to the Trust of
all right, title and interest of the Transferor in and to
(A) the Receivables then existing and thereafter created and
arising in connection with the Accounts and any accounts
that meet the definition of Additional Accounts, including,
without limitation, all accounts, general intangibles,
chattel paper, contract rights, and other obligations of any
Obligor with respect to the Receivables, now or hereafter
existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of
services, (B) all monies and investments due or to become
due with respect thereto (including, without limitation, the
right to any payment of interest and Finance Charge
Receivables, including any Recoveries), (C) all proceeds (as
defined in the UCC as in effect in the Relevant UCC State)
of such Receivables, (D) the Purchase Agreement and (E) the
Bank Receivables Purchase Agreement, and such Receivables
and all proceeds thereof will be held by the Trust free and
clear of any Lien of any Person claiming through or under
the Transferor or any of its Affiliates, except for (i)
Permitted Liens, (ii) the interest of the Transferor as
Holder of the Exchangeable Transferor Security and any other
Class or Series of Securities and (iii) the Transferor's
right, if any, to receive interest accruing on, and
investment earnings, if any, in respect of, any Interest
Funding Account and any Principal Account, the Excess
Funding Account or any Series Account as provided in this
Agreement and any related Supplement or (y) a grant of a
security interest (as defined in the UCC as in effect in the
Relevant UCC State) in such property to the Trust, which is
enforceable with respect to then existing Receivables of the
Supplemental Accounts, the proceeds (as defined in the UCC
as in effect in the Relevant UCC State) thereof upon the
conveyance of such Receivables to the Trust, and which will
be enforceable with respect to the Receivables thereafter
created in respect of Supplemental Accounts conveyed on such
Addition Date and the proceeds (as defined in the UCC as in
effect in the Relevant UCC State) thereof upon such
creation; and (z) if the Assignment constitutes the grant of
a security interest to the Trust in such property, upon the
filing of a financing statement as described in Section 2.1
with respect to such Supplemental Accounts and in the case
of the Receivables thereafter created in such Supplemental
Accounts and the proceeds (as defined in the UCC as in
effect in the Relevant UCC State) thereof, upon such
creation, the Trust shall have a first priority perfected
security interest in such property, except for Permitted
Liens;
(v) the Transferor shall deliver to the Trustee
an Officer's Certificate substantially in the form of
Schedule 2 to Exhibit H confirming the items set forth in
paragraph (ii) above;
(vi) the Transferor shall deliver to the Trustee
an Opinion of Counsel with respect to the Receivables in the
Supplemental Accounts (with a copy to the Rating Agencies)
substantially in the form of Exhibit I; and
(vii) the Transferor shall have received written
notice from the Rating Agencies that the inclusion of such
accounts as Supplemental Accounts pursuant to subsection
2.6(c) or (d), as the case may be, will not result in the
reduction or withdrawal of its then existing rating of any
Class of any Series of Investor Securities then issued and
outstanding and shall have delivered such notice to the
Trustee.
(f) The Transferor shall be permitted to designate
Additional Accounts with respect to any Monthly Period (the
"Current Monthly Period") prior to the last day of the May 1996
Monthly Period pursuant to subsection 2.6(a) of the Agreement,
without limitation, provided, however, that with respect to each
Monthly Period beginning with the September 1995 Monthly Period:
(i) the arithmetic average for the three Monthly
Periods preceding the Current Monthly Period, of the
annualized percentage equivalent of a fraction for each
respective Monthly Period, the numerator of which is equal
to the Default Amount for the respective Monthly Period
(provided, however, that the Default Amount with respect to
each Default Recognition Date shall be deemed to apply to
the Monthly Period ending closest to such Default
Recognition Date) and the denominator of which is equal to
the average amount of Aggregate Principal Receivables
outstanding on each day during such Monthly Period, is less
than 6%;
(ii) the arithmetic average for the three Monthly
Periods preceding the Current Monthly Period, of the
percentage (the "Payment Rate Percentage") equivalent of a
fraction for each respective Monthly Period, the numerator
of which is equal to the amount of Collections received
during the respective Monthly Period and the denominator of
which is equal to the Aggregate Principal Receivables as of
the first day of the respective Monthly Period, is greater
than or equal to 6%; or
i the weighted average of the Portfolio Yields for each Series
then outstanding for the three Monthly Periods preceding the
Current Monthly Period minus the weighted average of the Base
Rates for each Series then outstanding for such three Monthly
Periods (the "Excess Spread Percentage") is greater than or equal
to 4%.
(iv) Standard & Poor's shall not have notified the
Transferor that the continued addition of Additional
Accounts pursuant to this subsection 2.6(e) will result in a
reduction or withdrawal of the then current rating of any
Class by Standard & Poor's.
In the event that as of any date of determination prior to last
day of the May 1996 Monthly Period any of the conditions in
clauses (i) through (iii) listed above is not met, and with
respect to each Monthly Period after the May 1996 Monthly Period
this subsection 2.6(f) shall no longer apply and the conditions
of subsection 2.6(g) shall apply. On or before the later of (x)
the last day of the September 1995 Monthly Period, the December
1995 Monthly Period and the March 1996 Monthly Period or (y) in
each case the tenth day following receipt of the settlement
statement for the prior Monthly Period, Standard & Poor's shall
determine whether a Ratings Event shall have occurred in
connection with the addition of Additional Accounts during the
three consecutive Monthly Periods ending in August, November and
February preceding such date. Upon the occurrence of a Ratings
Event in connection with the addition of Additional Accounts this
subsection 2.6(f) shall no longer apply and the conditions of
subsection 2.6(g) shall apply.
(g) Unless each Rating Agency otherwise consents to the
continued automatic addition of accounts, on and after the
beginning of the June 1996 Monthly Period, the Transferor shall
be required to cease the automatic addition of accounts and
notify the Trustee, the Servicer and each Rating Agency of the
Automatic Addition Suspension Date in the following
circumstances: the number of Accounts the Receivables of which
are designated to be included in the Trust pursuant to subsection
2.6(a) since (i) the first day of the eleventh preceding Monthly
Period (or, in the case of any date on which Additional Accounts
are to be added to the Trust which occurs on or before the last
day of the May 1997 Monthly Period, June 1, 1996) minus the
number of Accounts of the type described in clause (ii) of the
definition of "Approved Account" which have been added on the
initial day of the addition of such type of Account pursuant to
such clause (ii) since the first day of such eleventh preceding
Monthly Period (or June 1, 1996, as the case may be) shall not
exceed 20% of number of Accounts on the first day of such
eleventh preceding Monthly Period (or June 1, 1996, as the case
may be), and (ii) the first day of the second preceding Monthly
Period (or, in the case of any date on which Additional Accounts
are to be added to the Trust which occurs on or before the last
day of the August 1996 Monthly Period, June 1, 1996) minus the
number of Accounts of the type described in clause (ii) of the
definition of "Approved Accounts" have been added on the initial
day of the addition of such type of Account pursuant to such
clause (ii) since the first day of such second preceding Monthly
Period (or June 1, 1996, as the case may be) shall not exceed 15%
of the number of Accounts on the first day of such second
preceding Monthly Period (or June 1, 1996, as the case may be).
(h) The Transferor may designate revolving credit consumer
credit card accounts which would otherwise be Additional Accounts
as Excluded Accounts by the Transferor delivering to the Trustee
a written notice clearly identifying such excluded accounts. If
such designation is made after the Trust acquires rights in such
Accounts, such designation shall only occur in accordance with
the provisions of Section 2.7 hereof.
Section 2.7 Removal of Accounts.
(a) On each Determination Date that the Transferor Interest
for the related Monthly Period exceeds the Minimum Transferor
Interest with respect to such Determination Date, the Trustee
shall be deemed to have offered to the Transferor automatically
and without any notice to or action by or on behalf of the
Trustee, as of such Determination Date, the right to remove from
the Trust all of the Trust's right, title and interest in, to and
under the Receivables then existing and thereafter created, all
monies then due or to become due and all amounts thereafter
received with respect thereto and all proceeds thereof in or with
respect to those Accounts designated by the Transferor (the
"Removed Accounts") in an aggregate amount not greater than the
lesser of (i) the excess of the Transferor Interest over the
Minimum Transferor Interest and (ii) the excess of Aggregate
Principal Receivables over the Minimum Aggregate Principal
Receivables. To accept such offer, the Transferor is required to
furnish to the Trustee and each Rating Agency written notice by
the fifth Business Day after the Determination Date specifying
the approximate aggregate amount of Principal Receivables covered
by the offer that the Transferor intends to accept. There shall
be no more than one such removal with respect to any Monthly
Period.
(b) In addition to the satisfaction of the conditions set
forth in subsection 2.7(a), the Transferor shall be permitted to
accept reassignment to it of the Receivables from Removed
Accounts only upon satisfaction of the following conditions:
(i) On each date specified by the Transferor for
removal of the Removed Accounts (a "Removal Date"), the
Transferor shall prepare and the Trustee shall execute and
deliver to the Transferor a written reassignment in
substantially the form of Exhibit J (the "Reassignment") and
the Transferor shall deliver to the Trustee or the bailee of
the Trustee a computer file or microfiche list containing a
true and complete schedule identifying all Accounts the
Receivables in which remain in the Trust specifying for each
such Account, as of the Removal Notice Date, its account
number and the principal balance of such Account. Such
computer file or microfiche list shall be incorporated into
and made part of this Agreement as of the date of such
Reassignment.
(ii) The Transferor shall represent and warrant as of
each Removal Notice Date that (a) the list of the Accounts
not removed from the Trust, as of the Removal Notice Date,
complies in all material respects with the requirements of
paragraph (i) above and (b) no selection procedure used by
the Transferor that is materially adverse to the interests
of the Investor Securityholders was utilized in selecting
the Removed Accounts.
(iii) The Transferor shall represent and warrant that
the removal of any Receivables in any Removed Accounts on
any Removal Date shall not, in the reasonable belief of the
Transferor, cause, immediately or with the passage of time,
a Pay Out Event to occur.
(iv) The Transferor shall have delivered at least 20
days' (or such lesser number as any Rating Agency may agree)
prior written notice (which may be given prior to the
Removal Date in expectation that the Trustee will make the
offer described in subsection 2.7(a)) of such removal to
each Rating Agency that has rated any outstanding Class of
any Series and the Trustee shall have received written
confirmation from each such Rating Agency that such Rating
Agency will not reduce or withdraw its rating on any
outstanding Class of any Series as a result of such removal.
(v) The Transferor shall have delivered to the Trustee
an Officer's Certificate confirming the Transferor's
compliance with the items set forth in paragraphs (i)
through (iv) above. The Trustee may conclusively rely on
such certificate, shall have no duty to make inquiries with
regard to the matters set forth therein and shall incur no
liability in so relying.
(c) Upon satisfaction of the conditions set forth in
subsections 2.7(a) and (b), the Trustee shall execute and deliver
the Reassignment to the Transferor, and the Receivables from the
Removed Accounts shall no longer constitute a part of the Trust.
Section 2.8 Discount Option. (a) The Transferor shall
have the option to designate a percentage, which may be a fixed
percentage or a variable percentage based on a formula (the
"Discount Percentage"), of Principal Receivables, without giving
effect to any discounting pursuant to this Section 2.8, arising
on or after the date of such designation, to be treated as
Finance Charge Receivables. The Transferor shall provide to the
Servicer, the Trustee, any Enhancement Provider and the Rating
Agency 15 days' prior written notice of such designation, and
such designation shall become effective on the date designated
therein (i) unless such designation in the reasonable belief of
the Transferor would cause a Pay Out Event to occur, or an event
which, with notice or the lapse of time or both, would constitute
a Pay Out Event and (ii) only if the Rating Agency shall have
delivered a letter to the Transferor and the Trustee confirming
that its then current rating of the Investor Securities of any
Series then outstanding will not be reduced or withdrawn as a
result of such designation.
(b) After the date on which the Transferor's exercise of
its discount option takes effect, and with respect to Receivables
generated on and after such date, the Transferor, in accordance
with Section 4.3, shall deposit into the Collection Account in
immediately available funds an amount equal to the amount of the
Discount Option Receivable Collections processed on such day.
The deposit made by the Transferor into the Collection Account
under the preceding sentence shall be considered a payment of
such Discount Option Receivables and shall be applied as Finance
Charge Receivables in accordance with Article IV.
Section 2.9 Covenants of the Transferor with Respect to the
Purchase Agreement. The Transferor, in its capacity as purchaser
of the Receivables from Metris or a Credit Card Originator
pursuant to the Purchase Agreement, hereby covenants that the
Transferor will at all times enforce the covenants and agreements
of each Credit Card Originator in the Bank Receivables Purchase
Agreement, including, without limitation, covenants to the effect
set forth below.
(a) Periodic Finance Charges and Other Fees. Except as
otherwise required by any Requirement of Law, or as is
deemed by the applicable Credit Card Originator in its sole
discretion to be necessary in order to maintain its credit
card business on a competitive basis, it shall not at any
time reduce the annual percentage rates of the Periodic
Finance Charges assessed on the Receivables or other fees
charged on any of the Accounts if, as a result of any such
reduction, either (i) the Transferor's reasonable
expectation is that such reduction will cause a Pay Out
Event to occur or (ii) such reduction is not also applied to
any comparable segment of consumer revolving credit card
accounts owned by such Credit Card Originator that have
characteristics the same as, or substantially similar to,
such Accounts.
(b) Credit and Collection Policy and Contracts. Each
Credit Card Originator shall comply with and perform its
obligations under the Contracts relating to the Accounts and
the Credit and Collection Policy except insofar as any
failure so to comply or perform would not materially and
adversely affect the rights of the Trust or the
Securityholders hereunder or under the Securities. Subject
to compliance with all Requirements of Law, a Credit Card
Originator may change the terms and provisions of the
Contracts or the Credit and Collection Policy with respect
to any of the Accounts in any respect (including the
calculation of the amount, or the timing, of charge-offs and
the Periodic Finance Charges and other fees to be assessed
thereon) only if in the reasonable judgment of the Credit
Card Originator (i) (if it owns a comparable segment of
receivables) such change is made applicable to any
comparable segment of the consumer revolving credit card
accounts owned by such Credit Card Originator which have
characteristics the same as, or substantially similar to,
such Accounts or (ii) (if it does not own such a comparable
segment of receivables) will not be made with the intent to
materially benefit the Transferor or the Credit Card
Originator over the Investor Securityholders or to
materially adversely affect the Investor Securityholders,
except as otherwise restricted by an endorsement,
sponsorship, or other agreement between the Transferor and
an unrelated third party or by the terms of the Contracts.
The Transferor further covenants that the Transferor will
not enter into any amendments to the Bank Receivables Purchase
Agreement or the Purchase Agreement that would cause a Ratings
Event to occur.
Section 2.10. Receivables in Defaulted Accounts. On the
date on which an Account becomes a Defaulted Account, the Trust
shall automatically and without further action or consideration
be deemed to transfer, set over, and otherwise convey to the
Transferor, without recourse, representation or warranty, all the
right, title and interest of the Trust in and to the Receivables
in such Defaulted Account, all monies due or to become due with
respect thereto, all proceeds of such Receivables allocable to
the Trust with respect to such Receivable, excluding Recoveries
relating thereto, which shall remain a part of the Trust
Property. On each Determination Date, the Servicer shall
calculate the aggregate Series Default Amount for the preceding
Monthly Period with respect to each Series.
[End of Article II]
ARTICLE III
ADMINISTRATION AND SERVICING
OF RECEIVABLES
Section 3.1 Acceptance of Appointment and Other Matters
Relating to the Servicer.
(a) DMCCB agrees to act as the Servicer under this
Agreement. The Investor Securityholders of each Series by their
acceptance of the related Securities consent to DMCCB acting as
Servicer. Notwithstanding the foregoing or any other provisions
of this Agreement or any Supplement, the Investor Securityholders
consent to an Affiliate of DMCCB acting as Servicer hereunder, in
full substitution thereof; provided that such Affiliate shall
expressly assume in writing (unless such assumption occurs by
operation of law), by an agreement supplemental hereto, executed
and delivered to the Trustee, the performance of every covenant
and obligation of the Servicer, as applicable hereunder, and
shall in all respects be designated the Servicer under this
Agreement; provided, further, that DMCCB will remain jointly and
severally liable with such Affiliate.
(b) The Servicer shall service and administer the
Receivables and shall collect payments due under the Receivables
in accordance with its customary and usual servicing procedures
and the Credit and Collection Policies and shall have full power
and authority, acting alone or through any party properly
designated by it hereunder, to do any and all things in
connection with such servicing and administration that it may
deem necessary or desirable. Without limiting the generality of
the foregoing and subject to Section 10.1, the Servicer is hereby
authorized and empowered (i) to make withdrawals from the
Collection Account as set forth in this Agreement, (ii) unless
such power and authority is revoked by the Trustee on account of
the occurrence of a Servicer Default pursuant to Section 10.1, to
instruct the Trustee in writing to make withdrawals and payments,
from any Interest Funding Account, the Excess Funding Account,
any Principal Account and any Series Account, in accordance with
such instructions as set forth in this Agreement, (iii) unless
such power and authority is revoked by the Trustee on account of
the occurrence of a Servicer Default pursuant to Section 10.1, to
instruct the Trustee in writing to take any action permitted or
required under any Enhancement at such time as set forth in this
Agreement and any Supplement, (iv) to execute and deliver, on
behalf of the Trust for the benefit of the Securityholders, any
and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable
instruments, with respect to the Receivables and, after the
delinquency of any Receivable and to the extent permitted under
and in compliance with applicable law and regulations, to
commence enforcement proceedings with respect to such
Receivables, (v) to make any filings, reports, notices,
applications, registrations with, and to seek any consents or
authorizations from, the Securities and Exchange Commission and
any state securities authority on behalf of the Trust as may be
necessary or advisable to comply with any federal or state
securities or reporting requirements and (vi) to delegate certain
of its service, collection, enforcement and administrative duties
hereunder with respect to the Accounts and the Receivables to any
Person who agrees to conduct such duties in accordance with the
Credit and Collection Policies; provided, however, that the
Servicer shall notify the Trustee in writing of any such
delegation; and provided further that the Servicer shall remain
jointly and severally liable with such Person. The Trustee
agrees that it shall promptly follow the instructions of the
Servicer or its delegate to withdraw funds from the Collection
Account, any Principal Account, any Interest Funding Account, the
Excess Funding Account, or any Series Account and to take any
action required under any Enhancement at such time as required
under this Agreement. The Trustee shall execute at the
Servicer's written request such documents prepared by the
Transferor and acceptable to the Trustee as the Servicer
certifies are necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties hereunder.
(c) The Servicer shall not be obligated to use separate
servicing procedures, offices or employees for servicing the
Receivables from the procedures, offices and employees used by
the Servicer in connection with servicing other credit card
receivables.
Section 3.2 Servicing Compensation. As compensation for
its servicing activities hereunder and reimbursement for its
expenses as set forth in the immediately following paragraph, the
Servicer shall be entitled to receive a servicing fee in respect
of each day prior to the termination of the Trust pursuant to
Section 12.1 (the "Servicing Fee"), payable in arrears on each
date and in the manner specified in the applicable Supplement,
equal to the product of (i) a fraction, the numerator of which is
the actual number of days in the measuring period specified in
the applicable Supplement and the denominator of which is the
actual number of days in the year, (ii) the weighted average
Series Servicing Fee Percentage for all outstanding Series (based
upon the Series Servicing Fee Percentage for each Series and the
Invested Amount of such Series) and (iii) the daily average
aggregate balance of all Principal Receivables over the term of
such measuring period. The share of the Servicing Fee allocable
to each Series with respect to any date of payment shall be equal
to the product of (i) a fraction, the numerator of which is the
actual number of days in the measuring period specified in the
applicable Supplement and the denominator of which is the actual
number of days in the year, (ii) the applicable Series Servicing
Fee Percentage for such Series and (iii) the Invested Amount of
such Series, as appropriate, as of the date of determination for
such payment as specified in the applicable Supplement. The
remainder of the Servicing Fee shall be paid by the Transferor,
or retained by the Servicer as provided in Article IV, and in no
event shall the Trust, the Trustee, any Enhancement Provider, or
the Investor Securityholders be liable for the share of the
Servicing Fee to be paid by the Transferor.
The Servicer shall be responsible for its own expenses,
which shall include the amounts due to the Trustee pursuant to
Section 11.5 and the reasonable fees and disbursements of
independent public accountants and all other expenses incurred by
the Servicer in connection with its activities hereunder;
provided, that the Servicer shall not be liable for any
liabilities, costs or expenses of the Trust, the Investor
Securityholders or the Security Owners arising under any tax law,
including without limitation any federal, state or local income
or franchise taxes or any other tax imposed on or measured by
income (or any interest, penalties or additions with respect
thereto or arising from a failure to comply therewith). In the
event that the Servicer fails to pay any amounts due to the
Trustee pursuant to Section 11.5, the Trustee shall be entitled
to deduct and receive such amounts from the Servicing Fee prior
to the payment thereof to the Servicer and the obligations of the
Trust to pay any such amounts shall thereby be fully satisfied.
The Servicer shall be required to pay such expenses for its own
account and shall not be entitled to any payment therefor other
than the Servicing Fee.
Section 3.3 Representations and Warranties of the Servicer.
DMCCB, as Servicer, hereby makes, and any Successor Servicer by
its appointment hereunder shall make, the following
representations and warranties on which the Trustee has relied in
accepting the Receivables in trust and in authenticating the
Securities issued on the Initial Closing Date:
(a) Organization and Good Standing. The Servicer is either
(i) a national banking association duly organized, validly
existing and in good standing under the laws of the United States
or (ii) a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and
has the corporate power, authority and legal right to own its
properties and conduct its business as such properties are
presently owned and such business is presently conducted, and to
execute, deliver and perform its obligations under this
Agreement.
(b) Due Qualification. The Servicer is duly qualified to
do business and is in good standing (or is exempt from such
requirements) as a foreign corporation in any state where such
qualification is necessary in order to service the Receivables as
required by this Agreement and has obtained all necessary
licenses and approvals as required under Federal and state law in
order to service the Receivables as required by this Agreement,
and if the Servicer shall be required by any Requirement of Law
to so qualify or register or obtain such license or approval,
then it shall do so except where the failure to obtain such
license or approval does not materially affect the Servicer's
ability to perform its obligations hereunder or the
enforceability of the Receivables.
(c) Due Authorization. The execution and delivery of this
Agreement and the consummation of the transactions provided for
herein, have been duly authorized by the Servicer by all
necessary corporate action on the part of the Servicer.
(d) Binding Obligation. This Agreement and the
consummation of the transac tions provided for herein,
constitutes a legal, valid and binding obligation of the
Servicer, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereinafter in effect, affecting the enforcement of creditors'
rights in general and as such enforceability may be limited by
general principles of equity (whether considered in a proceeding
at law or in equity).
(e) No Violation. The execution and delivery of this
Agreement by the Servicer, and the performance of the
transactions contemplated by this Agreement and the fulfillment
of the terms hereof applicable to the Servicer, will not violate,
result in any breach of any of the material terms and provisions
of, or constitute (with or without notice or lapse of time or
both) a default under, any Requirement of Law applicable to the
Servicer or any material indenture, contract, agreement,
mortgage, deed of trust or other material instrument to which the
Servicer is a party or by which it is bound.
(f) No Proceedings. There are no proceedings or
investigations pending or, to the best knowledge of the Servicer,
threatened against the Servicer before any Governmental Authority
(i) asserting the invalidity of this Agreement, (ii) seeking to
prevent the issuance of the Securities or the consummation of any
of the transactions contemplated by this Agreement, (iii) seeking
any determination or ruling that would materially and adversely
affect the performance by the Servicer of its obligations under
this Agreement, (iv) seeking any determination or ruling that
would materially and adversely affect the validity or
enforceability of this Agreement or (v) seeking to affect
adversely the tax attributes of the Trust.
(g) Compliance with Requirements of Law. The Servicer
shall duly satisfy all obligations on its part to be fulfilled
under or in connection with each Receivable and the related
Contract, will maintain in effect all qualifications required
under Requirements of Law in order to service properly each
Receivable and the related Contract and will comply in all
material respects with all other Requirements of Law in
connection with servicing each Receivable and the related
Contract the failure to comply with which would have a material
adverse effect on the Securityholders or any Enhancement
Provider.
(h) Protection of Securityholders' Rights. The Servicer
shall take no action which, nor omit to take any action the
omission of which, would impair the rights of Securityholders in
any Receivable or the related Account or the rights or
obligations of any Enhancement Provider, nor shall it reschedule,
revise or defer payments due on any Receivable except in
accordance with the Credit and Collection Policies.
(i) All Consents Required. All approvals, authorizations,
consents, orders or other actions of any Governmental Authority
required in connection with the execution and delivery of this
Agreement and the performance of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof, have been
obtained; provided, however, that the Servicer makes no
representation or warranty regarding State securities or "Blue
Sky" laws in connection with the distribution of the Securities.
(j) Rescission or Cancellation. The Servicer shall not
permit any rescission or cancellation of any Receivable except as
ordered by a court of competent jurisdiction or other
Governmental Authority or in accordance with the Credit and
Collection Policy or the normal operating procedures of the
Servicer.
(k) Receivables Not To Be Evidenced by Promissory Notes.
Except in connec tion with its enforcement or collection of an
Account (in which case any such promissory note would be made in
the name of the Trust on behalf of the Securityholders), the
Servicer will take no action to cause any Receivable to be
evidenced by an instrument (as defined in the UCC as in effect in
the Relevant UCC State).
(l) Principal Place of Business. The Servicer shall at all
times maintain its principal executive offices within the United
States.
Section 3.4 Reports and Records for the Trustee.
(a) Daily Records. Upon reasonable prior notice by the
Trustee, the Servicer shall make available at an office of the
Servicer (or other location designated by the Servicer if such
records are not accessible by the Servicer at an office of the
Servicer) selected by the Servicer for inspection by the Trustee
or its agent (reasonably acceptable to the Servicer) on a
Business Day during the Servicer's normal business hours a record
setting forth (i) the Collections on the Receivables and (ii) the
amount of Receivables for the Business Day preceding the date of
the inspection. The Servicer shall, at all times, maintain its
computer files with respect to the Receivables in such a manner
so that the Receivables may be specifically identified and, upon
reasonable prior request of the Trustee, shall make available to
the Trustee, at an office of the Servicer (or other location
designated by the Servicer if such computer files are not located
at an office of the Servicer) selected by the Servicer, on any
Business Day of the Servicer during the Servicer's normal
business hours any computer programs necessary to make such
identification.
(b) Daily Report.
(i) On each Business Day the Servicer shall prepare a
completed Daily Report.
(ii) The Servicer shall deliver to the Trustee and the
Paying Agent the Daily Report by 3:00 p.m. (New York City
time) on each Business Day with respect to activity in the
Receivables for the prior Business Day (or, in the case of a
Daily Report delivered on the second Business Day following
a Saturday, Sunday or other non-Business Day, the aggregate
activity for the preceding Business Day and such preceding
non-Business Days).
(iii) Upon discovery of any error or receipt of notice
of any error in any Daily Report, the Servicer, the
Transferor and the Trustee shall arrange to confer and shall
agree upon any adjustments necessary to correct any such
errors. If any such error is materially adverse to the
interests of the Security Owners, the Servicer or the
Trustee, as the case may be, shall retain all Collections
which would otherwise be paid from the Trust (or such lesser
amount as the Trustee and the Servicer shall agree to be
necessary to cover any such error) in the Collection Account
until such material error is corrected. Unless the Trustee
has received written notice of any error or discrepancy, the
Trustee may rely on each Daily Report delivered to it for
all purposes hereunder.
(c) Settlement Statement. On the second Business Day prior
to each Distribution Date, the Servicer shall, prior to 3:00 p.m.
(New York City time) on such day, deliver to the Trustee and the
Paying Agent the Settlement Statement for the related Monthly
Period substantially in the form of Exhibit C hereto, including
the following information (which, in the case of clauses (iii),
(iv) and (v) below, will be stated on the basis of an original
principal amount of $1,000 per Security): (i) the aggregate
amount of Collections received in the Collection Account for the
Monthly Period preceding such Determination Date and the
aggregate amount of Finance Charge Collections and the aggregate
amount of Principal Collections processed during such Monthly
Period; (ii) the aggregate amount of the applicable Investor
Percentage of Principal Collections during the preceding Monthly
Period for each Series of Securities and the aggregate amount of
the applicable Investor Percentage of Finance Charge Collections
during the preceding Monthly Period for each Series of
Securities; (iii) for each Series and for each Class within any
such Series, the total amount to be distributed to Investor
Securityholders on the next succeeding Distribution Date; (iv)
for each Series and for each Class within any such Series, the
amount of such distribution allocable to principal; (v) for each
Series and for each Class within any such Series, the amount of
such distribution allocable to interest; (vi) for each Series and
each Class within a Series, the Series Default Amount for the
immediately preceding Monthly Period; (vii) for each Series and
each Class within a Series, the amount of the Series Charge-Offs
and the amount of the reimbursements of Series Charge-Offs for
such Distribution Date; (viii) for each Series, the Servicing Fee
for such Distribution Date; (ix) for each Series, the existing
deficit controlled amortization amount, if applicable; (x) the
Aggregate Principal Receivables in the Trust at the close of
business on the last day of the Monthly Period preceding such
Distribution Date; (xi) for each Series, the Invested Amount at
the close of business on the last day of the Monthly Period
immediately preceding such Distribution Date; (xii) the available
amount of any Enhancement for each Class of each Series, if any;
(xiii) for each Series and each Class within a Series, the Pool
Factor as of the end of the related Monthly Period; (xiv) whether
a Pay Out Event or a Prospective Pay Out Event with respect to
any Series shall have occurred during or with respect to the
related Monthly Period; (xv) the aggregate amount of Discount
Option Receivables in the Trust at the close of business on the
last day of the Monthly Period preceding such Distribution Date;
(xvi) the aggregate amount of Discount Option Receivables
Collections processed during such Monthly Period; and (xvii) such
other calculations as may be required by any Supplement. The
Trustee shall be under no duty to recalculate, verify or
recompute the information supplied to it under this Section 3.4
or such other matters as are set forth in any Settlement
Statement. The Servicer shall also provide a copy of the
Settlement Statement in a prompt manner to each Rating Agency.
Section 3.5 Annual Servicer's Certificate. The Servicer
will deliver, in accor dance with Section 13.5, to the Trustee,
any Enhancement Provider and the Rating Agencies, within 100 days
of the end of each fiscal year, beginning in 1995, an Officer's
Certificate substantially in the form of Exhibit D stating that
(a) a review of the activities of the Servicer during the
preceding fiscal year and of its performance under this Agreement
was made under the supervision of the officer signing such
certificate and (b) to such officer's knowledge, based on such
review, the Servicer has fully performed all its obligations
under this Agreement throughout such period, or, if there has
been a default in the performance of any such obligation,
specifying each such default known to such officer and the nature
and status thereof. A copy of such certificate may be obtained
by any Investor Securityholder by a request in writing to the
Trustee addressed to the Corporate Trust Office.
Section 3.6 Annual Independent Accountants' Servicing
Report.
(a) Within 100 days of the end of each fiscal year, the
Servicer shall cause a firm of nationally recognized independent
public accountants (who may also render other services to the
Servicer or the Transferor) to furnish a report with respect to
the prior fiscal year (or, in the case of the first such period,
the period beginning on the Initial Closing Date and ending on
the last day of the related fiscal year) to the Trustee, any
Enhancement Provider and each Rating Agency, to the effect that
such firm has applied certain procedures, agreed upon with the
Servicer and the Trustee and substantially as set forth in
Exhibit G hereto, which would re-perform certain accounting
procedures performed by the Servicer pursuant to certain
documents and records relating to the servicing of the Accounts
under this Agreement. In addition, each report shall set forth
the agreed upon procedures performed and the results of such
procedures.
(b) Within 100 days of the end of each fiscal year, the
Servicer shall cause a firm of nationally recognized independent
certified public accountants (who may also render other services
to the Servicer or the Transferor) to furnish a report to the
Trustee, any Enhancement Provider and the Rating Agency to the
effect that they have compared the amounts and percentages set
forth in four of the monthly certificates forwarded by the
Servicer pursuant to subsection 3.4(c) during the period covered
by such report with the computer reports (which may include
personal computer generated reports that summarize data from the
computer reports generated by either the Transferor or Servicer
which are used to prepare the Daily Reports) which were the
source of such amounts and percentages and that on the basis of
such comparison, such amounts and percentages are in agreement
except as shall be set forth in such report. A copy of such
report will be sent by the Trustee to each Investor
Securityholder.
Section 3.7 Tax Treatment. The Transferor has structured
this Agreement and the Investor Securities with the intention
that the Investor Securities will qualify under applicable
federal, state, local and foreign tax law as indebtedness.
Except to the extent expressly specified to the contrary in any
Supplement, the Transferor, the Servicer, the Holder of the
Exchangeable Transferor Security, each Investor Securityholder,
Holder of a Variable Funding Security, and each Security Owner
agree to treat and to take no action inconsistent with the
treatment of the Investor Securities (or beneficial interest
therein) as indebtedness for purposes of federal, state, local
and foreign income or franchise taxes and any other tax imposed
on or measured by income. Each Investor Securityholder, Holder
of a Variable Funding Security and the Holder of the Exchangeable
Transferor Security, by acceptance of its Security and each
Security Owner, by acquisition of a beneficial interest in a
Security, agree to be bound by the provisions of this Section
3.7. Each Securityholder agrees that it will cause any Security
Owner acquiring an interest in a Security through it to comply
with this Agreement as to treatment as indebtedness under
applicable tax law, as described in this Section 3.7.
Furthermore, subject to Section 11.11, the Trustee shall treat
the Trust as a security device only, and shall not file tax
returns or obtain an employer identification number on behalf of
the Trust.
Section 3.8 Adjustments. (a) If the Servicer adjusts
downward the amount of any Receivable because of a rebate,
refund, unauthorized charge or billing error to an Obligor,
because such Receivable was created in respect of merchandise
which was refused or returned by an Obligor, or if the Servicer
otherwise adjusts downward the amount of any Receivable without
receiving Collections therefor or without charging off such
amount as uncollectible, then, in any such case, the aggregate
amount of the Principal Receivables used to calculate the
Investor Percentages applicable to any Series and the Transferor
Interest will be reduced by the principal amount of any such
adjustment. Similarly, the aggregate amount of the Principal
Receivables used to calculate the Investor Percentages applicable
to any Series will be reduced by the amount of any Principal
Receivable which was discovered as having been created through a
fraudulent or counterfeit charge or with respect to which the
covenant contained in subsection 2.5(b) was breached. Any
adjustment required pursuant to either of the two preceding
sentences shall be made on or prior to the end of the Monthly
Period in which such adjustment obligation arises. In the event
that, following any such adjustment, the Transferor Interest
would be less than the Minimum Transferor Interest, within two
Business Days of the date on which such adjustment obligation
arises, the Transferor shall pay to the Servicer, for deposit
into the Excess Funding Account, in immediately available funds
an amount equal to the amount by which the Transferor Interest
would be reduced below the Minimum Transferor Interest as a
result of such adjustment or exclusion. Any amount deposited
into the Excess Funding Account in connection with the adjustment
of a Receivable (an "Adjustment Payment") shall be applied in
accordance with Article IV and the terms of each Supplement.
(b) If (i) the Servicer makes a deposit into the Collection
Account in respect of a Collection of a Receivable and such
deposit was in the form of a check which is not honored for any
reason or (ii) the Servicer makes a mistake with respect to the
amount of any Collection and deposits an amount that is less than
or more than the actual amount of such Collection, the Servicer
shall appropriately adjust the amount subsequently deposited into
the Collection Account (or shall be entitled to receive a refund
from the Collection Account in the case of an excess deposit) to
reflect such dishonored check or mistake. Any Receivable in
respect of which a dishonored check is received shall be deemed
not to have been paid. Notwithstanding the first two sentences
of this paragraph, any adjustments made pursuant to this
paragraph will be reflected in a current report but will not
change any amount of Collections previously reported pursuant to
subsection 3.4(b).
Section 3.9 Notices to DMCCB. In the event that DMCCB or
any Affiliate thereof is no longer acting as Servicer, any
Successor Servicer appointed pursuant to Section 10.2 shall
deliver or make available to Metris each certificate and report
required to be prepared, forwarded or delivered thereafter
pursuant to Sections 3.4, 3.5 and 3.6.
[End of Article III]
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS
Section 4.1 Rights of Securityholders. Each Series of
Investor Securities shall represent Undivided Interests in the
Trust, including the benefits of any Enhancement issued with
respect to such Series and the right to receive the Collections
and other amounts at the times and in the amounts specified in
this Article IV and the related Supplement to be deposited in the
Investor Accounts or to be paid to the Investor Securityholders
of such Series; provided, however, that the aggregate interest
represented by such Securities at any time in the Principal
Receivables shall not exceed an amount equal to the Invested
Amount of such Securities. The Exchangeable Transferor Security
shall represent the remaining undivided interest in the Trust,
including the right to receive the Collections and other amounts
with respect to each Series at the times and in the amounts
specified in this Article IV and the related Supplement to be
paid to the Holder of the Exchangeable Transferor Security;
provided, however, that the aggregate interest represented by
such Security at any time in the Principal Receivables shall not
exceed the Transferor Interest at such time and such Security
shall not represent any interest in the Investor Accounts, except
as provided in this Agreement and the Supplements, or the
benefits of any Enhancement issued with respect to any Series.
Section 4.2 Establishment of Accounts.
(a) The Collection Account. The Servicer, for the benefit
of the Securityholders, shall establish in the name of the
Trustee, on behalf of the Trust, a non-interest bearing
segregated account (the "Collection Account") bearing a
designation clearly indicating that the funds deposited therein
are held in trust for the benefit of the Securityholders, and
shall cause such Collection Account to be established and
maintained, (i) in a segregated trust account with the corporate
trust department of a depositary institution or trust company
(which may include the Trustee) organized under the laws of the
United States of America or any one of the states thereof or the
District of Columbia which has a long-term unsecured debt rating
of at least Baa3 by Moody's and whose deposits are insured to the
limits provided by law by the FDIC having corporate trust powers
and acting as trustee for funds deposited therein (provided,
however, that such account need not be maintained as a segregated
trust account with the corporate trust department of such
institution if at all times the certificates of deposit, short-
term deposits or commercial paper or the long-term unsecured debt
obligations (other than such obligation whose rating is based on
collateral or on the credit of a Person other than such
institution or trust company) of such depositary institution or
trust company shall have a credit rating from Standard & Poor's
of at least A-1+ and P-1 from Moody's in the case of the
certificates of deposit, short-term deposits or commercial paper,
or a rating from Standard & Poor's of AAA and from Moody's of Aaa
in the case of the long-term unsecured debt obligations) or (ii)
with a depositary institution, which may include the Trustee,
which is acceptable to the Rating Agency (in the case of (i) and
(ii), a "Qualified Institution"). If, at any time, the
institution holding the Collection Account ceases to be a
Qualified Institution, the Transferor shall direct the Servicer
to establish within 10 Business Days a new Collection Account
with a Qualified Institution, transfer any cash and/or any
investments to such new Collection Account and from the date such
new Collection Account is established, it shall be the
"Collection Account." The Servicer shall give written notice to
the Trustee of the location and account number of the Collection
Account and shall notify the Trustee in writing prior to any
subsequent change thereof. Pursuant to authority granted to it
pursuant to subsection 3.1(b), the Servicer shall have the power
revocable by the Trustee to withdraw funds from the Collection
Account for the purposes of carrying out its duties hereunder.
The Collection Account shall be under the sole dominion and
control of the Trustee and the Trustee shall possess all right,
title and interest in all funds from time to time on deposit in
such account.
(b) The Interest Funding and Principal Accounts. The
Trustee, for the benefit of the Investor Securityholders, shall
establish and maintain with a Qualified Institution in the name
of the Trust two segregated trust accounts for each Series (an
"Interest Funding Account" and a "Principal Account,"
respectively), each bearing a designation clearly indicating that
the funds therein are held for the benefit of the Investor
Securityholders of such Series. Except as provided in subsection
4.2(e), each Interest Funding Account and each Principal Account
shall be under the sole dominion and control of the Trustee for
the benefit of the Investor Securityholders. Pursuant to
authority granted to it hereunder, the Servicer shall have the
revocable power to instruct the Trustee to withdraw funds from
the Interest Funding Account and any Principal Account for any
purpose of carrying out the Servicer's or the Trustee's duties
hereunder. The Trustee at all times shall maintain accurate
records reflecting each transaction in each Principal Account and
each Interest Funding Account and that funds held therein shall
at all times be held in trust for the benefit of the Investor
Securityholders of such Series. If, at any time, the institution
holding the Interest Funding Account ceases to be a Qualified
Institution, the Servicer shall direct the Trustee to establish
within 10 Business Days a new Interest Funding Account meeting
the conditions specified above with a Qualified Institution,
transfer any cash and/or any investments to such new Interest
Funding Account and from the date such new Interest Funding
Account is established, it shall be the "Interest Funding
Account." Similarly, if, at any time, the institution holding
any Principal Account ceases to be a Qualified Institution, the
Servicer shall direct the Trustee to establish within 10 Business
Days a new Principal Account meeting the conditions specified
above with a Qualified Institution, transfer any cash and/or any
investments to such new Principal Account and from the date such
new Principal Account is established, it shall be a "Principal
Account."
(c) Distribution Accounts. The Trustee, for the benefit of
the Investor Securityholders of each Series, shall cause to be
established and maintained in the name of the Trust, with an
office or branch of a Qualified Institution a non-interest-
bearing segregated demand deposit account for each Series (a
"Distribution Account") bearing a designation clearly indicating
that the funds deposited therein are held in trust for the
benefit of the Investor Securityholders of such Series. Each
Distribution Account shall be under the sole dominion and control
of the Trustee for the benefit of the Investor Securityholders of
the related Series. Pursuant to the authority granted to the
Paying Agent herein, the Paying Agent shall have the power,
revocable by the Trustee, to make withdrawals and payments from
the Distribution Account for the purpose of carrying out the
Paying Agent's duties hereunder. If, at any time, the
institution holding a Distribution Account ceases to be a
Qualified Institution, the Servicer shall direct the Trustee to
establish within 10 Business Days a new Distribution Account
meeting the conditions specified above with a Qualified
Institution, transfer any cash and/or any investments to such new
Distribution Account and from the date such new Distribution
Account is established, it shall be a "Distribution Account."
(d) The Excess Funding Account. The Trustee, for the
benefit of the Securityholders, shall cause to be established in
the name of the Trustee, on behalf of the Securityholders, with a
Qualified Institution, a segregated trust account (the "Excess
Funding Account") bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the
Securityholders. Except as provided in subsection 4.3(e), the
Excess Funding Account shall, except as otherwise provided
herein, be under the sole dominion and control of the Trustee for
the benefit of the Securityholders. Pursuant to the authority
granted to the Servicer herein, the Servicer shall have the
power, revocable by the Trustee, to make withdrawals and payments
from the Excess Funding Account for the purpose of carrying out
the Servicer's or Trustee's duties hereunder. If, at any time,
the institution holding the Excess Funding Account ceases to be a
Qualified Institution, the Servicer shall direct the Trustee to
establish within 10 Business Days a new Excess Funding Account
meeting the conditions specified above with a Qualified
Institution, transfer any cash and/or any investments to such new
Excess Funding Account and from the date such new Excess Funding
Account is established, it shall be the "Excess Funding Account."
(e) Administration of the Principal Accounts and the
Interest Funding Accounts. Funds on deposit in each Principal
Account and each Interest Funding Account shall at all times be
invested by the Servicer (or, at the written direction of the
Transferor, by the Trustee) on behalf of the Transferor in Cash
Equivalents. Any such investment shall mature and such funds
shall be available for withdrawal on or before the Transfer Date
following the Monthly Period in which such funds were processed
for collection. No such investments shall be liquidated prior to
maturity. At the end of each month, all interest and earnings
(net of losses and investment expenses) on funds on deposit in
each Principal Account and each Interest Funding Account (unless
otherwise specified in the applicable Supplement) shall be
deposited by the Trustee in a separate deposit account with a
Qualified Institution in the name of the Servicer, or a Person
designated in writing by the Servicer, which shall not constitute
a part of the Trust, or shall otherwise be turned over by the
Trustee to the Servicer in accordance with instructions from the
Servicer to the Trustee not less frequently than monthly.
Subject to the restrictions set forth above, the Servicer, or a
Person designated in writing by the Servicer, of which the
Trustee shall have received written notification, shall have the
authority to instruct the Trustee with respect to the investment
of funds on deposit in any Principal Account and any Interest
Funding Account. Any investment instructions to the Trustee
shall be in writing, shall be given no later than 10:00 a.m. New
York City time on a Business Day that such investment is proposed
to be made and shall include a certification that the proposed
investment is a Cash Equivalent that matures at or prior to the
time required by this Agreement. For purposes of determining the
availability of funds or the balances in any Interest Funding
Account and any Principal Account for any reason under this
Agreement, all investment earnings on such funds shall be deemed
not to be available or on deposit.
Section 4.3 Collections and Allocations.
(a) Collections. Obligors shall make payments on the
Receivables to the Servicer who shall deposit all such payments
in the Collection Account no later than the second Business Day
following the Date of Processing thereof.
The Servicer shall allocate such amounts to each Series of
Investor Securities and to the Holder of the Exchangeable
Transferor Security in accordance with this Article IV and the
related Supplement and shall cause the Trustee to withdraw the
required amounts from the Collection Account or pay such amounts
to the Holder of the Exchangeable Transferor Security in
accordance with this Article IV and the related Supplement. The
Servicer shall make such deposits or payments on the date
indicated herein by wire transfer or as otherwise provided in the
Supplement for any Series of Securities with respect to such
Series.
Notwithstanding anything in this Agreement to the contrary,
but subject to the terms of any Supplement, for so long as, and
only so long as, DMCCB (or any successors to DMCCB pursuant to
Section 8.2) or an Affiliate of DMCCB shall remain the Servicer
hereunder, and (a)(i) DMCCB (or any successors to DMCCB pursuant
to Section 8.2) or an Affiliate of DMCCB provides to the Trustee
a letter of credit or other form of Enhancement rated at least A-
1 by Standard & Poor's and P-1 by Moody's (as certified to the
Trustee by the Servicer), and (ii) after notifying each Rating
Agency of the proposed use of such letter of credit or other form
of Enhancement the Transferor shall have received a notice from
each Rating Agency that making payments monthly rather than daily
would not result in a downgrading or withdrawal of any of such
Rating Agency's then-existing ratings of the Investor Securities,
or (b) DMCCB (or any successors to DMCCB pursuant to Section 8.2)
shall have and maintain a short-term credit rating of at least A-
1 by Standard & Poor's and P-1 by Moody's (as certified to the
Trustee by the Servicer), the Servicer need not deposit
Collections from the Collection Account into the Principal
Account or the Interest Funding Account or any Series Account, or
make payments to the Holder of the Exchangeable Transferor
Security, prior to the close of business on the day any
Collections are deposited in the Collection Account as otherwise
provided in this Article IV and the related Supplement, but may
instead make such deposits, payments and withdrawals on each
Transfer Date in an amount equal to the net amount of such
deposits, payments and withdrawals which would have been made but
for the provisions of this paragraph.
(b) Allocations for the Exchangeable Transferor Security.
Throughout the existence of the Trust, unless otherwise stated in
any Supplement, on each Business Day the Servicer shall allocate
to the Holder of the Exchangeable Transferor Security an amount
equal to the product of (A) the Transferor Percentage as of the
end of the preceding Business Day and (B) the aggregate amount of
Principal Collections and Finance Charge Collections available in
the Collection Account. The Servicer shall pay such amount to
the Holder of the Exchangeable Transferor Security on each
Business Day; provided, however, that amounts payable to the
Holder of the Exchangeable Transferor Security pursuant to this
clause (b) shall instead be deposited in the Excess Funding
Account to the extent necessary to prevent the Transferor
Interest from being less than the Minimum Transferor Interest.
(c) Allocation for Series. On each Business Day, (i) the
amount of Finance Charge Collections available in the Collection
Account allocable to each Series, (ii) the amount of Principal
Collections available in the Collection Account allocable to each
Series and (iii) the Receivables in Defaulted Accounts allocable
to each Series shall be determined in accordance with the
provisions of the related Supplement. The Servicer shall, prior
to the close of business on the day any Collections are deposited
in the Collection Account, cause the Trustee to withdraw the
required amounts from the Collection Account and cause the
Trustee to deposit such amounts into the applicable Principal
Account, the applicable Interest Funding Account, the Excess
Funding Account, or any Series Account or pay such amounts to the
Holder of the Exchangeable Transferor Security in accordance with
the provisions of this Article IV and the Supplements.
(d) Unallocated Principal Collections; Excess Funding
Account. On each Business Day, Shared Principal Collections
shall be allocated to each outstanding Series pro rata based on
the Principal Shortfall, if any, for each such Series, and then,
at the option of the Transferor, any remainder may be applied as
principal with respect to the Variable Funding Securities. The
Servicer shall pay any remaining Shared Principal Collections on
such Business Day to the Transferor; provided, that if the
Transferor Interest as determined on such Business Day does not
exceed the Minimum Transferor Interest, then such remaining
Shared Principal Collections shall be deposited in the Excess
Funding Account to the extent necessary to increase the
Transferor Interest above the Minimum Transferor Interest;
provided, further, that if an Amortization Period has commenced
and is continuing with respect to more than one outstanding
Series, such remaining Shared Principal Collections shall be
allocated to such Series pro rata based on the Investor
Percentage for Principal Receivables applicable for such Series.
(e) Amounts in Excess Funding Account. Amounts on deposit
in the Excess Funding Account on any Business Day will be
invested by the Servicer (or, at the direction of the Transferor,
by the Trustee) on behalf of the Transferor in Cash Equivalents
which shall mature and be available on or before the next
Business Day on which amounts may be released from the Excess
Funding Account. Earnings from such investments received shall
be deposited in the Collection Account and treated as Finance
Charge Collections. Any investment instructions to the Trustee
shall be in writing and shall include a certification that the
proposed investment is a Cash Equivalent that matures at or prior
to the date required by this Agreement. If on any Business Day
other than a Business Day on which a Pay Out Event or a
Prospective Pay Out Event has occurred and is continuing, the
Transferor Interest is greater than the Minimum Transferor
Interest, amounts on deposit in the Excess Funding Account may,
at the option of the Transferor, be released to the Holder of the
Exchangeable Transferor Security. On the first Business Day of
the Amortization Period for any Series, funds on deposit in the
Excess Funding Account will be deposited in the Principal Account
for such Series to the extent of the lesser of (x) the Invested
Amount of such Series and (y) the amount then on deposit in the
Excess Funding Account.
[THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL
BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article IV]
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES]
[End of Article V]
ARTICLE VI
THE SECURITIES
Section 6.1 The Securities. Subject to Sections 6.10 and
6.13, the Investor Securities of each Series and any Class
thereof may be issued in bearer form (the "Bearer Securities")
with attached interest coupons and, if applicable, a special
coupon (collectively, the "Coupons") or in fully registered form
(the "Registered Securities"), and shall be substantially in the
form of the exhibits with respect thereto attached to the related
Supplement. The Exchangeable Transferor Security shall be
substantially in the form of Exhibit A. The Investor Securities
and the Exchangeable Transferor Security shall, upon issue
pursuant hereto or to Section 6.9 or Section 6.10, be executed
and delivered by the Transferor to the Trustee for authentication
and redelivery as provided in Sections 2.1 and 6.2. Unless
otherwise specified in any Supplement, any Investor Security
shall be issuable in a minimum denomination of $1,000 Undivided
Interest and integral multiples thereof, and shall be issued upon
original issuance in an original aggregate principal amount equal
to the Initial Invested Amount. The Exchangeable Transferor
Security shall be issued as a single security. Each Security
shall be executed by manual or facsimile signature on behalf of
the Transferor by its President or any Vice President.
Securities bearing the manual or facsimile signature of the
individual who was, at the time when such signature was affixed,
authorized to sign on behalf of the Transferor or the Trustee
shall not be rendered invalid, notwithstanding that such
individual has ceased to be so authorized prior to the
authentication and delivery of such Securities or does not hold
such office at the date of such Securities. No Security shall be
entitled to any benefit under this Agreement, or be valid for any
purpose, unless there appears on such Security a certificate of
authentication substantially in the form provided for herein,
executed by or on behalf of the Trustee by the manual signature
of a duly authorized signatory, and such certificate upon any
Security shall be conclusive evidence, and the only evidence,
that such Security has been validly issued and duly authenticated
and delivered hereunder. All Securities shall be dated the date
of their authentication except Bearer Securities which shall be
dated the applicable Issuance Date as provided in the related
Supplement.
Section 6.2 Authentication of Securities.
Contemporaneously with the initial assignment and transfer of the
Receivables, whether now existing or hereafter created (other
than Receivables in Supplemental Accounts) and the other
components to the Trust, the Trustee shall authenticate and
deliver the initial Series of Investor Securities (or applicable
Classes thereof), upon the written order of the Transferor. Upon
the issuance of such Investor Securities, such Investor
Securities shall be validly issued, fully paid and non-
assessable. The Trustee shall authenticate and deliver the
Exchangeable Transferor Security to the Transferor simultaneously
with its delivery of the initial Series of Investor Securities.
Upon an Exchange as provided in Section 6.9 and the satisfaction
of certain other conditions specified therein, the Trustee shall
authenticate and deliver the Investor Securities of additional
Series (with the designation provided in the related Supplement),
upon the written order of the Transferor. Upon the written order
of the Transferor, the Securities of any Series shall be duly
authenticated by or on behalf of the Trustee, in authorized
denominations equal to (in the aggregate) the Initial Invested
Amount of such Series of Investor Securities. If specified in
the related Supplement for any Series, the Trustee shall
authenticate and deliver outside the United States the Global
Security that is issued upon original issuance thereof, upon the
written order of the Transferor, to the Depositary. If specified
in the related Supplement for any Series, the Trustee shall
authenticate Book-Entry Securities that are issued upon original
issuance thereof, upon the written order of the Transferor, to a
Clearing Agency or its nominee as provided in Section 6.10.
Section 6.3 Registration of Transfer and Exchange of
Securities.
(a) The Trustee shall cause to be kept at the office or
agency to be maintained by a transfer agent and registrar (the
"Transfer Agent and Registrar") in accordance with the provisions
of Section 11.16, a register (the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the
Transfer Agent and Registrar shall provide for the registration
of the Investor Securities of each Series (unless otherwise
provided in the related Supplement) and of transfers and
exchanges of the Investor Securities as herein provided.
Whenever reference is made in this Agreement to the transfer or
exchange of the Securities by the Trustee, such reference shall
be deemed to include the transfer or exchange on behalf of the
Trustee by a Transfer Agent and Registrar. The Trustee is hereby
initially appointed Transfer Agent and Registrar for the purposes
of registering the Investor Securities and transfers and
exchanges of the Investor Securities as herein provided. If any
form of Investor Security is issued as a Global Security, the
Trustee may, or if and so long as any Series of Investor
Securities are listed on a stock exchange and such exchange shall
so require, the Trustee shall appoint a co-transfer agent and co-
registrar, which will also be a co-paying agent, in such city as
the Transferor may specify. Any reference in this Agreement to
the Transfer Agent and Registrar shall include any co-transfer
agent and co-registrar unless the context otherwise requires.
The Trustee shall be permitted to resign as Transfer Agent and
Registrar upon 30 days' written notice to the Servicer. In the
event that the Trustee shall no longer be the Transfer Agent and
Registrar, the Transferor shall appoint a successor Transfer
Agent and Registrar. If any Series with respect to which Book
Entry Securities were originally issued is no longer issued as
Book-Entry Securities, then the Servicer may appoint a successor
Transfer Agent and Registrar.
Unless otherwise provided in the related Supplement, in the
case of any Investor Security with respect to which no Opinion of
Counsel to the effect that such Investor Security (or Class or
Series to which such Investor Security pertains) will be
characterized as indebtedness for federal income tax purposes was
delivered, no sale, assignment, participation, pledge,
hypothecation, transfer or other disposition of such Investor
Security (or any interest therein) shall be made unless the
Transferor and the Servicer shall have granted their prior
consent thereto, which consent may not be unreasonably withheld
and, provided further, that for purposes of this sentence, it
shall in all cases be reasonable for the Transferor or the
Servicer to withhold consent to such proposed sale, assignment,
participation, pledge, hypothecation, transfer or other
disposition of all or any part of a Security (or any interest
therein) if the transaction would, if effected, give rise to any
adverse tax consequence, as determined in the sole and absolute
discretion of the Transferor or the Servicer.
Upon surrender for registration of transfer of any Security
at any office or agency of the Transfer Agent and Registrar
maintained for such purpose, the Transferor shall execute,
subject to the provisions of subsection 6.3(c), and the Trustee
shall (unless the Transfer Agent and Registrar is different than
the Trustee, in which case the Transfer Agent and Registrar
shall) authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Securities in
authorized denominations of like aggregate Undivided Interests;
provided, that the provisions of this paragraph shall not apply
to Bearer Securities.
At the option of any Holder of Registered Securities,
Registered Securities may be exchanged for other Registered
Securities of the same Series in authorized denominations of like
aggregate Undivided Interests in the Trust, upon surrender of the
Registered Securities to be exchanged at any office or agency of
the Transfer Agent and Registrar maintained for such purpose. At
the option of a Bearer Securityholder, subject to applicable laws
and regulations (including without limitation, the Bearer Rules),
Bearer Securities may be exchanged for other Bearer Securities
or Registered Securities of the same Series in authorized
denominations of like aggregate Undivided Interests in the Trust,
in the manner specified in the Supplement for such Series, upon
surrender of the Bearer Securities to be exchanged at an office
or agency of the Transfer Agent and Registrar located outside the
United States. Each Bearer Security surrendered pursuant to this
Section 6.3 shall have attached thereto (or be accompanied by)
all unmatured Coupons, provided that any Bearer Security so
surrendered after the close of business on the Record Date
preceding the relevant Distribution Date after the related Series
Termination Date need not have attached the Coupons relating to
such Distribution Date.
Whenever any Investor Securities of any Series are so
surrendered for exchange, the Transferor shall execute, and the
Trustee shall (unless the Transfer Agent and Registrar is
different than the Trustee, in which case the Transfer Agent and
Registrar shall) authenticate and deliver, the Investor
Securities of such Series which the Securityholder making the
exchange is entitled to receive. Every Investor Security
presented or surrendered for registration of transfer or exchange
shall be accompanied by a written instrument of transfer in a
form satisfactory to the Trustee and the Transfer Agent and
Registrar duly executed by the Securityholder thereof or his
attorney-in-fact duly authorized in writing.
The preceding provisions of this Section 6.3
notwithstanding, the Trustee or the Transfer Agent and Registrar,
as the case may be, shall not be required to register the
transfer of or exchange any Investor Security of any Series for
the period from the Record Date preceding the due date for any
payment to the Distribution Date with respect to the Investor
Securities of such Series.
Unless otherwise provided in the related Supplement, no
service charge shall be made for any registration of transfer or
exchange of Securities, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
All Investor Securities (together with any Coupons attached
to Bearer Securities) surrendered for registration of transfer or
exchange shall be canceled by the Transfer Agent and Registrar
and disposed of in a manner satisfactory to the Trustee. The
Trustee shall cancel and dispose of any Global Security upon its
exchange in full for Definitive Securities, but shall not be
required to destroy such Global Securities. Such security shall
also state that a security or securities of each Foreign Clearing
Agency to the effect referred to in Section 6.13 was received
with respect to each portion of the Global Security exchanged for
Definitive Securities.
The Transferor shall execute and deliver to the Trustee or
the Transfer Agent and Registrar, as applicable, Bearer
Securities and Registered Securities in such amounts and at such
times as are necessary to enable the Trustee to fulfill its
responsibilities under this Agreement and the Securities.
(b) Except as provided in Section 6.9 or 7.2 or in any
Supplement, in no event shall the Exchangeable Transferor
Security or any interest therein be transferred, sold, exchanged,
pledged, participated or otherwise assigned hereunder, in whole
or in part, unless the Transferor shall have consented in writing
to such transfer and unless the Trustee shall have received (1)
confirmation in writing from each Rating Agency that such
transfer will not result in a lowering or withdrawal of its then-
existing rating of any Series of Investor Securities and (2) an
Opinion of Counsel that such transfer does not (i) adversely
affect the conclusions reached in any of the federal income tax
opinions issued in connection with the original issuance of any
Series of Investor Securities or (ii) result in a taxable event
to the holders of any such Series.
(c) Unless otherwise provided in the related Supplement,
registration of transfer of Registered Securities containing a
legend relating to the restrictions on transfer of such
Registered Securities (which legend shall be set forth in the
Supplement relating to such Investor Securities) shall be
effected only if the conditions set forth in such related
Supplement are satisfied.
Whenever a Registered Security containing the legend set
forth in the related Supplement is presented to the Transfer
Agent and Registrar for registration of transfer, the Transfer
Agent and Registrar shall promptly seek instructions from the
Servicer regarding such transfer. The Transfer Agent and
Registrar and the Trustee shall be entitled to receive written
instructions signed by an officer of the Trustee prior to
registering any such transfer or authenticating new Registered
Securities, as the case may be. The Servicer hereby agrees to
indemnify the Transfer Agent and Registrar and the Trustee and to
hold each of them harmless against any loss, liability or expense
incurred without negligence or bad faith on their part arising
out of or in connection with actions taken or omitted by them in
reliance on any such written instructions furnished pursuant to
this subsection 6.3(c).
(d) The Transfer Agent and Registrar will maintain at its
expense in the Borough of Manhattan, The City of New York, an
office or offices or an agency or agencies where Investor
Securities of such Series may be surrendered for registration of
transfer or exchange.
(e) Prior to the Transfer of any portion of a Transferor
Retained Class, the Trustee shall have received an Opinion of
Counsel to the effect that such proposed Transfer will not
adversely affect the Federal or Applicable Tax State income tax
characterization of any outstanding Series of Investor Securities
or the taxability (or tax characterization) of the Trust under
Federal, Minnesota or Delaware income tax laws. The Transferor
shall provide to Moody's notice of any such Transfer and a copy
of the Opinion of Counsel described above.
Section 6.4 Mutilated, Destroyed, Lost or Stolen
Securities. If (a) any mutilated Security (together, in the case
of Bearer Securities, with all unmatured Coupons, if any,
appertaining thereto) is surrendered to the Transfer Agent and
Registrar, or the Transfer Agent and Registrar receives evidence
to its satisfaction of the destruction, loss or theft of any
Security and (b) there is delivered to the Transfer Agent and
Registrar and the Trustee such security or indemnity as may be
required by them to hold each of them and the Trust harmless,
then, in the absence of notice to the Trustee that such Security
has been acquired by a bona fide purchaser, the Trustee shall
(unless the Transfer Agent and Registrar is different from the
Trustee, in which case the Transfer Agent and Registrar shall)
authenticate and deliver (in compliance with applicable law), in
exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Security, a new Security of like tenor and aggregate
Undivided Interest. In connection with the issuance of any new
Security under this Section 6.4, the Trustee or the Transfer
Agent and Registrar may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees
and expenses of the Trustee and the Transfer Agent and Registrar)
connected therewith. Any duplicate Security issued pursuant to
this Section 6.4 shall constitute complete and indefeasible
evidence of ownership in the Trust, as if originally issued,
whether or not the lost, stolen or destroyed Security shall be
found at any time.
Section 6.5 Persons Deemed Owners. Prior to due
presentation of a Security for registration of transfer, the
Trustee, the Paying Agent, the Transfer Agent and Registrar and
any agent of any of them may treat the Person in whose name any
Security is registered as the owner of such Security for the
purpose of receiving distributions pursuant to Article V (as
described in any Supplement) and Article XII and for all other
purposes whatsoever, and neither the Trustee, the Paying Agent,
the Transfer Agent and Registrar nor any agent of any of them
shall be affected by any notice to the contrary; provided,
however, that in determining whether the holders of Investor
Securities evidencing the requisite Undivided Interests have
given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Investor Securities owned by the
Transferor, the Servicer or any Affiliate thereof shall be
disregarded and deemed not to be outstanding, except that, in
determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice,
consent or waiver, only Investor Securities which a Responsible
Officer in the Corporate Trust Office of the Trustee knows to be
so owned shall be so disregarded. Investor Securities so owned
that have been pledged in good faith shall not be disregarded as
outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such
Investor Securities and that the pledgee is not the Transferor,
the Servicer or an Affiliate thereof.
In the case of a Bearer Security, the Trustee, the Paying
Agent, the Transfer Agent and Registrar and any agent of any of
them may treat the holder of a Bearer Security or Coupon as the
owner of such Bearer Security or Coupon for the purpose of
receiving distributions pursuant to Article V (as described in
any Supplement) and Article XII and for all other purposes
whatsoever, and neither the Trustee, the Paying Agent, the
Transfer Agent and Registrar nor any agent of any of them shall
be affected by any notice to the contrary. Securities so owned
that have been pledged in good faith shall not be disregarded and
may be regarded as outstanding, if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with
respect to such Investor Securities and that the pledgee is not
the Transferor, the Servicer or an Affiliate thereof.
Section 6.6 Appointment of Paying Agent.
(a) The Paying Agent shall make distributions to Investor
Securityholders from the appropriate account or accounts
maintained for the benefit of Securityholders as specified in
this Agreement or the related Supplement for any Series pursuant
to Articles IV and V hereof. Any Paying Agent shall have the
revocable power to withdraw funds from such appropriate account
or accounts for the purpose of making distributions referred to
above. The Trustee (or the Servicer if the Trustee is the Paying
Agent) may revoke such power and remove the Paying Agent, if the
Trustee (or the Servicer if the Trustee is the Paying Agent)
determines in its sole discretion that the Paying Agent shall
have failed to perform its obligations under this Agreement in
any material respect or for other good cause. The Paying Agent,
unless the Supplement with respect to any Series states
otherwise, shall initially be the Trustee. The Trustee shall be
permitted to resign as Paying Agent upon 30 days' written notice
to the Servicer. Upon the resignation of the Paying Agent, if
the Paying Agent was not the Trustee, the Trustee shall be the
successor Paying Agent unless and until another successor has
been appointed as Paying Agent. In the event that the Trustee,
shall no longer be the Paying Agent, the Transferor shall appoint
a successor to act as Paying Agent (which shall be a bank or
trust company). Any reference in this Agreement to the Paying
Agent shall include any co-paying agent unless the context
requires otherwise.
If specified in the related Supplement for any Series, so
long as the Investor Securities of such Series are outstanding
and the Paying Agent is not located in New York City, the
Transferor shall maintain a co-paying agent in New York City (for
Registered Securities only) or any other city designated in such
Supplement.
(b) The Trustee shall cause each Paying Agent (other than
itself) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee that such
Paying Agent will hold all sums, if any, held by it for payment
to the Securityholders in trust for the benefit of the
Securityholders entitled thereto and waive all rights of set off
the Paying Agent may have against any sums held by it until such
sums shall be paid to such Securityholders and shall agree, and
if the Trustee is the Paying Agent it hereby agrees, that it
shall comply with all requirements of the Internal Revenue Code
regarding the withholding by the Trustee of payments in respect
of federal income taxes due from Security Owners.
Section 6.7 Access to List of Securityholders' Names and
Addresses. The Trustee will furnish or cause to be furnished by
the Transfer Agent and Registrar to the Servicer or the Paying
Agent, within five Business Days after receipt by the Trustee of
a request therefor from the Servicer or the Paying Agent,
respectively, in writing, a list in such form as the Servicer or
the Paying Agent may reasonably require, of the names and
addresses of the Investor Securityholders as of the most recent
Record Date for payment of distributions to Investor
Securityholders. Unless otherwise provided in the related
Supplement, holders of Investor Securities evidencing Undivided
Interests aggregating not less than 25% of the Invested Amount of
the Investor Securities of any Series (the "Applicants") may
apply in writing to the Trustee, and if such application states
that the Applicants desire to communicate with other Investor
Securityholders of any Series with respect to their rights under
this Agreement or under the Investor Securities and is
accompanied by a copy of the communication which such Applicants
propose to transmit, then the Trustee, after having been
adequately indemnified by such Applicants for its costs and
expenses, shall afford or shall cause the Transfer Agent and
Registrar to afford such Applicants access during normal business
hours to the most recent list of Securityholders held by the
Trustee and shall give the Servicer notice that such request has
been made, within five Business Days after the receipt of such
application. Such list shall be as of a date no more than 45
days prior to the date of receipt of such Applicants' request.
Every Securityholder, by receiving and holding a Security, agrees
with the Trustee that neither the Trustee, the Transfer Agent and
Registrar, nor any of their respective agents shall be held
accountable by reason of the disclosure of any such information
as to the names and addresses of the Securityholders hereunder,
regardless of the source from which such information was
obtained.
Section 6.8 Authenticating Agent.
(a) The Trustee may appoint one or more authenticating
agents (each, an "Authenticating Agent") with respect to the
Securities which shall be authorized to act on behalf of the
Trustee in authenticating the Securities in connection with the
issuance, delivery, registration of transfer, exchange or
repayment of the Securities. The Trustee will appoint any
Transfer Agent and Registrar to be an Authentication Agent.
Whenever reference is made in this Agreement to the
authentication of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to
include authentication on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed
on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent must be acceptable to the Transferor. The
Trustee hereby initially appoints The Bank of New York as its
Authenticating Agent.
(b) Any institution succeeding to the corporate agency
business of an Authenticating Agent shall continue to be an
Authenticating Agent without the execution or filing of any paper
or any further act on the part of the Trustee or such
Authenticating Agent.
(c) An Authenticating Agent may at any time resign by
giving written notice of resignation to the Trustee and to the
Transferor. The Trustee may at any time terminate the agency of
an Authenticating Agent by giving notice of termination to such
Authenticating Agent and to the Transferor. Upon receiving such
a notice of resignation or upon such a termination, or in case at
any time an Authenticating Agent shall cease to be acceptable to
the Trustee or the Transferor, the Trustee promptly may appoint a
successor Authenticating Agent. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be
appointed unless acceptable to the Trustee and the Transferor.
(d) The Servicer agrees to pay each Authenticating Agent
from time to time reasonable compensation for its services under
this Section 6.8.
(e) The provisions of Sections 11.1, 11.2 and 11.3 shall be
applicable to any Authenticating Agent.
(f) Pursuant to an appointment made under this Section 6.8,
the Securities may have endorsed thereon, in lieu of the
Trustee's certificate of authentication, an alternate certificate
of authentication in substantially the following form:
Trustee's Certificate of Authentication
This is one of the securities described in the Pooling and
Servicing Agreement.
,
as Authenticating Agent for the Trustee
By:
Authorized Signatory
Dated:
Section 6.9 Tender of Exchangeable Transferor Security.
(a) Upon any Exchange, the Transferor shall deliver to the
Trustee for authentication under Section 6.2, one or more new
Series of Investor Securities. Any such Series of Investor
Securities shall be substantially in the form specified in the
related Supplement and shall bear, upon its face, the designation
for such Series to which it belongs, as selected by the
Transferor. Except as specified in any Supplement for a related
Series, all Investor Securities of any Series shall rank pari
passu and be equally and ratably entitled as provided herein to
the benefits hereof (except that the Enhancement provided for any
Series shall not be available for any other Series) without
preference, priority or distinction on account of the actual time
or times of authentication and delivery, all in accordance with
the terms and provisions of this Agreement and the related
Supplement.
(b) The Holder of the Exchangeable Transferor Security may
(i) tender the Exchangeable Transferor Security to the Trustee in
exchange for (A) one or more newly issued Series of Investor
Securities or, with respect to any pre-funded Series, interests
therein and (B) a reissued Exchangeable Transferor Security, (ii)
request the Trustee to issue to it one or more Classes of any
newly issued Series of Investor Securities which upon payment by
the purchaser thereof of the Initial Invested Amount of such
Securities to a Defeasance Account, will represent an interest in
the Trust equal to such Initial Invested Amount (an "Unfunded
Security") or (iii) take a combination of the actions specified
in clauses (i) and (ii) provided that the sum of the amount of
Transferor Interest which is tendered under clause (i) and the
amount to be paid to the Defeasance Account under clause (ii)
equals the Initial Invested Amount of the Investor Securities
delivered to the Holder of the Exchangeable Transferor Security
(any such event under clauses (i), (ii) or (iii), a "Transferor
Exchange"). In addition, to the extent permitted for any Series
of Investor Securities as specified in the related Supplement,
the Investor Securityholders of such Series may tender their
Investor Securities and the Holder of the Exchangeable Transferor
Security may tender the Exchangeable Transferor Security to the
Trustee pursuant to the terms and conditions set forth in such
Supplement in exchange for (i) one or more newly issued Series of
Investor Securities and (ii) a reissued Exchangeable Transferor
Security (an "Investor Exchange"). Unless otherwise specified in
any Supplement, the Transferor shall not be permitted to deposit
money into any Defeasance Account. The Transferor Exchange and
Investor Exchange are referred to collectively herein as an
"Exchange." The Holder of the Exchangeable Transferor Security
may perform an Exchange by notifying the Trustee, in writing, at
least five Business Days in advance (an "Exchange Notice") of the
date upon which the Exchange is to occur (an "Exchange Date").
Any Exchange Notice shall state the designation of any Series to
be issued on the Exchange Date and, with respect to each such
Class or Series: (a) its Initial Invested Amount (or the method
for calculating such Initial Invested Amount), which at any time
may not be greater than the current principal amount of the
Exchangeable Transferor Security at such time (or in the case of
an Investor Exchange, the sum of the Invested Amount of any Class
or Series of Investor Securities to be exchanged plus the current
principal amount of the Exchangeable Transferor Security) taking
into account any Receivables transferred to the Trust
simultaneous with such Exchange, (b) its Security Rate (or the
method for allocating interest payments or other cash flows to
such Series), if any, and (c) the Enhancement Provider, if any,
with respect to such Series. On the Exchange Date, the Trustee
shall authenticate and deliver any such Class or Classes of such
Series of Investor Securities only upon delivery to it of the
following: (a) a Supplement satisfying the criteria set forth in
subsection 6.9(c) and in form reasonably satisfactory to the
Trustee executed by the Transferor and the Servicer and
specifying the Principal Terms of such Series, (b) the applicable
Enhancement, if any, (c) the agreement, if any, pursuant to which
the Enhancement Provider agrees to provide the Enhancement, if
any, (d) an Opinion of Counsel to the effect that (i) any Class
of the newly issued Series of Investor Securities sold to third
parties will be characterized as either indebtedness or
partnership interests for Federal and applicable state income tax
purposes or (ii) that the issuance of the newly issued Series of
Investor Securities will not adversely affect the Federal or
Applicable Tax State income tax characterization of any
outstanding Series of Investor Securities or the taxability of
the Trust under Federal or Applicable Tax State income tax laws,
(e) written confirmation from each Rating Agency that the
Exchange will not result in such Rating Agency's reducing or
withdrawing its rating on any then outstanding Class of any
Series as to which it is a Rating Agency, (f) an Officer's
Certificate of the Transferor, that on the Exchange Date after
giving effect to such exchange (i) the Transferor Interest would
be at least equal to the Minimum Transferor Interest and (ii) the
Retained Interest would be at least equal to the Minimum Retained
Interest, (g) the existing Exchangeable Transferor Security or
applicable Investor Securities, as the case may be and (h) such
other documents, certificates and Opinions of Counsel as may be
required by the applicable Supplement. Upon satisfaction of such
conditions, the Trustee shall cancel the existing Exchangeable
Transferor Security or applicable Investor Securities, as the
case may be, and issue, as provided above, such Series of
Investor Securities and a new Exchangeable Transferor Security,
dated the Exchange Date. There is no limit to the number of
Exchanges that may be performed under this Agreement.
(c) In conjunction with an Exchange, the parties hereto
shall execute a Supplement, which shall specify the relevant
terms with respect to any newly issued Series of Investor
Securities, which may include without limitation: (i) its name
or designation, (ii) the Initial Invested Amount or the method of
calculating the Initial Invested Amount, (iii) the Security Rate
(or formula for the determination thereof), (iv) the Closing
Date, (v) the rating agency or agencies rating such Series, (vi)
the name of the Clearing Agency, if any, (vii) the rights of the
Holder of the Exchangeable Transferor Security that have been
transferred to the Holders of such Series pursuant to such
Exchange (including any rights to allocations of Finance Charge
Collections and Principal Collections), (viii) the interest
payment date or dates and the date or dates from which interest
shall accrue, (ix) the method of allocating Principal Collections
for such Series and the method by which the principal amount of
Investor Securities of such Series shall amortize or accrete and
the method for allocating Finance Charge Collections, (x) the
names of any accounts to be used by such Series and the terms
governing the operation of any such account, (xi) the Series
Servicing Fee Percentage, (xii) the Minimum Transferor Interest,
(xiii) the Series Termination Date, (xiv) the terms of any
Enhancement with respect to such Series, (xv) the Enhancement
Provider, if applicable, (xvi) the base rate applicable to such
Series, (xvii) the terms on which the Securities of such Series
may be repurchased or remarketed to other investors, (xviii) any
deposit into any account provided for such Series, (xix) the
number of Classes of such Series and, if more than one Class, the
rights and priorities of each such Class, (xx) whether any fees
will be included in the funds available to be paid for such
Series, (xxi) the subordination of such Series to any other
Series, (xxii) the Pool Factor, (xxiii) the Minimum Aggregate
Principal Receivables, (xxiv) whether such Series will be a part
of a group or subject to being paired with any other Series,
(xxv) whether such Series will be pre-funded, and (xxvi) any
other relevant terms of such Series (including whether or not
such Series will be pledged as collateral for an issuance of any
other securities, including commercial paper) (all such terms,
the "Principal Terms" of such Series). The terms of such
Supplement may modify or amend the terms of this Agreement solely
as applied to such new Series. If on the date of the issuance of
such Series there is issued and outstanding one or more Series of
Investor Securities and no Series of Investor Securities is
currently rated by a Rating Agency, then as a condition to such
Exchange a nationally recognized investment banking firm or
commercial bank shall also deliver to the Trustee an officer's
certificate stating, in substance, that the Exchange will not
have an adverse effect on the timing or distribution of payments
to such other Series of Investor Securities then issued and
outstanding.
(d) The Transferor may surrender the Exchangeable
Transferor Security to the Trustee in exchange for a newly issued
Exchangeable Transferor Security and a second security (a
"Supplemental Security"), the terms of which shall be defined in
a supplement to this Agreement (which supplement shall be subject
to Section 13.1 hereof to the extent that it amends any of the
terms of this Agreement), to be delivered to or upon the order of
the Transferor (or a Person designated by the Transferor, in the
case of the transfer or exchange thereof, as provided below),
upon satisfaction of the following conditions: (i) following
such exchange, the Transferor Interest (less any interest therein
represented by any Supplemental Securities) would be at least
equal to the Minimum Transferor Interest ,(ii) following such
exchange the Retained Interest (less any interest therein
represented by any Supplemental Securities) equals or exceeds the
Minimum Retained Interest, and (iii) the Trustee received prior
to such exchange (A) a letter from the Rating Agency stating that
the then current ratings on the Investor Securities of each rated
class of each Series then outstanding will not be reduced or
withdrawn because of the issuance of such Supplemental Security
and (B) an Opinion of Counsel to the effect that (i) such
Supplemental Security will be characterized as either
indebtedness or a partnership interest for Federal and applicable
state income tax purposes or (ii) that such Supplemental Security
will not adversely affect the Federal, Minnesota or Delaware
income tax characterization of any outstanding Series of Investor
Securities or the taxability of the Trust under Federal,
Minnesota or Delaware income tax laws, transferred or exchanged
only upon satisfaction of the conditions set forth in clause
(iii) above.
Section 6.10 Book-Entry Securities. Unless otherwise
provided in any related Supplement, the Investor Securities, upon
original issuance, shall be issued in the form of typewritten
Securities representing the Book-Entry Securities, to be
delivered to the depositary specified in such Supplement (the
"Depositary") which shall be the Clearing Agency or Foreign
Clearing Agency, by or on behalf of such Series. The Investor
Securities of each Series shall, unless otherwise provided in the
related Supplement, initially be registered on the Security
Register in the name of the nominee of the Clearing Agency or
Foreign Clearing Agency. No Security Owner will receive a
definitive security representing such Security Owner's interest
in the related Series of Investor Securities, except as provided
in Section 6.12. Unless and until definitive, fully registered
Investor Securities of any Series ("Definitive Securities") have
been issued to Security Owners pursuant to Section 6.12:
(i) the provisions of this Section 6.10 shall be in
full force and effect with respect to each such Series;
(ii) the Transferor, the Servicer, the Paying Agent,
the Transfer Agent and Registrar and the Trustee may deal
with the Clearing Agency and the Clearing Agency
Participants for all purposes (including the making of
distributions on the Investor Securities of each such
Series) as the authorized representatives of the Security
Owners;
(iii) to the extent that the provisions of this
Section 6.10 conflict with any other provisions of this
Agreement, the provisions of this Section 6.10 shall control
with respect to each such Series; and
(iv) the rights of Security Owners of Investor
Securities of each such Series shall be exercised only
through the Clearing Agency or Foreign Clearing Agency and
the applicable Clearing Agency Participants and shall be
limited to those established by law and agreements between
such Security Owners and the Clearing Agency or Foreign
Clearing Agency and/or the Clearing Agency Participants.
Pursuant to the Depositary Agreement applicable to a Series,
unless and until Definitive Securities of such Series are
issued pursuant to Section 6.12, the initial Clearing Agency
will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of
principal and interest on the Investor Securities to such
Clearing Agency Participants.
Section 6.11 Notices to Clearing Agency. Whenever notice
or other communica tion to the Securityholders is required under
this Agreement, unless and until Definitive Securities shall have
been issued to Security Owners pursuant to Section 6.12, the
Trustee shall give all such notices and communications specified
herein to be given to Holders of the Investor Securities to the
Clearing Agency or Foreign Clearing Agency.
Section 6.12 Definitive Securities. If (i) (A) the
Transferor advises the Trustee in writing that the Clearing
Agency or Foreign Clearing Agency is no longer willing or able to
discharge properly its responsibilities under the applicable
Depositary Agreement, and (B) the Transferor is unable to locate
a qualified successor, (ii) the Transferor, at its option,
advises the Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or Foreign Clearing
Agency with respect to any Series of Securities or (iii) after
the occurrence of a Servicer Default, Security Owners of a Series
representing beneficial interests aggregating not less than 50%
of the Invested Amount of such Series advise the Trustee and the
applicable Clearing Agency or Foreign Clearing Agency through the
applicable Clearing Agency Participants in writing that the
continuation of a book-entry system through the applicable
Clearing Agency or Foreign Clearing Agency is no longer in the
best interests of the Security Owners, the Trustee shall notify
all Security Owners of such Series, through the applicable
Clearing Agency Participants, of the occurrence of any such event
and of the availability of Definitive Securities to Security
Owners of such Series requesting the same. Upon surrender to the
Trustee of the Investor Securities of such Series by the
applicable Clearing Agency or Foreign Clearing Agency for
registration, accompanied by registration instructions from the
applicable Clearing Agency or Foreign Clearing Agency, the
Trustee shall issue the Definitive Securities of such Series.
Neither the Transferor nor the Trustee shall be liable for any
delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Securities of such Series, all
references herein to obligations imposed upon or to be performed
by the applicable Clearing Agency or Foreign Clearing Agency
shall be deemed to be imposed upon and performed by the Trustee,
to the extent applicable with respect to such Definitive
Securities, and the Trustee shall recognize the Holders of the
Definitive Securities of such Series as Securityholders of such
Series hereunder.
Section 6.13 Global Security; Euro-Security Exchange Date.
If specified in the related Supplement for any Series, the
Investor Securities may be initially issued in the form of a
single temporary Global Security (the "Global Security") in
bearer form, without interest coupons, in the denomination of the
Initial Invested Amount of such Series and substantially in the
form attached to the related Supplement. Unless otherwise
specified in the related Supplement, the provisions of this
Section 6.13 shall apply to such Global Security. The Global
Security will be authenticated by the Trustee upon the same
conditions, in substantially the same manner and with the same
effect as the Definitive Securities. The Global Security may be
exchanged in the manner described in the related Supplement for
Registered Securities or Bearer Securities in definitive form.
Section 6.14 Meetings of Securityholders.
To the extent provided by the Supplement for any Series
issued in whole or in part in Bearer Securities, the Servicer or
the Trustee may at any time call a meeting of the Securityholders
of such Series, to be held at such time and at such place as the
Servicer or the Trustee, as the case may be, shall determine, for
the purpose of approving a modification of or amendment to, or
obtaining a waiver of, any covenant or condition set forth in
this Agreement with respect to such Series or in the Securities
of such Series, subject to Section 13.1 of this Agreement.
[End of Article VI]
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR
Section 7.1 Liability of the Transferor. The Transferor
shall be liable in accordance herewith solely to the extent of
the obligations specifically undertaken by the Transferor.
Section 7.2 Merger or Consolidation of, or Assumption of
the Obligations of, the Transferor.
(a) The Transferor shall not consolidate with or merge into
any other business entity or convey or transfer its properties
and assets substantially as an entirety to any Person, unless:
(i) the business entity formed by such consolidation
or into which the Transferor is merged or the Person which
acquires by conveyance or transfer the properties and assets
of the Transferor substantially as an entirety shall be, if
the Transferor is not the surviving entity, (x) a
corporation organized and existing under the laws of the
United States of America or any State or the District of
Columbia or (y) a state or national banking association that
is not subject to the Bankruptcy Code of 1978, as amended
from time to time, or to any successor statute, and shall
expressly assume, by an agreement supplemental hereto,
executed and delivered to the Trustee, in form satisfactory
to the Trustee, the performance of every covenant and
obligation of the Transferor, as applicable hereunder and
shall benefit from all the rights granted to the Transferor,
as applicable hereunder. To the extent that any right,
covenant or obligation of the Transferor, as applicable
hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or
obligation, or benefit from such right, as would apply, to
the extent practicable, to such successor entity. In
furtherance hereof, in applying this Section 7.2 to a
successor entity, Section 9.2 hereof shall be applied by
reference to events of involuntary liquidation, receivership
or conservatorship applicable to such successor entity as
shall be set forth in the officer's certificate described in
subsection 7.2(a)(ii);
(ii) the Transferor shall have delivered to the
Trustee an Officer's Certificate signed by a Vice President
(or any more senior officer) of the Transferor stating that
such consolidation, merger, conveyance or transfer and such
supplemental agreement comply with this Section 7.2 and that
all conditions precedent herein provided for relating to
such transaction have been complied with and an Opinion of
Counsel that such supplemental agreement is legal, valid and
binding and that the entity surviving such consolidation,
conveyance or transfer is organized and existing under the
laws of the United States of America or any State or the
District of Columbia and, subject to customary limitations
and qualifications, such entity will not be substantively
consolidated with any Credit Card Originator or the
Servicer;
(iii) the Transferor shall have delivered notice to
the Rating Agency of such consolidation, merger, conveyance
or transfer and the Rating Agency shall have provided
written confirmation that such consolidation, merger,
conveyance or transfer will not result in the Rating Agency
reducing or withdrawing its rating on any then outstanding
Series as to which it is a Rating Agency;
(iv) the successor entity shall be a special purpose
bankruptcy remote entity; and
(v) if the Transferor is not the surviving entity, the
surviving entity shall file new UCC-1 financing statements
with respect to the interest of the Trust in the
Receivables.
(b) The obligations of the Transferor hereunder shall not
be assignable nor shall any Person succeed to the obligations of
the Transferor hereunder except for mergers, consolidations,
assumptions or transfers in accordance with the provisions of the
foregoing paragraph.
Section 7.3 Limitation on Liability. The directors,
officers, employees or agents of the Transferor shall not be
under any liability to the Trust, the Trustee, the
Securityholders, any Enhancement Provider or any other Person
hereunder or pursuant to any document delivered hereunder, it
being expressly understood that all such liability is expressly
waived and released as a condition of, and as consideration for,
the execution of this Agreement and any Supplement and the
issuance of the Securities; provided, however, that this
provision shall not protect the officers, directors, employees,
or agents of the Transferor against any liability which would
otherwise be imposed upon them by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder.
Except as provided in Sections 7.1 and 7.4 with respect to the
Trust and the Trustee and its officers, directors, employees and
agents, the Transferor shall not be under any liability to the
Trust, the Trustee, its officers, directors, employees and
agents, the Securityholders, any Enhancement Provider or any
other Person for any action taken or for refraining from the
taking of any action in its capacity as Transferor pursuant to
this Agreement or any Supplement whether arising from express or
implied duties under this Agreement or any Supplement or
otherwise; provided, however, that this provision shall not
protect the Transferor against any liability which would
otherwise be imposed upon it by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder.
The Transferor and any director, officer, employee or agent may
rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any
matters arising hereunder.
Section 7.4 Liabilities. Notwithstanding Section 7.3, by
entering into this Agreement, the Transferor agrees to be liable,
directly to the injured party, for the entire amount of any
losses, claims, damages, penalties or liabilities (other than
those incurred by a Securityholder in the capacity of an investor
in the Investor Securities as a result of the performance of the
Receivables, market fluctuations, a shortfall or failure by the
Enhancement Provider to make payment under any Enhancement or
other similar market or investment risks associated with
ownership of the Investor Securities) arising out of or based on
the arrangement created by this Agreement and the actions of the
Servicer taken pursuant hereto as though this Agreement created a
partnership under the Delaware Uniform Partnership Law, in which
the Transferor is a general partner. The Transferor agrees to
pay, indemnify and hold harmless each Investor Securityholder
against and from any and all such loses, claims, damages and
liabilities (other than those incurred by a Securityholder in the
capacity of an investor in the Investor Securities as a result of
the performance of the Receivables, market fluctuations, a
shortfall or failure by an Enhancement Provider to make payment
under an Enhancement or other similar market or investment risks)
except to the extent that they arise from any action by such
Investor Securityholder. Subject to Sections 8.3 and 8.4, in the
event of a Service Transfer, the Successor Servicer will
indemnify and hold harmless the Transferor for any losses,
claims, damages and liabilities of the Transferor as described in
this Section 7.4 arising from the actions or omissions of such
Successor Servicer.
[End of Article VII]
ARTICLE VIII
OTHER MATTERS RELATING
TO THE SERVICER
Section 8.1 Liability of the Servicer. The Servicer shall
be liable in accordance herewith only to the extent of the
obligations specifically undertaken by the Servicer in such
capacity herein.
Section 8.2 Merger or Consolidation of, or Assumption of
the Obligations of, the Servicer. Subject to subsection 3.1(a),
the Servicer shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or
into which the Servicer is merged or the Person which
acquires by conveyance or transfer the properties and assets
of the Servicer substantially as an entirety shall be (x) a
corporation organized and existing under the laws of the
United States of America or any State or the District of
Columbia or (y) a state or national banking association that
is not subject to the Bankruptcy Code of 1978, as amended
from time to time, or to any successor statute, and, if the
Servicer is not the surviving entity, shall expressly
assume, by an agreement supplemental hereto, executed and
delivered to the Trustee in form satisfactory to the
Trustee, the performance of every covenant and obligation of
the Servicer hereunder (to the extent that any right,
covenant or obligation of the Servicer, as applicable
hereunder, is inapplicable to the successor entity, such
successor entity shall be subject to such covenant or
obligation, or benefit from such right, as would apply, to
the extent practicable, to such successor entity);
(ii) the Servicer shall have delivered to the Trustee
an Officer's Certificate that such consolidation, merger,
conveyance or transfer and such supplemental agreement
comply with this Section 8.2 and that all conditions
precedent herein provided for relating to such transaction
have been complied with and an Opinion of Counsel that such
supplemental agreement is legal, valid and binding with
respect to the Servicer and that the entity surviving such
consolidation, conveyance or transfer is organized and
existing under the laws of the United States of America or
any State or the District of Columbia; and
(iii) the Servicer shall have delivered notice to the
Rating Agency of such consolidation, merger, conveyance or
transfer.
Section 8.3 Limitation on Liability of the Servicer and
Others. The directors, officers, employees or agents of the
Servicer shall not be under any liability to the Trust, the
Trustee, the Securityholders, any Enhancement Provider or any
other Person hereunder or pursuant to any document delivered
hereunder, it being expressly understood that all such liability
is expressly waived and released as a condition of, and as
consideration for, the execution of this Agreement and any
Supplement and the issuance of the Securities; provided, however,
that this provision shall not protect the directors, officers,
employees and agents of the Servicer against any liability which
would otherwise be imposed upon them by reason of willful
misfeasance, bad faith or gross negligence in the performance of
duties or by reason of reckless disregard of obligations and
duties hereunder. Except as provided in Sections 8.1 and 8.4
with respect to the Trustee, its officers, directors, employees
and agents, the Servicer shall not be under any liability to the
Trust, the Trustee, its officers, directors, employees and
agents, the Securityholders, any Enhancement Provider or any
other Person for any action taken or for refraining from the
taking of any action in its capacity as Servicer pursuant to this
Agreement or any Supplement; provided, however, that this
provision shall not protect the Servicer against any liability
which would otherwise be imposed upon it by reason of willful
misfeasance, bad faith or gross negligence in the performance of
duties or by reason of its reckless disregard of its obligations
and duties hereunder or under any Supplement. The Servicer may
rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any
matters arising hereunder. The Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties to service the Receivables
in accordance with this Agreement which in its reasonable opinion
may involve it in any expense or liability.
Section 8.4 Servicer Indemnification of the Transferor, the
Trust and the Trustee. Subject to the limitations on liability
set forth in Section 8.3, the Servicer shall indemnify and hold
harmless the Transferor, the Trustee and the Trust (each, an
"Indemnified Party") from and against any loss, liability,
reasonable expense, damage or injury, including, but not limited
to, any judgment, award, settlement, reasonable attorneys' fees
and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim,
suffered or sustained by reason of any acts or omissions or
alleged acts or omissions of the Servicer with respect to
activities of the Trust or the Trustee for which the Servicer is
responsible pursuant to this Agreement; provided, however, that
the Servicer shall not indemnify or hold harmless an Indemnified
Party if such acts, omissions or alleged acts or omissions
constitute or are caused by fraud, gross negligence, or willful
misconduct by such Indemnified Party (or any of such Indemnified
Party's officers, directors, employees or agents) or the Investor
Securityholders; provided, further, that the Servicer shall not
indemnify or hold harmless the Trust, the Investor
Securityholders or the Security Owners for any losses,
liabilities, expenses, damages or injuries suffered or sustained
by any of them with respect to any action taken by the Trustee at
the request of the Investor Securityholders; provided further,
that the Servicer shall not indemnify or hold harmless the Trust,
the Investor Securityholders or the Security Owners as to any
losses, liabilities, expenses, damages or injuries suffered or
sustained by any of them in their capacities as investors,
including without limitation losses incurred as a result of
Receivables in Defaulted Accounts; provided further, that the
Servicer shall not indemnify or hold harmless the Transferor, the
Trust, the Investor Securityholders or the Security Owners for
any losses, liabilities, expenses, damages or injuries suffered
or sustained by the Trust, the Investor Securityholders or the
Security Owners arising under any tax law, including without
limitation, any federal, state, local or foreign income or
franchise taxes or any other tax imposed on or measured by income
(or any interest, penalties or additions with respect thereto or
arising from a failure to comply therewith) required to be paid
by the Trust, the Investor Securityholders or the Security Owners
in connection herewith to any taxing authority; and, provided,
further, that in no event will the Servicer be liable, directly
or indirectly, for or in respect of any indebtedness or
obligation evidenced or created by any Security, recourse as to
which shall be limited solely to the assets of the Trust
allocated for the payment thereof as provided in this Agreement
and any applicable Supplement. Any such indemnification shall
not be payable from the assets of the Trust, but the Servicer
shall be subrogated to the rights of the Trust with respect to
the foregoing matters if and to the extent that the Servicer
shall have indemnified the Trust with respect thereto. The
Servicer shall indemnify and hold harmless the Trustee and its
officers, directors, employees or agents from and against any
loss, liability, reasonable expense, damage or injury suffered or
sustained by reason of the acceptance of this Trust by the
Trustee, the issuance by the Trust of the Securities or any of
the other matters contemplated herein or in any Supplement;
provided, however, that the Servicer shall not indemnify the
Trustee or its officers, directors, employees or agents for any
loss, liability, expense, damage or injury caused by the fraud,
negligence or willful misconduct of any of them. The provisions
of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof and shall survive
the resignation or removal of the Servicer, the resignation or
removal of the Trustee and/or the termination of the Trust and
shall survive the termination of the Agreement.
Section 8.5 The Servicer Not to Resign. Subject to
subsection 3.1(a), the Servicer shall not resign from the
obligations and duties hereby imposed on it except upon
determination that (i) the performance of its duties hereunder is
no longer permissible under applicable law and (ii) there is no
reasonable action that the Servicer could take to make the
performance of its duties hereunder permissible under applicable
law. Any such determination permitting the resignation of the
Servicer shall be evidenced as to clause (i) above by an Opinion
of Counsel to such effect delivered to the Trustee. No such
resignation shall become effective until the Trustee or a
Successor Servicer shall have assumed the responsibilities and
obligations of the Servicer in accordance with Section 10.2
hereof. If the Trustee is unable within 120 days of the date of
delivery to it of such Opinion of Counsel to appoint a Successor
Servicer, the Trustee shall serve as Successor Servicer hereunder
(but shall have continued authority to appoint another Person as
Successor Servicer).
Section 8.6 Access to Certain Documentation and Information
Regarding the Receivables. The Servicer shall provide to the
Trustee and its agents (who shall be reasonably acceptable to the
Servicer) access to the documentation regarding the Accounts and
the Receivables in such cases where the Trustee is required in
connection with the enforcement of the rights of the Investor
Securityholders, or by applicable statutes or regulations, to
review such documentation, such access being afforded without
charge but only (i) upon reasonable request, (ii) during normal
business hours, (iii) subject to the Servicer's normal security
and confidentiality procedures and (iv) at offices designated by
the Servicer. Nothing in this Section 8.6 shall derogate from
the obligation of any Credit Card Originator, the Transferor, the
Trustee or the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors and the failure
of the Servicer to provide access as provided in this Section 8.6
as a result of such obligations shall not constitute a breach of
this Section 8.6.
Section 8.7 Delegation of Duties. It is understood and
agreed by the parties hereto that the Servicer may delegate
certain of its duties hereunder to First Data Resources, Inc., a
Delaware corporation. In the ordinary course of business, the
Servicer may at any time delegate any duties hereunder to any
Person who agrees to conduct such duties in accordance with the
Credit and Collection Policies. Any such delegations shall not
relieve the Servicer of its liability and responsibility with
respect to such duties, and shall not constitute a resignation
within the meaning of Section 8.5 hereof and the Servicer will
remain jointly and severally liable with such Person for any
amounts which would otherwise be payable pursuant to this Article
VIII as if the Servicer had performed such duty; provided,
however, that in the case of any significant delegation to a
Person other than First Data Resources, Inc. or an Affiliate of
DMCCB (i) written notice shall be given to the Trustee and to
each Rating Agency of such delegation, (ii) Moody's shall have
notified the Transferor and the Trustee in writing that such
delegation will not result in the lowering or withdrawal of its
then existing rating of any Series or Class of Investor
Securities and (iii) the Transferor shall not have received
written notice from Standard & Poor's that such delegation would
result in the lowering or withdrawal of its then existing rating
of any Series or Class of Investor Securities.
[End of Article VIII]
ARTICLE IX
PAY OUT EVENTS
Section 9.1 Pay Out Events. If any one of the following
events (each, a "Trust Pay Out Event") shall occur:
(a) the Transferor, Metris or DMCCB shall consent to the
appointment of a bankruptcy trustee or receiver or liquidator in
any bankruptcy proceeding or any other insolvency, readjustment
of debt, marshalling of assets and liabilities or similar
proceedings of or relating to all or substantially all of its
property; or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a bankruptcy trustee or receiver or liquidator in
any bankruptcy proceeding or any other insolvency, readjustment
of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs,
shall have been entered against the Transferor, Metris or DMCCB;
or the Transferor, Metris or DMCCB shall admit in writing its
inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or
reorganization statute including the U.S. bankruptcy code, make
an assignment for the benefit of its creditors or voluntarily
suspend payment of its obligations; or the Transferor shall
become unable for any reason to transfer Receivables to the Trust
in accordance with the provisions of this Agreement; or
(b) the Trust shall become subject to regulation by the
Securities and Exchange Commission as an "investment company"
within the meaning of the Investment Company Act;
then a Pay Out Event with respect to all Series of Securities
shall occur without any notice or other action on the part of the
Trustee or the Investor Securityholders immediately upon the
occurrence of such event. The Trustee shall provide notice of a
Pay Out Event in a prompt manner to each Rating Agency.
Section 9.2 Additional Rights Upon the Occurrence of
Certain Events.
(a) If (x) the Transferor shall consent to the appointment
of a bankruptcy trustee or receiver or liquidator for the winding-
up or liquidation of its affairs, or a decree or order of a court
or agency or supervisory authority having jurisdiction in the
premises for the appointment of a bankruptcy trustee or receiver
or liquidator for the winding-up or liquidation of its affairs
shall have been entered against the Transferor or Metris (an
"Insolvency Event"), on the day of such Insolvency Event (the
"Appointment Day") or (y) the Retained Percentage shall at any
time be equal to or less than 2% (a "Trigger Event"), the
following actions shall be taken and processes begun:
(i) If an Insolvency Event shall have occurred, the
Transferor shall immediately cease to transfer Principal
Receivables to the Trust and shall promptly give written
notice to the Trustee of such Insolvency Event.
Notwithstanding any cessation of the transfer to the Trust
of additional Principal Receivables, receivables accrued in
respect of Finance Charge Receivables (other than Discount
Option Receivables), whenever created, accrued in respect of
Receivables that have been transferred to the Trust, shall
continue to be a part of the Trust, and Collections with
respect thereto shall continue to be allocated and paid in
accordance with Article IV.
(ii) If an Insolvency Event or a Trigger Event shall
have occurred this Agreement and the Trust shall be deemed
to have terminated, subject to the liquidation, winding-up
and dissolution procedures described below; provided,
however, that within 15 days of the date of written notice
to the Trustee, the Trustee shall (i) publish a notice in an
Authorized Newspaper that an Insolvency Event or a Trigger
Event has occurred, that the Trust has terminated, and that
the Trustee intends to sell, dispose of or otherwise
liquidate the Receivables pursuant to this Agreement in a
commercially reasonable manner and on commercially
reasonable terms, which shall include the solicitation of
competitive bids (a "Disposition"), and (ii) send written
notice to the Investor Securityholders describing the
provisions of this Section 9.2 and requesting each Investor
Securityholder to advise the Trustee in writing that it
elects one of the following options: (A) the Investor
Securityholder wishes the Trustee to instruct the Servicer
not to effectuate a Disposition, or (B) the Investor
Securityholder refuses to advise the Trustee as to the
specific action the Trustee shall instruct the Servicer to
take or (C) the Investor Securityholder wishes the Servicer
to effect a Disposition. If after 90 days from the day
notice pursuant to clause (i) above is first published (the
"Publication Date"), the Trustee shall not have received the
written instruction described in clause (A) above from
Holders of Investor Securities representing Undivided
Interests aggregating in excess of 50% of the related
Invested Amount of each Series (or, in the case of a Series
having more than one Class, each Class of such Series) and
the holders of any Supplemental Securities or any other
interest in the Exchangeable Transferor Security other than
the Transferor as provided in Section 6.3(b) for each
Series, a "Holders' Majority"), the Trustee shall instruct
the Servicer to effectuate a Disposition, and the Servicer
shall proceed to consummate a Disposition. If, however,
with respect to the portion of the Receivables allocable to
any outstanding Series, a Holders' Majority instruct the
Trustee not to effectuate a Disposition of the portion of
the Receivables allocable to such Series, the Trust shall be
reconstituted and continue with respect to such Series
pursuant to the terms of this Agreement and the applicable
Supplement (as amended in connection with such
reconstitution). The portion of the Receivables allocable
to any Series shall be equal to the sum of (1) the product
of (A) the Transferor Percentage, (B) the aggregate
outstanding Principal Receivables and (C) a fraction the
numerator of which is the related Investor Percentage of
Finance Charge Collections and the denominator of which is
the sum of all Investor Percentages with respect to Finance
Charge Collections for all Series outstanding and (2) the
Invested Amount of such Series. The Transferor or any of
its Affiliates shall be permitted to bid for the
Receivables. In addition, the Transferor or any of its
Affiliates shall have the right to match any bid by a third
person and be granted the right to purchase the Receivables
at such matched bid price. The Trustee may obtain a prior
determination from any such bankruptcy trustee, receiver or
liquidator that the terms and manner of any proposed
Distribution are commercially reasonable. The provisions of
Sections 9.1 and 9.2 shall not be deemed to be mutually
exclusive.
(b) The proceeds from the Disposition pursuant to
subsection (a) above shall be treated as Collections on the
Receivables and shall be allocated and deposited in accordance
with the provisions of Article IV; provided, however, that the
proceeds from a Disposition with respect to any Series shall be
applied solely to make payments to such Series; provided further,
that the Trustee shall determine conclusively in its sole
discretion the amount of such proceeds that are allocable to
Finance Charge Collections and the amount of such proceeds that
are allocable to Collections of Principal Receivables. Unless
the Trustee receives written instructions from Investor
Securityholders of one or more Series to continue the Trust with
respect to such Series as provided in subsection 9.2(a) above, on
the day following the last Distribution Date in the Monthly
Period during which such proceeds are distributed to the Investor
Securityholders of each Series, the Trust shall terminate.
(c) The Trustee may appoint an agent or agents to assist
with its responsibilities pursuant to this Article IX with
respect to competitive bids.
[End of Article IX]
ARTICLE X
SERVICER DEFAULTS
Section 10.1 Servicer Defaults. If any one of the
following events (a "Servicer Default") shall occur and be
continuing:
(a) any failure by the Servicer to make any payment,
transfer or deposit or to give instructions or notice to the
Trustee pursuant to Article IV or to instruct the Trustee to make
any required drawing, withdrawal, or payment under any
Enhancement on or before the date occurring five Business Days
after the date such payment, transfer, deposit, withdrawal or
drawing or such instruction or notice is required to be made or
given, as the case may be, under the terms of this Agreement;
provided, however, that any such failure caused by a non- willful
act of the Servicer shall not constitute a Servicer Default if
the Servicer promptly remedies such failure within five Business
Days after receiving notice of such failure or otherwise becoming
aware of such failure;
(b) failure on the part of the Servicer duly to observe or
perform in any respect any other covenants or agreements of the
Servicer set forth in this Agreement, which has a material
adverse effect on the Investor Securityholders of any Series and
which continues unremedied for a period of 60 days after the date
on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee,
or to the Servicer and the Trustee by the Holders of Investor
Securities evidencing Undivided Interests aggregating not less
than 50% of the Invested Amount of any Series materially
adversely affected thereby and continues to materially adversely
affect such Investor Securityholders for such period; or the
Servicer shall delegate its duties under this Agreement, except
as permitted by Section 8.7;
(c) any representation, warranty or certification made by
the Servicer in this Agreement or in any security delivered
pursuant to this Agreement shall prove to have been incorrect
when made, which has a material adverse effect on the Investor
Securityholders of any Series and which continues to be incorrect
in any material respect for a period of 60 days after the date on
which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee,
or to the Servicer and the Trustee by the Holders of Investor
Securities evidencing Undivided Interests aggregating not less
than 50% of the Invested Amount of any Series materially
adversely affected thereby and continues to materially adversely
affect such Investor Securityholders for such period; or
(d) the Servicer shall consent to the appointment of a
bankruptcy trustee or receiver or liquidator in any bankruptcy
proceeding or any other insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of
or relating to the Servicer or of or relating to all or
substantially all of its property; or a decree or order of a
court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a bankruptcy trustee or
receiver or liquidator in any bankruptcy proceeding or any other
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
Servicer, and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or the Servicer
shall admit in writing its inability to pay its debts generally
as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make any
assignment for the benefit of its creditors or voluntarily
suspend payment of its obligations;
then, so long as such Servicer Default shall not have been
remedied, either the Trustee, or the Holders of Investor
Securities evidencing Undivided Interests aggregating more than
50% of the Aggregate Invested Amount, by notice then given in
writing to the Servicer (and to the Trustee if given by the
Investor Securityholders) (a "Termination Notice"), may terminate
all of the rights and obligations of the Servicer as Servicer
under this Agreement. After receipt by the Servicer of such
Termination Notice, and on the date that a Successor Servicer
shall have been appointed by the Trustee pursuant to Section
10.2, all authority and power of the Servicer under this
Agreement shall pass to and be vested in a Successor Servicer;
and, without limitation, the Trustee is hereby authorized and
empowered (upon the failure of the Servicer to cooperate) to
execute and deliver, on behalf of the Servicer, as attorney-in-
fact or otherwise, all documents and other instruments upon the
failure of the Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such transfer
of servicing rights and obligations. The Servicer agrees to
cooperate with the Trustee and such Successor Servicer in
effecting the termination of the responsibilities and rights of
the Servicer to conduct servicing hereunder including, without
limitation, the transfer to such Successor Servicer of all
authority of the Servicer to service the Receivables provided for
under this Agreement, including, without limitation, all
authority over all Collections which shall on the date of
transfer be held by the Servicer for deposit, or which have been
deposited by the Servicer, in the Collection Account, the Excess
Funding Account, the Interest Funding Account or the Principal
Account, and any Series Account, or which shall thereafter be
received with respect to the Receivables. The Servicer shall
promptly transfer its electronic records or electronic copies
thereof relating to the Receivables to the Successor Servicer in
such electronic form as the Successor Servicer may reasonably
request and shall promptly transfer to the Successor Servicer all
other records, correspondence and documents necessary for the
continued servicing of the Receivables in the manner and at such
times as the Successor Servicer shall reasonably request. To the
extent that compliance with this Section 10.1 shall require the
Servicer to disclose to the Successor Servicer information of any
kind which the Servicer deems to be confidential, the Successor
Servicer shall be required to enter into such customary licensing
and confidentiality agreements as the Servicer shall deem
necessary to protect its interests. The Servicer shall, on the
date of any servicing transfer, transfer all of its rights and
obligations under the Enhancement with respect to any Series to
the Successor Servicer. In connection with any service transfer,
all reasonable costs and expenses (including attorneys' fees)
incurred in connection with transferring the records,
correspondence and other documents with respect to the
Receivables and the other Trust Property to the Successor
Servicer and amending this Agreement to reflect such succession
as Successor Servicer pursuant to this Section 10.1 and Section
10.2 shall be paid by the Servicer (unless the Trustee is acting
as the Servicer on a temporary basis, in which case the original
Servicer shall be responsible therefor) upon presentation of
reasonable documentation of such costs and expenses.
Notwithstanding the foregoing, a delay in or failure of
performance referred to in subsection 10.1(a) for a period of
five Business Days or under subsection 10.1(b) or (c) for a
period of 60 days, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of
reasonable diligence by the Servicer and such delay or failure
was caused by an act of God or the public enemy, acts of declared
or undeclared war, public disorder, rebellion, riot or sabotage,
epidemics, landslides, lightning, fire, hurricanes, tornadoes,
earthquakes, nuclear disasters or meltdowns, floods, power
outages, bank closings, communications outages, computer failure
or similar causes. The preceding sentence shall not relieve the
Servicer from using its best efforts to perform its obligations
in a timely manner in accordance with the terms of this Agreement
and the Servicer shall provide the Trustee, any Enhancement
Provider, the Transferor and the Holders of Investor Securities
with an Officer's Certificate giving prompt notice of such
failure or delay by it, together with a description of the cause
of such failure or delay and its efforts so to perform its
obligations.
Section 10.2 Trustee to Act; Appointment of Successor.
(a) On and after the receipt by the Servicer of a
Termination Notice pursuant to Section 10.1, the Servicer shall
continue to perform all servicing functions under this Agreement
until the date specified in the Termination Notice or as
otherwise specified by the Trustee in writing or, if no such date
is specified in such Termination Notice, or otherwise specified
by the Trustee, until a date mutually agreed upon by the Servicer
and Trustee. The Trustee shall notify each Rating Agency of such
removal of the Servicer. The Trustee shall, as promptly as
possible after the giving of a Termination Notice, appoint a
successor servicer (the "Successor Servicer"), and such Successor
Servicer shall accept its appointment by a written assumption in
a form acceptable to the Trustee. If such Successor Servicer is
unable to accept such appointment, the Trustee may obtain bids
from any potential successor servicer. If the Trustee is unable
to obtain any bids from any potential successor servicer and the
Servicer delivers an Officer's Certificate to the effect that it
cannot in good faith cure the Servicer Default which gave rise to
a transfer of servicing, and if the Trustee is legally unable to
act as Successor Servicer, then the Trustee shall offer the
Transferor the right to accept reassignment of all of the
Receivables for an amount equal to the Aggregate Invested Amount
on the date of such purchase plus all interest accrued but unpaid
on all of the outstanding Investor Securities at the applicable
Security Rate through the date of such purchase; provided,
however, that no such purchase by the Transferor shall occur
unless the Transferor shall deliver an Opinion of Counsel
reasonably acceptable to the Trustee that such purchase would not
constitute a fraudulent conveyance of the Transferor. The
proceeds of such sale shall be deposited in the Distribution
Account or any Series Account, as provided in the related
Supplement, for distribution to the Investor Securityholders of
each outstanding Series pursuant to Section 12.3 of the
Agreement. In the event that a Successor Servicer has not been
appointed and has not accepted its appointment at the time when
the Servicer ceases to act as Servicer, the Trustee without
further action shall automatically be appointed the Successor
Servicer (but shall have continued authority to appoint another
Person as Successor Servicer). The Trustee may delegate any of
its servicing obligations to an affiliate or agent of the Trustee
in accordance with Article III hereof. Any such delegations
shall not relieve the Trustee of its liability and responsibility
with respect to such duties. Notwithstanding the above, the
Trustee shall, if it is legally unable to act, petition a court
of competent jurisdiction to appoint any established financial
institution having, in the case of an entity that is subject to
risk-based capital adequacy requirements, risk-based capital of
at least $50,000,000 or, in the case of an entity that is not
subject to risk-based capital requirements, having a net worth of
not less than $50,000,000 and whose regular business includes the
servicing of credit card receivables similar to the Receivables
as the Successor Servicer hereunder.
(b) Upon its appointment, the Successor Servicer shall be
the successor in all respects to the Servicer with respect to
servicing functions under this Agreement and shall be subject to
all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof, and
all references in this Agreement to the Servicer shall be deemed
to refer to the Successor Servicer. Any Successor Servicer, by
its acceptance of its appointment, will automatically agree to be
bound by the terms and provisions of each Enhancement.
(c) In connection with such appointment and assumption, the
Trustee shall be entitled to such compensation, or may make such
arrangements for the compensation of the Successor Servicer out
of Collections, as it and such Successor Servicer shall agree;
provided, however, that no such compensation shall be in excess
of the Servicing Fee permitted to the Servicer pursuant to
Section 3.2. The Transferor agrees that if the Servicer is
terminated hereunder, it will agree to deposit a portion of the
Collections in respect of Finance Charge Receivables that it is
entitled to receive pursuant to Article IV to pay its ratable
share of the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor
Servicer under this Agreement shall automatically cease and
terminate upon termination of the Trust pursuant to Section 12.1
and shall pass to and be vested in the Transferor and, without
limitation, the Transferor is hereby authorized and empowered to
execute and deliver, on behalf of the Successor Servicer, as
attorney-in-fact or otherwise, all documents and other
instruments, and to do and accomplish all other acts or things
necessary or appropriate to effect the purposes of such transfer
of servicing rights. The Successor Servicer agrees to cooperate
with the Transferor in effecting the termination of the
responsibilities and rights of the Successor Servicer to conduct
servicing on the Receivables. The Successor Servicer shall
transfer its electronic records relating to the Receivables to
the Transferor in such electronic form as the Transferor may
reasonably request and shall transfer all other records,
correspondence and documents to the Transferor in the manner and
at such times as the Transferor shall reasonably request. To the
extent that compliance with this Section 10.2 shall require the
Successor Servicer to disclose to the Transferor information of
any kind which the Successor Servicer deems to be confidential,
the Transferor shall be required to enter into such customary
licensing and confidentiality agreements as the Successor
Servicer shall deem necessary to protect its interests.
Section 10.3 Notification to Securityholders. Upon the
Servicer becoming aware of any Servicer Default, the Servicer
shall give prompt written notice thereof to the Trustee and any
Enhancement Provider and, upon receipt of such written notice,
the Trustee shall give notice to the Investor Securityholders at
their respective addresses appearing in the Security Register.
Upon any termination or appointment of a Successor Servicer
pursuant to this Article X, the Trustee shall give prompt written
notice thereof to Investor Securityholders at their respective
addresses appearing in the Security Register.
Section 10.4 Waiver of Past Defaults. The Holders of
Investor Securities evidencing Undivided Interests aggregating
not less than 66-2/3% of the Invested Amount of each Series
materially adversely affected by any default by the Servicer or
Transferor may, on behalf of all Securityholders of such Series,
waive any default by the Servicer or Transferor in the
performance of their respective obligations hereunder and its
consequences, except a default in the failure to make any
required deposits or payments of interest or principal relating
to such Series pursuant to Article IV, which default does not
result from the failure of the Paying Agent to perform its
obligations to make any required deposits or payments of interest
and principal in accordance with Article IV. Upon any such
waiver of a past default, such default shall cease to exist, and
any default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver
shall extend to any subsequent or other default or impair any
right consequent thereon except to the extent expressly so
waived.
[End of Article X]
ARTICLE XI
THE TRUSTEE
Section 11.1 Duties of Trustee.
(a) The Trustee, prior to the occurrence of any Servicer
Default of which a Responsible Officer of the Trustee has actual
knowledge and after the curing of all Servicer Defaults which may
have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no
implied covenants or duties shall be read into this Agreement
against the Trustee. If a Responsible Officer has received
written notice that a Servicer Default has occurred (and such
Servicer Default has not been cured or waived), the Trustee shall
exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in its
exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs;
provided, however, that if the Trustee shall assume the duties of
the Servicer pursuant to Section 8.5 or 10.2, the Trustee in
performing such duties shall use the degree of skill and
attention customarily exercised by a servicer with respect to
comparable receivables that it services for itself or others.
(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or
other instruments furnished to the Trustee that are specifically
required to be furnished pursuant to any provision of this
Agreement, shall examine them to determine whether they
substantially conform to the requirements of this Agreement. The
Trustee shall retain all such items for at least one year after
receipt and shall make such items available for inspection by any
Investor Securityholder at the Corporate Trust Office, such
inspection to be made during regular business hours and upon
reasonable prior notice to the Trustee.
(c) Subject to subsection 11.1(a), no provision of this
Agreement shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that:
(i) the Trustee shall not be personally liable for an
error of judgment made in good faith by a Responsible
Officer or Responsible Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of the
Holders of Investor Securities evidencing Undivided
Interests aggregating more than 50% of the Invested Amount
of any Series relating to the time, method and place of
conducting any proceeding for any remedy available to the
Trustee with respect to such Series, or exercising any trust
or power conferred upon the Trustee with respect to such
Series, under this Agreement; and
(iii) the Trustee shall not be charged with knowledge
of any failure by the Servicer referred to in clauses (a)
and (b) of Section 10.1 or of any breach by the Servicer
contemplated by clause (c) of Section 10.1 or any Pay Out
Event unless a Responsible Officer of the Trustee obtains
actual knowledge of such failure, breach or Pay-Out Event or
the Trustee receives written notice of such failure, breach
or Pay Out Event from the Servicer or any Holders of
Investor Securities evidencing Undivided Interests
aggregating not less than 10% of the Invested Amount of any
Series adversely affected thereby.
(d) The Trustee shall not be required to expend or risk its
own funds or otherwise incur financial liability in the
performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it,
and none of the provisions contained in this Agreement shall in
any event require the Trustee to perform, or be responsible for
the manner of performance of, any of the obligations of the
Servicer under this Agreement except during such time, if any, as
the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in
accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this
Agreement, the Trustee shall take no action reasonably likely to
impair the interests of the Trust in any Receivable now existing
or hereafter created or to impair the value of any Receivable now
existing or hereafter created.
(f) Except as provided in this Agreement, the Trustee shall
have no power to vary the corpus of the Trust.
(g) If a Responsible Officer of the Trustee, has received
written notice that the Paying Agent or the Transfer Agent and
Registrar shall fail to perform any obligation, duty or agreement
in the manner or on the day required to be performed by the
Paying Agent or the Transfer Agent and Registrar, as the case may
be, under this Agreement, the Trustee shall be obligated promptly
upon its obtaining knowledge thereof by a Responsible Officer of
the Trustee to perform such obligation, duty or agreement in the
manner so required.
(h) If the Transferor has agreed to transfer any of its
open-end revolving credit card receivables (other than the
Receivables) to another Person, upon the written request of the
Transferor, the Trustee on behalf of the Trust will enter into
such intercreditor agreements with the transferee of such
receivables as are customary and necessary to identify separately
the rights, if any, of the Trust and such other Person in the
Transferor's open-end revolving credit card receivables;
provided, however, that the Trust shall not be required to enter
into any intercreditor agreement that could adversely affect the
interests of the Securityholders or the Trustee and, upon the
request of the Trustee, the Transferor will deliver an Opinion of
Counsel on any matters relating to such intercreditor agreement,
reasonably requested by the Trustee.
Section 11.2 Certain Matters Affecting the Trustee. Except
as otherwise provided in Section 11.1:
(a) the Trustee may rely on and shall be protected in
acting on, or in refraining from acting in accordance with, the
initial report, the Daily Report, the Settlement Statement, the
annual Servicer's certificate, the monthly payment instructions
and notification to the Trustee, the monthly Securityholder's
statement, any resolution, Officer's Certificate, certificate of
auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond
or other paper or document believed by it to be genuine and to
have been signed or presented to it pursuant to this Agreement by
the proper party or parties;
(b) the Trustee may consult with counsel, and the advice or
any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with such
advice or Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement or any
Enhancement, or to institute, conduct or defend any litigation
hereunder or in relation hereto, at the request, order or
direction of any of the Securityholders or any Enhancement
Provider, pursuant to the provisions of this Agreement, unless
such Securityholders or Enhancement Provider shall have offered
to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby; nothing contained herein shall, however, relieve the
Trustee of the obligations, upon the occurrence of any Servicer
Default (which has not been cured or waived) of which a
Responsible Officer of the Trustee has knowledge, to exercise
such of the rights and powers vested in it by this Agreement and
any Enhancement, and to use the same degree of care and skill in
its exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs;
(d) the Trustee shall not be personally liable for any
action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(e) the Trustee shall not be bound to make any
investigation into the facts of matters stated in the initial
report, the Daily Report, the Settlement Statement, the annual
Servicer's certificate, the monthly payment instructions and
notification to the Trustee, the monthly Securityholders
statement, any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond
or other paper or document, unless requested in writing so to do
by Holders of Investor Securities evidencing Undivided Interests
aggregating more than 50% of the Invested Amount of any Series
which could be adversely affected if the Trustee does not perform
such acts;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by
or through agents or attorneys or a custodian, and the Trustee
shall not be responsible for any misconduct or negligence on the
part of any such agent, attorney or custodian appointed with due
care by it hereunder;
(g) except as may be required by subsection 11.1(a), the
Trustee shall not be required to make any initial or periodic
examination of any documents or records related to the Accounts
or the Receivables for the purpose of establishing the presence
or absence of defects, the compliance by the Transferor with its
representations and warranties or for any other purpose;
(h) whenever in the administration of this Agreement the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officer's Certificate; and
(i) the right of the Trustee to perform any discretionary
act enumerated in this Agreement or any Supplement or Enhancement
shall not be construed as a duty, and the Trustee shall not be
answerable for performance of any such act.
Section 11.3 Trustee Not Liable for Recitals in Securities.
The Trustee assumes no responsibility for the correctness of the
recitals contained herein and in the Securities (other than the
certificate of authentication on the Securities). Except as set
forth in Section 11.15, the Trustee makes no representations as
to the validity or sufficiency of this Agreement or of the
Securities (other than the certificate of authentication on the
Securities) or of any Receivable or related document. The
Trustee shall not be accountable for the use or application by
the Transferor of any of the Securities or of the proceeds of
such Securities, or for the use or application of any funds paid
to the Transferor in respect of the Receivables or deposited in
or withdrawn from the Collection Account, the Excess Funding
Account, the Principal Account or the Interest Funding Account,
or any Series Account or other accounts now or hereafter
established to effectuate the transactions contemplated herein
and in accordance with the terms hereof. The Trustee shall have
no responsibility for filing any financing or continuation
statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or
Lien granted to it hereunder (unless the Trustee shall have
become the Successor Servicer) or to prepare or file any
Securities and Exchange Commission filing for the Trust or to
record this Agreement or any Supplement.
Section 11.4 [Reserved].
Section 11.5 The Servicer to Pay Trustee's Fees and
Expenses. The Servicer covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to
receive, reasonable compensation (which shall not be limited by
any provision of law in regard to the compensation of a trustee
of an express trust) for all services rendered by the Trustee in
the execution of the trust hereby created and in the exercise and
performance of any of the powers and duties hereunder of the
Trustee, and, subject to Section 8.4, the Servicer will pay or
reimburse the Trustee (without reimbursement from any Investor
Account, any Series Account or otherwise) upon its request for
all reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any of the provisions of
this Agreement (including the reasonable fees and expenses of its
agents and counsel) except any such expense, disbursement or
advance as may arise from its own negligence or bad faith and
except as provided in the following sentence. If the Trustee is
appointed Successor Servicer pursuant to Section 10.2, the
provisions of this Section 11.5 shall not apply to expenses,
disbursements and advances made or incurred by the Trustee in its
capacity as Successor Servicer (which shall be covered out of the
Servicing Fee).
The obligations of the Servicer under this Section 11.5
shall survive the termination of the Trust and the resignation or
removal of the Trustee.
Section 11.6 Eligibility Requirements for Trustee. The
Trustee hereunder shall at all times (a) be a corporation
organized and doing business under the laws of the United States
of America or any state thereof authorized under such laws to
exercise corporate trust powers, having a long-term unsecured
debt rating of at least Baa3 by Moody's, having, in the case of
an entity that is subject to risk-based capital adequacy
requirements, risk-based capital of at least $50,000,000 or, in
the case of an entity that is not subject to risk-based capital
adequacy requirements, having a combined capital and surplus of
at least $50,000,000 and subject to supervision or examination by
federal or state authority and (b) not be a Related Person. If
such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purpose of this
Section 11.6, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 11.6,
the Trustee shall resign immediately in the manner and with the
effect specified in Section 11.7.
Section 11.7 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged
from the Trust hereby created by giving written notice thereof to
the Servicer. Upon receiving such notice of resignation, the
Servicer shall promptly appoint a successor trustee by written
instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so appointed
and have accepted such appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment
of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible
in accordance with the provisions of Section 11.6 hereof and
shall fail to resign after written request therefor by the
Transferor, or if at any time the Trustee shall be legally unable
to act, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of
its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Transferor may, but shall
not be required to, remove the Trustee and promptly appoint a
successor trustee by written instrument, in duplicate, one copy
of which instrument shall be delivered to the Trustee so removed
and one copy to the successor trustee.
(c) If (i) the Trustee shall fail to perform any of its
obligations hereunder, (ii) a Securityholder shall deliver
written notice of such failure to the Trustee, and (iii) the
Trustee shall not have corrected such failure for 60 days
thereafter, then the Holders of Investor Securities representing
more than 50% of the Invested Amount (including related
commitments of holders of Variable Funding Securities) shall have
the right to remove the Trustee and (with the consent of the
Transferor, which shall not be unreasonably withheld) promptly
appoint a successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.
(d) Any resignation or removal of the Trustee and
appointment of a successor trustee pursuant to any of the
provisions of this Section 11.7 shall not become effective until
acceptance of appointment by the successor trustee as provided in
Section 11.8 hereof and any liability of the Trustee arising
hereunder shall survive such appointment of a successor trustee.
Notice of any resignation or removal of the Trustee and
appointment of a successor trustee shall be provided to Moody's
and Standard & Poor's by the Servicer in a prompt manner.
Section 11.8 Successor Trustee.
(a) Any successor trustee appointed as provided in Section
11.7 hereof shall execute, acknowledge and deliver to the
Transferor and to its predecessor Trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with
the like effect as if originally named as Trustee herein. The
predecessor Trustee shall deliver to the successor trustee all
documents and statements held by it hereunder, and the Transferor
and the predecessor Trustee shall execute and deliver such
instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the
successor trustee all such rights, powers, duties and
obligations.
(b) No successor trustee shall accept appointment as
provided in this Section 11.8 unless at the time of such
acceptance such successor trustee shall be eligible under the
provisions of Section 11.6 hereof.
(c) Upon acceptance of appointment by a successor trustee
as provided in this Section 11.8, such successor trustee shall
mail notice of such succession hereunder to all Securityholders
at their addresses as shown in the Security Register.
Section 11.9 Merger or Consolidation of Trustee. Any
Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Trustee shall be
a party, or any Person succeeding to all or substantially all of
the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation
shall be eligible under the provisions of Section 11.6 hereof,
without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 11.10 Appointment of Co-Trustee or Separate
Trustee.
(a) Notwithstanding any other provisions of this Agreement,
at any time, for the purpose of meeting any legal requirements of
any jurisdiction in which any part of the Trust may at the time
be located, the Trustee shall have the power and may execute and
deliver all instruments to appoint one or more Persons to act as
a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such
Person or Persons, in such capacity and for the benefit of the
Securityholders, such title to the trust, or any part thereof,
and, subject to the other provisions of this Section 11.10, such
powers, duties, obligations, rights and trusts as the Trustee may
consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 11.6 and no
notice to Securityholders of the appointment of any co-trustee or
separate trustee shall be required under Section 11.8. The
Trustee shall provide written notice to each Rating Agency of any
co-trustee or separate trustee so appointed .
(b) Every separate trustee and co-trustee shall, to the
extent permitted by law, be appointed and act subject to the
following provisions and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or
imposed upon and exercised or performed by the Trustee and
such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in
such act), except to the extent that under any laws of any
jurisdiction in which any particular act or acts are to be
performed (whether as Trustee hereunder or as successor to
the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the
holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly
by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be personally liable
by reason of any act or omission of any other trustee
hereunder; and
(iii) the Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the
Trustee shall be deemed to have been given to each of the then
separate trustees and co-trustees, as effectively as if given to
each of them. Every instrument appointing any separate trustee
or co-trustee shall refer to this Agreement and the conditions of
this Article XI. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the
estates or property specified in its instrument of appointment,
either jointly with the Trustee or separately, as may be provided
therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement or
Enhancement relating to the conduct of, affecting the liability
of, or affording protection to, the Trustee. Every such
instrument shall be filed with the Trustee and a copy thereof
given to the Servicer.
(d) Any separate trustee or co-trustee may at any time
constitute the Trustee as its agent or attorney-in-fact with full
power and authority, to the extent not prohibited by law, to do
any lawful act under or in respect to this Agreement on its
behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted
by law, without the appointment of a new or successor trustee.
Section 11.11 Tax Returns. Consistent with Section 3.7,
the Trustee shall not, except as required by law, file any United
States federal income tax returns on behalf of the Trust;
provided, however, that if a class of Securities is issued that
will be characterized (in the sole and absolute discretion of the
Transferor) as equity interests in a partnership for federal
income tax purposes, partnership information returns for the
Trust shall be prepared and signed by the Transferor, as general
partner, and the Transferor shall act as the "Tax Matters
Partner" (as defined in Section 6231(a)(7) of the Internal
Revenue Code). In the event the Trust shall be required to file
tax returns, the Servicer shall at its expense prepare or cause
to be prepared any tax returns required to be filed by the Trust
and, to the extent possible, shall remit such returns to the
Trustee for signature at least five days before such returns are
due to be filed. The Trustee is hereby authorized to sign any
such return on behalf of the Trust. The Servicer shall prepare
or shall cause to be prepared all tax information required by law
to be distributed to Securityholders and shall deliver such
information to the Trustee at least five days prior to the date
it is required by law to be distributed to Securityholders. The
Trustee, upon request, will furnish the Servicer with all such
information known to the Trustee as may be reasonably required in
connection with the preparation of all tax returns of the Trust
and shall, upon request, execute such return. In no event shall
the Trustee be liable for any liabilities, costs or expenses of
the Trust, the Investor Securityholders or the Security Owners
arising under any tax law, including without limitation federal,
state, local or foreign income or excise taxes or any other tax
imposed on or measured by income (or any interest or penalty or
addition with respect thereto or arising from a failure to comply
therewith).
Section 11.12 Trustee May Enforce Claims Without Possession
of
Securities. All rights of action and claims under this Agreement
or any Series of Securities may be prosecuted and enforced by the
Trustee without the possession of any of the Securities or the
production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its
own name as trustee. Any recovery of judgment shall, after
provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of any Series of
Securityholders in respect of which such judgment has been
obtained.
Section 11.13 Suits for Enforcement. If a Servicer Default
of which a Responsi ble Officer of the Trustee has knowledge
shall occur and be continuing, the Trustee, in its discretion
may, subject to the provisions of Section 10.1, proceed to
protect and enforce its rights and the rights of any Series of
Securityholders under this Agreement by a suit, action or
proceeding in equity or at law or otherwise, whether for the
specific performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power granted in
this Agreement or for the enforcement of any other legal,
equitable or other remedy as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of
the rights of the Trustee or any Series of Securityholders.
Section 11.14 Rights of Securityholders to Direct Trustee.
Holders of Investor Securities representing more than 50% of the
Aggregate Invested Amount (or, with respect to any remedy, trust
or power that does not relate to all Series, 50% of the aggregate
Invested Amount of the Investor Securities of all Series to which
such remedy, trust or power relates) shall have the right to
direct the time, method, and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee; provided, however, that
Holders of Investor Securities representing more than 50% of the
aggregate Invested Amount of any Class may direct the Trustee to
exercise its rights under Section 8.6; provided, further, that,
subject to Section 11.1, the Trustee shall have the right to
decline to follow any such direction if the Trustee being advised
by counsel determines that the action so directed may not
lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer or Responsible Officers of the Trustee,
determine that the proceedings so directed would be illegal or
involve it in personal liability or be unduly prejudicial to the
rights of Securityholders not parties to such direction; and
provided, further that nothing in this Agree ment shall impair
the right of the Trustee to take any action deemed proper by the
Trustee and which is not inconsistent with such direction of such
Holders of Investor Securities.
Section 11.15 Representations and Warranties of Trustee.
The Trustee represents and warrants that:
(i) the Trustee is a corporation organized, existing
and authorized to engage in the business of banking under
the laws of the State of its incorporation;
(ii) the Trustee is an entity that satisfies the
eligibility requirements of Section 11.6;
(iii) the Trustee has full power, authority and right
to execute, deliver and perform this Agreement, and has
taken all necessary action to authorize the execution,
delivery and performance by it of this Agreement; and
(iv) this Agreement has been duly executed and
delivered by the Trustee.
Section 11.16 Maintenance of Office or Agency. The Trustee
will maintain at its expense an office or offices, or agency or
agencies, where notices and demands to or upon the Trustee in
respect of the Securities and this Agreement may be served. The
Trustee initially appoints its Corporate Trust Office as its
office for such purposes. The Trustee will give prompt written
notice to the Servicer and to Securityholders (or in the case of
Holders of Bearer Securities, in the manner provided for in the
related Supplement) of any change in the location of the Security
Register or any such office or agency.
[End of Article XI]
ARTICLE XII
TERMINATION
Section 12.1 Termination of Trust.
(a) The respective obligations and responsibilities of the
Transferor, the Servicer and the Trustee created hereby (other
than the obligation of the Trustee to make payments to
Securityholders as hereafter set forth) shall terminate, except
with respect to the duties described in Sections 7.4, 8.4 and
11.5 and subsection 12.3(b), on the Trust Termination Date;
provided, however, that the Trust shall not terminate on the date
specified in clause (i) of the definition of "Trust Termination
Date" if each of the Servicer and the Holder of the Exchangeable
Transferor Security notify the Trustee in writing, not later than
five Business Days preceding such date, that they desire that the
Trust not terminate on such date, which notice (such notice, a
"Trust Extension") shall specify the date on which the Trust
shall terminate (such date, the "Extended Trust Termination
Date"); provided, however, that the Extended Trust Termination
Date shall be not later than May 26, 2095. The Servicer and the
Holder of the Exchangeable Transferor Security may, on any date
following the Trust Extension, so long as no Series of Securities
is outstanding, deliver a notice in writing to the Trustee
changing the Extended Trust Termination Date.
(b) In the event that (i) the Trust has not terminated by
the Distribution Date occurring in the second month preceding the
Trust Termination Date, and (ii) the Invested Amount of any
Series, exclusive of any Transferor Retained Class (after giving
effect to all transfers, withdrawals, deposits and drawings to
occur on such date and the payment of principal on any Series of
Securities to be made on the related Distribution Date during
such month pursuant to Article IV), would be greater than zero,
the Servicer shall sell within 30 days after such Transfer Date
an amount of Receivables up to the remaining Invested Amount if
it can do so in a commercially reasonable manner. The Servicer
shall notify each Enhancement Provider of the proposed sale of
the Receivables and shall provide each Enhancement Provider an
opportunity to bid on the Receivables. The Transferor shall have
the right of first refusal to purchase the Receivables on terms
equivalent to the best purchase offer as determined by the
Trustee in its sole discretion. The proceeds of any such sale
shall be treated as Collections on the Receivables and shall be
allocated and deposited in accordance with Article IV; provided,
however, that the Trustee shall determine conclusively in its
sole discretion the amount of such proceeds which are allocable
to Finance Charge Collections and the amount of such proceeds
which are allocable to Principal Collections. During such thirty-
day period, the Servicer shall continue to collect payments on
the Receivables and allocate and deposit such payments in
accordance with the provisions of Article IV.
(c) All principal or interest with respect to any Series of
Investor Securities shall be due and payable no later than the
Series Termination Date with respect to such Series. Unless
otherwise provided in a Supplement, in the event that the
Invested Amount of any Series of Securities is greater than zero,
exclusive of any Class held by the Transferor, on its Series
Termination Date (the "Affected Series"), after giving effect to
all transfers, withdrawals, deposits and drawings to occur on
such date and the payment of principal to be made on such Series
on such date, and the Trustee will sell or cause to be sold, and
the Trustee will pay the proceeds to all Securityholders of such
Series pro rata in final payment of all principal of and accrued
interest on such Series of Securities or, if any Class of such
Series is subordinated, in order of their respective seniorities,
an amount of Principal Receivables and the related Finance Charge
Receivables (or interests therein) up to 110% of the Invested
Amount of such Series at the close of business on such date (but
the amount of such Principal Receivables not to be more than an
amount of Receivables equal to the sum of (1) the product of (A)
the Transferor Percentage, (B) the aggregate outstanding
Principal Receivables and (C) a fraction the numerator of which
is the Invested Amount of such Series on such date and the
denominator of which is the sum of the Invested Amounts of all
Series on such Date and (2) the Invested Amount of such Series).
Receivables on which the Obligor has not made the full monthly
payment for the prior months shall be deemed to be in default for
purposes of this Section 12.1(c) to the extent that the cash
allocated to any Class of Transferor Retained Securities of such
Series pursuant to a sale under Section 12.1(c) is less than the
amount that would have been allocated to the Exchangeable
Transferor Security and the Transferor Retained Securities had
the proceeds from such sale been allocated pursuant to Section
4.3. The Servicer shall notify each Enhancement Provider of the
proposed sale of such Receivables and shall provide each
Enhancement Provider an opportunity to bid on such Receivables.
The Transferor shall be permitted to purchase such Receivables in
such case and shall have a right of first refusal with respect
thereto to the extent of a bona fide offer by an unrelated third
party or to the extent the Receivables represent Defaulted
Receivables. Any proceeds of such sale in excess of such
principal and interest paid shall be paid to the Holder of the
Exchangeable Transferor Security. Upon such Series Termination
Date with respect to the applicable Series of Securities, final
payment of all amounts allocable to any Investor Securities of
such Series shall be made in the manner provided in Section 12.3.
Section 12.2 Optional Termination. (a) If so provided in
any Supplement, the Transferor may, but shall not be obligated
to, cause a final distribution to be made in respect of the
related Series of Securities on a Distribution Date specified in
such Supplement by depositing into the Distribution Account or
the applicable Series Account, not later than the Transfer Date
preceding such Distribution Date, for application in accordance
with Section 12.3, the amount specified in such Supplement;
provided, however that if the short-term deposits or long-term
unsecured debt obligations of the Transferor are not rated at the
time of such purchase of Receivables at least P-3 or Baa3,
respectively, by Moody's, no such event shall occur unless the
Transferor shall deliver to the Trustee, with a copy to Moody's,
an Officer's Certificate which shall have attached to it the
relevant fraudulent conveyance statue, if any, and set forth the
factual basis for a conclusion that such deposit into the
Distribution Account or any Series Account as provided in the
related Supplement would not constitute a fraudulent conveyance
of the Transferor.
(b) The amount deposited pursuant to subsection 12.2(a)
shall be paid to the Investor Securityholders of the related
Series pursuant to Section 12.3 on the related Distribution Date
following the date of such deposit. All Securities of a Series
with respect to which a final distribution has been made pursuant
to subsection 12.2(a) shall be delivered by the Holder to, and be
canceled by, the Transfer Agent and Registrar and be disposed of
in a manner satisfactory to the Trustee and the Transferor. The
Invested Amount of each Series with respect to which a final
distribution has been made pursuant to subsection 12.2(a) shall,
for the purposes of the definition of "Transferor Interest," be
deemed to be equal to zero on the Distribution Date following the
making of the deposit, and the Transferor Interest shall
thereupon be deemed to have been increased by the Invested Amount
of such Series.
Section 12.3 Final Payment with Respect to any Series.
(a) Written notice of any termination, specifying the
Distribution Date upon which the Investor Securityholders of any
Series may surrender their Securities for payment of the final
distribution with respect to such Series and cancellation, shall
be given (subject to at least four Business Days' prior notice
from the Servicer to the Trustee) by the Trustee to Investor
Securityholders of such Series mailed not later than the fifth
day of the month of such final distribution (or in the manner
provided by the Supplement relating to such Series) specifying
(i) the Distribution Date (which shall be the Distribution Date
in the month (x) in which the deposit is made pursuant to
subsection 2.4(e), 9.2(a), 10.2(a), or 12.2(a) of the Agreement
or such other section as may be specified in the related
Supplement, or (y) in which the related Series Termination Date
occurs) upon which final payment of such Investor Securities will
be made upon presentation and surrender of such Investor
Securities at the office or offices therein designated (which, in
the case of Bearer Securities, shall be outside the United
States), (ii) the amount of any such final payment and (iii) that
the Record Date otherwise applicable to such Distribution Date is
not applicable, payments being made only upon presentation and
surrender of the Investor Securities at the office or offices
therein specified. The Servicer's notice to the Trustee in
accordance with the preceding sentence shall be accompanied by an
Officers' Certificate setting forth the information specified in
Article V of this Agreement covering the period during the then
current calendar year through the date of such notice and setting
forth the date of such final distribution. The Trustee shall
give such notice to the Transfer Agent and Registrar and the
Paying Agent at the time such notice is given to such Investor
Securityholders.
(b) Notwithstanding the termination of the Trust pursuant
to subsection 12.1(a) or the occurrence of the Series Termination
Date with respect to any Series, all funds then on deposit in the
Excess Funding Account, the Interest Funding Account, the
Principal Account, the Distribution Account or any Series Account
applicable to the related Series shall continue to be held in
trust for the benefit of the Securityholders of the related
Series and the Paying Agent or the Trustee shall pay such funds
to the Securityholders of the related Series upon surrender of
their Securities (which surrenders and payments, in the case of
Bearer Securities, shall be made only outside the United States).
In the event that all of the Investor Securityholders of any
Series shall not surrender their Securities for cancellation
within six months after the date specified in the above-mentioned
written notice, the Trustee shall give a second written notice
(or, in the case of Bearer Securities, publication notice) to the
remaining Investor Securityholders of such Series upon receipt of
the appropriate records from the Transfer Agent and Registrar to
surrender their Securities for cancellation and receive the final
distribution with respect thereto. If within one and one half
years after the second notice with respect to a Series, all the
Investor Securities of such Series shall not have been
surrendered for cancellation, the Trustee may take appropriate
steps or may appoint an agent to take appropriate steps, to
contact the remaining Investor Securityholders of such Series
concerning surrender of their Securities, and the cost thereof
shall be paid out of the funds in the Distribution Account or any
Series Account held for the benefit of such Investor
Securityholders. The Trustee and the Paying Agent shall pay to
the Transferor upon request any monies held by them for the
payment of principal or interest which remains unclaimed for two
years. After payment to the Transferor, Investor Securityholders
entitled to the money must look to the Transferor for payment as
general creditors unless an applicable abandoned property law
designates otherwise.
(c) All Securities surrendered for payment of the final
distribution with respect to such Securities and cancellation
shall be canceled by the Transfer Agent and Registrar and be
disposed of in a manner satisfactory to the Trustee and the
Transferor.
Section 12.4 Termination Rights of Holder of Exchangeable
Transferor Security. Upon the termination of the Trust pursuant
to Section 12.1, and after payment of all amounts due hereunder
on or prior to such termination and the surrender of the
Exchangeable Transferor Security, the Trustee shall execute a
written reconveyance substantially in the form of Exhibit F
pursuant to which it shall reconvey to the Holder of the
Exchangeable Transferor Security (without recourse,
representation or warranty) all right, title and interest of the
Trust in the Receivables, whether then existing or thereafter
created, all moneys due or to become due with respect thereto
(including all accrued interest theretofore posted as Finance
Charge Receivables) allocable to the Trust pursuant to any
Supplement, except for amounts held by the Trustee pursuant to
subsection 12.3(b). The Trustee shall execute and deliver such
instruments of transfer and assignment, in each case prepared by
the Transferor and without recourse, representation or warranty
(other than a warranty that such property is conveyed free and
clear of any Lien of any Person claiming by or through the
Trustee) as shall be reasonably requested by the Holder of the
Exchangeable Transferor Security to vest in such Holder all
right, title and interest which the Trust had in the Receivables
and other Trust Property.
[End of Article XII]
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment.
(a) This Agreement (including any Supplement) may be
amended from time to time by the Servicer, the Transferor and the
Trustee, without the consent of any of the Securityholders, (i)
to cure any ambiguity, to revise any exhibits or Schedules (other
than Schedule 1), to correct or supplement any provisions herein
or thereon which may be inconsistent with any other provisions
herein or thereon or (ii) to add any other provisions with
respect to matters or questions raised under this Agreement which
shall not be inconsistent with the provisions of this Agreement;
provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the
interests of any of the Investor Securityholders. Additionally,
this Agreement may be amended from time to time by the Servicer,
the Transferor and the Trustee, without the consent of any of the
Securityholders, to add to or change any of the provisions of
this Agreement to provide that Bearer Securities may be
registrable as to principal, to change or eliminate any
restrictions on the payment of principal of (or premium, if any)
or any interest on Bearer Securities to comply with the Bearer
Rules, to permit Bearer Securities to be issued in exchange for
Registered Securities (if then permitted by the Bearer Rules), to
permit Bearer Securities to be issued in exchange for Bearer
Securities of other authorized denominations or to permit the
issuance of Securities in uncertificated form.
This Agreement (including any Supplement), and any schedule
or exhibit thereto may also be amended from time to time by the
Servicer, the Transferor and the Trustee, without the consent of
any of the Securityholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the
rights of the Holders of Securities; provided, however, that (i)
the Servicer shall have provided an Officer's Certificate to the
Trustee to the effect that such amendment will not materially and
adversely affect the interests of the Securityholders, (ii) such
amendment shall not, as evidenced by an Opinion of Counsel, cause
the Trust to be characterized for Federal income tax purposes as
an association taxable as a corporation or otherwise have any
material adverse impact on the Federal income taxation of any
outstanding Series of Investor Securities or any Security Owner
and (iii) the Servicer shall have provided at least ten Business
Days prior written notice to each Rating Agency of such amendment
and shall have received written confirmation from each Rating
Agency to the effect that the rating of any Series or any class
of any Series will not be reduced or withdrawn as a result of
such amendment; provided, further, that such amendment shall not
reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Investor
Security of such Series without the consent of the related
Investor Securityholder, change the definition of or the manner
of calculating the interest of any Investor Securityholder of
such Series without the consent of the related Investor
Securityholder or reduce the percentage pursuant to Subsection
13.1(b) required to consent to any such amendment, in each case
without the consent of all such Investor Securityholders.
(b) This Agreement and any Supplement may also be amended
from time to time by the Servicer, the Transferor and the Trustee
with the consent of the Holders of Investor Securities evidencing
Undivided Interests aggregating not less than 66-2/3% of the
Invested Amount of each and every Series adversely affected, for
the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Investor
Securityholders of any Series then issued and outstanding;
provided, however, that no such amendment under this subsection
shall (i) reduce in any manner the amount of, or delay the timing
of, distributions which are required to be made on any Investor
Security of such Series without the consent of all of the related
Investor Securityholders; (ii) change the definition of or the
manner of calculating the interest of any Investor Securityholder
of such Series without the consent of the related Investor
Securityholder or (iii) reduce the aforesaid percentage required
to consent to any such amendment, in each case without the
consent of all such Investor Securityholders.
(c) Notwithstanding anything in this Section 13.1 to the
contrary, the Supplement with respect to any Series may be
amended on the items and in accordance with the procedures
provided in such Supplement.
(d) Promptly after the execution of any such amendment
(other than an amendment pursuant to paragraph (a)), the Trustee
shall furnish notification of the substance of such amendment to
each Investor Securityholder of each Series adversely affected
and ten Business Days prior to the proposed effective date for
such amendment the Servicer shall furnish notification of the
substance of such amendment to each Rating Agency providing a
rating for such Series.
(e) It shall not be necessary to obtain the consent of
Investor Securityholders under this Section 13.1 to approve the
particular form of any proposed amendment, but it shall be
sufficient if such consent shall approve the substance thereof.
The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investor
Securityholders shall be subject to such reasonable requirements
as the Trustee may prescribe.
(f) Any Supplement executed and delivered pursuant to
Section 6.9 and any amendments regarding the addition or removal
of Receivables from the Trust as provided in Sections 2.6 or 2.7,
executed in accordance with the provisions hereof, shall not be
considered amendments to this Agreement for the purpose of
subsections 13.1(a) and (b).
(g) In connection with any amendment, the Trustee may
request an Opinion of Counsel from the Transferor or Servicer to
the effect that the amendment complies with all requirements of
this Agreement. The Trustee may, but shall not be obligated to,
enter into any amendment which affects the Trustee's rights,
duties or immunities under this Agreement or otherwise.
Section 13.2 Protection of Right, Title and Interest to
Trust.
(a) The Servicer shall cause this Agreement, all amendments
hereto and/or all financing statements and continuation
statements and any other necessary documents covering the
Securityholders and the Trustee's right, title and interest to
the Trust to be promptly recorded, registered and filed, and at
all times to be kept recorded, registered and filed, all in such
manner and in such places as may be required by law fully to
preserve and protect the right, title and interest of the
Securityholders or the Trustee, as the case may be, hereunder to
all property comprising the Trust. The Servicer shall deliver to
the Trustee file-stamped copies of, or filing receipts for, any
document recorded, registered or filed as provided above, as soon
as available following such recording, registration or filing.
The Transferor shall cooperate fully with the Servicer in
connection with the obligations set forth above and will execute
any and all documents reasonably required to fulfill the intent
of this subsection 13.2(a).
(b) Within 30 days after the Transferor makes any change in
its name, identity or corporate structure which would make any
financing statement or continuation statement filed in accordance
with paragraph (a) above materially misleading within the meaning
of Section 9-402(7) of the UCC as in effect in the Relevant UCC
State, the Transferor shall give the Trustee written notice of
any such change and shall file such financing statements or
amendments as may be necessary to continue the perfection of the
Trust's security interest in the Receivables and the proceeds
thereof.
(c) Each of the Transferor and the Servicer will give the
Trustee prompt written notice of any relocation of any office
from which it services Receivables or keeps records concerning
the Receivables or of its principal executive office and whether,
as a result of such relocation, the applicable provisions of the
UCC would require the filing of any amendment of any previously
filed financing or continuation statement or of any new financing
statement and shall file such financing statements or amendments
as may be necessary to continue the perfection of the Trust's
security interest in the Receivables and the proceeds thereof.
Each of the Transferor and the Servicer will at all times
maintain each office from which it services Receivables and its
principal executive office within the United States of America.
(d) The Servicer will deliver to the Trustee on or before
March 31 of each year, beginning with March 31, 1996, an Opinion
of Counsel, substantially in the form of Exhibit E and upon each
date that any Supplemental Accounts are to be included in the
Accounts pursuant to subsection 2.6(c) an Opinion of Counsel
substantially in the form of Exhibit I.
Section 13.3 Limitation on Rights of Securityholders.
(a) The death or incapacity of any Investor Securityholder
shall not operate to terminate this Agreement or the Trust, nor
shall such death or incapacity entitle such Securityholder's
legal representatives or heirs to claim an accounting or to take
any action or commence any proceeding in any court for a
partition or winding up of the Trust, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any
of them.
(b) No Investor Securityholder shall have any right to vote
(except with respect to the Investor Securityholders as provided
in Section 13.1 hereof) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained
in the terms of the Securities, be construed so as to constitute
the Securityholders from time to time as members of an
association; nor shall any Investor Securityholder be under any
liability to any third person by reason of any action taken by
the parties to this Agreement pursuant to any provision hereof.
(c) No Securityholder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to
this Agreement, unless such Securityholder previously shall have
given written notice to the Trustee, and unless the Holders of
Securities evidencing Undivided Interests aggregating more than
50% of the Invested Amount of any Series which may be adversely
affected but for the institution of such suit, action or
proceeding, shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and
the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused
to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by each
Securityholder with every other Securityholder and the Trustee,
that no one or more Securityholders shall have the right in any
manner whatever by virtue or by availing itself or themselves of
any provisions of this Agreement to affect, disturb or prejudice
the rights of the Securityholders of any other of the Securities,
or to obtain or seek to obtain priority over or preference to any
other such Securityholder, or to enforce any right under this
Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Securityholders. For
the protection and enforcement of the provisions of this Section
13.3, each and every Securityholder and the Trustee shall be
entitled to such relief as can be given either at law or in
equity.
Section 13.4 Governing Law. THIS AGREEMENT SHALL BE CON
STRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.5 Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed
to have been duly given if personally delivered at, sent by
facsimile to, sent by courier at or mailed by registered mail,
return receipt requested, to (a) in the case of the Transferor to
600 South Highway 169, Suite 300, St. Louis Park, Minnesota
55426, Attention: Chief Financial Officer and General Counsel,
with a copy to the Servicer as provided below, (b) in the case of
the Servicer, 6909 East Greenway Parkway, Scottsdale, Arizona
85254, Attention: Treasurer with a copy to 600 South Highway 169,
Suite 300, St. Louis Park, Minnesota 55426, Attention:
Treasurer and General Counsel, (c) in the case of the Trustee, to
the Corporate Trust Office, (d) in the case of the Enhancement
Provider for a particular Series, the address, if any, specified
in the Supplement relating to such Series and (e) in the case of
the Rating Agency for a particular Series, the address, if any,
specified in the Supplement relating to such Series; or, as to
each party, at such other address as shall be designated by such
party in a written notice to each other party. Unless otherwise
provided with respect to any Series in the related Supplement any
notice required or permitted to be mailed to a Securityholder
shall be given by first class mail, postage prepaid, at the
address of such Securityholder as shown in the Security Register,
or with respect to any notice required or permitted to be made to
the Holders of Bearer Securities, by publication in the manner
provided in the related Supplement. If and so long as any Series
or Class is listed on the Luxembourg Stock Exchange and such
Exchange shall so require, any Notice to Investor Securityholders
shall be published in an authorized newspaper of general
circulation in Luxembourg within the time period prescribed in
this Agreement. Any notice so mailed within the time prescribed
in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Securityholder receives such
notice.
Section 13.6 Severability of Provisions. If any one or
more of the covenants, agreements, provisions or terms of this
Agreement shall for any reason whatsoever be held invalid, then
such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or
terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of
the Securities or rights of the Securityholders thereof.
Section 13.7 Assignment. Notwithstanding anything to the
contrary contained herein, except as provided in Section 8.2,
this Agreement may not be assigned by the Servicer without the
prior consent of Holders of Investor Securities representing not
less than 66 2/3% of the Invested Amount of each Series on a
Series by Series basis. Upon such assignment, the Trustee shall
provide notice to Moody's in a prompt manner.
Section 13.8 Securities Non-Assessable and Fully Paid.
Except to the extent otherwise expressly provided in Section 7.4
with respect to the Transferor, it is the intention of the
parties to this Agreement that the Investor Securityholders shall
not be personally liable for obligations of the Trust, that the
Undivided Interests represented by the Securities shall be non-
assessable for any losses or expenses of the Trust or for any
reason whatsoever, and that Securities upon authentication
thereof by the Trustee pursuant to Sections 2.1 and 6.2 are and
shall be deemed fully paid.
Section 13.9 Further Assurances. The Transferor and the
Servicer agree to do and perform, from time to time, any and all
acts and to execute any and all further instruments required or
reasonably requested by the Trustee more fully to effect the
purposes of this Agreement, including, without limitation, the
execution of any financing statements or continuation statements
relating to the Receivables and the other Trust Property for
filing under the provisions of the UCC of any applicable
jurisdiction.
Section 13.10 No Waiver; Cumulative Remedies. No failure
to exercise and no delay in exercising, on the part of the
Trustee, any Enhancement Provider or the Investor
Securityholders, any right, remedy, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges herein provided are
cumulative and not exhaustive of any rights, remedies, powers and
privileges provided by law.
Section 13.11 Counterparts. This Agreement may be executed
in two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of
which together shall constitute one and the same instrument.
Section 13.12 Third-Party Beneficiaries. This Agreement
will inure to the benefit of and be binding upon the parties
hereto, the Securityholders and, to the extent provided in the
related Supplement, to the Enhancement Provider named therein,
and their respective successors and permitted assigns. Except as
otherwise provided in this Article XIII, no other Person will
have any right or obligation hereunder.
Section 13.13 Actions by Securityholders.
(a) Wherever in this Agreement a provision is made that an
action may be taken or a notice, demand or instruction given by
Investor Securityholders, such action, notice or instruction may
be taken or given by any Investor Securityholder, unless such
provision requires a specific percentage of Investor
Securityholders.
(b) Any request, demand, authorization, direction, notice,
consent, waiver or other act by a Securityholder shall bind such
Securityholder and every subsequent holder of such Security
issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done or
omitted to be done by the Trustee or the Servicer in reliance
thereon, whether or not notation of such action is made upon such
Security.
(c) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement or any
Supplement to be given or taken by Securityholders may be
embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in
person or by agent duly appointed in writing; and except as
herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to
the Trustee and, when required, to the Transferor or the
Servicer. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any
purpose of this Agreement or any Supplement and conclusive in
favor of the Trustee, the Transferor and the Servicer, if made in
the manner provided in this Section.
(d) The fact and date of the execution by any
Securityholder of any such instrument or writing may be proved in
any reasonable manner which the Trustee deems sufficient.
Section 13.14 Rule 144A Information. For so long as any of
the Investor Securities of any Series or any Class are
"restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act, each of the Transferor, the Servicer,
the Trustee and the Enhancement Provider for such Series agree to
cooperate with each other to provide to any Investor
Securityholders of such Series or Class and to any prospective
purchaser of Securities designated by such an Investor
Securityholder upon the request of such Investor Securityholder
or prospective purchaser, any information required to be provided
to such holder or prospective purchaser to satisfy the condition
set forth in Rule 144A(d)(4) under the Securities Act.
Section 13.15 Merger and Integration. Except as
specifically stated otherwise herein, this Agreement sets forth
the entire understanding of the parties relating to the subject
matter hereof, and all prior understandings, written or oral, are
superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided
herein.
Section 13.16 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or
interpretation of any provision hereof.
[End of Article XIII]
IN WITNESS WHEREOF, the Transferor, the Servicer and the
Trustee have caused this Agreement to be duly executed by their
respective officers as of the day and year first above written.
METRIS RECEIVABLES, INC.,
Transferor
By:
Name:
Title:
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL
ASSOCIATION, Servicer
By:
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
Trustee
By:
Name:
Title:
SCHEDULE 1
TAX RETURNS AND PAYMENTS
FCI (for so long as FCI owns 80% or more of the common stock of
Metris) or else Metris and its subsidiaries have filed all
applicable federal, state and material local tax returns and have
paid or caused to be paid all associated taxes due and payable on
such returns or on any assessments received by them; except that
FCI (for so long as FCI owns 80% or more of the common stock of
Metris) or its subsidiaries have not filed certain tax returns
purported to be required because they believe the requirements
are invalid and unenforceable under the commerce clause of the
United States Constitution as interpreted by the Supreme Court in
National Bellas Hess v. Department of Revenue of Illinois, 386
U.S. 753 (1967) and the supporting lines of cases, including
Quill Corp. v. North Dakota, 112 S. Ct. 1904 (1992). The
following are the states in which FCI (for so long as FCI owns
80% or more of the common stock of Metris) or its subsidiaries
are currently collecting sales/use taxes:
California Oklahoma
Florida Pennsylvania
Illinois South CarolinaIowa South
Dakota
Minnesota Tennessee
New York Utah
Ohio Wisconsin
Notwithstanding the Supreme Court decisions, the following
states, to the best knowledge of FCI (for so long as FCI owns 80%
or more of the common stock of Metris) or its subsidiaries,
currently have legislation in effect which purports or may
purport to require FCI (for so long as FCI owns 80% or more of
the common stock of Metris) or else Metris or its subsidiaries to
collect sales or use taxes:
Alabama Idaho Massachusett New Jersey
Arizona Illinois Michigan New Mexico
Arkansas Indiana Minnesota New York
California Iowa Mississippi North Carolina
Colorado Kansas Missouri North Dakota
Connecticut Kentucky Nebraska Ohio
Florida Louisiana Nevada Oklahoma
Georgia
In addition, because one of the subsidiaries of Metris,
Direct Merchants Credit Card Bank, National Association, is a
national banking entity which derives the majority of its income
from Mastercard credit cards, it may be subject to special
financial institution rules in certain states. Such rules
attempt to impute state income tax nexus to a credit card company
if it obtains finance revenue and/or has credit card receivables
generated from customers in that state. Of the states that have
adopted such financial institution rules, Minnesota is the only
state where Metris and its subsidiaries are currently filing
income or franchise tax returns. States which currently have
rules pursuant to which they may attempt to impose income tax
nexus based upon such credit card activity include:
Arkansas
California
Hawaii
Indiana
Massachusetts
Minnesota
New Mexico
Tennessee
Direct Merchants Credit Card Bank, National Association has not
filed in states other than Minnesota because it believes the
above referenced financial institution rules to be
unconstitutional.SCHEDULE 2
Nomenclature List
The following is a table listing the terms used in the Pooling
and Servicing Agreement prior to this Amended and Restated
Pooling and Servicing Agreement which have been renamed in this
Amended and Restated Pooling and Servicing Agreement. The terms
used in the Pooling and Servicing Agreement prior to this Amended
and Restated Pooling and Servicing Agreement will keep their
meaning with respect to each Series issued prior to the Amendment
Closing Date and outstanding on the date hereof consistent with
this table.
Terms Used in Pooling and Terms Used in This Amended and
Servicing Agreement Prior to Restated Pooling and Servicing
Amendment Agreement
Bearer Certificate Bearer Security
Bearer Certificateholder Bearer Securityholder
Book-Entry Certificates Book-Entry Securities
Certificate Owner Security Owner
Certificate Principal Security Principal
Certificate Rate Security Rate
Certificate Register Security Register
Certificateholders Securityholders
Certificates Securities
Definitive Certificates Definitive Securities
Euro-Certificate Exchange Date Euro-Security Exchange Date
Exchangeable Transferor Exchangeable Transferor
Certificate Security
Global Certificate Global Security
Investor Certificateholder Investor Securityholder
Investor Certificates Investor Securities
Investor Charge-Off Series Charge-Off
Investor Default Amount Series Default Amount
Registered Certificates Registered Securities
Supplemental Certificate Supplemental Security
Transferor Retained Transferor Retained
Certificate Security
Unfunded Certificate Unfunded Security
Variable Funding Variable Funding
Certificate Securities
EXHIBIT A
FORM OF EXCHANGEABLE TRANSFEROR SECURITY
No. 1 One Unit
METRIS MASTER TRUST
ASSET BACKED SECURITY
THIS SECURITY WAS ISSUED PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT
EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF THIS SECURITY
IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING
AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND
SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS
SECURITY BY THE TRUSTEE UPON WRITTEN REQUEST.
This Security represents an Undivided Interest
in the Metris Master Trust
Evidencing an undivided interest in a trust, the corpus of which
consists of open-end or revolving credit receivables generated
from time to time in the ordinary course of business by Direct
Merchants Credit Card Bank, National Association ("DMCCB" or the
"Servicer") and other assets and interests constituting the Trust
under the Pooling and Servicing Agreement described below.
(Not an interest in or a recourse obligation of
Metris Receivables, Inc.,
Direct Merchants Credit Card Bank, National Association
or any Affiliate of either of them.)
This certifies that METRIS RECEIVABLES, INC. ("MRI," the
"Holder" or the "Transferor," as the context requires) is the
registered owner of a fractional undivided interest in the Metris
Master Trust (the "Trust") issued pursuant to the Amended and
Restated Pooling and Servicing Agreement, dated as of July 30,
1998 (the "Pooling and Servicing Agreement"; such term to include
any amendment or Supplement thereto) by and among MRI, as
Transferor, DMCCB, as the Servicer, and The Bank of New York
(Delaware), as Trustee (the "Trustee"), as supplemented by each
supplement thereto existing from time to time. The corpus of the
Trust will include (i) a portfolio of Receivables (the
"Receivables") generated from time to time by DMCCB satisfying
certain criteria, (ii) all funds to be collected from Obligors in
respect of the Receivables, (iii) all right, title, and interest
of the Transferor in, to, and under the Purchase Agreement, (iv)
the benefit of funds on deposit in the Excess Funding Account,
(v) Recoveries, (vi) moneys on deposit in the Pre-Funding
Account, (vii) all proceeds of the foregoing, (viii) all monies
and investments due or to become due with respect thereto and all
amounts received with respect to the Receivables in existence on
the Closing Date or generated thereafter, all monies on deposit
in the Collection Account, the Interest Funding Account, the
Principal Account, the Distribution Account, the Pre-Funding
Account and the Excess Funding Account (excluding any investment
earnings on such deposited amounts except for such amounts as are
on deposit in the Pre-Funding Account and the Excess Funding
Account), and all other assets and interests constituting the
Trust and (ix) all proceeds of the foregoing.
To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Pooling and Servicing
Agreement. This Security is issued under and is subject to the
terms, provisions and conditions of the Pooling and Servicing
Agreement, to which Pooling and Servicing Agreement, as amended
from time to time, the Holder by virtue of the acceptance hereof
assents and by which the Holder is bound.
This Security has not been registered or qualified under the
Securities Act of 1933, as amended, or any state securities law.
No sale, transfer or other disposition of this Security shall be
permitted other than in accordance with the provisions of Section
6.3, 6.9 or 7.2 of the Pooling and Servicing Agreement.
The Receivables arise generally from revolving consumer
credit card accounts.
This Security is the Exchangeable Transferor Security (the
"Security"), which represents an undivided interest in the Trust,
including the right to receive the Collections and other amounts
at the times and in the amounts specified in the Pooling and
Servicing Agreement to be paid to the Holder of the Exchangeable
Transferor Security. The aggregate interest represented by this
Security at any time in the Principal Receivables in the Trust
shall not exceed the Transferor Interest at such time. In
addition to this Security, Series of Investor Securities will be
issued to investors pursuant to the Pooling and Servicing
Agreement, each of which will represent an Undivided Interest in
the Trust. This Security shall not represent any interest in any
Enhancement, except to the extent provided in the Pooling and
Servicing Agreement. The Transferor Interest on any date of
determination will be an amount equal to the aggregate amount of
Principal Receivables at the end of the day immediately prior to
such date of determination plus amounts on deposit in the Excess
Funding Account and Pre-Funding Account (but not including any
investment earnings thereon) minus the Aggregate Invested Amount
at the end of such day.
The Servicer shall deposit all Collections in the Collection
Account as promptly as possible after the Date of Processing of
such Collections. Unless otherwise stated in any Supplement,
throughout the existence of the Trust, the Servicer shall
allocate to the Holder of the Security an amount equal to the
product of (A) the Transferor Percentage and (B) the aggregate
amount of such Principal Collections and Finance Charge
Collections, respectively, in respect of each Monthly Period.
Notwithstanding the first sentence of this paragraph, the
Servicer need not deposit this amount or any other amounts so
allocated to the Security pursuant to the Pooling and Servicing
Agreement into the Collection Account and shall pay, or be deemed
to pay, such amounts as collected to the Holder of the Security.
DMCCB or any permitted successor or assignee, as Servicer,
is entitled to receive as servicing compensation a monthly
servicing fee. The portion of the servicing fee which will be
allocable to the Holder of the Security pursuant to the Pooling
and Servicing Agreement will be payable by the Holder of the
Security and neither the Trust nor the Trustee or the Investor
Securityholders will have any obligation to pay such portion of
the servicing fee.
This Security does not represent a recourse obligation of,
or any interest in, the Transferor or the Servicer. This
Security is limited in right of payment to certain Collections
respecting the Receivables, all as more specifically set forth
hereinabove and in the Pooling and Servicing Agreement.
Upon the termination of the Trust pursuant to Section 12.1
of the Pooling and Servicing Agreement, the Trustee shall assign
and convey to the Holder of the Security (without recourse,
representation or warranty) all right, title and interest of the
Trust in the Receivables, whether then existing or thereafter
created, and all proceeds relating thereto. The Trustee shall
execute and deliver such instruments of transfer and assignment,
in each case without recourse, as shall be reasonably requested
by the Holder of the Security to vest in such Holder all right,
title and interest which the Trustee had in the Receivables.
Unless the certificate of authentication hereon has been
executed by or on behalf of the Trustee, by manual signature,
this Security shall not be entitled to any benefit under the
Pooling and Servicing Agreement, or be valid for any purpose.
IN WITNESS WHEREOF, the Transferor has caused this Security
to be duly executed.
METRIS RECEIVABLES, INC.
By:
Name:
Title:
Date:
CERTIFICATE OF AUTHENTICATION
This is the Exchangeable Transferor Security referred to in
the within-mentioned Pooling and Servicing Agreement.
Authenticating Agent
By:
Name:
Title:
EXHIBIT B
FORM OF DAILY REPORT
[TO BE SUPPLIED]
EXHIBIT C
FORM OF SETTLEMENT STATEMENT
[TO BE SUPPLIED]
EXHIBIT D
FORM OF ANNUAL SERVICER'S CERTIFICATE
METRIS RECEIVABLES, INC.
METRIS MASTER TRUST
The undersigned, a duly authorized representative of Direct
Merchants Credit Card Bank, National Association ("DMCCB"), as
Servicer, pursuant to the Amended and Restated Pooling and
Servicing Agreement dated as of July 30, 1998 (the "Pooling and
Servicing Agreement") by and among Metris Receivables, Inc. (the
"Transferor"), DMCCB, as Servicer and The Bank of New York
(Delaware), as trustee (the "Trustee") does hereby certify that:
1. DMCCB is Servicer under the Pooling and Servicing Agreement.
2. The undersigned is duly authorized pursuant to the
Pooling and Servicing Agreement to execute and deliver this
Certificate to the Trustee.
3. This Certificate is delivered pursuant to Section 3.5
of the Pooling and Servicing Agreement.
4. A review of the activities of the Servicer during (the
period from the Closing Date until) (the twelve fiscal month
period ended) ________, 19__ was conducted under our
supervision.
5. Based on such review, the Servicer has, to the best of
our knowledge, fully performed all its obligations under the
Pooling and Servicing Agreement throughout such period and no
default in the performance of such obligations has occurred or
is continuing except as set forth in paragraph 6 below.
6. The following is a description of each default in the
performance of the Servicer's obligations under the provisions
of the Pooling and Servicing Agreement, including any
Supplement, known to us to have been made during such period
which sets forth in detail (i) the nature of each such default,
(ii) the action taken by the Servicer, if any, to remedy each
such default and (iii) the current status of each such default:
[If applicable, insert "None."]
IN WITNESS WHEREOF, the undersigned has duly executed this
certificate this ___ day of ________, ____.
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION, as Servicer
By:
Name:
Title:
EXHIBIT E
FORM OF ANNUAL OPINION OF COUNSEL
The opinion set forth below, which is to be delivered
pursuant to subsection 13.2(d)(ii) of the Pooling and Servicing
Agreement, may be subject to certain qualifications, assumptions,
limitations and exceptions taken or made in the opinion of
counsel delivered on the Initial Closing Date with respect to
similar matters.
No filing or other action, other than such filing or action
described in such opinion, is necessary from the date of such
opinion through ________ of the following year to continue the
perfected status of the interest of the Trust in the collateral
described in the financing statements referred to in such
opinion.
EXHIBIT F
FORM OF RECONVEYANCE OF RECEIVABLES
RECONVEYANCE OF RECEIVABLES, dated as of _____ __ , 19__ by
and between METRIS RECEIVABLES, INC., a corporation organized and
existing under the laws of the State of Delaware (the
"Transferor"), and The Bank of New York (Delaware), a banking
corporation organized and existing under the laws of the State of
Delaware (the "Trustee") pursuant to the Pooling and Servicing
Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to the
Amended and Restated Pooling and Servicing Agreement dated as of
July 30, 1998 (hereinafter as such agreement may have been, or
may from time to time be, amended, supplemented or otherwise
modified, the "Pooling and Servicing Agreement") by and among the
Transferor, Direct Merchants Credit Card Bank, National
Association, as Servicer, and the Trustee;
WHEREAS, pursuant to the Pooling and Servicing Agreement,
the Transferor wishes to cause the Trustee to reconvey all of the
Receivables and proceeds thereof, whether now existing or
hereafter created, from the Trust to the Transferor pursuant to
the terms of Section 12.4 of the Pooling and Servicing Agreement
upon termination of the Trust pursuant to subsection 12.1(a) of
the Pooling and Servicing Agreement (as each such term is defined
in the Pooling and Servicing Agreement);
WHEREAS, the Trustee is willing to reconvey the Receivables
subject to the terms and conditions hereof;
NOW THEREFORE, the Transferor and the Trustee hereby agree
as follows:
1. Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined
meanings when used herein, unless otherwise defined herein.
"Reconveyance Date" shall mean _____ __, 19__.
2. Return of Lists of Receivables. The Trustee shall
deliver to the Transferor or the bailee of the Transferor, not
later than three Business Days after the Reconveyance Date, each
and every computer file or microfiche list of Receivables
delivered to the Trustee pursuant to the terms of the Pooling and
Servicing Agreement.
3. Conveyance of Receivables. (a) The Trustee does hereby
reconvey to the Transferor, without recourse, representation or
warranty, on and after the Reconveyance Date, all right, title
and interest of the Trust in and to each and every Receivable now
existing and hereafter created, all monies due or to become due
with respect thereto (including all Finance Charge Receivables),
all proceeds (as defined in Section 9-306 of the UCC as in effect
in the Relevant UCC State) of such Receivables, except for
amounts, if any, held by the Trustee pursuant to subsection
12.3(b) of the Pooling and Servicing Agreement.
(b) In connection with such transfer, the Trustee
agrees to execute and deliver to the Transferor on or prior to
the date of this Reconveyance, such UCC termination statements as
the Transferor may reasonably request, evidencing the release by
the Trust of its lien on the Receivables.
4. Counterparts. This Reconveyance may be executed in two
or more counter parts (and by different parties on separate
counterparts), each of which shall be an original, but all of
which together shall constitute one and the same instrument.
5. Governing Law. THIS RECONVEYANCE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS.
EXHIBIT G
FORM OF AGREED-UPON PROCEDURES
The Servicer and Trustee will engage a firm of nationally
recognized independent public accountants (who may also render
other services to the Servicer or any of its subsidiaries) to
perform certain agreed-upon procedures substantially similar to
the following:
1) The accountants will obtain the Master Trust schedules
showing the daily amount of eligible accounts receivable activity
(hereinafter referred to as the "Daily Report") for 5 days within
the period and compare amounts set forth on the Daily Report
representing sales, cash advances, payments, interest income, and
charge offs and miscellaneous charges and adjustments, with the
corresponding amounts set forth in the Servicer's accounts
receivable reports and recompute the mathematical accuracy of
amounts and percentages within the Daily Report.
2) For 5 days within the period, the accountants will compare
the payments appearing on the Servicer's accounts receivable
reports to an entry on the relevant Daily Report. The
accountants will compare the cash transfers indicated on the
Daily Reports to entries on the relevant Master Trust bank
statements.
3) The accountants will compare the aggregate customer balances
in the "30-59 day delinquent" and "90-119 day delinquent"
categories as reflected on the monthly Settlement Statement to
the corresponding amounts set forth in the Servicer's accounts
receivable aging reports as of 3 month-ends within the period.
4) For 5 weekly periods, the accountants will compare the
beginning of week and end of week total receivables balances on
the Servicer's accounts receivable reports with the corresponding
balances on the corresponding Daily Report and will verify the
amounts of the calculation of beginning and ending Principal
Receivable balances and beginning and ending Finance Charge
Receivables balances on each Daily Report within each weekly
period.
5) For 5 days within the period, the accountants will recompute
the daily allocation of Principal and Finance Charge Collections
to each series based upon information appearing on the Daily
Reports.
6) For one monthly Settlement Statement during the period, the
accountants will compare the amounts and percentages appearing
therein to the information appearing in the corresponding Daily
Reports for such month.
EXHIBIT H
FORM OF ASSIGNMENT OF RECEIVABLES IN SUPPLEMENTAL ACCOUNTS
ASSIGNMENT No. __ OF RECEIVABLES IN ADDITIONAL ACCOUNTS,
dated as of ________ __, ____ by and between METRIS RECEIVABLES,
INC., a corporation organized under the laws of the State of
Delaware (the "Transferor"), and The Bank of New York (Delaware),
a banking corporation organized and existing under the laws of
the State of Delaware (the "Trustee") pursuant to the Pooling and
Servicing Agreement referred to below.
W I T N E S S E T H:
WHEREAS, the Transferor and the Trustee are parties to the
Amended and Restated Pooling and Servicing Agreement, dated as of
July 30, 1998 (hereinafter as such agreement may have been, or
may from time to time be, amended, supplemented or otherwise
modified, the "Pooling and Servicing Agreement");
WHEREAS, pursuant to the Pooling and Servicing Agreement,
the Transferor wishes to designate Supplemental Accounts of the
Transferor to be included as Accounts and to convey the
Receivables of such Supplemental Accounts, whether now existing
or hereafter created, to the Trust as part of the corpus of the
Trust (as each such term is defined in the Pooling and Servicing
Agreement); and
WHEREAS, the Trustee is willing to accept such designation
and conveyance subject to the terms and conditions hereof;
NOW, THEREFORE, the Transferor and the Trustee hereby agree
as follows:
(i) Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined
meanings when used herein, unless otherwise defined herein.
"Addition Date" shall mean, with respect to the
Supplemental Accounts designated hereby, ____________, ____.
"Notice Date" shall mean, with respect to the Supplemental
Accounts designated hereby, _________, ______ (which shall be a
date on or prior to the fifth Business Day prior to the Addition
Date with respect to additions pursuant to subsection 2.6(a) of
the Pooling and Servicing Agreement and the tenth Business Day
prior to the Addition Date with respect to additions pursuant to
subsection 2.6(b) of the Pooling and Servicing Agreement).
(ii) Designation of Additional Accounts. The Transferor
shall deliver to the Trustee not later than five Business Days
after the Addition Date, a computer file or microfiche list
containing a true and complete list of each MasterCardr and
VISAr account which as of the Addition Date shall be deemed to
be an Additional Account, such accounts being identified by
account number and by the amount of Receivables in such accounts
as of the close of business on the Addition Date. Such list
shall be delivered five Business Days after the date of this
Agreement and shall be marked as Schedule l to this Assignment
and, as of the Addition Date, shall be incorporated into and
made a part of this Assignment.
(iii) Conveyance of Receivables.
The Transferor does hereby transfer, assign, set-over and
otherwise convey to the Trustee, on behalf of the Trust, for the
benefit of the Securityholders, without recourse on and after the
Addition Date, all right, title and interest of the Transferor in
and to the Receivables now existing and hereafter created in the
Additional Accounts designated hereby, all monies due or to
become due with respect thereto (including all Finance Charge
Receivables) and all proceeds of such Receivables.
In connection with such transfer, the Transferor
agrees to record and file, at its own expense, a financing
statement with respect to the Receivables now existing and
hereafter created in the Additional Accounts designated
hereby (which may be a single financing statement with
respect to all such Receivables) for the transfer of
accounts as defined in Section 9-106 of the UCC as in
effect in the State of Delaware meeting the requirements of
applicable state law in such manner and such jurisdictions
as are necessary to perfect the assignment of such
Receivables to the Trust, and to deliver a file-stamped
copy of such financing statement or other evidence of such
filing (which may, for purposes of this Section 3, consist
of telephone confirmation of such filing) to the Trustee on
or prior to the date of this Assignment.
In connection with such transfer, the Transferor
further agrees, at its own expense, on or prior to the date
of this Assignment to indicate in its computer files that
Receivables created in connection with the Additional
Accounts designated hereby have been transferred to the
Trust pursuant to this Assignment for the benefit of the
Securityholders.
The Transferor hereby grants and transfers to the Trustee,
for the benefit of the Securityholders, a first priority
perfected security interest in all of the Transferor's right,
title and interest in, to and under the Receivables now existing
and hereafter created and arising in connection with the
Additional Accounts designated hereby, all monies due or to
become due with respect thereto (including all Finance Charge
Receivables) and all proceeds of such Receivables, and that this
Assignment shall constitute a security agreement under
applicable law.
(iv) Acceptance by Trustee. The Trustee hereby
acknowledges its acceptance on behalf of the Trust for the
benefit of the Securityholders of all right, title and interest
previously held by the Transferor in and to the Receivables now
existing and hereafter created, and declares that it shall
maintain such right, title and interest, upon the trust herein
set forth, for the benefit of all Securityholders.
(v) Representations and Warranties of the Transferor. The
Transferor hereby represents and warrants to the Trust as of the
Addition Date:
Legal Valid and Binding Obligation. This Assignment
consti tutes a legal, valid and binding obligation of the
Transferor enforceable against the Transferor in accordance
with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or
hereafter in effect affecting the enforcement of creditors'
rights in general and except as such enforceability may be
limited by general principles of equity (whether considered
in a suit at law or in equity).
Eligibility of Accounts and Receivables. Each
Additional Account designated hereby is an Eligible Account
and each Receivable in such Additional Account is an
Eligible Receivable. No selection procedures believed by
the Transferor to be materially adverse to the interests of
the Investor Securityholders were utilized in selecting the
Additional Accounts from the available Eligible Accounts,
provided, that, the selection of newly originated Accounts
is deemed not to be materially adverse to the interests of
the Investor Securityholders.
Insolvency. The Transferor is not insolvent and,
after giving effect to the conveyance set forth in Section
3 of this Assignment, will not be insolvent.
Security Interest. This Assignment constitutes
either (i) a valid transfer and assignment to the Trust of
all right, title and interest of the Transferor in and to
Receivables now existing and hereafter created in the
Additional Accounts designated hereby, and all proceeds (as
defined in the UCC as in effect in the State of Delaware)
of such Receivables, and such Receivables and any proceeds
thereof will be held by the Trust free and clear of any
Lien of any Person claiming through or under the Transferor
or any of its Affiliates except for (x) Liens permitted
under subsection 2.5(b) of the Pooling and Servicing
Agreement, (y) the interest of the Holder of the
Exchangeable Transferor Security and (z) the Transferor's
right to receive interest accruing on, and investment
earnings in respect of, the Finance Charge Account and the
Principal Account as provided in the Pooling and Servicing
Agreement; or (ii) a grant of a security interest (as
defined in the UCC as in effect in the State of Delaware)
in such property to the Trust, which is enforceable with
respect to the existing Receivables of the Additional
Accounts designated hereby and the proceeds (as defined in
the UCC as in effect in the State of Delaware) thereof upon
the conveyance of such Receivables to the Trust, and which
will be enforceable with respect to the Receivables
thereafter created in respect of Additional Accounts
designated hereby and the proceeds (as defined in the UCC
as in effect in the State of Delaware) thereof upon such
creation; and provided, further, that if this Assignment
constitutes the grant of a security interest to the Trust
in such property pursuant to subsection (ii) above, upon
the filing of a financing statement described in Section 3
of this Assignment with respect to the Additional Accounts
designated hereby and in the case of the Receivables of
such Additional Accounts thereafter created and the
proceeds (as defined in the UCC as in effect in the State
of Delaware) thereof upon such creation, the Trust shall
have a first priority perfected security interest in such
property, except for Liens permitted under subsection
2.5(b) of the Pooling and Servicing Agreement.
(vi) Conditions Precedent. The acceptance by the Trustee
set forth in Section 4 and the amendment of the Pooling and
Servicing Agreement set forth in Section 7 are subject to the
satisfaction, on or prior to the Addition Date, of the following
conditions precedent:
Officer's Certificate. The Transferor shall have
delivered to the Trustee a certificate of a Vice President
or more senior officer substantially in the for: of
Schedule 2 hereto, certifying that (i) all requirements set
forth in Section 2.6 of the Pooling and Servicing Agreement
for designating Additional Accounts and conveying the
Principal Receivables of such Accounts, whether now
existing or hereafter created, have been satisfied and (ii)
each of the representations and warranties made by the
Transferor in Section 5 is true and correct as of the
Addition Date. The Trustee may conclusively rely on such
Officer's Certificate, shall have no duty to make inquiries
with regard to the matters set forth therein, end shall
incur no liability In so relying.
Opinion of Counsel. The Transferor shall have
delivered to the Trustee an Opinion of Counsel with respect
to the Additional Accounts designated hereby substantially
in the form of Exhibit I to the Pooling and Servicing
Agreement.
Additional Information. The Transferor shall have
delivered to the Trustee such information as was reasonably
requested by the Trustee to satisfy itself as to the
accuracy of the representation and warranty set forth in
subsection 5(d) to this Agreement.
(vii) Amendment of the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement is hereby amended to provide
that all references therein to the "Pooling and Servicing
Agreement," to "this Agreement" and "herein" shall be deemed
from and after the Addition Date to be a dual reference to the
Pooling and Servicing Agreement as supplemented by this
Assignment. Except as expressly amended hereby, all of the
representations, warranties, terms, covenants and conditions of
the Pooling and Servicing Agreement shall remain unamended and
shall continue to be, and shall remain, in full force and effect
in accordance with its terms and except as expressly provided
herein shall not constitute or be deemed to constitute a waiver
of compliance with or a consent to noncompliance with any term
or provision of the Pooling and Servicing Agreement.
(viii) Counterparts. This Assignment may be executed in
two or more counterparts (and by different parties on separate
counterparts), each of which shall be an original, but all of
which together shall constitute one and the same instrument.
(ix) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO ITS CONFLICT OF LAW PROVISIONS.
IN WITNESS WHEREOF, the undersigned have caused this
Assignment of Receivables in Additional Accounts to be duly
executed and delivered by their respective duly authorized
officers on the day and year first above written.
METRIS RECEIVABLES, INC.
By:
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
By:
Name:
Title:
Schedule 1
to Assignment of
Receivables in
Supplemental Accounts
SUPPLEMENTAL ACCOUNTS
Schedule 2
to Assignment of
Receivables in
Supplemental Accounts
Metris Receivables, Inc.
Metris Master Trust
Officer's Certificate
____________________, a duly authorized officer of Metris
Receivables, Inc., a Delaware corporation (the "Transferor"),
hereby certifies and acknowledges on behalf of the Bank that to
the best of his knowledge the following statements are true on
______, ____, (the "Addition Date"), and acknowledges on behalf
of the Bank that this Officer's Certificate will be relied upon
by The Bank of New York (Delaware) as Trustee (the "Trustee") of
the Metris Master Trust in connection with the Trustee entering
into Assignment No. of Receivables in Supplemental Accounts,
dated as of the Addition Date (the "Assignment"), by and between
the Bank and the Trustee, in connection with the Amended and
Restated Pooling and Servicing Agreement, dated as of July 30,
1998, as heretofore supplemented and amended (the "Pooling and
Servicing Agreement") pursuant to which the Transferor and the
Trustee are parties. The undersigned hereby certifies and
acknowledges on behalf of the Bank that:
On or prior to the Addition Date, the Bank has delivered
to the Trustee the Assignment (including an acceptance by the
Trustee on behalf of the Trust for the benefit of the Investor
Securityholders) and the Bank has indicated in its computer files
that the Receivables created in connection with the Supplemental
Accounts have been transferred to the Trust and within five
Business Days after the Addition Date the Bank shall deliver to
the Trustee a [computer file or] microfiche list containing a
true and complete list of all Supplemental Accounts identified by
account number and the aggregate amount of the Receivables in
such Supplemental Accounts as of the Addition Date, which
computer file or microfiche list shall be as of the date of such
Assignment, incorporated into and made a part of such Assignment
and the Pooling and Servicing Agreement.
Legal Valid and Binding Obligation. The Assignment
constitutes a legal, valid and binding obligation of the Bank,
enforceable against the Bank in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect affecting the enforcement of creditors'
rights in general except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law
or in equity).
Accounts. Each Supplemental Account designated Pursuant
to the Assignment is an Eligible Account. No selection
procedures believed by the Bank to be materially adverse to the
interests of the Investor Securityholders were utilized in
selecting the Additional Accounts from the available Eligible
Accounts, provided, that, the selection of newly originated
Accounts is deemed not to be materially adverse to the interests
of the Investor Securityholders.
Insolvency. The Bank is not insolvent and, after giving
effect to the conveyance set forth in Section 3 of the
Assignment, will not be insolvent.
Security Interest. The Assignment constitutes either (i)
a valid transfer and assignment to the Trust of all right, title
and interest of the Bank in and to Receivables now existing and
hereafter created in the Supplemental Accounts designated
pursuant to the Assignment and all proceeds (as defined in the
UCC as in effect in the State of Delaware) of such Receivables,
and such Receivables and any proceeds thereof will be held by the
Trust free and clear of any Lien of any Person claiming through
or under the Transferor or any of its Affiliates except for (x)
Liens permitted under subsection 2.5(b) of the Pooling and
Servicing Agreement, (y) the interest of the Bank as holder of
the Exchangeable Transferor Security and (z) the Bank's right to
receive interest accruing on, and investment earnings in respect
of, the Finance Charge Account and the Principal Account or any
Series Account as provided in the Pooling and Servicing Agreement
and any Supplement; or (ii) a grant of a security interest (as
defined in the UCC as in effect in the State of Delaware) in such
property to the Trust, which is enforceable with respect to the
existing Receivables of the Additional Accounts designated
pursuant to the Assignment and the proceeds (as defined in the
UCC as in effect in the State of Delaware) thereof upon the
conveyance of such Receivables to the Trust, and which will be
enforceable with respect to the Receivables thereafter created in
respect of Additional Accounts designated pursuant to the
Assignment and the proceeds (as defined in the UCC as in effect
in the State of Delaware) thereof upon such creation; and
provided, further, that if the Assignment constitutes the grant
of a security interest to the Trust in such property pursuant to
subsection (ii) above, upon the filing of a financing statement
described in Section 3 of the Assignment with respect to the
Additional Accounts designated pursuant to the Assignment and in
the case of the Receivables of such Additional Accounts
thereafter created and the proceeds (as defined in the UCC as in
effect in the State of Delaware) thereof upon such creation, the
Trust shall have a first priority perfected security Interest in
such property, except for Liens permitted under subsection 2.5(b)
of the Pooling and Servicing Agreement.
Requirements of Pooling and Servicing Agreement. All
requirements set forth in Section 2.6 of the Pooling and
Servicing Agreement for designating Additional Accounts and
conveying the Principal Receivables of such Accounts, whether now
existing or hereafter created, have been satisfied.
Initially capitalized terms used herein and not otherwise
defined are used as defined in the Pooling and Servicing
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand this
___________ day of ________ ____.
METRIS RECEIVABLES, INC.
By:
Name:
Title:
EXHIBIT I
FORM OF OPINION OF COUNSEL REGARDING SUPPLEMENTAL ACCOUNTS
PROVISIONS TO BE INCLUDED IN OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 2.6(d)(vi)
OF THE POOLING AND SERVICING AGREEMENT
The opinions set forth below may be subject to certain
qualifications, assumptions, limitations and exceptions taken or
made in the opinion of the Transferor's counsel with respect to
similar matters delivered on the Closing Date. Such counsel may
rely as to factual matters on certificates of officers of the
Transferor and the Servicer.
(i) The Assignment has been duly authorized, executed and
delivered by the Transferor and constitutes the valid and legally
binding agreement of the Transferor, enforceable against the
Transferor in accordance with its terms, except (x) to the extent
that the enforceability thereof may be limited by (a) bankruptcy,
insolvency, receivership, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors'
rights generally and the rights of creditors of Delaware
chartered banks as the same may be applied in the event of the
bankruptcy, insolvency, receivership, reorganization, moratorium
or other similar event in respect of the Transferor, and (b)
general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in
equity).
(ii) The provisions of the Pooling and Servicing Agreement
are effective to create, in favor of the Trustee, a valid
security interest (as such term is defined in Section 1-201(37)
of the Delaware UCC) in all of the Transferor's right, title and
interest in that portion of the Receivables which constitutes
accounts, general intangibles or chattel paper under the Delaware
UCC and proceeds thereof which security interest if characterized
as a transfer for security will secure all Secured Obligations
and which security interest if characterized as a sale of
accounts will constitute a valid sale of all of the Transferor's
right, title and interest in and to the Receivables and the
proceeds thereof.
(iii) A Uniform Commercial Code financing statement having
been filed in the appropriate recording offices, the security
interest (as such term is defined in Section 1-201(37) of the
Relevant UCC) in favor of the Trustee in the Receivables and
proceeds thereof has been perfected, and under the Relevant UCC
no other security interest of any other creditor of the
Transferor will be equal or prior to the security interest of the
Trustee in such Receivables and the proceeds thereof.
EXHIBIT J
FORM OF REASSIGNMENT OF RECEIVABLES
REASSIGNMENT NO. OF RECEIVABLES, dated as of
, , by and between METRIS RECEIVABLES, INC., a corporation
organized and existing under the laws of the States of Delaware
(the "Transferor"), and THE BANK OF NEW YORK (DELAWARE), a
banking corporation organized under the laws of the State of
Delaware (the "Trustee") pursuant to the Pooling and Servicing
Agreement referred to below.
W I T N E S S E T H
WHEREAS, the Transferor and the Trustee are parties to the
Amended and Restated Pooling and Servicing Agreement, dated as of
July 30,1998 (hereinafter as such agreement may have been, or may
from time to time be, amended, supplemented or otherwise
modified, the "Pooling and Servicing Agreement") by and among the
Transferor, Federated Department Stores, Inc. as Servicer, and
the Trustee;
WHEREAS, pursuant to Section 2.7 of the Pooling and
Servicing Agreement, the Transferor wishes to remove all
Receivables from certain designated Accounts (collectively, the
"Removed Accounts") and to cause the Trustee to reconvey the
Receivables of such Removed Accounts, whether now existing or
hereafter created, from the Trust to the Transferor (as each such
term is defined in the Pooling and Servicing Agreement); and
WHEREAS, the Trustee is willing to accept such designation
and to reconvey the Receivables in the Removed Accounts subject
to the terms and conditions hereof.
NOW THEREFORE, the Transferor and the Trustee hereby agree
as follows:
(x) Defined Terms. All terms defined in the Pooling and
Servicing Agreement and used herein shall have such defined
meanings when used herein, unless otherwise defined herein.
"Removal Date" shall mean, with respect to the Removed
Accounts designated hereby, , .
"Removal Notice Date" shall mean, with respect to the
Removed Accounts designated hereby, , (which shall be
a date on or prior to the fifth Business Day prior to the Removal
Date).
(xi) Designation of Removed Accounts. The Transferor shall
deliver to the Trustee or the bailee of the Trustee, not later
than five Business Days after the Removal Date, a computer file
or microfiche list containing a true and complete list of each
revolving consumer credit card account which as of the Removal
Date shall be deemed to be a Removed Account, such accounts being
identified by account number and by the aggregate amount of
Receivables in such accounts as of the close of business on the
Removal Date. Such list shall be marked as Schedule 1 to this
Reassignment and shall be incorporated into and made a part of
this Reassignment as of the Removal Date.
(xii) Conveyance of Receivables
The Trustee does hereby reconvey to the Transferor, without
recourse, representation or warranty, on and after the Removal
Date, all right, title and interest of the Trust in and to the
Receivables now existing and hereafter created in the Removed
Accounts designated hereby, all monies due or to become due with
respect thereto (including all Finance Charge Receivables) and
all proceeds (as defined in Section 9-306 of the UCC as in effect
in the [Relevant UCC State]) of such Receivables.
In connection with such transfer, the Trustee agrees to
execute and deliver to the Transferor on or prior to the date of
this Reassignment, a termination statement with respect to the
Receivables now existing and hereafter created in the Removed
Accounts designated hereby evidencing the release by the Trust of
its Lien on the Receivables in the Removed Accounts, and meeting
the requirements of applicable state law, in such manner and such
jurisdictions as are necessary to remove such Lien.
(xiii) Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Trust as of
the Removal Date:
Legal, Valid and Binding Obligation. This
Reassignment constitutes a legal, valid and binding obligation of
the Transferor enforceable against the Transferor in accordance
with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity
(whether considered in a suit at law or in equity).
Selection Procedures. No selection procedures
believed by the Trans feror to be materially adverse to the
interests of the Investor Securityholders were utilized in
selecting the Removed Accounts designated hereby.
(xiv) Conditions Precedent. The amendment of the Pooling
and servicing Agreement set forth in Section 6 hereof is subject
to the satisfaction, on or prior to the Removal Date, of the
following condition precedent:
The Transferor shall have delivered to the Trustee an
Officer's Certificate certifying that (i) as of the Removal Date,
all requirements set forth in Section 2.7 of the Pooling and
Servicing Agreement for designating Removed Accounts and
reconveying the Receivables of such Removed Accounts, whether now
existing or hereafter created, have been satisfied, and (ii) each
of the representations and warranties made by the Transferor in
Section 4 hereof is true and correct as of the Removal Date. The
Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters
set forth therein and shall incur no liability in so relying.
(xv) Amendment of the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement is hereby amended to provide that
all references therein to the "Pooling and Servicing Agreement",
to "this Agreement" and "herein" shall be deemed from and after
the Removal Date to be a dual reference to the Pooling and
Servicing Agreement as supplemented by this Reassignment. Except
as expressly amended hereby, all of the representations,
warranties, terms, covenants and conditions of the Pooling and
Servicing Agreement shall remain unamended and shall continue to
be, and shall remain, in full force and effect in accordance with
its terms and except as expressly provided herein shall not
constitute or be deemed to constitute a waiver of compliance with
or a consent to non-compliance with any term or provision of the
Pooling and Servicing Agreement.
(xvi) Counterparts. This Reassignment may be executed in
two or more counterparts, and by different parties on separate
counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
(xvii) Governing Law. THIS REASSIGNMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS.
IN WITNESS WHEREOF, the undersigned have caused this
Reassignment of Receivables to be duly executed and delivered by
their respective duly authorized officers on the day and year
first above written.
METRIS RECEIVABLES INC.
By:
Name:
Title:
THE BANK OF NEW YORK (DELAWARE),
as Trustee
By:
Name:
Title:
METRIS RECEIVABLES, INC.,
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION,
Servicer
and
THE BANK OF NEW YORK (DELAWARE),
Trustee
on behalf of Securityholders
of the Metris Master Trust
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of July 30, 1998
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
Section 1.1 Definitions 1
Section 1.2 Other Definitional Provisions 21
ARTICLE II
CONVEYANCE OF RECEIVABLES;
ISSUANCE OF SECURITIES 22
Section 2.1 Conveyance of Receivables 23
Section 2.2 Acceptance by Trustee 23
Section 2.3 Representations and Warranties of
the Transferor 24
Section 2.4 Representations and Warranties of the
Transferor Relating to the Agreement
and the Receivables 27
Section 2.5 Covenants of the Transferor 31
Section 2.6 Addition of Accounts 32
Section 2.7 Removal of Accounts 37
Section 2.8 Discount Option 38
Section 2.9 Covenants of the Transferor with Respect
to the Purchase Agreement 38
Section 2.10. Receivables in Defaulted Accounts 39
ARTICLE III
ADMINISTRATION AND SERVICING OF RECEIVABLES 41
Section 3.1 Acceptance of Appointment and Other Matters
Relating to the Servicer 41
Section 3.2 Servicing Compensation 42
Section 3.3 Representations and Warranties of the
Servicer 43
Section 3.4 Reports and Records for the Trustee 45
Section 3.5 Annual Servicer's Certificate 46
Section 3.6 Annual Independent Accountants'
Servicing Report 47
Section 3.7 Tax Treatment 47
Section 3.8 Adjustments 48
Section 3.9 Notices to DMCCB 48
ARTICLE IV
RIGHTS OF SECURITYHOLDERS AND ALLOCATION
AND APPLICATION OF COLLECTIONS 50
Section 4.1 Rights of Securityholders 50
Section 4.2 Establishment of Accounts 50
Section 4.3 Collections and Allocations 53
ARTICLE V
[ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES] 56
ARTICLE VI
THE SECURITIES 57
Section 6.1 The Securities 57
Section 6.2 Authentication of Securities 57
Section 6.3 Registration of Transfer and Exchange of
Securities 58
Section 6.4 Mutilated, Destroyed, Lost or Stolen
Securities 61
Section 6.5 Persons Deemed Owners 61
Section 6.6 Appointment of Paying Agent 62
Section 6.7 Access to List of Securityholders'
Names and Addresses 63
Section 6.8 Authenticating Agent 63
Section 6.9 Tender of Exchangeable Transferor Security 64
Section 6.10 Book-Entry Securities 67
Section 6.11 Notices to Clearing Agency 68
Section 6.12 Definitive Securities 68
Section 6.13 Global Security; Euro-Security Exchange
Date 69
Section 6.14 Meetings of Securityholders 69
ARTICLE VII
OTHER MATTERS RELATING TO THE TRANSFEROR 70
Section 7.1 Liability of the Transferor 70
Section 7.2 Merger or Consolidation of, or Assumption
of the Obligations of, the Transferor 70
Section 7.3 Limitation on Liability 71
Section 7.4 Liabilities 72
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER 73
Section 8.1 Liability of the Servicer 73
Section 8.2 Merger or Consolidation of, or Assumption
of the Obligations of, the Servicer 73
Section 8.3 Limitation on Liability of the Servicer
and Others 73
Section 8.4 Servicer Indemnification of the Transferor,
the Trust and the Trustee 74
Section 8.5 The Servicer Not to Resign 75
Section 8.6 Access to Certain Documentation and
Information Regarding the Receivables 75
Section 8.7 Delegation of Duties 76
ARTICLE IX
PAY OUT EVENTS 77
Section 9.1 Pay Out Events 77
Section 9.2 Additional Rights Upon the Occurrence of
Certain Events 77
ARTICLE X
SERVICER DEFAULTS 80
Section 10.1 Servicer Defaults 80
Section 10.2 Trustee to Act; Appointment of Successor 82
Section 10.3 Notification to Securityholders 84
Section 10.4 Waiver of Past Defaults 84
ARTICLE XI
THE TRUSTEE 85
Section 11.1 Duties of Trustee 85
Section 11.2 Certain Matters Affecting the Trustee 87
Section 11.3 Trustee Not Liable for Recitals in
Securities 88
Section 11.4 [Reserved] 88
Section 11.5 The Servicer to Pay Trustee's Fees and
Expenses 88
Section 11.6 Eligibility Requirements for Trustee 89
Section 11.7 Resignation or Removal of Trustee 89
Section 11.8 Successor Trustee 90
Section 11.9 Merger or Consolidation of Trustee 91
Section 11.10 Appointment of Co-Trustee or Separate
Trustee 91
Section 11.11 Tax Returns 92
Section 11.12 Trustee May Enforce Claims Without
Possession of Securities 92
Section 11.13 Suits for Enforcement 93
Section 11.14 Rights of Securityholders to Direct Trustee 93
Section 11.15 Representations and Warranties of Trustee 93
Section 11.16 Maintenance of Office or Agency 94
ARTICLE XII
TERMINATION 95
Section 12.1 Termination of Trust 95
Section 12.2 Optional Termination 96
Section 12.3 Final Payment with Respect to any Series 97
Section 12.4 Termination Rights of Holder of
Exchangeable Transferor Security 98
ARTICLE XIII
MISCELLANEOUS PROVISIONS 99
Section 13.1 Amendment 99
Section 13.2 Protection of Right, Title and Interest
to Trust 101
Section 13.3 Limitation on Rights of Securityholders 101
Section 13.4 Governing Law 102
Section 13.5 Notices 102
Section 13.6 Severability of Provisions 103
Section 13.7 Assignment 103
Section 13.8 Securities Non-Assessable and Fully Paid 103
Section 13.9 Further Assurances 103
Section 13.10 No Waiver; Cumulative Remedies 104
Section 13.11 Counterparts 104
Section 13.12 Third-Party Beneficiaries 104
Section 13.13 Actions by Securityholders 104
Section 13.14 Rule 144A Information 105
Section 13.15 Merger and Integration 105
Section 13.16 Headings 105
SCHEDULES AND EXHIBITS
Schedule 1 Tax Returns and Payments
Exhibit A Form of Exchangeable Transferor Security
Exhibit B Form of Daily Report
Exhibit C Form of Settlement Statement
Exhibit D Form of Annual Servicer's Certificate
Exhibit E Form of Annual Opinion of Counsel
Exhibit F Form of Reconveyance of Receivables
Exhibit G Form of Agreed-Upon Procedures
Exhibit H Form of Assignment of Receivables in Supplemental
Accounts
Exhibit I Form of Opinion of Counsel Regarding Supplemental
Accounts
Exhibit J Form of Reassignment
OWNER TRUST AGREEMENT, dated as of July 30, 1998,
between METRIS RECEIVABLES, INC., a Delaware corporation, as the
depositor with respect to the Owner Trust referred to below (in
such capacity, and together with any successor in interest as
provided in Section 9.2, the "Depositor"), and WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as owner trustee (the
"Owner Trustee").
The Depositor and the Owner Trustee hereby agree as
follows:
1 ARTICLE DEFINITIONS
(a) SECTION Definitions . Unless otherwise
defined herein, capitalized terms used herein shall have the
meanings given to them in the Amended and Restated Pooling and
Servicing Agreement, dated as of July 30, 1998, among Metris
Receivables, Inc. ("MRI"), as Transferor, Direct Merchants Credit
Card Bank, National Association ("DMCCB"), as Servicer, and The
Bank of New York (Delaware), as trustee (the "Trustee"), as
amended and supplemented by the Series 1998-1 Supplement, dated
as of July 30, 1998 (as the same may from time to time be
amended, supplemented or otherwise modified, the "Series 1998-1
Supplement"), among MRI, as Transferor, DMCCB, as Servicer, and
the Trustee.
(b)
(c) As used herein, the following terms shall have
the following meanings:
(d)
"Accrual Period" shall mean each Monthly Period.
"Administration Agreement" shall mean the
Administration Agreement, dated as of July 30, 1998, between
the Owner Trust and Metris Companies Inc., as Administrator,
as amended from time to time.
"Administrative Agent" shall have the meaning assigned
to such term in the Liquidity Agreement.
"Administrator" shall mean Metris Companies Inc. in its
capacity as Administrator under the Administration
Agreement, or any duly appointed successor thereto.
"Agreement" shall mean this Owner Trust Agreement, as
the same may be amended, supplemented or otherwise modified
from time to time.
"Authorized Officer" shall mean, when used with respect
to the Owner Trustee, any officer within the Administration
Department in the Corporate Trust Office of the Owner
Trustee including any Vice President, Assistant Vice
President, Secretary, Assistant Secretary, Financial
Services Officer or any other officer of the Trustee
customarily performing functions similar to those performed
by any of the above designated officers and also, with
respect to a particular matter, any other officer to whom
such matter is referred because of such officer's knowledge
of and familiarity with the particular subject; and shall mean when used
with respect to any other Person, any officer including without
limitation any Vice President or Assistant Vice President.
"Basic Documents" shall have the meaning assigned
thereto in the Liquidity Agreement.
"Business Trust Statute" shall mean Chapter 38 of Title
12 of the Delaware Code, 12 Del. Code 3801 et seq., as the
same may be amended from time to time.
"Certificate of Trust" shall mean the organizational
certificate of the Owner Trust, in the form attached hereto
as Exhibit B, filed with the Secretary of State of Delaware
pursuant to 3810 of the Business Trust Statute, as the same
may be amended, supplemented or otherwise modified from time
to time.
"Class A Security" shall mean the Series 1998-1 Class A
Security.
"Code" shall mean the Internal Revenue Code of 1986, as
the same may be amended from time to time.
"Collateral Trust Agreement" shall mean the Collateral
Trust Agreement, dated as of July 30, 1998, between the
Owner Trust and U.S. Bank Trust, National Association, as
Collateral Trustee, as amended from time to time.
"Collateral Trustee" shall mean U.S. Bank Trust,
National Association, not in its individual capacity but
solely as Collateral Trustee under the Collateral Trust
Agreement.
"Commercial Paper Notes" shall mean any note issued by
the Owner Trust pursuant to the Depositary Agreement.
"Commitment" shall have the meaning assigned to such
term in the Liquidity Agreement.
"Corporate Trust Office" shall mean the principal
office at which at any particular time the corporate trust
business of the Owner Trustee is administered, which office
at the date hereof is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attn:
Corporate Trust Administration.
"Depositary" shall mean U.S. Bank Trust, National
Association, not in its individual capacity, but as
Depositary under the Depositary Agreement, and its
successors and assigns in such capacity.
"Depositary Agreement" shall mean the Depositary
Agreement, dated as of
July 30, 1998, between the Owner Trust and the Depositary as the
same may from time to time be amended, supplemented or otherwise
modified.
"Distribution Date" shall mean September 21, 1998 and
the twentieth day of each month thereafter, or if such day
is not a Business Day, the next succeeding Business Day.
"Eligible Deposit Account" shall have the meaning set
forth in Section 1 of the Collateral Trust Agreement.
"Expenses" shall have the meaning set forth in Section
7.9.
"Facility Documents" shall have the meaning given to
such term in the Liquidity Agreement.
"Fee Letter" shall mean the fee letter, dated as of
July 30, 1998, between the Depositor and the Owner Trustee.
"Governmental Authority" shall mean the United States
of America, any state or other political subdivision thereof
and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"Insolvency Event" shall mean, with respect to a
specified Person: (i) the entry of a decree or order by a
court, agency or supervisory authority having jurisdiction
in the premises for the appointment of a conservator,
receiver or liquidator for such Person, in any insolvency,
readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation
of such Person's affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 90
consecutive days; (ii) the consent by such Person to the
appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to such
Person or of or relating to substantially all of such
Persons's property; or (iii) the admission in writing by
such Person of its inability to pay its debts generally as
they become due, or the filing by such Person of a petition
to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit
of its creditors or voluntarily suspend payment of its
obligations.
"Interest Subaccount" shall have the meaning set forth
in Section 1 of the Collateral Trust Agreement.
"Lender" shall have the meaning assigned to such term
in the Liquidity Agreement.
"Liquidity Agreement" shall mean the 364-Day Liquidity
Agreement or the 3-Year Liquidity Agreement, collectively or
individually, as the context requires, each dated as of July
30, 1998, among the Owner Trust, as Borrower, the several
lenders party thereto, and the Chase Manhattan Bank, as
administrative agent, as the same may from time to time be
amended, supplemented or otherwise modified.
"Loans" shall have the meaning assigned to such term in
the Liquidity Agreement.
"Majority Lenders" shall have the meaning assigned to
such term in the Liquidity Agreement.
"MRI Note" shall mean a demand note from Metris
Companies Inc. to Metris Receivables, Inc. in the amount of
$33,000,000.
"Obligations" shall have the meaning set forth in
Section 1 of the Collateral Trust Agreement.
"Owner Trust" shall mean the trust established herein
pursuant to Sections 2.5 and 2.6.
"Owner Trust Certificate" shall mean a certificate
executed by the Owner Trustee, substantially in the form of
Exhibit A hereto.
"Owner Trust Certificateholder" or "Holder" shall mean
a Person in whose name an Owner Trust Certificate is
registered pursuant to the terms hereof.
"Owner Trust Estate" shall mean all right, title and
interest of the Owner Trust in the Class A Security, all
funds on deposit from time to time in the Collateral Account
(as defined in the Collateral Trust Agreement) and all other
property of the Owner Trust from time to time, including any
rights of the Owner Trustee and the Owner Trust pursuant to
the Facility Documents, and all proceeds of the foregoing,
all subject to the rights of the Secured Parties (as defined
in the Collateral Trust Agreement).
"Principal Subaccount" shall have the meaning set forth
in Section 1 of the Collateral Trust Agreement.
"Program Documents" shall have the meaning given to
such term in the Liquidity Agreement.
"Rating Agencies" shall mean Standard and Poor's, a
Division of The McGraw-Hill Companies and Moody's Investors
Service, Inc.
"Record Date" shall mean the fifth Business Day
preceding each Distribution Date.
"Series 1998-1 Class A Security" shall mean the
Variable Funding Security, Series 1998-1, Class A, Security
No. 1, issued pursuant to the Series 1998-1 Supplement.
"Taxes" shall have the meaning set forth in Section
2.11.
1.1 SECTION Other Definitional Provisions . All
references herein to "the Agreement" or "this Agreement" are to
this Owner Trust Agreement, and all references herein to
Articles, Sections and Exhibits are to Articles, Sections, and
Exhibits of this Agreement unless otherwise specified.
1.2
1 ARTICLE ORGANIZATION
1.1 SECTION Name . The Owner Trust created hereby
shall be known as "Metris Owner Trust", in which name the Owner
Trustee may conduct the business of the Owner Trust, make and
execute contracts and other instruments on behalf of the Owner
Trust and sue and be sued on behalf of the Owner Trust, subject
in each case to the rights of the Owner Trust Certificateholder
pursuant to Section 7.4 to direct the actions of the Owner
Trustee.
1.1 SECTION Office . The office of the Owner Trust
shall be in care of the Owner Trustee at the Corporate Trust
Office or at such other address in Delaware as the Owner Trustee
may designate by written notice to the Owner Trust
Certificateholder.
1.2
1.3 SECTION Purposes and Powers . The purpose of
the Owner Trust is to engage in the following activities:
1.4
(a) to acquire and hold the Class A Security and certain
related property pursuant to the Series 1998-1 Supplement and to
increase and decrease the Series 1998-1 Class A Invested Amount
thereunder;
(a) to issue the Owner Trust Certificate in the aggregate
principal amount of $1,000,000 to the Owner Trust
Certificateholder.
(a) to issue and sell from time to time Commercial Paper
Notes and to borrow from time to time funds under the Liquidity
Agreement, in each case the proceeds of which shall be used to
increase the Series 1998-1 Class A Invested Amount (as defined in
the Liquidity Agreement), as the case may be, or to repay
maturing Commercial Paper or Loans or to make any other payments
contemplated by the Liquidity Agreement or any other Program
Document to be made by the Owner Trust;
(a) to make payments on the Commercial Paper Notes and
the outstanding Loans (including any other amounts owing by the
Owner Trust to any Lender under the Liquidity Agreement) and the
Owner Trust Certificates and to pay the organizational, start-up
and transactional expenses of the Owner Trust;
(a) to assign, grant, transfer, pledge, mortgage and
convey the Owner Trust Estate pursuant to the terms of the
Collateral Trust Agreement and the Depositary Agreement;
(a) to enter into and perform its obligations under the
Program Documents to which it is to be a party;
(b)
(a) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(a) subject to compliance with the Program Documents, to
engage in such other activities as may be required in connection
with conservation of the Owner Trust Estate and the making of
distributions to the Lenders and the holders of the Commercial
Paper Notes.
The Owner Trust shall not engage in any activity other than in
connection with the foregoing or other than as required or
authorized by the terms of this Agreement and the Program
Documents.
1.1 SECTION Appointment of Owner Trustee . The
Depositor hereby appoints the Owner Trustee as trustee of the
Owner Trust, effective as of the date hereof, to have all the
rights, powers and duties set forth herein.
1.2
1.3 SECTION Initial Capital Contribution of Owner
Trust Estate. The Depositor hereby sells, assigns, transfers,
conveys and sets over to the Owner Trustee the sum of $1,000,000.
The Owner Trustee hereby acknowledges receipt in trust from the
Depositor, as of the date hereof, of the foregoing contribution,
which shall constitute the initial Owner Trust Estate. The
Depositor shall pay organizational expenses of the Owner Trust as
they may arise or, upon the request of the Owner Trustee, shall
promptly reimburse the Owner Trustee for any such expenses paid by
the Owner Trustee.
1.4
1.5 SECTION Organization of the Trust . It is the
intention of the parties hereto that the Owner Trust shall
constitute a business trust under the Business Trust Statute and
that this Agreement shall constitute the governing instrument of
such business trust. Effective as of the date hereof, the Owner
Trustee shall have all rights, powers and duties set forth herein
and in the Business Trust Statute with respect to accomplishing
the purposes of the Owner Trust. The Owner Trustee agrees to file
the certificate required under 3810 et seq. of the Business
Trust Statute in connection with the formation of the Owner Trust
as a business trust under the Business Trust Statute.
1.6
(a) SECTION Liability of the Depositor. The
Depositor shall be liable, directly to the injured party, for the
acts, omissions, obligations and expenses of the Owner Trust
(including Expenses), to the full extent not paid out of the
assets of the Owner Trust, including, but not limited to, to the
extent the Depositor would be so liable if the Owner Trust were a
partnership under the Delaware Revised Uniform Limited Partnership
Act and the Depositor were a general partner of such partnership;
provided, however, that in no event shall the Depositor be liable
for (i) the obligations of the Owner Trust to make payments
(whether for principal, interest, increased cost or expense
reimbursement, Monthly Capital Amounts, Monthly R.O.E. Amounts,
indemnity or otherwise) with respect to the Commercial Paper Notes
or the Loans or (ii) any losses, claims, damages, liabilities and
expenses arising out of the imposition by any taxing authority of
any federal, state or local income or franchise taxes, or any
other taxes imposed on or measured by gross or net income, gross
or net receipts, capital, net worth and similar items (including
any interest, penalties or additions with respect thereto) upon
the Lenders, the Depositary and the holders of Commercial Paper
Notes (including any liabilities, costs or expenses with respect
thereto) except under Section 2.4 of the Class A Purchase
Agreement to the extent that funds remain available to the
Depositor under the MRI Note.
(b)
1.7 SECTION Title to Trust Property . Legal title to
all the Owner Trust Estate shall be vested at all times in the
Owner Trust as a separate legal entity except where applicable law
in any jurisdiction requires title to any part of the Owner Trust
Estate to be vested in a trustee or trustees, in which case title
shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be, appointed pursuant
to Section 7.12.
1.8
1.9 SECTION Situs of Trust . The Owner Trust shall
be located and administered in the State of Delaware. All bank
accounts maintained by the Owner Trustee on behalf of the Owner
Trust shall be located in the State of Delaware. The Owner Trust
shall not have any employees in any state other than Delaware;
provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the
State of Delaware. Payments shall be received and made by the
Owner Trust only in Delaware. The only office of the Owner Trust
shall be the Corporate Trust Office in Delaware.
1.10
1.11 SECTION Representations and Warranties of the
Depositor . The Depositor hereby represents and warrants to the
Owner Trustee that:
1.12
(a) The Depositor has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with power and authority to own its properties
and to conduct its business as such properties are presently owned
and such business is presently conducted.
(a) The Depositor is duly qualified to do business as a
foreign corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business
requires such qualification, except to the extent that the failure
to be so qualified, or to obtain such license or approval would
not, in the aggregate, have a material adverse effect on (i) the
business, operations, property or condition (financial or
otherwise) of the Depositor or (ii) the ability of the Depositor
to perform its obligations under this Agreement.
(a) The Depositor has the corporate power and authority to
execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement have
been duly authorized by the Depositor by all necessary corporate
action.
(a) The execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement
and the fulfillment of the terms of this Agreement do not result
in any breach of any of the material terms and provisions of, or
constitute (with or without notice or lapse of time or both) a
material default under, the certificate of incorporation or by-
laws of the Depositor, or any indenture, agreement or other
instrument to which the Depositor is a party or by which it or any
of its property is bound, or result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument (other than
pursuant to the Facility Documents), or violate any law or, to the
best of the Depositor's knowledge after due inquiry, any order,
rule or regulation applicable to the Depositor of any court or
Governmental Authority having jurisdiction over the Depositor or
any of its properties.
(a) All approvals, authorizations, consents, orders or
other actions of any Governmental Authority required in connection
with the execution and delivery of this Agreement, of the
transactions contemplated by this Agreement and the fulfillment of
the terms hereof, have been obtained.
(a) This Agreement has been duly executed and delivered by
the Depositor and constitutes the legal, valid and binding
obligation of the Depositor, enforceable against the Depositor in
accordance with its terms, except (A) as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect,
affecting the enforcement of creditors' rights in general, and (B)
as such enforceability may be limited by general principles of
equity (whether considered in a suit at law or in equity).
(a) SECTION Tax Treatment . Each of the Depositor
and the Owner Trustee, by entering into this Agreement agrees that
it will file its own federal, state and local income, franchise
and other tax returns in a manner that is consistent with the
treatment of the Owner Trust as a partnership. The parties agree
that, unless otherwise required by a final decision (i.e., one
from which no appeal can be taken or with respect to which the
time for appeal has expired) of the appropriate taxing authorities
or court of competent jurisdiction, the Depositor shall file or
cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Owner
Trust as a partnership for such tax purposes.
(b)
(c) The Depositor shall sign on behalf of the Owner
Trust any and all tax returns of the Owner Trust. To the extent
one may be required, the Depositor shall be the "tax matters
partner" of the Owner Trust pursuant to the Code.
(d)
(e) The agreements in this Section 2.11 shall survive
the termination of this Agreement and the payment of all amounts
payable hereunder.
(f)
(g)
2 ARTICLE THE OWNER TRUST CERTIFICATE
SECTION 3.1 Initial Ownership. Upon the formation
of the Owner Trust by the contribution pursuant to Section 2.5,
the Depositor shall be the sole beneficial owner of the Owner
Trust.
SECTION 3.2 Form of Owner Trust Certificates. The
Owner Trust Certificate shall be issued in registered form in
substantially the form attached hereto as Exhibit A. The Owner
Trust Certificate shall be executed on behalf of the Owner Trust
by manual or facsimile signature of an authorized officer of the
Owner Trustee. The Owner Trust Certificate bearing the manual or
facsimile signatures of individuals who were, at the time when
such signatures shall have been affixed, authorized to sign on
behalf of the Owner Trust, shall, when duly authenticated pursuant
to Section 3.3, be validly issued and entitled to the benefits of
this Agreement, notwithstanding that such individuals or any of
them shall have ceased to be so authorized prior to the
authentication and delivery of the Owner Trust Certificate or did
not hold such offices at the date of authentication and delivery
of the Owner Trust Certificate.
SECTION 3.3 Authentication of Owner Trust
Certificate. Concurrently with the initial Contribution pursuant
to Section 2.5, the Owner Trustee shall cause a single Owner Trust
Certificate to be executed on behalf of the Owner Trust,
authenticated and delivered to or upon the written order of the
Depositor, signed by any Vice President or more senior officer of
the Depositor, without further corporate action by the Depositor.
The Owner Trust Certificate shall not entitle its holder to any
benefit under this Agreement, or be valid for any purpose, unless
there shall appear on the Owner Trust Certificate a certificate of
authentication substantially in the form set forth in Exhibit A,
executed by the Owner Trustee or the Owner Trustee's
authentication agent, by manual signature; such authentication
shall constitute conclusive evidence that the Owner Trust
Certificate shall have been duly authenticated and delivered
hereunder. The Owner Trust Certificate shall be dated the date of
its authentication.
SECTION 3.4 Restrictions on Transfer. To the
fullest extent permitted by applicable law, the Owner Trust
Certificate (or any interest therein) may not be sold,
transferred, assigned, participated, pledged or otherwise disposed
of by the Depositor to any Person.
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen
Certificate. If (a) the mutilated Owner Trust Certificate shall
be surrendered to the Owner Trustee, or if the Owner Trustee shall
receive evidence to its satisfaction of the destruction, loss or
theft of the Owner Trust Certificate and (b) there shall be
delivered to the Owner Trustee such security or indemnity as may
be required by it to save it harmless, then the Owner Trustee on
behalf of the Owner Trust shall execute and the Owner Trustee, or
the Owner Trustee's authenticating agent, shall authenticate and
deliver, in exchange for or lieu of the mutilated, destroyed, lost
or stolen, Owner Trust Certificate a new Owner Trust Certificate.
In connection with the issuance of any new Owner Trust Certificate
under this Section 3.5, the Owner Trustee may require the payment
of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith. Any duplicate Owner
Trust Certificate issued pursuant to this Section 3.5 shall
constitute conclusive evidence of the ownership interest in the
Owner Trust, as if originally issued, whether or not the lost,
stolen or destroyed Owner Trust Certificate shall be found at any
time.
1 ARTICLE ACTIONS BY OWNER TRUSTEE
1.1 SECTION Prior Notice to Owner Trust
Certificateholder with Respect to Certain Matters . The Owner
Trustee shall not take action with respect to the following
matters, unless (i) the Owner Trustee shall have notified the
Owner Trust Certificateholder in writing of the proposed action at
least ten (10) days before the taking of such action and (ii) any
consent to such action required by Section 7.7 or 7.9 of the
Liquidity Agreement shall have been duly obtained:
(a) the initiation of any action, claim or lawsuit by the
Owner Trust and the compromise of any action, claim or lawsuit
brought by or against the Owner Trust;
(a) the election by the Owner Trust to file an amendment
to the Certificate of Trust;
(a) the amendment, change, modification or termination or
waiver of any provision of the Collateral Trust Agreement, the
Administration Agreement or any Basic Document, except to cure any
ambiguity or to amend or supplement any provision in a manner that
would not materially adversely affect the interests of the Owner
Trust Certificateholder; or
(a) the appointment pursuant to (i) Section 11.8 of the
Series 1998-1 Pooling and Servicing Agreement of a successor
trustee, (ii) the Collateral Trust Agreement of a successor
Collateral Trustee or (iii) the Liquidity Agreement of a successor
Administrative Agent or the consent to the assignment by the
Series 1998-1 Trustee, the Collateral Trustee or the
Administrative Agent of its obligations under the Series 1998-1
Pooling and Servicing Agreement, the Collateral Trust Agreement or
the Liquidity Agreement, respectively.
Notwithstanding the foregoing, in no event shall the
Owner Trustee agree to, consent to or request any amendment,
change, modification or termination or waiver of any provision of
the Collateral Trust Agreement or any Basic Document pursuant to
this Section 4.1 that reduces in any manner the amount of, or
delays the timing of, collections of payments on the Class A
Security or releases a material portion of the Collateral without
the prior written consent of all Owner Trust Certificateholders.
1.1 SECTION Action by Owner Trust Certificateholder
with Respect to Certain Matters . The Owner Trustee shall not
have the power to (a) remove the Administrator under the
Administration Agreement without cause, (b) to appoint a successor
Administrator following an Administrator Termination Event
pursuant to Section 6(c) of the Administration Agreement or (c) to
vote to remove the Series 1998-1 Trustee pursuant to the Series
1998-1 Pooling and Servicing Agreement, except upon the written
direction of the Owner Trust Certificateholder. The Owner Trustee
shall not have the power, except as provided in Section 9.2
hereof, to sell the Series 1998-1 Class A Security or any interest
therein, before or after the termination of the Collateral Trust
Agreement. The Owner Trustee shall take the actions referred to
in the preceding sentence only if any consent to such action
required by Section 7.7(b) or (c) of the Liquidity Agreement shall
have been duly obtained.
1.2
1.3 Notwithstanding anything to the contrary herein, no
notices shall be given by the Owner Trustee with respect to a
Series 1998-1 Pay Out Event (as defined in the Series 1998-1
Supplement) unless the consents required pursuant to Section 4.3
of the Collateral Trust Agreement shall have been duly obtained.
1.4
1.5 SECTION Action by Holders with Respect to
Bankruptcy . The Owner Trustee shall not have the power to
commence a voluntary proceeding in bankruptcy relating to the
Owner Trust without the prior written consent of each Holder
(including the Depositor).
1.6
1.7 SECTION 4.4 Restrictions on Owner Trust
Certificateholder's Power. The Owner Trust Certificateholders
shall not direct the Owner Trustee to take or refrain from taking
any action if such action or inaction would be contrary to any
obligation of the Owner Trust or the Owner Trustee under this
Agreement, including Section 2.3, or any of the Facility
Documents, nor shall the Owner Trustee be obligated to follow any
such direction, if given.
1.8
1.9
2 ARTICLE [Reserved]
I. ARTICLE [Reserved]
I. ARTICLE THE OWNER TRUSTEE
1. SECTION Duties of Owner Trustee . The Owner
Trustee undertakes to perform such duties, and only such duties,
as are specifically set forth in this Agreement, including the
administration of the Owner Trust, subject to the Facility
Documents and in accordance with the provisions of this Agreement
and no implied duties or obligations shall be read into this
Agreement.
1. Pursuant to and in accordance with Section
3806(b)(7) of the Business Trust Statute, the Administrator shall
be responsible for performing and aiding in the performance of
various financial, statistical, accounting and other services for
the Owner Trust. The Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the
Facility Documents to the extent the Administrator has agreed in
the Administration Agreement to perform any act or to discharge
any duty of the Owner Trustee hereunder. The Owner Trustee shall
have no duty to supervise the performance by the Administrator of
its obligations under the Administration Agreement and the Owner
Trustee shall not be liable for the default or failure of the
Administrator to carry out its obligations under the
Administration Agreement.
2.
3. In the absence of bad faith on its part, the
Owner Trustee may conclusively rely upon certificates or opinions
furnished to the Owner Trustee and conforming to the requirements
of this Agreement in determining the truth of the statements and
the correctness of the opinions contained therein; provided,
however, that the Owner Trustee shall have examined such
certificates or opinions so as to determine compliance of the same
with the requirements of this Agreement.
4.
5. Subject to Sections 7.1(a) and 7.1(b), the Owner
Trustee may not be relieved from liability for its own grossly
negligent action, its own grossly negligent failure to act or its
own willful misconduct (or its ordinary negligence with respect to
the handling and disbursement of funds), except that:
6.
a) the Owner Trustee shall not be liable for any
error of judgment made in good faith by an Authorized Officer
unless it is proved that the Owner Trustee was grossly negligent
in ascertaining the pertinent facts;
a) the Owner Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it hereunder or pursuant
to any Facility Document; and
1. The Owner Trustee shall not take any action that
(i) is inconsistent with the purposes of the Owner Trust set forth
in Section 2.3 or (ii) would, to the actual knowledge of an
Authorized Officer of the Owner Trustee, result in the Owner
Trust's becoming taxable as an association taxable as a
corporation. The Owner Trust Certificateholder shall not direct
the Owner Trustee to take action that would violate the provisions
of this Section 7.1(f) and if so directed, the Owner Trustee shall
not be required to follow such direction.
2.
B. SECTION Rights of Owner Trustee . The Owner
Trustee is hereby authorized and directed to execute and deliver,
on behalf of the Owner Trust, the Program Documents and each
document attached as an exhibit to or contemplated by the Program
Documents to which the Owner Trust is to be a party, in such form
as the Depositor shall approve as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing,
the Owner Trustee is authorized, but shall not be obligated, to
take all actions required of the Owner Trust pursuant to the
Program Documents. The Owner Trustee is further authorized from
time to time to take such action as the Administrator recommends
with respect to any of the Facility Documents, provided such
action is not otherwise prohibited herein.
C.
D. SECTION Acceptance of Trusts and Duties .
Except as otherwise provided in this Article VII, in accepting the
trust hereby created, Wilmington Trust Company acts solely as
Owner Trustee hereunder and not in its individual capacity and all
Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Facility
Document shall look only to the Owner Trust Estate for payment or
satisfaction thereof. The Owner Trustee accepts the trust hereby
created and agrees to perform its duties hereunder with respect to
such trust but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all moneys actually received by it
constituting part of the Owner Trust Estate upon the terms of this
Agreement and the Facility Documents. The Owner Trustee shall not
be liable or accountable hereunder or under any Facility Document
under any circumstances, except for (i) its own grossly negligent
action, its own grossly negligent failure to act or its own
willful misconduct (or its ordinary negligence with respect to the
handling and disbursement of funds) or (ii) the inaccuracy of any
representation or warranty in Section 7.6 expressly made by the
Owner Trustee. In particular, but not by way of limitation (and
subject to the exceptions set forth in the preceding sentence):
E.
1. the Owner Trustee shall at no time have any
responsibility or liability for or with respect to the legality
and validity of the Facility Documents (other than the due
execution and delivery of any Facility Documents to which the
Owner Trust is a party), or the perfection and priority of any
security interest created in the Owner Trust Estate (or any
portion thereof) or the maintenance of any such perfection and
priority, or for or with respect to the sufficiency of the Owner
Trust Estate under this Agreement, the Lenders under the Liquidity
Agreement or the holders of the Commercial Paper Notes under the
Depositary Agreement, including, without limitation: the
existence, condition and ownership of the Series 1998-1 Class A
Security or the Owner Trust Estate; the validity of the assignment
of the Series 1998-1 Class A Security to the Owner Trust or of any
intervening assignment; the compliance by the Depositor or the
Administrator with any representation or warranty made under any
Basic Document or in any related document or the accuracy of any
such representation or warranty or any action of the
Administrator, the Depositor, or any other Person taken in the
name of the Owner Trustee;
1. the Owner Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in accordance with
the instructions of the Administrator or the Depositor in
accordance with the Facility Documents;
1. no provision of this Agreement or any Facility
Document shall require the Owner Trustee to expend or risk funds
or otherwise incur any financial liability in the performance of
any of its rights or powers hereunder or thereunder, if the Owner
Trustee shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability
is not reasonably assured or provided to it;
1. under no circumstances shall the Owner Trustee be
liable for indebtedness evidenced by or other obligations of the
Owner Trust arising under any of the Facility Documents,
including, without limitation, the principal of and interest on
the outstanding Loans or the Commercial Paper Notes;
1. the Owner Trustee shall not be responsible for or in
respect of and makes no representation as to the validity or
sufficiency of any provision of this Agreement or for the due
execution hereof by the Depositor or for the form, character,
genuineness, sufficiency, value or validity of either the Owner
Trust or the Owner Trust Estate, and the Owner Trustee shall in no
event assume or incur any liability, duty or obligation to the
Lenders, any holder of Commercial Paper Notes or the Owner Trust
Certificate, other than as expressly provided for herein;
1. the Owner Trustee shall not be liable for the default
or misconduct of the Administrator or the Depositor under any of
the Facility Documents, the Owner Trust Documents or otherwise,
and the Owner Trustee shall have no obligation or liability to
perform the obligations of the Owner Trust under this Agreement or
the Facility Documents that are required to be performed by the
Administrator under the Administration Agreement or to perform the
obligations of the Depositor hereunder; and
1. the Owner Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Agreement, or to institute, conduct or defend any litigation under
this Agreement or any Facility Document in relation to this
Agreement, any Facility Document, at the request, order or
direction of any of the Owner Trust Certificateholder, unless the
Owner Trust Certificateholder have offered to the Owner Trustee
security or indemnity satisfactory to it against the costs,
expenses and liabilities that may be incurred by the Owner Trustee
(including, without limitation, the reasonable fees and expenses
of its counsel) therein or thereby. The right of the Owner
Trustee to perform any discretionary act enumerated in this
Agreement or any Facility Document shall not be construed as a
duty, and the Owner Trustee shall only be answerable for its gross
negligence or willful misconduct (or its ordinary negligence with
respect to the handling and disbursement of funds) in the
performance of any such act.
1. SECTION Action upon Instruction by Owner Trust
Certificateholder . Subject to Article IV and Section 7.1(f),
the Owner Trust Certificateholder may by written instruction
direct the Owner Trustee in the management of the Owner Trust.
Such direction may be exercised at any time by written instruction
of the Owner Trust Certificateholder.
2.
3. Notwithstanding the foregoing, the Owner Trustee
shall not be required to take any action hereunder, under any
Facility Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such
action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or thereof or is
otherwise contrary to law.
4.
5. Whenever the Owner Trustee is unable to decide
between alternative courses of action permitted or required by the
terms of this Agreement or any Facility Document, or is unsure as
to the application, intent, interpretation or meaning of any
provision hereof or thereof, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the
circumstances) to the Owner Trust Certificateholder, requesting
instruction as to the course of action to be adopted, and, to the
extent the Owner Trustee acts in good faith in accordance with any
such instruction received, the Owner Trustee shall not be liable
on account of such action to any Person. If the Owner Trustee
shall not have received appropriate instructions within ten days
of such notice (or within such shorter period of time as
reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to,
take or refrain from taking such action which is consistent, in
its view, with this Agreement and the Facility Documents, and as
it shall deem to be in the best interests of the Owner Trust
Certificateholder, and the Owner Trustee shall have no liability
to any Person for any such action or inaction.
6.
7. (d) The Owner Trustee shall not take or consent to
any action referred to in this Section 7.4 without having first
obtained the required consents, if any, specified in Sections 7.7
and 10.1 of the Liquidity Agreement.
8.
9. SECTION Furnishing of Documents; Notices . The
Owner Trustee shall furnish to the Owner Trust Certificateholder,
promptly upon written request therefor, duplicates or copies of
all reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Owner
Trustee under the Facility Documents.
10.
11. Upon receipt by the Owner Trustee of notice
pursuant to any Facility Document of the occurrence of (i) a
Series 1998-1 Pay Out Event or (ii) any Default or Event of
Default under the Liquidity Agreement, the Owner Trustee shall
promptly forward such notice to the Owner Trust Certificateholder.
12.
B. SECTION Representations and Warranties of Owner
Trustee . The Owner Trustee hereby represents and warrants to the
Depositor, for the benefit of the Owner Trust Certificateholder,
that:
C.
1. It is a banking corporation duly organized, validly
existing and in good standing under the laws of the state of
Delaware.
1. It has full power, authority and legal right to
execute, deliver or perform this Agreement, and has taken all
necessary action to authorize the execution, delivery and
performance by it of this Agreement.
1. The execution, delivery and performance by it of this
Agreement (i) shall not violate any federal or Delaware law
governing the banking or trust powers of the Owner Trustee or any
order, writ, judgment or decree of any court, arbitrator or
Governmental Authority applicable to the Owner Trustee or any of
its assets, (ii) shall not violate any provision of the corporate
charter or by-laws of the Owner Trustee, or (iii) shall not
violate any provision of, or constitute, with or without notice or
lapse of time, a default under, or result in the creation or
imposition of any Lien on any properties included in the Owner
Trust pursuant to the provisions of any mortgage, indenture,
contract, agreement or other undertaking to which it is a party,
which violation, default or Lien could reasonably be expected to
have a materially adverse effect on the Owner Trustee's
performance or ability to perform its duties as Owner Trustee
under this Agreement or on the transactions contemplated in this
Agreement.
1. The execution, delivery and performance by the Owner
Trustee of this Agreement shall not require the authorization,
consent or approval of, the giving of notice to, the filing or
registration with, or the taking of any other action in respect
of, any Governmental Authority or agency regulating the banking
and corporate trust activities of banks or trust companies in the
jurisdiction in which the Owner Trust was formed.
1. This Agreement has been duly executed and delivered by
the Owner Trustee and constitutes the legal, valid and binding
agreement of the Owner Trustee, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the
enforcement of creditors' rights in general and by general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
1. SECTION Reliance; Advice of Counsel . The
Owner Trustee shall incur no liability to anyone in acting upon
any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or
paper believed by it to be genuine and believed by it to be signed
by the proper party or parties and need not investigate any fact
or matter pertaining to or in any such document. The Owner
Trustee may accept a certified copy of a resolution of the board
of directors or other governing body of any corporate party as
conclusive evidence that such resolution has been duly adopted by
such body and that the same is in full force and effect. As to
any fact or matter the method of the determination of which is not
specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or
any vice president or by the treasurer or other authorized
officers of the relevant party, as to such fact or matter, and
such certificate shall constitute full protection to the Owner
Trustee for any action taken or omitted to be taken by it in good
faith in reliance thereon.
2.
3. In the exercise or administration of the trusts
hereunder and in the performance of its duties and obligations
under this Agreement or the Facility Documents, the Owner Trustee:
(i) may act directly or through its agents, attorneys, custodians
or nominees (including the granting of a power of attorney to
officers of the Administrator to execute and deliver any Facility
Document, Commercial Paper Note or other documents related thereto
on behalf of the Owner Trust) pursuant to agreements entered into
with any of them, and (ii) may consult with counsel, accountants
and other skilled professionals to be selected with reasonable
care by it. The Owner Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance with
the opinion or advice of any such counsel, accountants or other
such Persons.
4.
B. SECTION Owner Trustee May Own Notes . The Owner
Trustee in its individual or any other capacity may become a
Lender or the owner or pledgee of Commercial Paper Notes and may
deal with the Depositor, the Administrator and the Trust in
transactions in the same manner as it would have if it were not
the Owner Trustee.
A. SECTION Compensation and Indemnity . The Owner
Trustee shall receive from the Depositor as compensation for its
services hereunder an annual fee as specified in the Fee Letter,
and the Owner Trustee shall be entitled to be reimbursed by the
Depositor for its other reasonable expenses incurred in connection
with this Agreement and the other Facility Documents, including
the reasonable compensation, expenses and disbursements of such
agents, custodians, nominees, representatives, experts and counsel
as the Owner Trustee may employ in connection with the exercise
and performance of its rights and its duties hereunder. The
Depositor agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for,
and does hereby indemnify, protect, save and keep harmless the
Owner Trustee and its officers, directors, agents and servants,
from and against any and all liabilities, obligations, losses,
damages, penalties, taxes (excluding any taxes payable by the
Owner Trustee on or measured by any compensation received by the
Owner Trustee for its services hereunder) claims, actions, suits,
costs, expenses or disbursements (including legal fees and
expenses) of any kind and nature whatsoever (collectively,
"Expenses") which may be imposed on, incurred by or asserted
against the Owner Trustee in any way relating to or arising out of
the formation, operation, or termination of the Trust, the
execution, delivery and performance of the Program Documents or
the action or inaction of the Owner Trustee hereunder or
thereunder, except for Expenses resulting from the willful
misconduct or gross negligence of the Owner Trustee. The
indemnities contained herein shall survive the termination of this
Agreement or the Trust. In addition the Owner Trustee shall be
entitled to indemnification from the Owner Trust Estate to the
extent set forth above and to secure the same the Owner Trustee
shall have a lien against the Owner Trust Estate which shall be
subject to the lien of the Collateral Trustee but prior to the
rights of the Depositor to receive payments from the Owner Trust
Estate. To the extent that any payment pursuant to this Section
7.9 gives rise to a deduction for income tax purposes, such
deduction shall be allocated solely to the Depositor.
1. SECTION Replacement of Owner Trustee . The
Owner Trustee may resign at any time and be discharged from the
trusts hereby created by giving 30 days' prior written notice
thereof to the Administrator, the Administrative Agent and the
Owner Trust Certificateholder. For a period of 20 days following
such resignation the Owner Trust Certificateholder, with the
consent of the Majority Lenders, shall have the exclusive right to
appoint a successor Owner Trustee and thereafter, the
Administrator shall have such right. The Administrator or the
Owner Trust Certificateholder shall remove the Owner Trustee if:
2.
a) the Owner Trustee shall cease to be eligible
in accordance with the provisions of Section 7.13 and shall fail
to resign after written request therefor by the Administrator;
a) the Owner Trustee shall be adjudged bankrupt
or insolvent;
a) a receiver or other public officer shall be
appointed or take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation; or
a) the Owner Trustee shall otherwise be incapable
of acting.
1. Upon the resignation or removal of the Owner
Trustee in accordance with paragraph (a) above, either the Owner
Trust Certificateholder, with the consent of the Majority Lenders,
or the Administrator, as provided in subsection (a) above, shall
appoint a successor Owner Trustee by delivering a written
instrument, in duplicate (one copy of which instrument shall be
delivered to the outgoing Owner Trustee so removed and one copy to
the successor Owner Trustee) and shall pay all fees owed to the
outgoing Owner Trustee. If no successor Owner Trustee shall have
been appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning or removed
Owner Trustee may petition any court of competent jurisdiction for
the appointment of a successor Owner Trustee.
2.
3. Any resignation or removal of the Owner Trustee
and appointment of a successor Owner Trustee pursuant to any of
the provisions of this Section 7.10 shall not become effective
until a written acceptance of appointment is delivered by the
successor Owner Trustee to the outgoing Owner Trustee and the
Administrator and all fees and expenses due to the outgoing Owner
Trustee are paid. Any successor Owner Trustee appointed pursuant
to this Section 7.10 shall be eligible to act in such capacity in
accordance with Section 7.13 and, following compliance with the
preceding sentence, shall become fully vested with all of the
rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner
Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating
Agencies, the Administrative Agent and the Owner Trust
Certificateholder .
4.
5. The predecessor Owner Trustee shall upon payment
of its fees and expenses deliver to the successor Owner Trustee
all documents and statements and monies held by it under this
Agreement. The Administrator and the predecessor Owner Trustee
shall execute and deliver such instruments and do such other
things as may reasonably be required for fully and certainly
vesting and confirming in the successor Owner Trustee all such
rights, powers, duties and obligations.
6.
7. Upon acceptance of appointment by a successor
Owner Trustee pursuant to this Section 7.10, the Administrator
shall mail notice of the successor of such Owner Trustee to the
Owner Trust Certificateholder, the Administrative Agent and the
Rating Agencies.
8.
9. No Owner Trustee shall be personally liable for
any action or omission of any successor Owner Trustee.
10.
B. SECTION Merger or Consolidation of Owner Trustee
. Any corporation into which the Owner Trustee may be merged or
converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which
the Owner Trustee shall be a party, or any corporation succeeding
to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to
Section 7.13, and without the execution or filing of any
instrument or any further act on the part of any of the parties
hereto; provided, however, that the Owner Trustee shall mail
notice of such merger or consolidation to the Administrator, the
Administrative Agent, the Rating Agencies and the Owner Trust
Certificateholder.
C.
1. SECTION Appointment of Co-Trustee or Separate
Trustee . Notwithstanding any other provisions of this
Agreement, at any time, for the purpose of meeting any legal
requirement of any jurisdiction in which any part of the Owner
Trust Estate may at the time be located, the Administrator and the
Owner Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons
approved by the Owner Trustee to act as co-trustee, jointly with
the Owner Trustee, or as separate trustee or trustees, of all or
any part of the Owner Trust Estate, and to vest in such Person, in
such capacity, such title to the Owner Trust, or any part thereof,
and, subject to the other provisions of this Section 7.12, such
powers, duties, obligations, rights and trusts as the
Administrator and the Owner Trustee may consider necessary or
desirable. If the Administrator shall not have joined in such
appointment within 15 days after the receipt by it of a request so
to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this
Agreement shall be required to meet the terms of eligibility as a
successor trustee pursuant to Section 7.13 and no notice of the
appointment of any co-trustee or separate trustee shall be
required pursuant to Section 7.10.
2.
3. Each separate trustee and co-trustee shall, to
the extent permitted by law, be appointed and act subject to the
following provisions and conditions:
4.
a) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be conferred
upon and exercised or performed by the Owner Trustee and such
separate trustee or co-trustee jointly (it being understood that
such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except
to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, the Owner Trustee
shall be incompetent or unqualified to perform such act or acts,
in which event such rights, powers, duties and obligations
(including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but
solely at the direction of the Owner Trustee;
a) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any other
trustee under this Agreement; and
a) the Administrator and the Owner Trustee acting
jointly may at any time accept the resignation of or remove any
separate trustee or co-trustee.
1. Any notice, request or other writing given to the
Owner Trustee shall be deemed to have been given to each of the
then separate trustees and co-trustees, as effectively as if given
to each of them. Every instrument appointing any separate trustee
or co-trustee shall refer to this Agreement and the conditions of
this Article VII. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the
estates or property specified in its instrument of appointment,
either jointly with the Owner Trustee or separately, as may be
provided therein, subject to all of the provisions of this
Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of
or affording protection to the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy
thereof given to the Administrator.
2.
3. Any separate trustee or co-trustee may at any
time appoint the Owner Trustee as its agent or attorney-in-fact
with full power and authority, to the extent not prohibited by
law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all
of its estates, properties, rights, remedies and trusts shall vest
in and be exercised by the Owner Trustee, to the extent permitted
by law, without the appointment of a new or successor trustee.
4.
5. SECTION Eligibility Requirements for Owner
Trustee . The Owner Trustee shall at all times: be a
corporation satisfying the provisions of Section 3807(a) of the
Business Trust Statute; (b) be authorized to exercise corporate
trust powers; (c) have a combined capital and surplus of at least
$50,000,000 and be subject to supervision or examination by
federal or state authorities and (d) be either Wilmington Trust
Company or be rated at least Baa3 by Moody's and its equivalent
rating by each other Rating Agency. If such corporation shall
publish reports of condition at least annually, pursuant to law or
the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section 7.13, the combined
capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Owner
Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.13, the Owner Trustee shall resign
immediately in the manner and with the effect specified in Section
7.10.
6.
7. SECTION 7.14 Enforcement of Facility Documents.
Subject to Section 4.1 hereof and at the direction of the
Administrator, the Owner Trustee may bring an action in the name
of the Owner Trust to protect, preserve and enforce the rights of
the Trust pursuant to any Facility Document to which the Trust is
a party. All action taken pursuant to this Section 7.14 shall be
covered by the compensation and indemnity provision of Section 7.9
hereof.
8.
II. ARTICLE [Reserved]
I. ARTICLE TERMINATION OF TRUST AGREEMENT
1. SECTION Termination of Trust Agreement . This
Agreement and the Owner Trust shall terminate and be of no further
force or effect on the earlier of: (i) the final distribution by
the Owner Trustee of all moneys or other property or proceeds of
the Owner Trust Estate in accordance with the terms of this
Agreement and the Facility Documents or (ii) at the time provided
in Section 9.2. Any money or other property held as part of the
Owner Trust Estate following such distribution shall be
distributed to the Owner Trust Certificateholder.
1. The bankruptcy, liquidation, dissolution,
termination, death or incapacity of the Owner Trust
Certificateholder Estate shall not (x) operate to terminate this
Agreement or the Owner Trust, or (y) entitle the Owner Trust
Certificateholder's legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Owner Trust or
Owner Trust Estate or (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.
2.
3. Except as provided in Section 9.1(a) and (b), the
Depositor shall not be entitled to revoke or terminate the Owner
Trust.
4.
5. Notice of any termination of the Owner Trust,
specifying the Distribution Date upon which the Owner Trust
Certificateholder shall surrender their Owner Trust Certificates
to the Owner Trustee for receipt of the final distribution thereon
and cancellation, shall be given by the Owner Trustee by a letter
to the Owner Trust Certificateholder mailed within five Business
days of receipt of notice of such termination from the
Administrator, given pursuant to Section 2.3(c)(iii) of the
Administration Agreement, stating: (i) the Distribution Date upon
or with respect to which final distribution in respect of the
Owner Trust Certificate shall be made upon presentation and
surrender of the Owner Trust Certificate at the office of the
Owner Trustee therein designated; (ii) the amount of any such
final distribution; and (iii) that the Record Date otherwise
applicable to such date is not applicable, distributions being
made only upon presentation and surrender of the Owner Trust
Certificate at the office of the Owner Trustee therein specified.
The Owner Trustee shall give such notice to the Owner Trust
Certificate Registrar (if other than the Owner Trustee) at the
time such notice is given to Owner Trust Certificateholder. Upon
presentation and surrender of the Owner Trust Certificate, the
Owner Trust shall distribute to Owner Trust Certificateholders
amounts distribute on such Distribution Date pursuant to Article
V.
6.
7. Upon the winding up of the Owner Trust and its
termination, the Owner Trustee shall cause the Certificate of
Trust to be cancelled by filing a certificate of cancellation with
the Secretary of State in accordance with the provisions of
Section 3810 of the Business Trust Statute and thereupon the Owner
Trust and this Agreement shall terminate.
8.
II. ARTICLE AMENDMENTS
A. SECTION Amendments without consent of, Owner
Trust Certificateholder . Subject to Sections 7.7 and 10.1 of the
Liquidity Agreement, this Agreement may be amended by the
Depositor and the Owner Trustee with prior notice to each of the
Rating Agencies, to (i) cure any ambiguity, (ii) correct or
supplement any provision in this Agreement that may be defective
or inconsistent with any other provision in this Agreement, (iii)
add to the covenants, restrictions or obligations of the Depositor
or the Owner Trustee, (iv) evidence and provide for the acceptance
of the appointment of a successor trustee with respect to the
Owner Trust Estate and add to or change any provisions as shall be
necessary to facilitate the administration of the trusts hereunder
by more than one trustee pursuant to Article VII and (v) add,
change or eliminate any other provision of this Agreement in any
manner that shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of the
Secured Parties. The Owner Trustee shall furnish notice to the
Rating Agencies of any amendment under this Section 10.1.
A. SECTION Amendments with consent of, Owner Trust
Certificateholder . This Agreement may be amended by the Depos
itor and the Owner Trustee from time to time, upon (a) the prior
written consent of the Owner Trust Certificateholder and (b)
receipt by the Owner Trustee of any consent to such amendment
required by Sections 7.7 and 10.1 of the Liquidity Agreement, for
the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement. The Owner
Trustee shall furnish notice to each of the Rating Agencies prior
to obtaining consent to any proposed amendment under this Section
10.2.
B.
C. SECTION Withdrawal or Downgrading of Rating . No
amendment to any provision of this Agreement shall be made if such
amendment would result in the downgrading or withdrawal of the
rating assigned to the Commercial Paper Notes.
D.
1. Promptly after the execution of any amendment to
the Certificate of Trust, the Owner Trustee shall cause the filing
of such amendment with the Secretary of State of Delaware.
2.
3. Prior to the execution of any amendment to this
Agreement or the Certificate of Trust, the Owner Trustee shall be
entitled to receive and rely upon an Opinion of Counsel stating
that the execution of such amendment is authorized or permitted by
this Agreement. The Owner Trustee may, but shall not be obligated
to, enter into any such amendment that affects the Owner Trustee's
own rights, duties or immunities under this Agreement or
otherwise.
4.
E. SECTION Amendments to Other Facility Documents .
The Owner Trustee hereby covenants and agrees not to amend or
waive or request any amendment or waiver of any provision of any
Facility Document unless any consent to such amendment or waiver
required by Section 7.7(b) or (c) of the Liquidity Agreement shall
have been duly obtained.
F.
G.
II. ARTICLE MISCELLANEOUS
A. SECTION No Legal Title to Owner Trust Estate .
The Owner Trust Certificateholder shall not have legal title to
any part of the Owner Trust Estate. The Owner Trust
Certificateholder shall be entitled to receive distributions with
respect to its undivided ownership interest therein only in
accordance with Article V.
A. SECTION Limitations on Rights of Others . Except
as otherwise provided in Section 2.7, the provisions of this
Agreement are solely for the benefit of the Owner Trustee, the
Depositor, the Owner Trust Certificateholder and the
Administrator, and nothing in this Agreement, whether express or
implied, shall be construed to give to any other Person any legal
or equitable right, remedy or claim in the Owner Trust Estate or
under or in respect of this Agreement or any covenants, conditions
or provisions contained herein.
B.
1. SECTION Notices . All demands, notices and
communications upon or to the Depositor, the Administrator, the
Owner Trustee or the Rating Agencies under this Agreement shall be
in writing, personally delivered, sent by electronic facsimile
(with hard copy to follow via first class mail) or mailed by
certified mail-return receipt requested, and shall be deemed to
have been duly given upon receipt (i) in the case of the
Depositor, at the following address: 600 South Highway 169,
Suite 1800, St. Louis Park, Minnesota 55426 (ii) in the case of
the Administrator, at the following address: 600 South Highway
169, Suite 1800, St. Louis Park, Minnesota 55426; (iii) in the
case of the Owner Trust or the Owner Trustee, to the Owner Trustee
at its Corporate Trust Office; (iv) in the case of Moody's
Investors Service, Inc., at the following address: 99 Church
Street, New York, New York 10007, Attn: ABS Monitoring Department
and (v) in the case of S&P, at the following address: Standard &
Poor's Ratings Group, Asset Backed Surveillance, 25 Broadway, New
York, New York 10004; or at such other address as shall be
designated by such Person in a written notice to the other parties
to this Agreement.
2.
C. SECTION Severability . If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall
be for any reason whatsoever held invalid, then such covenants,
agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this
Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the
Owner Trust Certificate or the rights of the holders thereof.
D.
E. SECTION Counterparts . This Agreement may be
executed by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be an original, but all
such counterparts shall together constitute one and the same
instrument.
F.
G. SECTION Successors and Assigns . All covenants
and agreements contained herein shall be binding upon, and inure
to the benefit of, the Depositor, the Owner Trustee and the Owner
Trust Certificateholder and their respective successors and
permitted assigns, all as herein provided.
H.
I. SECTION No Petition Covenant . Notwithstanding
any prior termination of this Agreement, the Owner Trust (or the
Owner Trustee on behalf of the Owner Trust) shall not, prior to
the date which is one year and one day (i) after the payment in
full of the invested amounts of all Series, acquiesce, petition or
otherwise invoke or cause the Depositor or the Metris Master Trust
to invoke the process of any court or governmental authority for
the purpose of commencing (or sustaining) a case against the
Depositor or the Metris Master Trust under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Depositor, or the Metris Master Trust or
any substantial part of its property, or ordering the winding up
or liquidation of the affairs of the Depositor or the Metris
Master Trust or otherwise invoke or cause the Owner Trust to
invoke the process of any court or governmental authority for the
purpose of commencing (or sustaining) a case against the Owner
Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Owner
Trust or any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Owner Trust.
J.
K. SECTION Headings . The headings of the various
Articles and Sections herein are for convenience of reference only
and shall not define or limit any of the terms or provisions
hereof.
L.
M. SECTION Waiver of Jury Trial . THE PARTIES TO
THIS AGREEMENT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT AND FOR ANY COUNTERCLAIM HEREIN.
N.
O. SECTION Governing Law . THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
P.
Q. SECTION [Reserved]
R.
S. SECTION [Reserved]
T.
1. SECTION Non-recourse . Except to the extent
provided in Section 2.7 and 7.9, the Owner Trustee or any other
Person pursuant to the terms hereof, shall be without recourse to
the Depositor, the Administrator, the Owner Trustee or any
affiliate, officer or director of any of them, and, except to the
extent that the Owner Trust is required pursuant to Section 4.2 of
the Collateral Trust Agreement to pay to the Collateral Trustee
all amounts received in respect of the Collateral (as defined in
the Collateral Trust Agreement), the obligations of the Owner
Trust to make distributions or other payments hereunder shall be
limited solely to application of funds on deposit in the
Collateral Account in accordance with the terms thereof.
2.
U. SECTION Administrator. The Administrator is
authorized to execute on behalf of the Owner Trust all such
documents, reports, filings, instruments, certificates and
opinions as is shall be the duty of the Owner Trust to prepare,
file or deliver pursuant to the Facility Documents. Upon written
request, the Owner Trustee shall execute and deliver to the
Administrator a power of attorney appointing the Administrator the
agent and attorney-in-fact for the Owner Trust to execute all such
documents, reports, filings, instruments, certificates and
opinions.
V.
W.
IN WITNESS WHEREOF, the parties hereto have caused this Owner
Trust Agreement to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above
written.
WILMINGTON TRUST COMPANY,
as Owner Trustee
By:_________________________________
_______
Name:
Title:
METRIS RECEIVABLES, INC.,
as Depositor
By:_________________________________
_______
Name:
Title:
EXHIBIT A
to the
Owner Trust Agreement
METRIS OWNER TRUST
OWNER TRUST CERTIFICATE
$1,000,000
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THIS
CERTIFICATE (OR ANY INTEREST HEREIN) MAY NOT BE TRANSFERRED BY
THE OWNER TO ANY PERSON.
This OWNER TRUST CERTIFICATE evidences a fractional
undivided interest, aggregating the amount set forth above (as
such amount may be reduced from time to time in accordance with
the Owner Trust Agreement, as defined below) in the Owner Trust
(as defined below), the property of which includes certain assets
deposited in the Owner Trust by the Depositor (as defined below).
This Certificate does not represent an interest in or
obligation of Direct Merchants Credit Card Bank, National
Association, or any Affiliate thereof.
THIS CERTIFIES THAT METRIS RECEIVABLES, INC. is the
registered owner of a nonassessable, fully-paid, fractional
undivided interest in METRIS OWNER TRUST (the "Owner Trust"), a
Delaware business trust.
The Owner Trust was created pursuant to an Owner Trust
Agreement, dated as of July 30, 1998 (as it may be amended,
supplemented or otherwise modified from time to time, the "Owner
Trust Agreement"), between Metris Receivables, Inc., (the "Deposi
tor") and Wilmington Trust Company, not in its individual capaci
ty but solely as owner trustee (the "Owner Trustee). This
Certificate is issued pursuant to, and is subject to the terms,
provisions and conditions of the Owner Trust Agreement. Each
Owner Trust Certificateholder by its acceptance hereto, agrees to
be bound by the terms of the Owner Trust Agreement. To the
extent not otherwise defined herein, the capitalized terms used
herein have the meanings ascribed to them in the Owner Trust
Agreement.
Unless the certificate of authentication hereon shall
have been executed by an authorized officer of the Owner Trustee,
by manual signature, this Certificate shall not entitle the
Holder hereof to any benefit under the Owner Trust Agreement or
be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCOR
DANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the
Owner Trust and not in its individual capacity, has caused this
Certificate to be duly executed.
METRIS OWNER TRUST
By: WILMINGTON TRUST COMPANY
not in its individual capacity
but solely as Owner Trustee
Dated: By:
Title:
Exhibit B
OWNER TRUST CERTIFICATE OF TRUST OF
METRIS OWNER TRUST
CERTIFICATE OF TRUST OF
METRIS OWNER TRUST
THIS CERTIFICATE OF TRUST OF METRIS OWNER TRUST, (the
"Trust"), is being duly executed and filed by the undersigned, as
trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. Code, 3801 et seq.) (the "Act").
1. Name. The name of the business trust formed
hereby is Metris Owner Trust.
2. Trustee. The name and business address of the
trustee of the Trust in the State of Delaware is Wilmington Trust
Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.
3. Effective Date. This Certificate of Trust shall
be effective on July 30, 1998.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has duly executed this Certificate of Trust
pursuant to Section 3811(a) of the Act.
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee
under an Owner Trust
Agreement, dated as of July
30, 1998
By:
Name:
Title:
OWNER TRUST AGREEMENT
dated as of July 30, 1998
between
METRIS RECEIVABLES, INC.
as Depositor
and
WILMINGTON TRUST COMPANY
as Owner Trustee
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions 1
1.2 Other Definitional Provisions 5
ARTICLE II
ORGANIZATION
2.1 Name 5
2.2 Office 5
2.3 Purposes and Powers 5
2.4 Appointment of Owner Trustee 6
2.5 Initial Capital Contribution of Owner Trust Estate.
6
2.6 Organization of the Trust6
2.7 Liability of the Depositor. 6
2.8 Title to Trust Property 7
2.9 Situs of Trust 7
2.10 Representations and Warranties of the Depositor 7
2.11 Tax Treatment 8
ARTICLE III
THE OWNER TRUST CERTIFICATE
3.1 Initial Ownership.9
3.2 Form of Owner Trust Certificates.9
3.3 Authentication of Owner Trust Certificate. 9
3.4 Restrictions on Transfer. 9
3.5 Mutilated, Destroyed, Lost or Stolen Certificate.
9
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
4.1 Prior Notice to Owner Trust Certificateholder with
Respect to Certain
Matters 10
4.2 Action by Owner Trust Certificateholder with Respect to
Certain Matters 11
4.3 Action by Holders with Respect to Bankruptcy 11
4.4 Restrictions on Owner Trust Certificateholder's Power
11
ARTICLE V
[Reserved]
ARTICLE VI
[Reserved]
ARTICLE VII
THE OWNER TRUSTEE
7.1 Duties of Owner Trustee 11
7.2 Rights of Owner Trustee 12
7.3 Acceptance of Trusts and Duties 13
7.4 Action upon Instruction by Owner Trust
Certificateholder 14
7.5 Furnishing of Documents; Notices 15
7.6 Representations and Warranties of Owner Trustee 15
7.7 Reliance; Advice of Counsel 16
7.8 Owner Trustee May Own Notes 17
7.9 Compensation and Indemnity 17
7.10 Replacement of Owner Trustee 17
7.11 Merger or Consolidation of Owner Trustee 19
7.12 Appointment of Co-Trustee or Separate Trustee 19
7.13 Eligibility Requirements for Owner Trustee 20
7.14 Enforcement of Facility Documents.20
ARTICLE VIII
[Reserved]
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
9.1 Termination of Trust Agreement21
ARTICLE X
AMENDMENTS
10.1 Amendments without consent of, Owner Trust
Certificateholder 22
10.2 Amendments with consent of, Owner Trust
Certificateholder 22
10.3 Withdrawal or Downgrading of Rating 22
10.4 Amendments to Other Facility Documents 22
ARTICLE XI
MISCELLANEOUS
11.1 No Legal Title to Owner Trust Estate 23
11.2 Limitations on Rights of Others 23
11.3 Notices 23
11.4 Severability 23
11.5 Counterparts 23
11.6 Successors and Assigns 24
11.7 No Petition Covenant 24
11.8 Headings 24
11.9 Waiver of Jury Trial 24
11.10 Governing Law24
11.11 [Reserved] 24
11.12 [Reserved] 24
11.13 Non-recourse 24
11.14 Administrator 25
_______________________________
1FOOTER B CONTAINS FILENAME ONLY
LIQUIDITY AGREEMENT, dated as of July 30, 1998, among
METRIS OWNER TRUST, a Delaware business trust (the "Borrower"),
the several banks and other financial institutions parties to
this Agreement (each, a "Lender") and THE CHASE MANHATTAN BANK, a
New York banking corporation, as administrative agent for the
Lenders.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"ABR" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to
the greatest of (a) the Prime Rate in effect on such day, (b) the
Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest
per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal
office in New York City (the Prime Rate not being intended to be
the lowest rate of interest charged by the Administrative Agent
in connection with extensions of credit to debtors); "Base CD
Rate" shall mean the sum of (a) the product of (i) the Three-
Month Secondary CD Rate and (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; "Three-Month
Secondary CD Rate" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in
effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board,
be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not
be so reported on such day or such next preceding Business Day,
the average of the secondary market quotations for three-month
certificates of deposit of major money center banks in New York
City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Administrative Agent from
three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; and "Federal Funds Effective
Rate" shall mean, for any day, the weighted average of the rates
on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of
recognized standing selected by it. If for any reason the
Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds Effective Rate,
or both, for any reason, including the inability or failure of
the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the ABR shall be determined
without regard to clause (b) or (c), or both, of the first
sentence of this definition, as appropriate, until the
circumstances giving rise to such inability no longer exist. Any
change in the ABR due to a change in the Prime Rate, the Three-
Month Secondary CD Rate or the Federal Funds Effective Rate shall
be effective as of the opening of business on the effective day
of such change in the Prime Rate, the Three-Month Secondary CD
Rate or the Federal Funds Effective Rate, as the case may be.
"ABR Interest Payment Date" shall have the meaning set
forth in Section 2.13(b).
"ABR Loans" shall mean Loans the rate of interest
applicable to which is based upon the ABR.
"Addendum" shall mean an addendum to this Agreement,
substantially in the form of Exhibit B.
"Administration Agreement" shall mean the
Administration Agreement, substantially in the form of Exhibit C
to this Agreement, between the Borrower and the Administrator, as
the same may from time to time be amended, supplemented or
modified.
"Administrative Agent" shall mean The Chase Manhattan
Bank, together with its affiliates, as the arranger of the
Commitments and as the agent for the Lenders under this
Agreement, and any successor or assign in such capacity appointed
pursuant to Section 9.9.
"Administrator" shall mean Metris, in its capacity as
Administrator under the Administration Agreement, and any
successor or assign in such capacity.
"Administrator Termination Event" shall have the
meaning set forth in Section 6(c) of the Administration
Agreement.
"Aggregate Available Commitments" shall mean, at any
time, the aggregate amount of the Available Commitments at such
time.
"Aggregate Commitment" shall mean at any time, the sum
of the Commitments at such time of all Lenders (other than, after
its Expiry Date, any Non-Extending Lender).
"Aggregate Principal Receivables" shall have the
meaning set forth in Section 1.1 of the Metris Pooling and
Servicing Agreement.
"Agreement" shall mean this Liquidity Agreement, as the
same may from time to time be amended, supplemented or otherwise
modified.
"Applicable Margin" shall mean, with respect to any
LIBOR Loan, (a) on any date when the aggregate principal amount
of the Loans (other than Non-Pro Rata Reserve Account Loans)
outstanding is less than or equal to 50% of the Aggregate
Commitment, a rate per annum equal to 0.4250% and (b) on any date
(i) when the aggregate principal amount of the Loans (other than
Non-Pro Rata Reserve Account Loans) outstanding is greater than
50% of the Aggregate Commitment or (ii) on or after the
Expiration Date, a rate per annum equal to 0.5500%.
"Assignment and Acceptance" shall have the meaning set
forth in Section 10.6(c).
"Available Commitment" shall mean, as to any Lender at
any time, an amount equal to the excess, if any, of (a) the
amount of such Lender's Commitment over (b) the aggregate
principal amount of all Loans made by such Lender then
outstanding.
"Basic Documents" shall mean the Series 1998-1
Supplement, the Metris Pooling and Servicing Agreement, the
Master Trust Purchase Agreement and the Series 1998-1 Securities.
"Benefitted Lender" shall have the meaning set forth in
Section 10.7.
"Board" shall mean the Board of Governors of the
Federal Reserve System (or any successor thereto).
"Borrower" shall have the meaning set forth in the
preamble.
"Borrowing" shall mean the incurrence of Loans of a
single Type on a single date and, for LIBOR Loans, as to which a
single Interest Period is in effect.
"Borrowing Base" shall mean, on any Business Day, the
sum of (a) the Series 1998-1 Class A Invested Amount and (b) the
excess, if any, of (i) the amount payable to the Series 1998-1
Class A Securityholder pursuant to clause (A) of Section
4.9(a)(i) of the Series 1998-1 Supplement on such Business Day
and on each prior Business Day over (ii) the amount which has
been paid to the Series 1998-1 Class A Securityholder with
respect thereto on such Business Day and on each prior Business
Day.
"Borrowing Date" shall mean any Business Day specified
in a notice complying with the requirements of Section 2.3, 2.6
or 2.7(b) as a date on which the Borrower requests the Lenders to
make Loans.
"Business Day" shall mean any day other than a
Saturday, a Sunday or any other day on which commercial banks in
New York City or Wilmington, Delaware are authorized or required
by law to close; provided, however, that for purposes of any
provision hereof relating to LIBOR Loans, "Business Day" shall
mean any such day on which banks in London, New York and
Wilmington, Delaware are open for the transaction of
international business.
"C/D Assessment Rate" shall mean for any day as applied
to any ABR Loan, the annual assessment rate in effect on such day
which is payable by a member of the Bank Insurance Fund
classified as well-capitalized and within supervisory subgroup
"B" (or a comparable successor assessment risk classification)
within the meaning of 12 C.F.R. 327.3(d) (or any successor
provision) to the Federal Deposit Insurance Corporation (or any
successor) for such Corporation's (or such successor's) insuring
time deposits at offices of such institution in the United
States.
"C/D Reserve Percentage" shall mean for any day as
applied to any ABR Loan, that percentage (expressed as a decimal)
which is in effect on such day, as prescribed by the Board, for
determining the maximum reserve requirement for a Depositary
Institution (as defined in Regulation D of the Board) in respect
of new non-personal time deposits in Dollars having a maturity of
30 days or more.
"Class A Percentage" shall mean, on any date, the
quotient (expressed as a percentage) of (a) the Class A Invested
Amount (as defined in the Series 1998-1 Supplement) and (b) the
Invested Amount (as defined in the Series 1998-1 Supplement).
"Closing Date" shall have the meaning set forth in
Section 5.1, which date is July 30, 1998.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall have the meaning set forth in
Section 4.1 of the Collateral Trust Agreement.
"Collateral Account" shall have the meaning set forth
in Section 5.1 of the Collateral Trust Agreement.
"Collateral Trust Agreement" shall mean the Collateral
Trust Agreement, dated as of July 30, 1998, between the Borrower
and the Collateral Trustee, substantially in the form of Exhibit
D, as the same may from time to time be amended, supplemented or
otherwise modified.
"Collateral Trustee" shall mean US Bank Trust National
Association, not in its individual capacity but solely as
Collateral Trustee under the Collateral Trust Agreement and its
successors and assigns in such capacity.
"Commercial Paper" or "Commercial Paper Notes" shall
mean any note issued or to be issued by the Borrower pursuant to
the Depositary Agreement.
"Commercial Paper Account" shall have the meaning set
forth in Section 2 of the Depositary Agreement.
"Commercial Paper Agreement" shall mean each agreement
between a Commercial Paper Dealer and the Borrower providing for
the placement of Commercial Paper Notes, in each case in form and
substance reasonably satisfactory to the Administrative Agent, as
the same may from time to time be amended, supplemented or
otherwise modified.
"Commercial Paper Dealer" shall mean, initially, each
of Merrill Lynch Money Markets Inc. and NationsBanc Montgomery
Securities LLC, and thereafter each Person appointed by the
Borrower, with the consent of the Depositary, as its commercial
paper dealer.
"Commercial Paper Deficit" shall have the meaning set
forth in Section 2.7(a).
"Commercial Paper Memorandum" shall mean any
information memorandum, credit report or offering memorandum
prepared for use by any Commercial Paper Dealer in connection
with the offer and sale of the Commercial Paper Notes, as the
same may be amended, supplemented or otherwise modified from time
to time.
"Commitment" shall mean, with respect to any Lender,
the obligation of such Lender to make Loans to the Borrower
hereunder in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such
Lender's name on Schedule I, as such amount may be increased or
reduced from time to time in accordance with the terms hereof.
"Commitment Percentage" shall mean, as to any Lender at
any time, the percentage which such Lender's Commitment then
constitutes of the Aggregate Commitment (or, at any time after
the Commitments have expired or terminated, the percentage which
the aggregate principal amount of such Lender's Loans then
outstanding constitutes of the aggregate principal amount of the
Loans then outstanding).
"Commonly Controlled Entity" shall mean an entity,
whether or not incorporated, which is under common control with
the Borrower within the meaning of Section 4001 of ERISA or is
part of a group that includes the Borrower and which is treated
as a single employer under Section 414 of the Code.
"Contractual Obligation" shall mean, as to any Person,
any provision of any security issued by such Person or of any
agreement, instrument or undertaking to which such Person is a
party or by which it or any of its property is bound.
"CP Advances" shall have the meaning set forth in
Section 2(b) of the Depositary Agreement.
"Credits Outstanding" means, as of the close of
business on any day, (a) the Principal Component of all
outstanding Commercial Paper, plus (b) the aggregate principal
amount of outstanding Loans and outstanding 364-Day Liquidity
Loans, minus (c) all funds then on deposit in the Principal
Subaccount, the Reserve Account and the Non-Pro Rata Funding
Account, except to the extent that such funds are then subject to
any writ, order, stay, judgment, warrant of attachment or
execution or similar process.
"Credit Utilization" shall mean the issuance by the
Borrower of Commercial Paper or the making of a Revolving Loan by
any Lender or the making of any Non-Pro Rata Reserve Account Loan
by any Lender (other than (a) the initial Non-Pro Rata Reserve
Account Loans of such Lender and (b) any continuation or
conversion of a Loan pursuant to Section 2.11).
"Default" shall mean any of the events specified in
Section 8 hereof, whether or not any requirement for the giving
of notice, the lapse of time, or both, or any other condition,
has been satisfied.
"Depositary" shall mean US Bank, N.A., in its capacity
as Depositary under the Depositary Agreement, and its successors
and assigns in such capacity.
"Depositary Agreement" shall mean the Depositary
Agreement between the Borrower and the Depositary, and
substantially in the form of Exhibit E and any replacement
Depositary Agreement in form and substance reasonably
satisfactory to the Administrative Agent, in each case as the
same may from time to time be amended, supplemented or otherwise
modified.
"Deposited Funds" shall have the meaning set forth in
Section 5.2 of the Collateral Trust Agreement.
"Determination Date" shall have the meaning set forth
in Section 1.1 of the Metris Pooling and Servicing Agreement.
"Distribution Date" shall have the meaning set forth in
Section 2 of the Series 1998-1 Supplement.
"DMCCB" shall mean Direct Merchants Credit Card Bank,
N.A.
"Dollars" or "$" shall mean lawful currency of the
United States of America.
"Downgraded Lender" shall mean (a) any Lender that has
its commercial paper or short-term deposit rating lowered below A-
1 by S&P, P-1 by Moody's or the equivalent rating by any other
Rating Agency, or withdrawn by any Rating Agency, and (b) any
Lender as to which any Rating Agency has publicly announced that
it has placed such rating under review with negative
implications.
"Eligible Assignee" shall mean a Person with commercial
paper or short-term deposit ratings from S&P, Moody's and any
other Rating Agency which, on the effective date of the proposed
assignment, are equal to or higher than those of the ratings
assigned by such Rating Agencies to the Commercial Paper.
"Equity Securities" shall mean any and all shares,
interests, participations or other equivalents (however
designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a
corporation), including, without limitation, any partnership
interest in any partnership or equity interest in any business
trust, and any and all warrants or options to purchase any of the
foregoing.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as the same may from time to time be
amended or supplemented.
"Eurocurrency Reserve Requirements" shall mean, for any
day as applied to a LIBOR Loan, the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves
under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
"Event of Default" shall mean any of the events
specified in Section 8; provided, that any requirement for the
giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Excluded Downgraded Lender" shall mean any Downgraded
Lender which either (a) has its commercial paper or short-term
deposit rating lowered below A-1 by S&P, P-1 by Moody's, or the
equivalent rating by any other Rating Agency, and such Rating
Agency has publicly announced that it has placed such rating
under review with negative implications, or (b) has its
commercial paper or short-term deposit rating lowered below A-2
by S&P, P-2 by Moody's, or the equivalent rating by any other
Rating Agency, or withdrawn by any Rating Agency.
"Exit Percentage" shall mean, with respect to any Non-
Extending Lender, the percentage equivalent of a fraction, the
numerator of which is the Commitment of such Non-Extending Lender
and the denominator of which is the sum of the Commitments of all
Non-Extending Lenders that have the same Expiry Date as such Non-
Extending Lender.
"Expiration Date" shall mean the later of (a) the date
that is three years after the Closing Date and (b) the last day
of any extension of the Expiration Date pursuant to Section 2.22,
or, if such day is not a Business Day, the next preceding
Business Day, provided, however, that the Expiration Date shall
be deemed to have occurred on any earlier date on which the
Commitments are terminated pursuant to Section 2.10 or 8.
"Expiry Date" shall mean, with respect to any Lender,
the later of (a) the date that is three years after the Closing
Date and (b) the last day of any extension of any Lender's
Commitment pursuant to Section 2.22, or if such last day is not a
Business Day, the next preceding Business Day, provided, however,
that the Expiry Date of such Lender shall be deemed to have
occurred on any earlier date on which the Commitments are
terminated pursuant to Section 2.10 or 8.
"Extending Lender" shall mean a Lender other than a Non-
Extending Lender.
"Face Amount" shall mean, with respect to any
Commercial Paper Note, (a) if issued on a discount basis, the
face amount thereof, or (b) if issued on an interest-bearing
basis, the principal amount thereof, together with the aggregate
amount of interest thereon to its stated maturity date (in each
case including, in any event, Commercial Paper Dealer fees
payable in connection with the issuance of such Commercial Paper
Note).
"Facility Documents" shall mean the collective
reference to the Basic Documents and the Program Documents.
"Facility Fee" shall have the meaning set forth in
Section 2.9.
"Facility Percentage" shall mean, at any time, the
quotient (expressed as a percentage) of (a) the Aggregate
Available Commitments at such time divided by (b) the sum of the
Aggregate Available Commitments at such time and the 364-Day
Aggregate Available Commitments at such time.
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time to
time.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof, and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"Guarantee" of or by any Person shall mean, without
duplication, any obligation, contingent or otherwise, of such
Person guaranteeing or having the economic effect of guaranteeing
any Indebtedness of any other Person (the "primary obligor") (or
any other obligation of a primary obligor if the anticipated
liability of such guarantor shall have been reserved against in
the financial statements of such guarantor or quantified in the
notes thereto), including third party mortgages or third party
security interests, in any manner, whether directly or
indirectly, and including any obligation of such Person, direct
or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or other
obligation or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Indebtedness or
other obligation, (b) to purchase property, securities or
services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment of such
Indebtedness or other obligation or (c) to maintain working
capital, equity capital or other financial statement condition or
liquidity of the primary obligor for purposes of enabling the
primary obligor to pay such Indebtedness or other obligation;
provided, however, that the term Guarantee shall not include
endorsements for collection or deposit, in either case, in the
ordinary course of business.
"Indebtedness" shall mean, of any Person at any date,
(a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (other than trade
liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond,
debenture or similar instrument, (c) all obligations of such
Person under capitalized leases, (d) all obligations of such
Person in respect of acceptances issued or created for the
account of such Person and (e) all liabilities secured by any
Lien on any property owned by such Person even though such Person
has not assumed or otherwise become liable for the payment
thereof.
"Interest Accrual Period" shall have the meaning set
forth in Section 2 of the Series 1998-1 Supplement.
"Interest Component" shall mean, with respect to
Commercial Paper outstanding at any time, the sum of (a) the
portion of the Face Amount of outstanding Commercial Paper issued
on a discount basis representing the discount incurred in respect
thereof and (b) the amount of interest that would accrue from the
date of issuance to the date of maturity in respect of
outstanding Commercial Paper issued on an interest-bearing basis
(in each case including, in any event, Commercial Paper Dealer
fees payable in connection with the issuance of such Commercial
Paper).
"Interest Period" shall mean, with respect to any LIBOR
Loan:
(a) initially, the period commencing on the Borrowing
Date or conversion date, as the case may be, with respect to
such LIBOR Loan and ending one, two or three months
thereafter, as selected by the Borrower in its notice of
borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(b) thereafter, each period commencing on the last day
of the immediately preceding Interest Period applicable to
such LIBOR Loan and ending one, two or three months
thereafter, as selected by the Borrower by irrevocable
notice to the Administrative Agent not less than three
Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided, however, that the foregoing provisions relating to
Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a
day which is not a Business Day, that Interest Period shall
be extended to the next succeeding Business Day, unless the
result of such extension would be to carry such Interest
Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that would otherwise extend
beyond the Scheduled Termination Date shall end on the
Scheduled Termination Date, or if the Scheduled Termination
Date shall not be a Business Day, on the immediately
preceding Business Day;
(iii) if the Borrower shall fail to give notice that
it wishes a LIBOR Loan to be continued as such as provided
above in clause (b), it shall be deemed to have selected a
conversion of a LIBOR Loan into an ABR Loan (which
conversion shall occur automatically and without need for
compliance with the conditions for conversion set forth in
Section 2.11);
(iv) any Interest Period that begins on the last day
of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business
Day of a calendar month; and
(v) notwithstanding anything to the contrary in this
definition, any Interest Period that begins on a
Distribution Date shall end on a Distribution Date.
"Interest Reserve Subaccount" shall have the meaning
set forth in Section 5.1 of the Collateral Trust Agreement.
"Lender" shall have the meaning set forth in the
preamble.
"LIBOR Base Rate" shall mean, for any Interest Period,
the rate for deposits in Dollars for a period equal to such
Interest Period (commencing on the first day of the relevant
Interest Period) which appears on Page 3750 of the Dow Jones
screen as of 11:00 A.M., London time, on the LIBOR Determination
Date for such Interest Period. If such rate does not appear on
Page 3750 of the Dow Jones screen (or otherwise on such service),
the rate for such Interest Period will be determined on the basis
of the rates at which deposits in Dollars are offered by the
Reference Banks (as defined below) at approximately 11:00 A.M.,
London time, on such LIBOR Determination Date to prime banks in
the London interbank market for a period equal to such Interest
Period (commencing on the first day of such Interest Period) and
in an amount comparable to the amount of the relevant Borrowing.
The Administrative Agent will request the principal London office
of each of the Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for
such Interest Period will be the arithmetic mean of the
quotations. If fewer than two quotations are provided, the rate
for such Interest Period will be the arithmetic mean of the rates
quoted by major banks in New York City, selected by the
Administrative Agent, at approximately 11:00 A.M., New York City
time, on the first day of such Interest Period for loans in
United States dollars to leading European banks for a period
equal to such Interest Period (commencing on the first day of
such Interest Period) and in an amount comparable to the amount
of the relevant Borrowing. As used in this definition,
"Reference Banks" means four major banks in the London interbank
market selected by the Administrative Agent (with the consent of
the Borrower, which consent shall not be unreasonably withheld or
delayed).
"LIBOR Determination Date" shall mean the second
Business Day prior to the commencement of any Interest Period.
"LIBOR Loan" shall mean each Loan the rate of interest
applicable to which is based on a LIBOR Rate.
"LIBOR Rate" shall mean, with respect to each day
during each Interest Period pertaining to a LIBOR Loan, a rate
per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th of 1%):
LIBOR Base Rate
1.00 - Eurocurrency Reserve Requirements
"LIBOR Tranche" shall mean LIBOR Loans the Interest
Periods with respect to all of which begin on the same date and
end on the same later date (whether on not such LIBOR Loans shall
have been originally made on the same date).
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or
other), charge or other security interest, or any preference,
priority or other security agreement or preferential arrangement
of any kind or nature whatsoever (including, without limitation,
any conditional sale or other title retention agreement and any
capitalized lease having substantially the same economic effect
as any of the foregoing).
"Loans" shall have the meaning set forth in
Section 2.1.
"Majority Lenders" shall mean, at any time, Lenders
holding Voting Percentages that aggregate more than 50%.
"Master Trust Daily Report" shall have the meaning
given to the term "Daily Report" set forth in Section 1.1 of the
Metris Pooling and Servicing Agreement.
"Master Trust Investor Certificate" shall have the
meaning given to the term "Investor Certificate" set forth in
Section 1.1 of the Metris Pooling and Servicing Agreement.
"Master Trust Purchase Agreement" shall have the
meaning given to the term "Purchase Agreement" set forth in
Section 1.1 of the Metris Pooling and Servicing Agreement.
"Master Trust Servicer" shall mean DMCCB, in its
capacity as Servicer under the Metris Pooling and Servicing
Agreement, and any successor or assign in such capacity.
"Master Trust Servicer Default" shall have the meaning
given to the term "Servicer Default" set forth in Section 1.1 of
the Metris Pooling and Servicing Agreement.
"Master Trust Settlement Statement" shall have the
meaning given to the term "Settlement Statement" set forth in
Section 1.1 of the Metris Pooling and Servicing Agreement.
"Master Trust Trustee" shall mean The Bank of New York
(Delaware), not in its individual capacity but solely as trustee
of Metris Master Trust, and any successor or assign in such
capacity.
"Material Adverse Effect" shall mean a material adverse
effect on (a) the business, operations, property or condition
(financial or otherwise) of the Borrower, (b) the ability of the
Borrower to perform its obligations under this Agreement or the
other Program Documents, or (c) the validity or enforceability of
this Agreement or any of the other Facility Documents or the
rights or remedies of the Administrative Agent or the Lenders
hereunder or thereunder.
"Maximum Aggregate Commitment" shall mean $300,000,000
as such amount may be increased from time to time as provided in
Section 2.8 or reduced or terminated from time to time as
provided in Sections 2.5(j), 2.10, 2.22, 2.23 and 8.
"Metris" shall mean Metris Companies Inc., a Delaware
corporation.
"Metris Master Trust" shall mean the Metris Master
Trust created pursuant to the Metris Pooling and Servicing
Agreement.
"Metris Pooling and Servicing Agreement" shall mean the
Amended and Restated Pooling and Servicing Agreement, dated as of
July 30, 1998, among MRI, DMCCB and the Metris Master Trust
Trustee, as the same may from time to time be amended,
supplemented or otherwise modified; provided, however, that,
unless the context otherwise requires, the term "Metris Pooling
and Servicing Agreement" shall be deemed not to include any
Supplement (as defined in the Metris Pooling and Servicing
Agreement) other than the Series 1998-1 Supplement.
"Moody's" shall mean Moody's Investors Service, Inc. or
its successors.
"MRI" shall mean Metris Receivables, Inc., a Delaware
corporation, as Transferor under each of the Metris Pooling and
Servicing Agreement and the Series 1998-1 Supplement.
"Non-Consenting Lender" shall mean any Lender that has
not delivered a written consent in connection with a Specified
Consent Request within the time period specified for delivery of
such consent pursuant to the documentation governing such
Specified Consent Request.
"Non-Extending Lender" shall have the meaning set forth
in Section 2.4.
"Non-Pro Rata Funding Account" shall have the meaning
set forth in Section 5.1 of the Collateral Trust Agreement.
"Non-Pro Rata Reserve Account Loan" shall have the
meaning set forth in Section 2.5.
"Non-Pro Rata Revolving Loan" shall have the meaning
set forth in Section 2.4.
"Note" shall have the meaning set forth in Section
10.6(g).
"Obligations" shall have the meaning set forth in
Section 2 of the Collateral Trust Agreement.
"Owner Trust Agreement" means the Owner Trust
Agreement, dated as of July 30, 1998, between MRI and the Owner
Trustee, as the same may be amended, supplemented or otherwise
modified from time to time.
"Owner Trustee" shall mean Wilmington Trust Company,
not in its individual capacity but solely as trustee under the
Owner Trust Agreement, or any successor in such capacity.
"Participant" shall have the meaning set forth in
Section 10.6(b).
"PBGC" shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of
ERISA.
"Person" shall mean an individual, partnership,
corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority
or other entity of whatever nature.
"Plan" shall mean, at a particular time, any employee
benefit plan which is covered by ERISA and in respect of which
the Borrower or a Commonly Controlled Entity is (or, if such plan
were terminated at such time, would under Section 4069 of ERISA
be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Principal Component" shall mean, with respect to
Commercial Paper outstanding at any time, (a) the difference
between the Face Amount of outstanding Commercial Paper issued on
a discount basis and the Interest Component thereof, and (b) the
principal amount of outstanding Commercial Paper issued on an
interest-bearing basis.
"Principal Subaccount" shall have the meaning set forth
in Section 5.1 of the Collateral Trust Agreement.
"Program Documents" shall mean this Agreement, the
Notes, the Owner Trust Agreement, the Collateral Trust Agreement,
the Administration Agreement, the Commercial Paper Notes, any
Commercial Paper Agreement, the Series 1998-1 Class A Security
Purchase Agreement and the Depositary Agreement.
"Program Parties" shall mean the collective reference
to the Borrower, Metris Master Trust, MRI, the Administrator, the
Master Trust Servicer, Metris, the Master Trust Trustee, the
Collateral Trustee and the Owner Trustee.
"Purchasing Lender" shall have the meaning set forth in
Section 10.6(c).
"Rating Agency" shall mean S&P, Moody's and any other
rating agency rating the Commercial Paper at the request of the
Borrower.
"Refunding Loan" shall mean, with respect to any
Lender, any Loan made by such Lender in accordance with, and
under the circumstances described in, Section 2.7.
"Register" shall have the meaning set forth in Section
10.6(d).
"Regulation U" shall mean Regulation U of the Board, as
from time to time in effect.
"Remaining Commercial Paper Deficit" shall have the
meaning set forth in Section 2.7(a).
"Required Reserve Account Funded Amount" shall have the
meaning set forth in Section 2.5.
"Requirement of Law" shall mean, as to any Person, the
certificate of incorporation and by-laws or other organizational
or governing documents of such Person, and any law, treaty, rule
or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which such
Person or any of its property is subject.
"Reserve Account" shall have the meaning set forth in
Section 5.1 of the Collateral Trust Agreement.
"Reserve Account Pre-Funded Amount" shall have the
meaning set forth in Section 2.5(b).
"Responsible Officer" of any Person shall mean any
executive officer of such Person or the chief financial officer,
principal accounting officer, treasurer, assistant treasurer or
controller of such Person and any other officer or similar
official thereof responsible for the administration of the
obligations of such Person in respect of this Agreement or any
other Facility Document.
"Revolving Loan" shall mean, with respect to any
Lender, any Loan made by such Lender in accordance with, and
under the circumstances described in, Section 2.3.
"Revolving Period" shall have the meaning set forth in
Section 2 of the Series 1998-1 Supplement.
"S&P" shall mean Standard & Poor's Ratings Services, or
its successor.
"Scheduled Termination Date" shall mean the Scheduled
Series 1998-1 Termination Date, as such term is defined in
Section 2 of the Series 1998-1 Supplement.
"Secured Parties" shall have the meaning set forth in
Section 4.1 of the Collateral Trust Agreement.
"Securities Act" shall mean the United States
Securities Act of 1933, as amended from time to time.
"Series 1998-1 Amortization Period Commencement Date"
shall have the meaning given to the term "Amortization Period
Commencement Date" set forth in Section 2 of the 1998-1
Supplement.
"Series 1998-1 Class A Invested Amount" shall have the
meaning given to the term "Class A Invested Amount" set forth in
Section 2 of the Series 1998-1 Supplement.
"Series 1998-1 Class A Investor Charge-Offs" shall have
the meaning given to the term "Class A Investor Charge-Offs" set
forth in Section 2 of the Series 1998-1 Supplement.
"Series 1998-1 Class A Maximum Invested Amount" shall
have the meaning given to the term "Class A Maximum Invested
Amount" set forth in Section 2 of the Series 1998-1 Supplement.
"Series 1998-1 Class A Pay Down Period" shall have the
meaning given to the term "Class A Pay Down Period" set forth in
Section 8A of the Series 1998-1 Supplement.
"Series 1998-1 Class A Security" shall have the meaning
given to the term "Class A Security" set forth in Section 2 of
the Series 1998-1 Supplement.
"Series 1998-1 Class A Security Purchase Agreement"
shall mean the purchase agreement pursuant to which the Borrower
shall purchase the Series 1998-1 Class A Security.
"Series 1998-1 Pay Out Event" shall mean any "Series
1998-1 Pay Out Event" as defined in Section 2 of the Series 1998-
1 Supplement and any "Trust Pay Out Event" as defined in Section
1.1 of the Metris Pooling and Servicing Agreement.
"Series 1998-1 Securities" shall have the meaning set
forth in Section 1 of the Series 1998-1 Supplement.
"Series 1998-1 Supplement" shall mean the Series 1998-1
Supplement, dated as of July 30, 1998, to the Metris Pooling and
Servicing Agreement, as the same may from time to time be
amended, supplemented or otherwise modified.
"Specified Consent Request" shall mean any request made
by the Borrower for a consent pursuant to clause (i) of Section
7.7(b) which has not been approved in writing by the Majority
Lenders.
"364-Day Aggregate Available Commitments" shall mean
the "Aggregate Available Commitments", as such term is defined in
the 364-Day Liquidity Agreement.
"364-Day Liquidity Agreement" shall mean the 364-Day
Liquidity Agreement, dated as of July 30, 1998, among the
Borrower, the several banks and other financial institutions
parties thereto and The Chase Manhattan Bank, as administrative
agent, as the same may from time to time be amended, supplemented
or modified.
"364-Day Liquidity Commitment" shall mean any
"Commitment", as such term is defined in the 364-Day Liquidity
Agreement.
"364-Day Liquidity Loans" shall mean the "Loans", as
such term is defined in the 364-Day Liquidity Agreement.
"364-Day Maximum Aggregate Commitment" shall mean the
"Maximum Aggregate Commitment", as such term is defined in the
364-Day Liquidity Agreement.
"364-Day Non-Downgraded Aggregate Available
Commitments" shall mean the aggregate "Available Commitments" of
non-"Downgraded Lenders", as each such term is defined in the 364-
Day Liquidity Agreement.
"Transferee" shall have the meaning set forth in
Section 10.6(f).
"Type" shall mean, as to any Loan, its nature as an ABR
Loan or a LIBOR Loan.
"UCC" shall mean the Uniform Commercial Code, as in
effect in the relevant jurisdiction, as amended from time to
time.
"Unutilized Available Commitments" shall mean, at any
time, the Aggregate Available Commitments at such time minus the
Utilized Available Commitments at such time.
"Utilized Available Commitments" shall mean, at any
time, the Facility Percentage of the Face Amount of outstanding
Commercial Paper at such time.
"Voting Percentage" shall mean the percentage
equivalent of a fraction the numerator of which equals (a) in the
case of a Non-Extending Lender which has made a Non-Pro Rata
Revolving Loan, the outstanding principal amount of such Non-Pro
Rata Revolving Loan, (b) in the case of a Downgraded Lender, the
sum of the outstanding principal amount of any Non-Pro Rata
Reserve Account Loan made by such Downgraded Lender and the
outstanding principal amount of any Revolving Loans and Refunding
Loans of such Downgraded Lender, and (c) in the case of any other
Lender, such Lender's Commitment (or, at any time after the
Commitments have expired or terminated, the aggregate outstanding
principal amount of such Lender's Loans) and the denominator of
which equals the sum of the numerators used to calculate the
Voting Percentage for all Lenders (including Non-Extending
Lenders and Downgraded Lenders).
1.2 Other Definitional Provisions. (a) As used
herein and in the other Program Documents to which the Borrower
is a party, and in any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the
Borrower not defined in Section 1.1, and accounting terms partly
defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(b) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision
of this Agreement, and Section, Schedule and Exhibit references
are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall
be equally applicable to both the singular and plural forms of
such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitment. (a) Subject to the terms and
conditions hereof, each Lender agrees, severally and not jointly,
to make loans to the Borrower from time to time during the period
from the Closing Date to and including the Expiry Date of such
Lender's Commitment in an aggregate principal amount at any one
time outstanding not to exceed the amount of such Lender's
Commitment, which loans shall be Revolving Loans, Refunding
Loans, Non-Pro Rata Revolving Loans or Non-Pro Rata Reserve
Account Loans (collectively, "Loans"), as designated by the
Borrower in accordance with the terms hereof. During the period
from the Closing Date to the Expiry Date of any Commitment the
Borrower may use such Commitment by borrowing, prepaying the
Loans in whole or in part and, in the case of Revolving Loans and
Refunding Loans, reborrowing, all in accordance with the terms
and conditions hereof.
(b) The Revolving Loans may from time to time be (i)
LIBOR Loans or (ii) ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections
2.3 and 2.11. Any Revolving Loan made by a Lender that is
outstanding on such Lender's Expiry Date (unless such Expiry Date
shall also be the Expiration Date) shall be converted as of such
day to, and be treated for all purposes thereafter as, a Non-Pro
Rata Revolving Loan.
(c) The Refunding Loans shall be ABR Loans. The
Borrower shall pay each Refunding Loan in accordance with the
provisions of the Collateral Trust Agreement to the extent that
funds are available therefor; provided, however, that the final
maturity date of each Refunding Loan shall be the Scheduled
Termination Date. Refunding Loans may be converted to Revolving
Loans pursuant to Section 2.11(a).
(d) The Non-Pro Rata Revolving Loans and Non-Pro Rata
Reserve Account Loans may from time to time be (i) LIBOR Loans or
(ii) ABR Loans, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.6 and 2.11.
The Borrower shall pay each Non-Pro Rata Revolving Loan in
accordance with the provisions of the Collateral Trust Agreement
to the extent that funds are available therefor; provided,
however, that the final maturity date of each Non-Pro Rata
Revolving Loan shall be the Scheduled Termination Date. All or a
portion of each Non-Pro Rata Reserve Account Loan may be
converted to a Non-Pro Rata Revolving Loan in accordance with
Section 2.5(f).
(e) Each Refunding Loan, each Non-Pro Rata Revolving
Loan and the initial Non-Pro Rata Reserve Account Loan of each
Lender shall be made by the relevant Lender or Lenders
notwithstanding (i) any set-off, counterclaim or defense to
payment that any Lender may have against the Borrower or (ii)
except as set forth in Section 5.3, the occurrence of a Default
or Event of Default.
2.2 Evidence of Indebtedness. (a) The Borrower
hereby unconditionally promises to pay to each Lender on the
Scheduled Termination Date the unpaid principal amount of each
Loan made by such Lender. The Borrower hereby further agrees to
pay interest in immediately available funds at the office of the
Administrative Agent on the unpaid principal amount of such Loans
from time to time from the date hereof until payment in full
thereof at the rates per annum, and on the dates, set forth in
Section 2.13.
(b) Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness
of the Borrower to the appropriate lending office of such Lender
resulting from each Loan made by such lending office of such
Lender from time to time, including amounts of principal and
interest payable and paid to such lending office of such Lender
from time to time under this Agreement.
(c) The Administrative Agent shall maintain the
Register pursuant to Section 10.6(d), and a subaccount for each
Lender, in which Register and subaccounts (taken together) shall
be recorded (i) the amount of each Loan made hereunder, the Type
of each Loan made and the Interest Period applicable thereto,
(ii) the amount of any principal or interest due and payable or
to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each
Lender's share thereof.
(d) The entries made in the Register and accounts
maintained pursuant to paragraphs (b) and (c) of this Section 2.2
shall, to the extent permitted by applicable law, be prima facie
evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of
any Lender or the Administrative Agent to maintain such account,
such Register or such subaccount, as applicable, or any error
therein, shall not in any manner affect the obligation of the
Borrower to repay (with applicable interest) the Loans made to
the Borrower by such Lender in accordance with the terms of this
Agreement.
2.3 Procedure for Revolving Loan Borrowings.
Borrowings of Revolving Loans may be made on any Business Day.
When the Borrower wishes to borrow Revolving Loans, it shall give
the Administrative Agent (a) in the case of a Borrowing of ABR
Loans, irrevocable written or telephonic notice (confirmed in
writing) not later than 12:00 Noon (New York City time) on the
requested Borrowing Date, or (b) in the case of a Borrowing of
LIBOR Loans, irrevocable written notice not later than 12:00 Noon
(New York City time) three Business Days prior to the requested
Borrowing Date, in each case specifying (i) the requested
Borrowing Date, (ii) the amount to be borrowed, which shall be in
an aggregate principal amount equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof (in the case of LIBOR
Loans) or a whole multiple of $1,000,000 (in the case of ABR
Loans), (iii) that the Borrowing is to be of Revolving Loans and
whether the Borrowing is to be initially maintained as ABR Loans
or LIBOR Loans and (iv) in the case of LIBOR Loans, the length of
the Interest Period applicable thereto. Upon receipt of such
notice from the Borrower, the Administrative Agent shall promptly
notify each Lender thereof. Except as otherwise provided in
Sections 2.4 and 2.5 with respect to Non-Extending Lenders and
Downgraded Lenders, each Lender will make its Commitment
Percentage of all Revolving Loans requested to be made on any
Borrowing Date available to the Administrative Agent for the
account of the Borrower at the office of the Administrative Agent
specified in Section 10.2 prior to 2:00 P.M., New York City time
(in the case of ABR Loans), or 11:00 A.M., New York City time (in
the case of LIBOR Loans), in each case on the Borrowing Date
requested by the Borrower and in funds immediately available to
the Administrative Agent. Subject to satisfaction of the
applicable conditions set forth in Section 5.2, and except as
otherwise provided in Sections 2.4 and 2.5, the Administrative
Agent will make each Borrowing of Revolving Loans available to
the Borrower by directly depositing in the Collateral Account,
for application in accordance with the Collateral Trust Agreement
on the relevant Borrowing Date, the amounts made available to the
Administrative Agent by the Lenders and in like funds as received
by the Administrative Agent.
2.4 Non-Pro Rata Revolving Loans by Non-Extending
Lenders. Subject to the limitations imposed by Section 2.1, if
any Lender shall not have consented to the extension of its
Expiry Date pursuant to Section 2.22 (such Lender, a "Non-
Extending Lender"), unless the Borrower shall have replaced or
removed such Non-Extending Lender pursuant to Section 2.23 or
shall have reduced the Face Amount of outstanding Commercial
Paper to an amount less than or equal to the sum of (i) the
aggregate Available Commitments of the Extending Lenders
(including any replacement Lenders for Non-Extending Lenders) and
(ii) the 364-Day Aggregate Available Commitments, on the fifth
Business Day immediately preceding such Non-Extending Lender's
Expiry Date, the Borrower shall request such Non-Extending Lender
to make, and on such Expiry Date such Non-Extending Lender shall
make in accordance with the provisions hereof, a Loan (a "Non-Pro
Rata Revolving Loan") in an amount equal to the lesser of the (i)
Available Commitment of such Non-Extending Lender and (ii) the
product of (A) the Exit Percentage of such Non-Extending Lender
and (B) the positive difference of the Face Amount of outstanding
Commercial Paper minus the sum of (i) the aggregate Available
Commitments of the Extending Lenders (including any replacement
Lenders for Non-Extending Lenders) and (ii) the 364-Day Aggregate
Available Commitments; provided, however, that if the Borrower
shall have requested written confirmation from each of the Rating
Agencies that the failure to request such a Loan will not result
in the reduction or withdrawal of its then current rating, if
any, of the Commercial Paper, and if such written confirmation is
received by the Borrower prior to the fifth Business Day
immediately preceding such Non-Extending Lender's Expiry Date,
the Borrower shall not be obligated to request, and such Non-
Extending Lender shall not be obligated to make, such Loan. The
Borrower shall make any such request to the Rating Agencies at
least fifteen days prior to such fifth Business Day. Any failure
of any Rating Agency to respond to such request shall not be
deemed to constitute a confirmation of the type described above.
After such Borrowing or, if there is no such Borrowing, after
such Non-Extending Lender's Expiry Date, such Non-Extending
Lender shall have no further obligation under its Commitment to
make Loans. The proceeds of any such Non-Pro Rata Revolving Loan
shall be deposited in the Non-Pro Rata Funding Account and, in
accordance with Section 6(b) of the Depositary Agreement, shall
be applied, to the extent of such proceeds, by the Depositary,
prior to its application of any other funds then available to it,
to pay maturing Commercial Paper. The Borrower shall cause the
Administrator to use its best efforts to replace, on behalf of
the Borrower, a Non-Extending Lender which would be obligated to
make a Non-Pro Rata Revolving Loan prior to such Non-Extending
Lender's Expiry Date.
2.5 Non-Pro Rata Reserve Account Loans by Downgraded
Lenders. (a) On the 60th day (or if such day is not a Business
Day, the next succeeding Business Day) after any Lender becomes a
Downgraded Lender (or on such earlier day as may be necessary to
prevent a reduction in the ratings of the Commercial Paper), and
on each Business Day thereafter, the Borrower (i) unless the
Borrower shall have replaced such Downgraded Lender pursuant to
Section 2.23 or shall have reduced the Face Amount of outstanding
Commercial Paper to an amount less than or equal to the sum of
(i) the aggregate Available Commitments of all Lenders that are
not Downgraded Lenders (including any replacement Lenders for the
Downgraded Lenders) and (ii) the 364-Day Non-Downgraded Aggregate
Available Commitment, shall request such Downgraded Lender to
make, and if such request is made, such Downgraded Lender shall
make in accordance with the provisions hereof, a Loan (a "Non-Pro
Rata Reserve Account Loan") in an amount such that the aggregate
outstanding amount of such Downgraded Lender's Non-Pro Rata
Reserve Account Loans equals the lesser of (A) such Downgraded
Lender's Commitment Percentage of the Utilized Available
Commitment (such Downgraded Lender's "Required Reserve Account
Funded Amount") and (B) the excess, if any, of the Commitment of
such Downgraded Lender over the aggregate principal amount of
such Lender's Loans then outstanding and (ii) may request such
Downgraded Lender to make, and if such request is made, such
Downgraded Lender shall make, a Non-Pro Rata Reserve Account Loan
in an amount such that the aggregate outstanding amount of such
Downgraded Lender's Non-Pro Rata Reserve Account Loans equals the
lesser of (A) the Reserve Account Pre-Funded Amount notified to
such Downgraded Lender by the Borrower pursuant to paragraph (b)
of this Section and (B) the excess, if any, of the Commitment of
such Downgraded Lender over the aggregate principal amount of
such Lender's Loans then outstanding; provided, however, that the
Borrower shall request written confirmation from each of the
Rating Agencies that the failure to request Non-Pro Rata Reserve
Account Loans as provided in clauses (i) and (ii) of this
paragraph (a) will not result in the reduction or withdrawal of
its then current rating, if any, of the Commercial Paper, and if
such written confirmation is received by the Borrower prior to
such 60th day, the Borrower shall not request, and such
Downgraded Lender shall not be obligated to make, such Non-Pro
Rata Reserve Account Loans. The Borrower shall make such request
to the Rating Agencies at least fifteen days prior to such 60th
day. The Borrower shall cause the Administrator to use its best
efforts to replace, on behalf of the Borrower, any Downgraded
Lender.
(b) In accordance with the provisions of Section 2.6,
the Borrower may request that, on any Business Day, each
Downgraded Lender make a Non-Pro Rata Reserve Account Loan in an
amount such that the aggregate outstanding amount of such
Downgraded Lender's Non-Pro Rata Reserve Account Loans equals
such Downgraded Lender's Commitment Percentage of the Borrower's
good faith estimate of the maximum amount of the Utilized
Available Commitment for the 30-day period commencing on such
Business Day (such amount, including such Downgraded Lender's Non-
Pro Rata Reserve Account Loans made pursuant to Section
2.5(a)(i), being referred to herein as such Downgraded Lender's
"Reserve Account Pre-Funded Amount").
(c) The Borrower may increase the Utilized Available
Commitment as often as otherwise permitted hereunder and under
the other Program Documents so long as the Required Reserve
Account Funded Amount of each Downgraded Lender does not exceed
the Reserve Account Pre-Funded Amount of such Downgraded Lender.
(d) All proceeds of such Non-Pro Rata Reserve Account
Loans shall be remitted by the Administrative Agent to the
Collateral Trustee and deposited by the Collateral Trustee in the
Reserve Account.
(e) After any Downgraded Lender makes a Non-Pro Rata
Reserve Account Loan, (i) all Refunding Loans that such Lender
would otherwise have been required to make on or prior to its
Expiry Date (A) shall be made by withdrawing funds on deposit in
the Reserve Account with respect to such Downgraded Lender, (B)
will increase the Refunding Loans of such Downgraded Lender and
(C) will reduce the Non-Pro Rata Reserve Account Loan of such
Downgraded Lender by the amount so withdrawn, and (ii) any amount
which would have otherwise been applied to repay the principal
amount of any outstanding Refunding Loans of such Downgraded
Lender prior to such Downgraded Lender's Expiry Date or, if
earlier, the date the Commitments shall have been terminated
pursuant hereto, (A) will be deposited in the Reserve Account,
(B) will reduce the Refunding Loans of such Downgraded Lender and
(C) will increase the Non-Pro Rata Reserve Account Loan of such
Downgraded Lender by the amount so deposited.
(f) The Borrower shall instruct the Collateral Trustee
to withdraw the entire amount on deposit in the Reserve Account
with respect to any Downgraded Lender in accordance with Section
5.7 of the Collateral Trust Agreement and to pay such amount to
such Downgraded Lender as a repayment of the Non-Pro Rata Reserve
Account Loan of such Downgraded Lender on the Expiry Date of such
Downgraded Lender (unless such Downgraded Lender would be
required to make a Non-Pro Rata Revolving Loan pursuant to
Section 2.4, in which case, a portion of such amount equal to the
amount of such required Non-Pro Rata Revolving Loan shall be
deposited in the Non-Pro Rata Funding Account and be treated as a
Non-Pro Rata Revolving Loan hereunder) or, if earlier, the date
on which the Commitments are terminated pursuant hereto.
(g) If, on any Business Day, the amount on deposit in
the Reserve Account with respect to any Downgraded Lender exceeds
the greater of (i) the Reserve Account Pre-Funded Amount with
respect to such Downgraded Lender and (ii) the Required Reserve
Account Funded Amount with respect to such Downgraded Lender,
then the Borrower shall instruct the Collateral Trustee, in
accordance with Section 5.7 of the Collateral Trust Agreement, to
withdraw from the Reserve Account and pay to such Downgraded
Lender such excess as a repayment of the Non-Pro Rata Reserve
Account Loans of such Downgraded Lender.
(h) If the commercial paper or short term deposit
ratings of any Downgraded Lender are restored to or confirmed at
A-1 by S&P and P-1 by Moody's, then (i) the Borrower shall
instruct the Collateral Trustee to withdraw the entire amount on
deposit in the Reserve Account with respect to such Lender from
the Reserve Account in accordance with Section 5.7 of the
Collateral Trust Agreement and to pay such amount to such Lender
as repayment of its Non-Pro Rata Reserve Account Loans and (ii)
such Lender shall no longer be a Downgraded Lender hereunder.
(i) If, on any Business Day following the expiration
of the 60-day period (or any shorter period referred to in
Section 2.5(a)) occurring after any Lender became a Downgraded
Lender and before such Downgraded Lender has been replaced in
accordance with Section 2.23, such Downgraded Lender becomes an
Excluded Downgraded Lender, then the Borrower shall instruct the
Collateral Trustee to withdraw the entire amount on deposit in
the Reserve Account with respect to such Excluded Downgraded
Lender from the Reserve Account in accordance with Section 5.7 of
the Collateral Trust Agreement and to pay such amount to such
Excluded Downgraded Lender as a repayment of the Non-Pro Rata
Reserve Account Loan of such Excluded Downgraded Lender on such
Business Day (unless such Excluded Downgraded Lender would be
required to make a Non-Pro Rata Revolving Loan (assuming, for
purposes of this paragraph (i), that the Expiry Date of such
Excluded Downgraded Lender shall be deemed to occur on such
Business Day) pursuant to Section 2.4, in which case, a portion
of such amount equal to the amount of such required Non-Pro Rata
Revolving Loan shall (without any requirement for five Business
Days' advance notice as specified in Section 2.4) be deposited in
the Non-Pro Rata Funding Account and be treated as a Non-Pro Rata
Revolving Loan hereunder).
(j) The Borrower may at any time, and from time to
time, elect to make a non-pro rata reduction of the amount of the
Maximum Aggregate Commitment by making a pro rata reduction or
termination of the Commitments of the Downgraded Lenders which
are obligated to make Non-Pro Rata Reserve Account Loans. If the
Borrower shall make such election, the Borrower shall instruct
the Collateral Trustee to withdraw from the Reserve Account and
pay, and the Collateral Trustee shall withdraw from the Reserve
Account, in accordance with Section 5.7 of the Collateral Trust
Agreement, and pay, to each Downgraded Lender which has made Non-
Pro Rata Reserve Account Loans, as a repayment of the Non-Pro
Rata Reserve Account Loans of such Downgraded Lender, the amount
by which the amount on deposit in the Reserve Account with
respect to such Downgraded Lender exceeds the greater of (i) the
Reserve Account Pre-Funded Amount with respect to such Downgraded
Lender and (ii) the Required Reserve Account Funded Amount with
respect to such Downgraded Lender (in each case determined after
giving effect to such Commitment reduction), provided, however,
that in no event shall the amount remaining in the Reserve
Account with respect to such Downgraded Lender exceed the
Commitment of such Downgraded Lender as so reduced.
2.6 Procedures for Non-Pro Rata Revolving Loans and
Non-Pro Rata Reserve Account Loans. With respect to a Non-Pro
Rata Revolving Loan to be made by a Non-Extending Lender or a Non-
Pro Rata Reserve Account Loan to be made by a Downgraded Lender
pursuant to Section 2.4 or 2.5, the Borrower shall give the
Administrative Agent, (a) in the case of an ABR Loan, irrevocable
written or telephonic notice (confirmed in writing) not later
than 12:00 Noon (New York City time) on the requested Borrowing
Date or (b) in the case of a LIBOR Loan, irrevocable written
notice not later than 12:00 Noon (New York City time) three
Business Days prior to the requested Borrowing Date, in each case
specifying (i) the requested Borrowing Date, (ii) the name of the
Lender from which such Loan is being requested, (iii) the
principal amount of the Non-Pro Rata Revolving Loan or Non-Pro
Rata Reserve Account Loan to be made pursuant to Section 2.4 or
2.5, (iv) whether such Non-Pro Rata Revolving Loan or Non-Pro
Rata Reserve Account Loan is to be initially maintained as an ABR
Loan or a LIBOR Loan and (v) in the case of LIBOR Loans, the
length of the Interest Period applicable thereto. Upon receipt
of such notice from the Borrower, the Administrative Agent will
promptly notify such Non-Extending Lender or Downgraded Lender.
On the requested Borrowing Date, each such Non-Extending Lender
or Downgraded Lender will make the requested Non-Pro Rata
Revolving Loan or Non-Pro Rata Reserve Account Loan, as the case
may be, available to the Administrative Agent for the account of
the Borrower at the office of the Administrative Agent specified
in Section 10.2 in funds immediately available to the
Administrative Agent. The Administrative Agent will make each
Borrowing of Non-Pro Rata Revolving Loans and Non-Pro Rata
Reserve Account Loans available to the Borrower by directly
depositing in the Non-Pro Rata Funding Account and the Reserve
Account, respectively, the amounts so made available to the
Administrative Agent and in like funds as received by the
Administrative Agent.
2.7 Refunding Loans; Procedure for Refunding
Loan Borrowings. (a) If, on any Business Day that Commercial
Paper matures, the sum of (i) all amounts on deposit in the Non-
Pro Rata Funding Account and (ii) the aggregate net amount of
proceeds received by the Borrower from the issuance of additional
Commercial Paper is insufficient to repay in full the Face Amount
of all Commercial Paper maturing on such day (the excess of the
amount required to pay in full the Face Amount of all such
Commercial Paper maturing on such day over the net amount
obtained by the issuance of Commercial Paper on such day and the
amount of funds to be applied from the Non-Pro Rata Funding
Account on such day, a "Commercial Paper Deficit"), the Borrower
shall request (pursuant to Section 5.3(a)(iii)(B) of the
Collateral Trust Agreement) the Collateral Trustee to transfer on
such day funds to satisfy the Commercial Paper Deficit from the
Collateral Account to the Commercial Paper Account. The Facility
Percentage of the excess, if any, of the Commercial Paper Deficit
for any day over the aggregate amount to be applied to the
Commercial Paper Deficit from a transfer from the Collateral
Account on such day, is referred to herein as the "Remaining
Commercial Paper Deficit." If, on any Business Day that
Commercial Paper matures, a Remaining Commercial Paper Deficit
exists, each Lender shall, upon the request of the Borrower or
the Depositary, as the case may be, to the Administrative Agent
pursuant to paragraph (c) below, as attorney-in-fact for the
Borrower, and subject to the limitations imposed by Section 2.1,
make a Refunding Loan in an aggregate principal amount equal to
the product of such Lender's Commitment Percentage and the
Remaining Commercial Paper Deficit.
(b) Borrowings of Refunding Loans may be made on any
Business Day under the circumstances set forth in paragraph (a)
above; provided, that the Borrower or the Depositary, as attorney-
in-fact of the Borrower, shall give irrevocable written or
telephonic notice to the Administrative Agent (confirmed in
writing) prior to 12:30 P.M. (New York City time) on the
requested Borrowing Date, specifying (i) the requested Borrowing
Date, (ii) the amount to be borrowed and (iii) that the Borrowing
is to be of Refunding Loans. The Administrative Agent shall
promptly prior to 1:15 P.M. (New York City time) notify each
Lender of the receipt of such notice. Each Lender will make its
Commitment Percentage of each Borrowing of Refunding Loans
available to the Administrative Agent for the account of the
Borrower at the office of the Administrative Agent specified in
Section 10.2 in funds immediately available to the Administrative
Agent prior to 2:00 P.M. (New York City time) on the requested
Borrowing Date. Subject to satisfaction of the applicable
conditions set forth in Section 5.3, such Borrowing will then be
made available by the Administrative Agent to the Borrower by
directly depositing the amounts made available to the
Administrative Agent by the Lenders and in like funds as received
by the Administrative Agent in the Commercial Paper Account.
(c) If at any time (i) there are ten or more Lenders
with Commitments to make Loans hereunder and (ii) with respect to
any Borrowing of Refunding Loans, one or more Lenders fails to
fund its Commitment Percentage of the Refunding Loans to be
provided by the Lenders by 2:15 P.M., New York City time, on any
Business Day then, the Administrative Agent shall notify each of
the other Lenders which are committed to lend on such day not
later than 2:30 P.M., New York City time, on such Business Day
and each of such other Lenders shall, before 3:15 P.M., New York
City time, on such Business Day, make available to the
Administrative Agent at the office of the Administrative Agent
set forth in Section 10.2, in immediately available funds, a
Refunding Loan in a principal amount equal to the lesser of (A)
such unfunded amount multiplied by a fraction, the numerator of
which is the Commitment of such Lender and the denominator of
which is the aggregate Commitments with respect to the Lenders
committed to lend on such day (less the Commitments of the non-
performing Lenders) and (B) the Available Commitment of such
Lender. After the Administrative Agent's receipt of such funds,
the Administrative Agent will make such funds available to the
Borrower by 3:45 P.M., New York City time, by transferring such
funds to the Commercial Paper Account. If the Lender which shall
have so failed to fund shall subsequently pay such amount, the
Administrative Agent shall apply such amount to repay the
additional Refunding Loans made by the other Lenders pursuant to
such subsequent notice from the Administrative Agent.
(d) In the event that a Remaining Commercial Paper
Deficit exists on any Business Day that Commercial Paper matures,
the Lenders shall make Refunding Loans in accordance with
paragraphs (a), (b) and (c) above.
2.8 Additional Commitments. (a) Subject to Section
7.10, during the Revolving Period, the Borrower may, with the
consent of the Administrative Agent, add additional Persons which
would be Eligible Assignees as Lenders or cause an existing
Lender to increase its Commitment; provided, however, that (i)
the Commitment of a Lender may only be increased with the consent
of such Lender; (ii) no Person shall be added as a Lender unless
such Person delivers to the Rating Agencies and each Commercial
Paper Dealer such opinions of counsel as may be required by the
Rating Agencies as to the enforceability of this Agreement
against such Person and each Rating Agency confirms the ratings
of the outstanding Commercial Paper; and (iii) the aggregate
amount of increases effected during the Revolving Period pursuant
to this Section 2.8 and Section 2.8 of the 364-Day Liquidity
Agreement shall not exceed $200,000,000. Each new Lender and
each Lender increasing its Commitment shall become a party hereto
or increase its Commitment, as the case may be, by executing and
delivering to the Administrative Agent and the Borrower an
Addendum.
(b) To the extent that Non-Extending Lenders shall
have outstanding Non-Pro Rata Revolving Loans on the date an
additional Person becomes a Lender or an existing Lender
increases its Commitment pursuant to Section 2.8(a), such
additional Person or, to the extent of the amount of its increase
in Commitment, such existing Lender shall be deemed a replacement
bank, in whole or in part, pursuant to Section 2.23 for such Non-
Extending Lenders. If there is more than one such Non-Extending
Lender at such time and such additional Person or existing Lender
cannot replace such Non-Extending Lenders in whole, then the
Borrower shall pay the principal amount of such Non-Extending
Lenders' Loans pro rata according to the outstanding amounts
thereof.
(c) If all Non-Pro Rata Revolving Loans, if any, shall
have been repaid pursuant to Section 2.8(b), to the extent that
Downgraded Lenders shall have outstanding Non-Pro Rata Reserve
Account Loans on the date an additional Person becomes a Lender
or an existing Lender increases its Commitment pursuant to
Section 2.8(a), such additional Person or, to the extent of the
amount of its increase in Commitment, such existing Lender shall
be deemed a replacement bank, in whole or in part, pursuant to
Section 2.23 for such Downgraded Lender. If there is more than
one Downgraded Lender at such time and such additional Person or
existing Lender cannot replace such Downgraded Lenders in whole,
then it shall pay the principal amount of such Downgraded
Lenders' Loans pro rata according to the outstanding amounts
thereof.
2.9 Facility Fees. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a facility
fee (the "Facility Fee") for the period from and including the
date of this Agreement to but excluding the date the Commitment
of such Lender terminates, computed at the rate of 0.3250% per
annum on the average daily amount of the Commitment of such
Lender (whether or not utilized) (or, if any Loans of such Lender
remain outstanding after such Commitment is terminated, on the
amount of such Loans) during the period for which payment is made
and payable in arrears on (a) each Distribution Date for the
period from and including the immediately preceding Distribution
Date to but excluding such current Distribution Date and (b) the
date on which the Commitment of such Lender terminates (or, if
later, the date such Loans are paid in full) for the period from
and including the Distribution Date immediately preceding such
date to but excluding such date, provided, however, that in each
case the Facility Fee in respect of the Unutilized Available
Commitments shall be paid by the Borrower only to the extent (i)
amounts, if any, are available to make such payments pursuant to
Section 5.3(a)(ii)(D) or 5.3(b)(i), as the case may be, of the
Collateral Trust Agreement or (ii) amounts are paid by MRI to the
Borrower for the purpose of making such payments pursuant to
Section 2.4 of the Series 1998-1 Class A Security Purchase
Agreement.
2.10 Termination or Reduction of Commitments. The
Borrower shall have the right, upon not less than five Business
Days' notice to the Administrative Agent and not less than
fifteen days' notice to the Rating Agencies, to terminate or,
from time to time, reduce the amount of the Maximum Aggregate
Commitment; provided, however, that no such termination or
reduction shall be permitted if (a) after giving effect thereto
and to all transactions to occur on the effective date thereof,
the sum of (i) the Credits Outstanding and (ii) the Interest
Component with respect to outstanding Commercial Paper on such
date would exceed the sum of the Maximum Aggregate Commitment and
the 364-Day Maximum Aggregate Commitment or (b) such termination
or reduction would result in a downgrading, suspension or
withdrawal by any Rating Agency of the ratings of the outstanding
Commercial Paper Notes referred to in Section 5.2(c). Any such
reduction shall be in an amount equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof and shall reduce
permanently the Maximum Aggregate Commitment then in effect and,
subject to Section 2.5(j), any such termination or reduction
shall be pro rata among the Lenders and shall be effective on the
date specified in the Borrower's notice.
If for any reason the full amount of the Facility Fee
payable on any Distribution Date in respect of the Unutilized
Available Commitments shall not be paid in full within five
Business Days after such Distribution Date (whether or not funds
are available to make such payment as described in clauses (i)
and (ii) of Section 2.9), then the Majority Lenders may, by
written notice to the Administrative Agent and the Borrower,
permanently reduce the Maximum Aggregate Commitment, effective on
the date specified in such notice, by an amount equal to the
Unutilized Available Commitments as of such effective date.
If at any time the principal amount of the MRI Note
shall be less than the MRI Note Required Amount (as each such
term is defined in the Series 1998-1 Supplement), then
automatically the Maximum Aggregate Commitment shall immediately
be permanently reduced by an amount equal to the Unutilized
Available Commitments at such time.
2.11 Conversions and Continuations. (a) The Borrower
may elect from time to time to convert Revolving Loans, Non-Pro
Rata Revolving Loans and Non-Pro Rata Reserve Account Loans
bearing interest at the LIBOR Rate to ABR Loans, by giving the
Administrative Agent at least one Business Day's prior
irrevocable notice of such election; provided, however, that any
such conversion of LIBOR Loans may only be made on the last day
of an Interest Period with respect thereto. The Borrower may
elect from time to time to convert Revolving Loans or Refunding
Loans bearing interest at the ABR to Revolving Loans bearing
interest at the LIBOR Rate or convert Non-Pro Rata Revolving
Loans or Non-Pro Rata Reserve Account Loans bearing interest at
the ABR to LIBOR Loans, in each case by giving the Administrative
Agent at least three Business Days' prior irrevocable notice of
such election, provided, however, that any such conversion of ABR
Loans may be made only on a Business Day. Upon receipt of any
such notice of conversion the Administrative Agent shall promptly
notify each Lender thereof. All or any part of outstanding LIBOR
Loans or ABR Loans may be converted as provided herein, provided,
however, that (i) no Loans bearing interest at the ABR may be
converted into LIBOR Loans when any Default or Event of Default
has occurred and is continuing and the Majority Lenders have
determined in their sole discretion not to permit such a
conversion, (ii) after giving effect to such conversion, each
LIBOR Tranche shall be equal to $5,000,000 or a whole multiple of
$1,000,000 in excess thereof and (iii) no Loans bearing interest
at the ABR may be converted into LIBOR Loans after the date that
is one month prior to the Scheduled Termination Date.
(b) Any LIBOR Loans may be continued as such upon the
expiration of the then Interest Period with respect thereto by
the Borrower giving notice to the Administrative Agent, in
accordance with the applicable provisions of the definition of
"Interest Period" set forth in Section 1.1; provided, however,
that no LIBOR Loans may be continued at such rate (i) when any
Default or Event of Default has occurred and is continuing and
the Majority Lenders have determined in their sole discretion not
to permit such a continuation or (ii) after the date that is one
month prior to the Scheduled Termination Date; provided, further,
that if the Borrower shall fail to give any required notice as
described above in this paragraph or if such continuation is not
permitted pursuant to the preceding proviso such Loans shall be
automatically converted to ABR Loans on the last day of such then
expiring Interest Period.
2.12 Prepayments. (a) The Borrower may, at its
option, on any Business Day, prepay the Loans, in whole or in
part, without premium or penalty; provided, that, in accordance
with Section 2.19, the Borrower shall reimburse each Lender for
any loss or expense incurred as a result of any prepayment of a
LIBOR Loan on any day other than the last day of an Interest
Period. The Borrower shall give the Administrative Agent
irrevocable written notice of its intention to prepay any Loan
not later than 10:00 A.M. (New York City time) on the date of
such prepayment, specifying the date and amount of prepayment and
whether the prepayment is of Revolving Loans or Refunding Loans,
or a combination thereof, and, if of a combination thereof, the
amount allocable to each. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof.
If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein, together
with accrued interest to such date on the amount prepaid.
Partial prepayments shall be in an aggregate principal amount of
$5,000,000 or whole multiples of $1,000,000 in excess thereof.
(b) In the event that the Credits Outstanding shall at
any time exceed the then applicable Borrowing Base, then the
Borrower, without notice or demand, shall immediately reduce the
Credits Outstanding by an aggregate amount equal to such excess
by either setting aside funds in the Principal Subaccount to pay
maturing Commercial Paper or prepaying the Loans and the 364-Day
Liquidity Loans together with interest earned to such date on the
amount prepaid; provided, that any such prepayment of the Loans
shall be applied, first, to any outstanding Non-Pro Rata
Revolving Loans and, second, to any outstanding ABR Loans.
2.13 Interest Rates and Payment Dates. (a) Each
LIBOR Loan shall bear interest for each day during each Interest
Period with respect thereto, from and including the first day
thereof to but excluding the last day thereof, at a rate per
annum equal to the LIBOR Rate determined for such day plus the
Applicable Margin. Interest on each LIBOR Loan shall be payable
in arrears on the last day of each Interest Period applicable to
such Loan, on the date of any prepayment or conversion (on the
amount prepaid or converted) of any such Loan and at maturity;
provided, however, that interest accruing pursuant to paragraph
(c) of this Section shall be payable on demand .
(b) (i) Each ABR Loan that is a Revolving Loan, a Non-
Pro Rata Revolving Loan or a Non-Pro Rata Reserve Account Loan
shall bear interest at a rate per annum equal to the ABR, from
and including the date such Loan (or portion thereof) is made or
converted into an ABR Rate Loan to but excluding the date of
payment or conversion into a LIBOR Loan and (ii) each ABR Loan
that is a Refunding Loan shall bear interest at a rate per annum
equal to the ABR plus 1.0%, from and including the date such Loan
(or portion thereof) is made to but excluding the date of payment
or conversion into a Revolving Loan. Interest on each ABR Loan
shall be payable monthly in arrears on each Distribution Date and
at maturity (each, an "ABR Interest Payment Date") for the period
from and including the immediately preceding ABR Interest Payment
Date to but excluding such later ABR Interest Payment Date;
provided, however, that interest accruing pursuant to paragraph
(c) of this Section 2.13 shall be payable on demand.
(c) If an Event of Default has occurred and is
continuing, then (i) the principal amount of any Loan and (ii) to
the extent permitted by applicable law, any interest payable
thereon not paid on the date such interest became due (in each
case with respect to clauses (i) and (ii) above, whether at the
stated maturity, by acceleration or otherwise), shall bear
interest at a rate per annum which is (x) in the case of
principal, the rate that would be otherwise applicable thereto
pursuant to the foregoing provisions of this Section plus 1% from
the date of the occurrence of such Event of Default to but
excluding the earlier of the date on which such amount is paid in
full and the date on which such Event of Default is no longer
continuing or (y) in the case of overdue interest, the rate
otherwise applicable to the Loan to which such interest relates
plus 1% from the date of such non-payment to but excluding the
date on which such amount is paid in full (as well after as
before judgment).
2.14 Computation of Facility Fees and Interest.
Facility Fees, interest on LIBOR Loans and interest on ABR Loans
the interest rate of which is calculated by reference to the
Federal Funds Effective Rate or the Base CD Rate shall be
calculated on the basis of the actual days elapsed over a 360-day
year. Interest on ABR Loans the interest rate of which is
calculated by reference to the Prime Rate shall be calculated on
the basis of the actual days elapsed over a 365- (or 366-, as the
case may be) day year. The Administrative Agent shall promptly
notify the Borrower and the Lenders of each determination of a
LIBOR Rate. Any change in the interest rate on any Loan
resulting from a change in the ABR or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business
on the day on which such change in the ABR is announced or such
change in the Eurocurrency Reserve Requirements becomes
effective, as the case may be. The Administrative Agent shall
promptly notify the Borrower and the Lenders of the effective
date and the amount of each such change in the interest rate.
Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the
absence of manifest error. The Administrative Agent shall, at
the request of the Borrower, deliver to the Borrower a statement
showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.13(a).
2.15 Pro Rata Treatment and Payments. (a) Except as
otherwise provided in Sections 2.4, 2.5 and 2.22 with respect to
Non-Extending Lenders and Downgraded Lenders and Section 2.23
with respect to the replacement of Lenders, each Borrowing by the
Borrower from the Lenders hereunder, each payment (including each
prepayment) by the Borrower on account of the principal of and
interest on the Loans and on account of any Facility Fee
hereunder and any reduction of the Commitments of the Lenders
hereunder pursuant to a reduction of the Maximum Aggregate
Commitment shall be made pro rata according to the Commitment
Percentages of the Lenders. All payments (including prepayments)
to be made by the Borrower on account of principal, interest,
fees or otherwise shall be made without set-off or counterclaim
and shall be made prior to 12:00 Noon (New York City time) on the
due date thereof to the Administrative Agent, for the account of
the Lenders, at the Administrative Agent's office specified in
Section 10.2. All payments shall be made in Dollars and in
immediately available funds. The Administrative Agent shall
apply such funds in the manner set forth in Section 5 of the
Collateral Trust Agreement. If any payment hereunder (other than
payments on LIBOR Loans) becomes due and payable on a day other
than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a LIBOR Loan becomes
due and payable on a day other than a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day
unless the result of such extension would be to extend such
payment into another calendar month, in which event such payment
shall be made on the immediately preceding Business Day. In the
case of any extension of any payment of principal pursuant to the
preceding two sentences, interest thereon shall be payable during
such extension at the rate applicable at the time such principal
became due and payable.
(b) Unless the Administrative Agent shall have been
notified in writing by any Lender prior to a Borrowing Date that
such Lender will not make the amount which would constitute its
share of the Borrowing on such Borrowing Date available to the
Administrative Agent, the Administrative Agent may assume that
such Lender has made such amount available to the Administrative
Agent on such Borrowing Date, and the Administrative Agent may
(but it shall not be required to), in reliance upon such
assumption, make available to the Borrower or the Depositary a
corresponding amount. If such amount is made available to the
Administrative Agent on a date after such Borrowing Date, such
Lender shall pay to the Administrative Agent on demand an amount
equal to the product of (i) the daily average Federal Funds
Effective Rate during such period, times (ii) such Lender's share
of such Borrowing, times (iii) a fraction the numerator of which
is the number of days that elapse from and including such
Borrowing Date to the date on which such Lender's share of such
Borrowing shall have become immediately available to the
Administrative Agent and the denominator of which is 360. If
such Lender's share of such Borrowing is not in fact made
available to the Administrative Agent by such Lender within three
Business Days of such Borrowing Date, then, notwithstanding
anything to the contrary in this Agreement, the Administrative
Agent shall be entitled to recover such amount with interest
thereon as described above by applying amounts of any kind
otherwise from time to time payable by the Borrower to such
Lender hereunder ("Other Amounts") to satisfy such Lender's
obligations pursuant to this paragraph (b) until such obligations
have been paid in full. Such application shall be deemed to
constitute payment in full of such Other Amounts and the Borrower
shall have no further obligation to pay such Other Amounts to
such Lender. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this
Section 2.15(b) shall be conclusive, in the absence of manifest
error but subject to rebuttal. Nothing in this Section 2.15(b)
shall prejudice any claims otherwise available to the Borrower
against any Lender as a result of such Lender's failure to make
its share of any Borrowing available to the Administrative Agent
in accordance with this Agreement.
(c) Notwithstanding anything to the contrary in this
Agreement, (i) no borrowing of Revolving Loans or Refunding Loans
may be made on any date unless, on such date, a pro rata
borrowing (determined on the basis of the respective amounts of
the Aggregate Available Commitments and the 364-Day Aggregate
Available Commitments) of "Revolving Loans" or "Refunding Loans",
as the case may be, is made under (and as defined in) the 364-Day
Liquidity Agreement and (ii) no optional reduction of Commitments
or prepayment of Loans may be made on any date unless, on such
date, a pro rata reduction or prepayment (determined on the basis
of the respective amounts of the Aggregate Available Commitments
and the 364-Day Aggregate Available Commitments) of 364-Day
Liquidity Commitments or 364-Day Liquidity Loans, as the case may
be, is made.
2.16 Inability to Determine Interest Rate. In the
event that, with respect to a proposed or any outstanding LIBOR
Loan, prior to the first day of any Interest Period (including,
without limitation, the initial Interest Period):
(a) the Administrative Agent shall have determined
(which determination shall be conclusive absent manifest
error) that, by reason of circumstances affecting the London
interbank market generally, adequate and reasonable means do
not exist for ascertaining the LIBOR Rate for such Interest
Period; or
(b) the Administrative Agent shall have received
notice from the Majority Lenders that the LIBOR Rate
determined or to be determined for such Interest Period will
not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest
Period;
then the Administrative Agent shall give telex, telecopy or
telephonic notice thereof to the Borrower and the Lenders as soon
as practicable thereafter. If such notice is given (x) any LIBOR
Loans requested to be made on the first day of such Interest
Period shall be made as ABR Loans, (y) any Loans that were to
have been converted to or continued as LIBOR Loans on the first
day of such Interest Period shall be converted to or continued as
ABR Loans and (z) any outstanding LIBOR Loans shall be converted,
on the first day of such Interest Period, to ABR Loans. Until
such notice has been withdrawn by the Administrative Agent, no
further LIBOR Loans shall be made or continued as such, nor shall
the Borrower have the right to convert ABR Loans to LIBOR Loans.
The Administrative Agent agrees to give written notice to the
Borrower promptly after it determines that the conditions giving
rise to any notice under paragraph (a) of this Section 2.16 shall
no longer be in effect.
2.17 Reserve Requirements; Change in Circumstances.
(a) (_) Notwithstanding any other provision herein, if after the
Closing Date, any change in applicable law or regulation or in
the interpretation of administration thereof by any Governmental
Authority charged with the interpretation or administration
thereof (whether or not having the force of law) shall change the
basis of taxation of payments to any Lender of the principal of
or interest on any LIBOR Loan made by such Lender or any fees or
other amounts payable hereunder (other than changes in respect of
taxes imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal office or by
any political subdivision or taxing authority therein), or shall
impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the
account of or credit extended by such Lender that is not
otherwise reflected in the determination of the LIBOR Rate
hereunder, or shall impose on such Lender or the London interbank
market any other condition affecting this Agreement or any LIBOR
Loan made by such Lender, and the result of any of the foregoing
shall be to increase the cost to such Lender of making or
maintaining any LIBOR Loan or to reduce the amount of any sum
received or receivable by such Lender hereunder (whether of
principal, interest or otherwise) in respect thereof by an amount
deemed by such Lender to be material, then the Borrower will pay
to such Lender upon demand such additional amount or amounts as
will compensate such Lender for such additional costs incurred or
reduction suffered. Any Lender claiming any additional amounts
payable pursuant to this Section 2.17(a) shall use reasonable
efforts (consistent with legal and regulatory restrictions) to
file any certificate or document requested by the Borrower or to
change the jurisdiction of its applicable lending office if the
making of such a filing or change would avoid the need for or
reduce the amount of any additional amount which may thereafter
accrue and would not, in the sole determination of such Lender,
be otherwise disadvantageous to such Lender.
(_) (b) If any Lender shall have determined that the
adoption after the Closing Date of any other law, rule,
regulation or guideline regarding capital adequacy, or any change
in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any
Lender (or any lending office of such Lender) or any Lender's
holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on such Lender's
capital or on the capital of such Lender's holding company, if
any, as a consequence of this Agreement or the Loans made by such
Lender pursuant hereto to a level below that which such Lender or
such Lender's holding company could have achieved but for such
adoption, change or compliance (taking into consideration such
Lender's policies and the policies of such Lender's holding
company with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time the Borrower
shall pay to such Lender such additional amount or amounts as
will compensate such Lender or such Lender's holding company for
any such reduction suffered after the date hereof.
(_) (c) A certificate of a Lender setting forth such
amount or amounts, along with the Lender's method of computation
of such amounts, as shall be necessary to compensate such Lender
(or participating banks or other entities pursuant to Section
10.6) as specified in paragraph (a) or (b) above, as the case may
be, shall be delivered to the Borrower and the Administrator and
shall be conclusive absent manifest error. The Borrower shall
pay each Lender the amount shown as due on any such certificate
delivered by it no later than the Distribution Date immediately
succeeding the date of delivery of such certificate.
(_) (d) Failure on the part of any Lender to demand
compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with
respect to any period shall not constitute a waiver of such
Lender's right to demand compensation with respect to such period
or any other period; provided, however, that no Lender shall be
entitled to compensation for any such increased costs or
reductions unless it shall have submitted a certificate under
paragraph (c) above with respect thereto not more than 90 days
after the date that such Lender knows that such increased costs
have been incurred or such reduction suffered. Notwithstanding
any other provision of this Section 2.17, no Lender shall demand
compensation for any increased cost or reduction referred to
above if it shall not at the time be the general policy of such
Lender to demand such compensation in similar circumstances under
comparable provisions of other credit agreements, and each Lender
shall in good faith endeavor to allocate increased costs or
reductions fairly among all of its affected commitments and
credit extensions (whether or not it seeks compensation from all
affected borrowers). The protection of this Section 2.17 shall
be available to each Lender regardless of any possible contention
of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall
have occurred or been imposed.
(e) The amounts owing by the Borrower pursuant to this
Section 2.17 shall be payable solely from amounts, if any,
available therefor pursuant to Section 5.3(a)(ii)(E) or
5.3(b)(v), as the case may be, of the Collateral Trust Agreement.
2.18 Change in Legality. (a) Notwithstanding any
other provision herein contained, if any change in any law or
regulation or in the interpretation thereof by any Governmental
Authority charged with the administration or interpretation
thereof shall make it unlawful for any Lender to make or maintain
any LIBOR Loan or to give effect to its obligations as
contemplated hereby with respect to any LIBOR Loan, then, by
written notice to the Borrower and to the Administrative Agent,
such Lender may:
(i) declare that LIBOR Loans will not thereafter be
made by such Lender hereunder, whereupon any request by the
Borrower for a LIBOR Loan shall, as to such Lender only, be
deemed a request for an ABR Loan unless such declaration
shall be subsequently withdrawn; and
(ii) require that all outstanding LIBOR Loans made by
it be converted to ABR Loans, in which event all such LIBOR
Loans shall be automatically converted to ABR Loans as of
the effective date of such notice as provided in paragraph
(b) below.
In the event any Lender shall exercise its rights under (i) or
(ii) above, all payments and prepayments of principal which would
otherwise have been applied to repay the LIBOR Loans that would
have been made by such Lender or the converted LIBOR Loans of
such Lender shall instead be applied to repay the ABR Loans made
by such Lender in lieu of, or resulting from the conversion of,
such LIBOR Loans.
(b) For purposes of this Section 2.18, a notice to the
Borrower by any Lender shall be effective as to each LIBOR Loan,
if lawful, on the last day of the Interest Period currently
applicable to such LIBOR Loan; in all other cases such notice
shall be effective on the date of receipt by the Borrower. The
Administrative Agent agrees to give written notice to the
Borrower promptly after it determines that the conditions giving
rise to any notice under paragraph (a) above shall no longer be
in effect.
(c) Each Lender agrees to use reasonable efforts
(consistent with legal and regulatory restrictions) to file any
certificate or document requested by the Borrower or to change
the jurisdiction of its applicable lending office if the making
of such filing or change would enable such Lender to legally make
or maintain any LIBOR Loan referred to in paragraph (a) of this
Section 2.18; provided, however, that (i) such Lender shall not
be required to make such filing or change if, in the sole
determination of such Lender, such action would be otherwise
disadvantageous to such Lender and (ii) until such time as such
Lender shall have determined that it can make or maintain such
LIBOR Loan, the Lender may take the actions referred to in
Section 2.18(a).
2.19 Indemnity. The Borrower shall indemnify each
Lender against any loss or reasonable expense which such Lender
may sustain or incur as a consequence of (a) any failure by the
Borrower to fulfill on the date of any Borrowing hereunder the
applicable conditions set forth in Section 5, (b) any failure by
the Borrower to borrow or to convert or continue any Loan
hereunder after irrevocable notice of such Borrowing, conversion
or continuation has been given pursuant to Section 2.3, 2.6, 2.7
or 2.11, (c) any payment, prepayment or conversion of a LIBOR
Loan required by any other provision of this Agreement or
otherwise made or deemed made on a date other than the last day
of the Interest Period applicable thereto or (d) the occurrence
of any Event of Default, including, in each such case, any loss
or reasonable expense sustained or incurred or to be sustained or
incurred in liquidating or employing deposits from third parties
acquired to effect or maintain such Loan or any part thereof as a
LIBOR Loan. Such loss or reasonable expense shall include an
amount equal to the excess, if any, as reasonably determined by
such Lender, of (i) its cost of obtaining the funds for the Loan
being paid, prepaid, converted, continued or not borrowed (based
on the LIBOR Rate) for the period from the date of such payment,
prepayment or failure to borrow to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the
date of such failure) over (ii) the amount of interest (as
reasonably determined by such Lender) that would be realized by
such Lender in reemploying the funds so paid, prepaid or not
borrowed for such period or Interest Period, as the case may be.
A certificate of any Lender setting forth any amount or amounts
which such Lender is entitled to receive pursuant to this Section
2.19 and the method of calculation employed by such Lender shall
be delivered to the Borrower and the Administrator and shall be
presumed conclusive absent manifest error but subject to rebuttal
by the Borrower. The amounts owing by the Borrower pursuant to
this Section 2.19 shall be payable solely from amounts, if any,
available therefor pursuant to Section 5.3(a)(ii)(E) or
5.3(b)(iv), as the case may be, of the Collateral Trust
Agreement.
2.20 Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.15, free
and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto (excluding
taxes imposed on or measured by the net income or earnings of the
Administrative Agent or any Lender (or Transferee) and franchise
taxes imposed on the Administrative Agent or any Lender (or
Transferee) as a result of a present or former connection between
the Administrative Agent or such Lender (or Transferee) and the
jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein
(other than any such connection arising solely from the
Administrative Agent or such Lender (or Transferee) having
executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement)) (all such
nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the
Lenders (or any Transferee) or the Administrative Agent, (i) the
sum payable shall be increased by the amount necessary so that
after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.20)
such Lender (or Transferee) or the Administrative Agent (as the
case may be) shall receive an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant taxing authority or other
Governmental Authority in accordance with applicable law;
provided, however, that no Transferee of any Lender shall be
entitled to receive any greater payment under this paragraph (a)
than such Lender would have been entitled to receive with respect
to the rights assigned, participated or otherwise transferred
unless such assignment, participation or transfer shall have been
made at a time when the circumstances giving rise to such greater
payment did not exist.
(b) In addition, the Borrower agrees to pay, indemnify
and hold the Administrative Agent and each Lender harmless from
any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery
or registration of, or otherwise with respect to, this Agreement
or any other Program Document (hereinafter referred to as "Other
Taxes").
(c) The Borrower will indemnify each Lender (or
Transferee) and the Administrative Agent for the full amount of
Taxes and Other Taxes paid by such Lender (or Transferee) or the
Administrative Agent, as the case may be, and any liability
(including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted by the relevant taxing
authority or other Governmental Authority. Such indemnification
shall be made within 30 days after the date any Lender (or
Transferee) or the Administrative Agent, as the case may be,
makes written demand therefor. If a Lender (or Transferee) or
the Administrative Agent shall become aware that it is entitled
to receive a refund in respect of Taxes or Other Taxes as to
which it has been indemnified by the Borrower pursuant to this
Section 2.20, it shall promptly notify the Borrower of the
availability of such refund and shall, within 30 days after
receipt of a request by the Borrower, apply for such refund at
the Borrower's expense. If any Lender (or Transferee) or the
Administrative Agent receives a refund in respect of any Taxes or
Other Taxes as to which it has been indemnified by the Borrower
pursuant to this Section 2.20, it shall promptly notify the
Borrower of such refund and shall, within 30 days after receipt
of a request by the Borrower (or promptly upon receipt, if the
Borrower has requested application for such refund pursuant
hereto), repay such refund to the Borrower (to the extent of
amounts that have been paid by the Borrower, under this Section
2.20 with respect to such refund), net of all out-of-pocket
expenses of such Lender and without interest; provided, however,
that the Borrower, upon the request of such Lender (or
Transferee), or the Administrative Agent, agrees to return such
refund (plus penalties, interest or other charges) to such Lender
(or Transferee) or the Administrative Agent in the event such
Lender (or Transferee) or the Administrative Agent is required to
repay such refund. Nothing contained in this paragraph (c) shall
require any Lender (or Transferee) or the Administrative Agent to
make available any of its tax returns (or any other information
relating to its taxes which it deems to be confidential).
(d) Within 30 days after the date of any payment of
Taxes or Other Taxes withheld by the Borrower in respect of any
payment to any Lender (or Transferee) or the Administrative
Agent, the Borrower will furnish to the Administrative Agent, at
its address referred to in Section 10.2, the original or a
certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations
contained in this Section 2.20 shall survive the payment in full
of the principal of and interest on all Loans made hereunder.
(f) Upon the written request of the Borrower, each
Lender (or Transferee) that is organized under the laws of a
jurisdiction outside the United States shall, if legally able to
do so, prior to the immediately following due date of any payment
by the Borrower hereunder, deliver to the Borrower such
certificates, documents or other evidence, as required by the
Code or Treasury Regulations issued pursuant thereto, including
Internal Revenue Service Form 1001 or Form 4224 and any other
certificate or statement of exemption required by Treasury
Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any
subsequent version thereof or successors thereto, properly
completed and duly executed by such Lender (or Transferee)
establishing that such payment is (i) not subject to United
States Federal withholding tax under the Code because such
payment is effectively connected with the conduct by such Lender
(or Transferee) of a trade or business in the United States or
(ii) totally exempt from United States Federal withholding tax,
or subject to a reduced rate of such tax under a provision of an
applicable tax treaty. Unless the Borrower and the
Administrative Agent have received forms or other documents
satisfactory to them indicating that such payments hereunder are
not subject to United States Federal withholding tax or are
subject to such tax at a rate reduced by an applicable tax
treaty, the Borrower or the Administrative Agent shall withhold
taxes from such payments at the applicable statutory rate.
(g) The Borrower shall not be required to pay any
additional amounts to any Lender (or Transferee) in respect of
United States Federal withholding tax pursuant to paragraph (a)
above if the obligation to pay such additional amounts would not
have arisen but for a failure by such Lender (or Transferee) to
comply with the provisions of paragraph (f) above; provided,
however, that the Borrower shall be required to pay those amounts
to any Lender (or Transferee) it was required to pay hereunder
prior to the failure of such Lender (or Transferee) to comply
with the provisions of paragraph (f).
(h) Any Lender (or Transferee) claiming any additional
amounts payable pursuant to this Section 2.20 shall use
reasonable efforts (consistent with legal and regulatory
restrictions) to file any certificate or document requested by
the Borrower or to change the jurisdiction of its applicable
lending office if the making of such a filing or change would
avoid the need for or reduce the amount of any such additional
amounts which may thereafter accrue and would not, in the sole
determination of such Lender, be otherwise disadvantageous to
such Lender (or Transferee).
(i) The amounts owing by the Borrower pursuant to this
Section 2.20 shall be payable solely from amounts, if any,
available therefor pursuant to Section 5.3(a)(ii)(E) or
5.3(b)(v), as the case may be, of the Collateral Trust Agreement.
2.21 Proceeds; Application of Funds. (a) The proceeds
of Commercial Paper shall be used by the Borrower only to (i)
purchase the Series 1998-1 Class A Security or increase the
Series 1998-1 Class A Invested Amount pursuant to the Series 1998-
1 Supplement, (ii) pay the Face Amount of matured Commercial
Paper, (iii) pay Loans, including interest thereon, (iv)
reimburse the Administrative Agent for amounts advanced by the
Administrative Agent pursuant to Section 2.15(b), (v) pay 364-Day
Liquidity Loans, including interest thereon and (vi) reimburse
the Administrative Agent for amounts advanced by the
Administrative Agent pursuant to Section 2.15(b) of the 364-Day
Liquidity Agreement.
(b) The proceeds of Revolving Loans shall be used by
the Borrower only to (i) purchase the Series 1998-1 Class A
Security or increase the Series 1998-1 Class A Invested Amount
pursuant to the Series 1998-1 Supplement, (ii) pay the Face
Amount of matured Commercial Paper, (iii) pay interest on Loans
and (iv) reimburse the Administrative Agent for amounts advanced
by the Administrative Agent pursuant to Section 2.15(b).
(c) The proceeds of Non-Pro Rata Revolving Loans shall
be used by the Borrower solely to pay the Face Amount of matured
Commercial Paper.
(d) The proceeds of Refunding Loans shall be used by
the Borrower only to pay the Face Amount of matured Commercial
Paper.
(e) The Borrower and the Administrative Agent agree
that whenever any provision of any Program Document (including,
without limitation, the provisions of Section 5.3 of the
Collateral Trust Agreement) provides for the application of funds
in reduction of the Loans such funds shall be applied, first, to
any outstanding Non-Pro Rata Revolving Loans, second, to any
outstanding Loans bearing interest at the rate referred to in
Section 2.13(c), third, to any outstanding ABR Loans, fourth, to
any LIBOR Loans having an Interest Period ending on the date of
such payment and, fifth, as a prepayment of other LIBOR Loans
outstanding, the allocation among such Loans to be as the
Borrower shall determine.
2.22 Extensions of Expiration Date and Expiry Dates.
(a) Subject to paragraph (b) of this Section and other
provisions of this Agreement permitting earlier termination, the
Commitments shall terminate on the Expiration Date.
(b) If the Borrower desires to extend the Expiration
Date, then the Borrower shall notify the Administrative Agent at
least 180 days prior to the Expiration Date of its desire to
extend the Expiration Date for a period of at least one year,
whereupon the Administrative Agent shall notify each Lender of
the Borrower's desire to so extend the Expiration Date. Each
Lender shall notify the Administrative Agent whether it agrees to
such extension within 60 days after receipt of such request;
provided, however, that failure by a Lender to respond to such
request shall not be construed as a consent by such Lender to
such extension. The decision to extend or not extend shall be
made by each Lender in its sole discretion. Each consent by a
Lender to an extension shall be in a writing signed by such
Lender. The Administrative Agent shall periodically notify the
Borrower in writing of the decision of each Lender, which notice
shall separately set forth the name and the Commitment of each
Lender which shall have decided not to extend its Expiry Date to
the requested Expiration Date. If the Majority Lenders agree to
an extension, the Expiration Date shall be extended, and the
Expiry Date of each Lender which agrees to extend its Expiry Date
shall be extended for the period set forth in the foregoing
notice. No Downgraded Lender shall be permitted to extend its
Expiry Date. In the event that any Lender desires to extend its
Expiry Date for a commitment amount that is less than the amount
of its Commitment prior to the Borrower's request for an
extension of the Expiration Date, the Borrower, in its sole
discretion, may accept such extension; provided, however, that
such Lender (x) shall be deemed to be a Non-Extending Lender for
purposes of Section 2.23 and (y) for purposes of Section 2.4
shall be deemed to be both (i) a Non-Extending Lender with a
Commitment equal to the portion of its Commitment that will not
be available after the extension of its Expiry Date and (ii) an
Extending Lender with a Commitment equal to the portion of its
Commitment that will be available after the extension of its
Expiry Date. The Maximum Aggregate Commitment shall be reduced
by the Commitment of each Non-Extending Lender on the Expiry Date
of such Non-Extending Lender (except to the extent that such Non-
Extending Lender has been replaced on such Expiry Date pursuant
to Section 2.23). The Borrower shall provide the Rating Agencies
notice of the extension of the Expiration Date.
2.23 Replacement of a Lender. In the event that (i) a
Lender becomes a Downgraded Lender, (ii) a Lender becomes a Non-
Extending Lender, (iii) a Lender becomes a Non-Consenting Lender,
(iv) a Lender requests compensation pursuant to Section 2.17 or
2.20, (v) a Lender's obligation to make LIBOR Loans has been
suspended pursuant to Section 2.18 or (vi) a Lender shall have
defaulted in its obligation to make any Loan required to be made
by it hereunder, the Borrower shall have the right to either (a)
subject to compliance with Section 10.6(c) (including the
requirement of at least 10 days' advance notice to the Rating
Agencies), replace such Lender, in whole or in part, with a
Person which would be an Eligible Assignee or (b) except in the
case of clause (iii) above, terminate such Lender's Commitment,
in whole, in each case by giving three Business Days prior
written notice to the Administrative Agent and such Lender,
specifying the effective date of such replacement or termination;
provided, however, that, (x) in the case of clause (iii) above,
all Non-Consenting Lenders with respect to any Specified Consent
Request must be concurrently replaced in accordance with this
Section 2.23 with replacement banks or financial institutions
having aggregate Commitments equal to the aggregate Commitments
of all such Non-Consenting Lenders, (y) no such replacement or
termination shall be deemed to be a waiver of any rights which
the Borrower, the Administrative Agent or any other Lender shall
have against the replaced or terminated Lender and (z) no
Commitment shall be terminated pursuant to this Section 2.23 to
the extent that, after giving effect to such termination, the sum
of the Commitments of the remaining Lenders and the 364-Day
Liquidity Commitments would be less than the sum of (a) the
Credits Outstanding on such day and (b) the Interest Component of
all Commercial Paper Notes outstanding on such day. In the event
of the replacement of a Lender, such Lender agrees to assign,
without recourse, its rights and obligations hereunder (or a
portion thereof, as the case may be) to a replacement bank
selected by the Borrower upon payment by the replacement bank to
such Lender of the principal amount of such Lender's outstanding
Loans and any accrued and unpaid interest thereon, accrued
Facility Fee and any other amounts owed to such Lender (or, in
each case, the pro rata portion thereof being acquired by the
replacement bank) and to execute and deliver an Assignment and
Acceptance evidencing such assignment. In the event of the
termination of a Lender, the Borrower shall, on the effective
date thereof, pay to such Lender the principal amount of such
Lender's outstanding Loans and any accrued and unpaid interest
thereon, accrued Facility Fees and any other amounts owed to such
Lender. Prior to adding any replacement bank or financial
institution as a Lender under this Section 2.23, the replacement
bank shall have (i) paid to the Administrative Agent an
administrative fee for processing such replacement in the amount
of $3,000 and (ii) delivered to the Rating Agencies and each
Commercial Paper Dealer such opinions of counsel as may be
required by the Rating Agencies as to the enforceability of this
Agreement against such bank.
SECTION 3. ISSUANCE OF COMMERCIAL PAPER
The Borrower shall not issue or deliver any Commercial
Paper Notes except in accordance with the following provisions:
(a) Each Commercial Paper Note shall (i) be in the
form established in the Depositary Agreement and be
completed in accordance with this Agreement and the
Depositary Agreement, (ii) be dated the date of issuance
thereof, (iii) be payable to the order of a named payee or
bearer, (iv) have a maturity date that is a Business Day and
that is not later than the fifth Business Day prior to the
Expiration Date in effect on the date of issuance thereof,
(v) have a maturity date of no more than 180 days after the
date of issuance thereof and (vi) be in a face amount of
$100,000 or an integral multiple of $1,000 in excess
thereof.
(b) Such issuance and delivery of Commercial Paper
Notes shall be as provided in, and in accordance with, the
Depositary Agreement.
(c) Prior to the time of such issuance or delivery,
neither the Borrower nor the Depositary shall have received
notice from the Administrative Agent not to issue or deliver
Commercial Paper Notes because (i) an Event of Default has
occurred and is continuing, (ii) the applicable conditions
precedent specified in Section 5.2 shall have not been
satisfied, (iii) the Commitments shall have been terminated
in whole for any reason in accordance herewith or (iv) the
issuance of Commercial Paper Notes is prohibited by the
provisions of paragraph (e) below, which notice shall
specify one or more of the events described in clauses (i)
through (iv) above as being the reason(s) to cease issuing
and delivering Commercial Paper Notes.
(d) On or prior to the date of such issuance or
delivery, the Borrower shall have no actual knowledge that
one or more of the events described in clauses (i) through
(iv) in paragraph (c) above have occurred, unless the
Borrower shall have notified the Administrative Agent of the
occurrence of any such event and the Majority Lenders shall
have given their consent in writing to the Depositary to
continue issuing and delivering Commercial Paper Notes.
(e) Prior to the date of the initial issuance of
Commercial Paper Notes, the Administrative Agent, each
Lender and the Collateral Trustee shall have received a copy
of the Commercial Paper Agreement, the Commercial Paper
Memorandum and all other offering materials proposed to be
used in connection with the offering, issuance, sale or
delivery thereof (including the forms of the Commercial
Paper Notes), and the Commercial Paper Memorandum with
respect to such sale and other materials, if any, prepared
in connection therewith (i) shall be reasonably satisfactory
to the Administrative Agent, (ii) shall be reasonably
satisfactory to each Lender with respect to the description
therein of such Lender and its obligations in connection
with the transactions contemplated hereby, and (iii) shall
be reasonably satisfactory to the Collateral Trustee with
respect to any description therein of the Collateral Trustee
and its obligations under the Collateral Trust Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and
to make the Loans, the Borrower hereby represents and warrants to
the Administrative Agent and each Lender that:
4.1 Trust Existence; Compliance With Law. The
Borrower (a) is a statutory business trust duly formed and
validly existing under the laws of the State of Delaware, (b) has
the power and authority, and the legal right, to own its assets
and to transact the business in which it is engaged and is
contemplated to engage pursuant to the Facility Documents, (c) is
duly qualified to do business and, to the extent applicable, is
in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business
requires such qualification and (d) is in compliance with all
Requirements of Law, except to the extent that the failure to
comply therewith, in the aggregate, would not be materially
likely to have a Material Adverse Effect.
4.2 Power; Authorization; Enforceable Obligations.
The Borrower has the power and authority, and the legal right, to
execute, deliver and perform the Program Documents to which it is
a party and to borrow hereunder and has taken all necessary
action required by applicable Requirements of Law and the Owner
Trust Agreement to authorize the Borrowings on the terms and
conditions of this Agreement and to authorize the execution,
delivery and performance of the Program Documents to which it is
a party. No consent or authorization of, filing with, or other
act by or in respect of, any Governmental Authority or any other
Person (including, without limitation, equity holders or
creditors of the Borrower) is required in connection with the
Borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Program Documents
to which the Borrower is a party (other than the filing of UCC-1
Financing Statements pursuant to the Collateral Trust Agreement).
This Agreement has been, and each other Program Document to which
it is a party will be, duly executed and delivered on behalf of
the Borrower. This Agreement constitutes, and each other Program
Document, when executed and delivered, will constitute, a legal,
valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by
proceedings in equity or at law).
4.3 No Legal Bar. The execution, delivery and
performance of the Program Documents to which it is a party, the
Borrowings hereunder and use of the proceeds thereof (a) will not
violate any Requirement of Law or Contractual Obligation
applicable to the Borrower or any of its assets, and (b) will not
result in, or require, the creation or imposition of any Lien on
any of its property, assets or revenues pursuant to any such
Requirement of Law or Contractual Obligation other than the Liens
contemplated by the Collateral Trust Agreement and the Depositary
Agreement.
4.4 No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the
Borrower, threatened by or against the Borrower or against any of
its properties or revenues (a) with respect to any of the
Facility Documents or any of the transactions contemplated
thereby or (b) which would be materially likely to have a
Material Adverse Effect.
4.5 No Default. The Borrower is not in default under
or with respect to any of its Contractual Obligations which would
be materially likely to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
4.6 Security Interest. No Lien exists upon any of the
Borrower's property, assets or revenues, except for Liens created
pursuant to the Collateral Trust Agreement and the Depositary
Agreement; the Borrower is and will be the lawful owner of, and
has and will have good title to, all Collateral and, at the date
of each deposit thereof, Deposited Funds, in each case free and
clear of all Liens except the lien and security interest granted
pursuant to the Collateral Trust Agreement and the Depositary
Agreement.
4.7 Taxes. The Borrower has filed or caused to be
filed all tax returns which are required to be filed by the
Borrower and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it
or any of its property by any Governmental Authority (other than
any the amount or validity of which is currently being contested
in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on the
books of the Borrower); no tax Lien has been filed and, to the
knowledge of the Borrower, no claim is being asserted against the
Borrower or any of its property (other than claims which, in the
good faith judgment of the Borrower, are invalid), with respect
to any such tax, fee or other charge.
4.8 Federal Regulations. No part of the proceeds of
any Loans or the sale of any Commercial Paper will be used for
"purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation
U or for any purpose that violates the provisions of the
Regulations of the Board. The Borrower is not engaged,
principally or as one of its important primary activities, in the
business of extending credit for the purpose of purchasing or
carrying any margin stock. If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing
effect in conformity with the requirements of FR Form U-1
referred to in Regulation U.
4.9 ERISA. No Plan is maintained or participated in
by the Borrower, and neither the Borrower nor any Commonly
Controlled Entity of the Borrower has any liability to PBGC under
ERISA.
4.10 Securities Laws. The Borrower is not an
"investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of
1940, as amended. Pursuant to the exemption set forth in Section
3(a)(3) of the Securities Act, it is not necessary in connection
with the offer, sale and delivery of the Commercial Paper Notes
to register the Commercial Paper Notes under the Securities Act.
The Collateral Trust Agreement is not required to be qualified
under the Trust Indenture Act of 1939, as amended, and the
creation of the Lien in favor of the Secured Parties under the
Collateral Trust Agreement does not require an indenture to be
qualified under the Trust Indenture Act of 1939, as amended.
4.11 Ownership of Securities, etc. The Borrower owns
no Equity Securities or debt securities of, or other interest in,
any Person, except as expressly permitted by Section 7.4.
4.12 Collateral Trust Agreement. The Collateral Trust
Agreement is effective to create in favor of the Collateral
Trustee for the benefit of the Secured Parties a valid Lien on
the Collateral and, in the case of the Collateral described in
paragraphs (i), (ii) and (iii) of Section 4.1 of the Collateral
Trust Agreement and the proceeds thereof, when the Series 1998-1
Class A Security is delivered to the Collateral Trustee or
financing statements in appropriate form are filed with the
Secretary of State of Delaware, the Collateral Trust Agreement
shall constitute a first priority perfected Lien on such
Collateral, in each case enforceable as such against creditors of
and purchasers from the Borrower, except to the extent
enforceability of such Lien may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at
law).
4.13 Financial Condition of the Borrower. The
Borrower is solvent and is not the subject of any proceeding of
the type described in Section 8(e).
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Effectiveness. This Agreement shall
become effective on the first day (the "Closing Date") on which
all of the following conditions precedent have been satisfied (or
waived in accordance with the terms hereof):
(a) Agreement. The Administrative Agent shall have
received (i) this Agreement, executed on behalf of the
Borrower by the Owner Trustee acting through a duly
authorized officer of the Owner Trustee and executed by the
Administrative Agent and (ii) from each Lender, an Addendum
executed by such Lender.
(b) Collateral Trust Agreement. The Administrative
Agent shall have received the Collateral Trust Agreement,
duly executed by the Administrative Agent and the Collateral
Trustee and on behalf of the Borrower by the Owner Trustee.
(c) Other Facility Documents. The Administrative
Agent shall have received each of the Administration
Agreement, the Owner Trust Agreement, the Metris Pooling and
Servicing Agreement, the Master Trust Purchase Agreement,
the Series 1998-1 Supplement and the Depositary Agreement,
in each case duly executed by the respective parties
thereto.
(d) Legal Opinions. The Administrative Agent shall
have received the following executed legal opinions:
(i) the executed legal opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel to the
Borrower, substantially in the form of Exhibit F-1;
(ii) the executed legal opinion of Jill
Barclift, General Counsel of Metris Companies Inc.,
substantially in the form of Exhibit F-2;
(iii) the executed legal opinions of
Richards, Layton & Finger, counsel to the Owner
Trustee, substantially in the form of Exhibit G-1; and
(iv) the executed legal opinion of Dorsey &
Whitney, counsel to the Collateral Trustee,
substantially in the form of Exhibit G-2.
(e) Trust Documents. The Administrative Agent shall
have received a true and complete copy of the certificate of
trust of the Borrower, certified as a true and correct copy
thereof by an authorized officer of the Owner Trustee.
(f) Incumbency Certificate. The Administrative Agent
shall have received a certificate as to the incumbency and
signature of the officers or other employees of the Owner
Trustee authorized to sign the Program Documents to which
the Borrower is a party for the Owner Trustee on behalf of
the Borrower and any certificate or other document to be
delivered pursuant thereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary,
certified by the Secretary or Assistant Secretary of the
Owner Trustee.
(g) Administrator Corporate Proceedings. The
Administrative Agent shall have received a copy of the
resolutions of the Board of Directors of the Administrator
authorizing the execution, delivery and performance of the
Administration Agreement and the other Program Documents to
which it is a party, certified by the Secretary or an
Assistant Secretary of the Administrator, which certificate
shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded.
(h) Administrator Corporate Documents. The
Administrative Agent shall have received true and complete
copies of the certificate of incorporation and by-laws of
the Administrator, certified as complete and correct copies
thereof by the Secretary or an Assistant Secretary of the
Administrator, and a good standing certificate from the
Secretary of State of Delaware.
(i) Administrator Incumbency Certificate. The
Administrative Agent shall have received a certificate, as
to the incumbency and signature of the officers or other
employees of the Administrator authorized to sign the
Administration Agreement and the other Program Documents to
which it is a party and any certificate or other document to
be delivered pursuant thereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary,
certified by the Secretary or Assistant Secretary of the
Administrator.
(j) Payment of Other Fees. The Administrative Agent
shall have received, for its own account and the account of
the Lenders, all fees agreed to be paid on or prior to the
Closing Date.
(k) Certificate of Lenders. The Administrative Agent
shall have received a certificate from each of the Lenders
substantially in the form of Exhibit H.
(l) Commercial Paper Account. The Administrative
Agent shall have received satisfactory evidence that the
Commercial Paper Account has been established.
(m) 364-Day Liquidity Agreement. The Administrative
Agent shall have received satisfactory evidence that the
"Closing Date" under and as defined in the 364-Day Liquidity
Agreement will occur concurrently with the occurrence of the
Closing Date hereunder.
(n) Class A Security; etc. (i) The Administrative
Agent shall have received (x) a copy of the Series 1998-1
Class A Security, duly executed and delivered by MRI and
authenticated by or on behalf of the Trustee and (y) one or
more opinions with respect to tax and other matters, in form
and substance reasonably satisfactory to the Administrative
Agent and (ii) the conditions to the issuance of the Class A
Security specified in Section 4.14 of the Series 1998-1
Supplement and Section 5.1 of the Series 1998-1 Class A
Security Purchase Agreement shall have been satisfied.
(o) Payment of Accrued Commitment Fees. The
Administrative Agent shall have received, for the account of
the lenders under the Fingerhut Owner Trust Amended and
Restated Liquidity Agreement dated as of May 26, 1995, all
accrued unpaid commitment fees and any other amounts owing
under such Liquidity Agreement.
(p) Payment of Other Fees. The Administrative Agent
shall have received, for its own account and the account of
the Lenders, all fees agreed to be paid on the Closing Date.
5.2 Conditions Precedent to Each Credit Utilization.
The right of the Borrower to make any Credit Utilization is
subject to the conditions that at the time of each such Credit
Utilization and after giving effect thereto and to all other
transactions pursuant to the Facility Documents on such day,
including, without limitation, the issuance and repayment of
Commercial Paper and the borrowing and repayment of Loans:
(a) Borrowing Base; Class A Percentage. (i) The
Credits Outstanding on such day shall not exceed the
Borrowing Base and (ii) the Class A Percentage on such day
shall not exceed 97%.
(b) Maximum Aggregate Commitment. The sum on such day
of (i) Credits Outstanding and (ii) the excess, if any, of
(x) the Interest Component of the outstanding Commercial
Paper over (y) all funds then on deposit in the Interest
Reserve Subaccount (except to the extent that such funds are
then subject to any writ, order, stay, judgment, warrant of
attachment or execution or similar process) shall not exceed
the sum of the Maximum Aggregate Commitment and the 364-Day
Maximum Aggregate Commitment.
(c) Ratings. (i) With respect to the right of the
Borrower to issue Commercial Paper only, the Commercial
Paper issued shall be rated A-1 or better by S&P, P-1 or
better by Moody's, and an equivalent rating by each of the
other Rating Agencies.
(d) No Default or Event of Default. No Default or
Event of Default shall have occurred and be continuing and
no Default or Event of Default will result from such Credit
Utilization.
(e) Representations and Warranties. All
representations and warranties of the Borrower and the
Administrator contained in this Agreement and the other
Program Documents shall, in each case, be true and correct
in all material respects with the same force and effect as
though such representations and warranties had been made on
and as of the day of such Credit Utilization.
(f) Offering Memorandum. With respect to the right of
the Borrower to issue Commercial Paper only, the portion, if
any, of each credit report, offering memorandum or
information circular, other than the initial Commercial
Paper Memorandum, to be used by the Borrower in connection
with the offer or sale of the Commercial Paper which
describes a Lender either (i) shall have been approved by
such Lender or (ii) shall not have been objected to in
writing delivered to the Administrator within 10 Business
Days after receipt by such Lender of such portion of such
document.
(g) Accounts. The Collateral Account, the Commercial
Paper Account, the Reserve Account and the Non-Pro Rata
Funding Account and any funds on deposit in, or otherwise to
the credit of, the Collateral Account, the Commercial Paper
Account, the Reserve Account and the Non-Pro Rata Funding
Account shall not be subject to any writ, order, stay,
judgment, warrant of attachment or execution of similar
process.
(h) Required Reserve Account Funded Amount. With
respect to the right of the Borrower to issue Commercial
Paper only, the amount on deposit in the Reserve Account
with respect to each Downgraded Lender which is obligated to
make Non-Pro Rata Reserve Account Loans is greater than or
equal to the Required Reserve Account Funded Amount of such
Downgraded Lender (after giving effect to such issuance of
Commercial Paper).
(i) Commercial Paper Interest Component. With respect
to the right of the Borrower to issue Commercial Paper only,
the Interest Component of such Commercial Paper (expressed
as a per annum rate) shall not exceed 9.625% unless (i) the
Interest Component of such Commercial Paper (expressed as a
per annum rate) does not exceed 0.30% plus LIBOR (as defined
in the Series 1998-1 Supplement) in effect on the most
recent Interest Accrual Period Commencement Date (as defined
below) occurring on or prior to the date of issuance of such
Commercial Paper and (ii) the stated maturity date of such
Commercial Paper occurs prior to the Interest Accrual Period
Commencement Date next succeeding the date of issuance of
such Commercial Paper. As used in this paragraph, "Interest
Accrual Period Commencement Date" means the first day of any
Interest Accrual Period.
(j) Commercial Paper Principal Component. With
respect to the right of the Borrower to issue Commercial
Paper only, after giving effect to such issuance, the
aggregate Principal Component of all outstanding Commercial
Paper (minus all funds then on deposit in the Principal
Subaccount, the Reserve Account and the Non-Pro Rata Funding
Account, except to the extent that such funds are then
subject to any writ, order, stay, judgment, warrant of
attachment or execution or similar process) shall not exceed
the Series 1998-1 Class A Invested Amount.
(k) Class A Maximum Invested Amount. With respect to
the right of the Borrower to issue Commercial Paper only,
after giving effect to such issuance, the sum of (i) the
aggregate Principal Component of all outstanding Commercial
Paper (minus all funds then on deposit in the Principal
Subaccount, the Reserve Account and the Non-Pro Rata Funding
Account, except to the extent that such funds are then
subject to any writ, order, stay, judgment, warrant of
attachment or execution or similar process) and (ii) the
excess, if any, of (x) the Interest Component of all
outstanding Commercial Paper over (y) all funds then on
deposit in the Interest Reserve Subaccount (except to the
extent that such funds are then subject to any writ, order,
stay, judgment, warrant of attachment or execution or
similar process) shall not exceed the Series 1998-1 Class A
Maximum Invested Amount.
The Borrower hereby agrees that each Credit Utilization
constitutes a representation and warranty by the Borrower that
the conditions specified above are then satisfied and will be
satisfied after giving effect thereto.
5.3 Conditions Precedent to Making of Each Refunding
Loan, Non-Pro Rata Revolving Loan or Initial Non-Pro Rata Reserve
Account Loan. The obligation of each Lender to make any
Refunding Loan or Non-Pro Rata Revolving Loan or its initial Non-
Pro Rata Reserve Account Loan is subject to the condition that at
the time of making any such Refunding Loan or Non-Pro Rata
Revolving Loan or initial Non-Pro Rata Reserve Account Loan and
after giving effect thereto and to all other transactions
pursuant to the Facility Documents on such day:
(a) Borrowing Base; Class A Percentage. (i) The
Credits Outstanding on such day shall not exceed the
Borrowing Base and (ii) the Class A Percentage on such day
shall not exceed 97%.
(b) Maximum Aggregate Commitment. The sum on such day
of (i) Credits Outstanding and (ii) the excess, if any, of
(x) the Interest Component of the outstanding Commercial
Paper over (y) all funds then on deposit in the Interest
Reserve Subaccount (except to the extent that such funds are
then subject to any writ, order, stay, judgment, warrant of
attachment or execution or similar process) shall not exceed
the sum of the Maximum Aggregate Commitment and the 364-Day
Maximum Aggregate Commitment.
(c) Bankruptcy Events. No Event of Default described
in clause (i), (ii) or (iii) of Section 8(e) shall have
occurred and be continuing, in each case with respect to the
Borrower.
(d) Lender's Commitment. The aggregate outstanding
principal amount of the Loans made by any Lender shall not
exceed such Lender's Commitment.
The Borrower hereby agrees that each Borrowing by the Borrower of
a Refunding Loan, a Non-Pro Rata Revolving Loan or the initial
Non-Pro Rata Reserve Account Loan of any Lender shall constitute
a representation and warranty by the Borrower that the conditions
contained in this Section 5.3 are then satisfied and will be
satisfied after giving effect thereto.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect, any Commercial Paper Note remains
outstanding and unpaid, any Loan remains outstanding and unpaid
or any other amount is owing to any Lender or the Administrative
Agent hereunder, the Borrower shall:
6.1 Financial Statements. Furnish to the
Administrative Agent (with sufficient copies for each Lender), as
soon as available, but in any event within 100 days after the end
of each fiscal year, commencing with fiscal year 1998, a copy of
the audited balance sheet of the Borrower as at the end of such
year and the related audited statements of income and retained
earnings for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without any
material qualification by independent certified public
accountants of nationally recognized standing; which financial
statements shall be complete and correct in all material respects
and shall be prepared in accordance with GAAP applied
consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants and
disclosed therein).
6.2 Certificates; Other Information. Furnish to the
Administrative Agent (with, except in the case of Daily Reports,
sufficient copies for each Lender):
(a) all notices, financial statements, audit reports
and similar writings the Borrower receives pursuant to the
Series 1998-1 Supplement or the Depositary Agreement and
copies of all offering materials not previously furnished to
the Administrative Agent that are in the possession of the
Borrower;
(b) concurrently with the delivery of the financial
statements referred to in Section 6.1, a certificate of the
independent certified public accountants reporting on such
financial statements stating that in making the examination
necessary therefor no knowledge was obtained of any Default
or Event of Default, except as specified in such
certificate;
(c) concurrently with the delivery of the financial
statements referred to in Section 6.1, a certificate of a
Responsible Officer of the Administrator stating that, to
the best of such Officer's knowledge, (i) such financial
statements present fairly the financial condition and
results of operations of the Borrower for the period
referred to therein and (ii) no Default or Event of Default
except as specified in such certificate has occurred and is
continuing;
(d) concurrently with the delivery to the Borrower,
(i) each Master Trust Settlement Statement, (ii) at the
request of the Administrative Agent, each Master Trust Daily
Report and (iii) any other report or statement delivered
pursuant to the Basic Documents;
(e) promptly, upon receipt thereof, copies of all
annual certificates or special procedures letters delivered
by certified public accountants with respect to the Master
Trust Investor Certificates or Metris Master Trust;
(f) promptly, upon receipt thereof, copies of all
written communications from the Rating Agencies; and
(g) promptly, such additional financial and other
information with respect to the Facility Documents or the
Borrower as the Administrative Agent or any Lender may from
time to time reasonably request.
6.3 Maintenance of Existence; Governmental
Obligations; Compliance with Contractual Obligations,
Requirements of Law. Preserve, renew and keep in full force and
effect its existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or desirable in
the normal conduct of its business except as otherwise permitted
pursuant to Section 7.5; pay all taxes, pension obligations,
including obligations under ERISA, if any, and other governmental
claims in respect of Borrower's operations and assets; comply
with all material Contractual Obligations and Requirements of
Law; file and record all documents, financing statements and
continuation statements that are necessary or appropriate to
perfect the Collateral Trustee's security interest in the
Collateral pursuant to the Collateral Trust Agreement.
6.4 Inspection of Property; Books and Records;
Discussions. (a) Keep proper books and records of account in
which full, true and correct entries in conformity with GAAP and
all applicable Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and
(b) permit representatives of the Administrative Agent and any
Lender to examine and make abstracts from any of its books and
records without charge to the Administrative Agent or such Lender
and to discuss the business, operations and financial condition
of the Borrower with officers and employees of the Borrower and,
after consultation with the Borrower, with its independent
certified public accountants, but in each case only (i) upon
reasonable request and notice and (ii) during normal business
hours, all as the Administrative Agent or any Lender may
reasonably deem appropriate for the purpose of verifying the
accuracy of various reports delivered by or on behalf of the
Borrower to the Administrative Agent and/or the Lenders pursuant
to this Agreement or any other Program Document or for otherwise
ascertaining compliance with this Agreement or any other Program
Document. Except during the continuance of any Event of Default,
all requests by Lenders under this Section 6.4 shall be made
through and coordinated by the Administrative Agent with a view
to minimizing inconvenience to the Borrower.
6.5 Notices. Promptly give notice to the
Administrative Agent and each Lender of:
(a) the occurrence of any Default, Event of Default or
Administrator Termination Event;
(b) any default or event of default under any material
Contractual Obligation of the Borrower;
(c) any litigation, and any investigation or
proceeding of which the Borrower has knowledge, specifically
relating to the Borrower; and
(d) a material adverse change in the business,
operations or condition (financial or otherwise) of the
Borrower.
Each notice pursuant to this Section 6.5 shall be accompanied by
a statement of a Responsible Officer of the Administrator setting
forth details of the occurrence referred to therein and stating
what action the Borrower proposes to take with respect thereto.
The Borrower shall send a copy of each notice pursuant to Section
6.5(a) to each Rating Agency.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the
Commitments remain in effect, any Commercial Paper Note remains
outstanding and unpaid, any Loan remains outstanding and unpaid
or any other amount is owing to any Lender or the Administrative
Agent hereunder, the Borrower shall not directly or indirectly:
7.1 Limitation on Activities of the Borrower. Engage
in any business or activity of any kind or enter into any
transaction or indenture, mortgage, instrument, agreement,
contract, lease or other undertaking which is not directly
related to the transactions contemplated by the Facility
Documents or the 364-Day Liquidity Agreement.
7.2 Limitation on Indebtedness, Guarantees. Create,
incur, assume or suffer to exist any (a) Indebtedness, except
(i) obligations incurred or owing to the Lenders under this
Agreement, (ii) the Commercial Paper Notes, (iii) the
administration fee provided for in the Administration Agreement
and (iv) liabilities contemplated by any Facility Document or the
364-Day Liquidity Agreement or (b) obligation pursuant to any
Guarantee.
7.3 Limitation on Liens. Create, incur, assume or
suffer to exist any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, or assign or
otherwise convey or encumber any existing or future right to
receive any income or payments, except for Liens created pursuant
to the Collateral Trust Agreement and the Depositary Agreement.
7.4 Limitation on Investments, Loans and Advances.
Make any advance, loan, extension of credit or capital
contribution to, or purchase any stock, bonds, notes, debentures
or other securities of or any assets constituting a business unit
of, or make any other investment in, any Person, except:
(a) purchase of any interest in the Series 1998-1
Class A Security pursuant to and in accordance with the
Series 1998-1 Supplement; and
(b) investments of amounts on deposit in the
Collateral Account, the Non-Pro Rata Funding Account and the
Reserve Account permitted by the Collateral Trust Agreement.
7.5 Limitation on Fundamental Changes and Sale of
Assets. Enter into any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation
or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, any of its property, business or assets,
including, without limitation, the Series 1998-1 Class A
Security, except as contemplated by the Collateral Trust
Agreement, the Depositary Agreement or the Owner Trust Agreement.
7.6 Limitation on Payments, Capital Expenditures.
Make any payment to any Person (including, without limitation,
any salaries or bonuses) or make any expenditure (by long-term or
operating lease or otherwise) for capital assets (both realty and
personal), except as contemplated by the Facility Documents or
the 364-Day Liquidity Agreement.
7.7 Other Agreements. (a) Become a party to, or
permit any of its properties to be bound by, any indenture,
mortgage, instrument, contract, agreement, lease or other
undertaking, except the Facility Documents or the 364-Day
Liquidity Agreement or documents and agreements incidental
thereto or contemplated by the Facility Documents or the 364-Day
Liquidity Agreement, or establish or maintain a Plan or have any
liability to PBGC under ERISA or issue any power of attorney
except to the Collateral Trustee and except for the purpose of
permitting any Person to perform any ministerial functions on
behalf of the Borrower which are not inconsistent with the terms
of the Collateral Trust Agreement.
(b) Agree to, consent to, or request the cancellation,
termination, amendment, supplementation, modification, extension
or waiver of any of the provisions of any Facility Document,
unless (i) the Borrower receives the prior written consent of the
Majority Lenders, (ii) the Owner Trustee shall have taken all
steps necessary to enable it to take such action pursuant to
Section 4.1 of the Owner Trust Agreement and (iii) such
cancellation, termination, amendment, supplement, modification,
extension or waiver would not result in a withdrawal or downgrade
of the ratings of the outstanding Commercial Paper Notes referred
to in Section 5.2(c) or the ratings of the Series 1998-1 Class A
Security referred to in Section 5.1(b) of the Series 1998-1 Class
A Security Purchase Agreement; provided, however, that (x) the
Borrower may cancel, terminate, amend, supplement, modify or
waive provisions of the Commercial Paper Agreement, the
Commercial Paper Notes and the Owner Trust Agreement so long as
no such cancellation, termination, amendment, supplement,
modification, extension or waiver would adversely affect the
Lenders; (y) the Borrower may not extend the time for payment, or
reduce the amount, of any amount of money payable to or for the
account of the holder of the Series 1998-1 Class A Security under
any provision of the Series 1998-1 Supplement, in each case
without the consent of all Lenders (except that, with respect to
extending the Expiration Date (and extending the scheduled
termination date of the Revolving Period, the Scheduled Series
Termination Date and the Series 1998-1 Amortization Period
Commencement Date by corresponding lengths of time), no consent
of a Non-Extending Lender shall be necessary) and (z) no
provision of Section 8 of the Collateral Trust Agreement may be
amended, supplemented, modified or waived, and no material
portion of the Collateral may be released, without the written
consent of all the Lenders. The Borrower will give the Rating
Agencies and the Administrative Agent at least five Business
Days' prior written notice of any such cancellation, termination,
amendment, supplement, modification, extension or waiver of any
of the Facility Documents. The Administrative Agent shall
promptly deliver any such notice received by it to the Lenders.
(c) Without the prior written consent of the
Administrative Agent (which may, in accordance with its rights
under Section 9, or shall, at the direction of the Majority
Lenders, provide such consent), exercise any right, remedy, power
or privilege available to it with respect to the Master Trust
Servicer or the Master Trust Trustee under the Series 1998-1
Supplement or the Metris Pooling and Servicing Agreement or the
Administrator under the Administration Agreement, take any action
to compel or secure performance or observance by the Master Trust
Servicer or the Master Trust Trustee of its obligations to the
Borrower under the Series 1998-1 Supplement or the Metris Pooling
and Servicing Agreement or the Administrator under the
Administration Agreement, or give any consent, request, notice,
direction, approval, extension or waiver to the Master Trust
Servicer or the Master Trust Trustee under the Series 1998-1
Supplement or the Metris Pooling and Servicing Agreement or the
Administrator under the Administration Agreement, not required to
be exercised, taken, observed or given by the Borrower pursuant
to the terms of the Series 1998-1 Supplement, the Metris Pooling
and Servicing Agreement or the Administration Agreement, as the
case may be.
7.8 Commercial Paper Notes. (a) Fail to comply with
all laws and regulations applicable to the offering, issuance,
sale or delivery of Commercial Paper Notes or (b) sell any
Commercial Paper Notes if (i) the applicable conditions to such
sale set forth in Section 5.2 have not been satisfied or (ii) any
changes have been made to the Commercial Paper Memorandum or
other offering material to be used in connection with the
offering, issuance, sale or delivery of any Commercial Paper
Notes, insofar as such pertains to any Lender, the Administrative
Agent or the Collateral Trustee or their respective obligations
hereunder or under the transactions contemplated hereby, unless
either (x) such changes shall have been approved by such Lender,
the Administrative Agent or the Collateral Trustee, as the case
may be, or (y) such changes shall not have been objected to in
writing delivered to the Administrator within 10 Business Days
after receipt by such Lender, the Administrative Agent or the
Collateral Trustee, as the case may be, of a copy thereof.
7.9 Amendment of Organizational Certificate. Amend
its certificate of trust without the consent of the Majority
Lenders and the Rating Agencies, provided, however, that (a) the
Borrower may change the name and address (but not the identity)
of the Owner Trustee listed in such certificate without the
consent of the Lenders or the Rating Agencies (so long as the
Administrative Agent shall have been given prior written notice
thereof), and (b) upon payment in full of the Obligations, the
Borrower may amend such certificate without the consent of the
Lenders.
7.10 Series 1998-1 Class A Security. (a) Increase
the Series 1998-1 Class A Invested Amount unless the following
conditions precedent have been satisfied with respect thereto on
the date of such increase:
(i) no Series 1998-1 Pay Out Event shall have occurred
and be continuing or would occur after giving effect to such
increase;
(ii) all conditions precedent to such increase set
forth in the Series 1998-1 Supplement shall have been
satisfied;
(iii) the conditions to a Credit Utilization
consisting of either a Revolving Loan or the issuance of
Commercial Paper could be satisfied as of such date;
(iv) all representations and warranties of MRI and the
Master Trust Servicer contained in the Metris Pooling and
Servicing Agreement and the Master Trust Purchase Agreement
shall, in each case, be true and correct in all material
respects with the same force and effect as though such
representations and warranties had been made on and as of
the day of such increase, except to the extent such
representations and warranties expressly relate to a
particular date, in which case such representations and
warranties shall be true and correct on and as of such date;
and
(v) (A) the Administrative Agent shall have received
(x) a copy of the Series 1998-1 Class A Security, duly
executed and delivered by MRI and authenticated by or on
behalf of the Master Trust Trustee and (y) one or more
opinions with respect to tax and other matters, in form and
substance reasonably satisfactory to the Administrative
Agent and (B) the conditions to the issuance of the Series
1998-1 Class A Security specified in Section 4.14 of the
Series 1998-1 Supplement and Section 5.1 of the Series 1998-
1 Class A Security Purchase Agreement shall have been
satisfied.
(b) Increase the Maximum Aggregate Commitment pursuant
to Section 2.8 unless, on the date of such increase, (i) after
giving effect thereto, the Series 1998-1 Class A Invested Amount
shall equal or exceed the Maximum Aggregate Commitment and (ii)
the sum of the Class B Invested Amount and the CTO Invested
Amount (as each such term is defined in the Series 1998-1
Supplement) shall have been increased in a manner satisfactory to
the Majority Lenders.
SECTION 8. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any
of the following events:
(a) The Borrower shall fail to pay any principal of
any Loan or any amount in respect of any Commercial Paper
Note when due in accordance with the terms hereof or thereof
(unless, in the case of Commercial Paper Notes, such failure
is a result of the failure of a Lender to make a Refunding
Loan required to be made by it hereunder); or the Borrower
shall fail to pay any interest on any Loan, or any fee or
other amount payable hereunder, and such failure shall
continue unremedied for a period of five Business Days after
any such interest or other amount becomes due in accordance
with the terms hereof; provided, however, that the failure
to pay any amount due under Section 2.17, 2.18, 2.19 or 2.20
shall not constitute an Event of Default unless such failure
shall continue unremedied for 90 days after such amount
becomes due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made
by the Borrower herein or in any other Program Document or
which is contained in any certificate, document or financial
or other statement furnished at any time under or in
connection herewith or therewith shall prove to have been
incorrect in any respect material to the interests of the
Lenders on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or
performance of any agreement contained in Section 2.21, 3,
6.5(a) or 7 of this Agreement or in Section 4.1 or 4.2 of
the Collateral Trust Agreement; or
(d) The Borrower shall default in the observance or
performance of any other agreement contained in this
Agreement (other than as provided in paragraphs (a) through
(c) of this Section), or in any other Program Document, and
such default shall continue unremedied for a period of 30
days after notice from the Administrative Agent or the
Majority Lenders; or
(e) (i) The Borrower, MRI or the Metris Master Trust
shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for
it or for all or any substantial part of its assets, or the
Borrower, MRI or the Metris Master Trust shall make a
general assignment for the benefit of its creditors; or (ii)
there shall be commenced against the Borrower, MRI or the
Metris Master Trust any case, proceeding or other action of
a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be
commenced against the Borrower, MRI or the Metris Master
Trust any case, proceeding or other action seeking issuance
of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets
which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof;
or (iv) the Borrower, MRI or the Metris Master Trust shall
take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii) or (iii) above; or (v) the
Borrower, MRI or the Metris Master Trust shall generally
not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(f) One or more judgments or decrees shall be entered
against the Borrower involving in the aggregate a liability
(not paid or covered by insurance) of $10,000 or more and
all such judgments or decrees shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60
days from the entry thereof; or
(g) The Collateral Trust Agreement shall cease, for
any reason, to be in full force and effect or any other
Facility Document shall cease, for any reason, to be in full
force and effect other than as permitted in accordance with
its terms; or
(h) The Master Trust Servicer shall fail to make any
payment, transfer or deposit or shall fail to give
instructions or notice to the Master Trust Trustee pursuant
to Article IV of the Metris Pooling and Servicing Agreement
on or before the date occurring five Business Days after the
date such payment, transfer or deposit or such instruction
or notice is required to be made or given, as the case may
be, under the terms of the Metris Pooling and Servicing
Agreement; provided, however, that any such failure caused
by a non-willful act of the Master Trust Servicer shall not
constitute an Event of Default if the Master Trust Servicer
promptly remedies such failure within five Business Days
after receiving notice of such failure or otherwise becoming
aware of such failure; or
(i) MRI shall fail (i) to make any payment or deposit
required to be made by MRI by the terms of (x) the Metris
Pooling and Servicing Agreement or (y) the Series 1998-1
Supplement, on or before the date occurring five Business
Days after the date such payment or deposit is required to
be made therein, (ii) to perform in all material respects
MRI's covenant not to sell, pledge, assign, or transfer to
any person, or grant any unpermitted lien on, any
Receivable; or (iii) duly to observe or perform in any mate
rial respect any covenants or agreements of MRI set forth in
the Metris Pooling and Servicing Agreement or the Series
1998-1 Supplement, which failure has a material adverse
effect on the interests of the Lenders and which continues
unremedied for a period of 30 days after the date on which
written notice of such failure, requiring the same to be
remedied, shall have been given to MRI by the Administrative
Agent or the Majority Lenders; or
(j) Any representation or warranty made by MRI in the
Metris Pooling and Servicing Agreement or the Series 1998-1
Supplement, (i) shall prove to have been incorrect in any
material respect when made, which continues to be incorrect
in any material respect for a period of 30 days after the
date on which written notice of such failure, requiring the
same to be remedied, shall have been given to MRI by the
Administrative Agent or the Majority Lenders, and (ii) as a
result of which the interests of the Lenders are materially
and adversely affected and continue to be materially and
adversely affected for such period; provided, however, that
an Event of Default pursuant to this paragraph (d) shall not
be deemed to have occurred hereunder if MRI has accepted
reassignment of the related Receivable, or all of such
Receivables, if applicable, during such period in accordance
with the provisions of the Metris Pooling and Servicing
Agreement; or
(k) A Master Trust Servicer Default shall have
occurred and be continuing; provided, however, that such
Master Trust Servicer Default shall be an Event of Default
only if in the good faith judgment of the Majority Lenders
such Master Trust Servicer Default would have a Material
Adverse Effect on the collectibility of the Loans and the
Administrative Agent shall have notified the Borrower in
writing that such determination has been made; or
(l) An Administrator Termination Event shall have
occurred and be continuing; or
(m) The Borrower, MRI or Metris Master Trust shall
become required to register under the Investment Company Act
of 1940, as amended, as an "investment company" (as defined
in such act); or
(n) An "Event of Default" under and as defined in the
364-Day Liquidity Agreement shall have occurred and be
continuing; or
(o) As of any Determination Date, the Class A
Percentage shall equal 100%;
then, and in any such event, the Administrative Agent and the
Lenders shall have the following rights: If such event is an
Event of Default specified in paragraph (e), (m) or (o) of this
Section 8, (x) automatically the right of the Borrower to sell
any Commercial Paper Notes shall immediately terminate and (y)
automatically the Commitments shall immediately terminate and the
Loans (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable
(provided, however, that such termination shall not affect the
obligations of the Lenders to make additional Refunding Loans
upon satisfaction of the applicable conditions precedent
thereto). If such an event is an Event of Default other than an
Event of Default specified in paragraph (e), (m) or (o) of this
Section 8, any or all of the following actions may be taken: (A)
with the consent of the Majority Lenders the Administrative Agent
may, or upon the request of the Majority Lenders the
Administrative Agent shall, by notice to the Borrower and the
Depositary with respect to Commercial Paper Notes, terminate the
right of the Borrower to sell Commercial Paper Notes, whereupon
such right shall immediately terminate; and (B) with the consent
of the Majority Lenders the Administrative Agent may, or upon the
request of the Majority Lenders the Administrative Agent shall,
by notice to the Borrower, declare the Commitments to be
terminated forthwith, whereupon the Commitments shall immediately
terminate; and (C) with the consent of the Majority Lenders the
Administrative Agent may, or upon the request of the Majority
Lenders the Administrative Agent shall, by notice of default to
the Borrower, declare the Loans (with accrued interest thereon)
and all other amounts owing under this Agreement to be due and
payable forthwith, whereupon the same shall immediately become
due and payable (provided, however, that any such declaration
referred to in clause (B) or (C) above shall not affect the
obligations of the Lenders to make additional Refunding Loans
upon satisfaction of the applicable conditions precedent
thereto). Except as expressly provided above in this Section 8,
presentment, demand, protest and all other notices of any kind
are hereby expressly waived.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably
designates and appoints the Administrative Agent as the agent of
such Lender under this Agreement, and each such Lender hereby
irrevocably authorizes the Administrative Agent, as agent for
such Lender, to take such action on its behalf under the
provisions of this Agreement and the other Program Documents and
to exercise such powers and perform such duties as are expressly
delegated to the Administrative Agent by the terms of this
Agreement, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement or any other Program
Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Program Document
or otherwise exist against the Administrative Agent.
9.2 Delegation of Duties. The Administrative Agent
may execute any and all duties hereunder by or through agents or
employees and shall be entitled to rely upon the advice of legal
counsel selected by it with respect to all matters arising
hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of
such counsel.
9.3 Exculpatory Provisions. Neither the
Administrative Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any
other Program Document (except for its or such Person's own gross
negligence or wilful misconduct), or (ii) responsible in any
manner to any of the Lenders for any recitals, statements,
representations or warranties made by any Program Party contained
in this Agreement, the other Program Documents or in any
certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or the other Program Documents
or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other
Program Documents or any such certificate, report, statement or
other document or for any failure of any Program Party to perform
its obligations hereunder or thereunder. The Administrative
Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this
Agreement or the other Program Documents or any such certificate,
report, statement or other document, or to inspect the
properties, books or records of any Program Party.
9.4 Reliance by Agent. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and
upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and
other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the Lender specified in
the Register with respect to any amount payable hereunder as the
payee thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed
with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under
this Agreement or any other Program Document unless it shall
first receive such advice or concurrence of the Majority Lenders
or, if otherwise specifically set forth herein, all Lenders, as
it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or
continuing to take any such action. The Majority Lenders, or if
otherwise specifically set forth herein, all Lenders, shall be
entitled to direct the Administrative Agent in taking action
under this Agreement and the other Program Documents. The
Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and
the other Program Documents in accordance with a request of the
Majority Lenders or, if otherwise specifically set forth herein,
all Lenders, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders and
all future holders of the obligations owing by the Borrower
hereunder.
9.5 Notice of Default. The Administrative Agent shall
not be deemed to have knowledge or notice of the occurrence of
any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or the
Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives
such a notice, the Administrative Agent shall give prompt notice
thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall
be reasonably directed by the Majority Lenders (or, if otherwise
specifically set forth herein, all Lenders); provided, however,
that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall
not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as
it shall deem advisable in the best interests of the Lenders.
9.6 Non-Reliance on Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representations or
warranties to it and that no act by the Administrative Agent
hereinafter taken, including any review of the affairs of any
Program Party, shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial
and other condition and creditworthiness of the Borrower and made
its own decision to make its Loans hereunder and enter into this
Agreement. Each Lender also represents that it will,
independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not
taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports
and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder (which shall in
each case be furnished promptly to the Lenders), the
Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information
concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any
Program Party which may come into the possession of the
Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
9.7 Indemnification. The Lenders agree to indemnify
the Administrative Agent in its capacity as such (to the extent
not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages in effect on the date on which
indemnification is sought under this Section 9.7 (or, if
indemnification is sought after the date upon which the
Commitments shall have terminated and the Loans shall have been
paid in full, ratably in accordance with their Commitment
Percentages immediately prior to such date of payment in full),
from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment
of the Loans) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of
this Agreement, the other Program Documents or any documents
contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or any action taken
or omitted by the Administrative Agent under or in connection
with any of the foregoing; provided, however, that no Lender
shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from
the Administrative Agent's gross negligence or wilful misconduct.
The agreements in this Section 9.7 shall survive the payment of
the Loans and all other amounts payable hereunder.
9.8 Administrative Agent in Its Individual Capacity.
The Administrative Agent and its affiliates may make loans to,
accept deposits from, and generally engage in any kind of
business with, the Borrower as though the Administrative Agent
were not the Administrative Agent hereunder. With respect to its
Loans made or renewed by it, the Administrative Agent shall have
the same rights and powers under this Agreement and the other
Program Documents as any Lender and may exercise the same as
though it were not the Administrative Agent, and the term
"Lenders" shall include the Administrative Agent in its
individual capacity.
9.9 Successor Administrative Agent. The
Administrative Agent may resign as Administrative Agent upon 10
days' notice to the Lenders and following the appointment of a
successor Administrative Agent in accordance with the provisions
of this Section 9.9. If the Administrative Agent shall resign as
Administrative Agent under this Agreement, then the Majority
Lenders shall appoint from among the Lenders willing to serve as
Administrative Agent a successor agent for the Lenders, which
successor agent shall be approved by the Borrower (which approval
shall not be unreasonably withheld or delayed), whereupon such
successor agent shall succeed to the rights, powers and duties of
the Administrative Agent, and the term "Administrative Agent"
shall mean such successor agent effective upon its appointment,
and the former Administrative Agent's rights, powers and duties
as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative
Agent or any of the parties to this Agreement or any holders of
the obligations owing by the Borrower hereunder. After any
retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this
Agreement.
9.10 Administrative Agent's Fee. The Borrower shall
pay the Administrative Agent the agency fee referred to in the
separate letter agreement between the Administrative Agent and
Metris.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. (a) No provision of
this Agreement may be amended, waived, supplemented, modified,
restated, discharged or terminated without the written consent of
the Administrative Agent, the Majority Lenders and the Borrower;
provided, however, that no such amendment, waiver, supplement,
modification, restatement, discharge or termination shall (i)
reduce the principal amount or extend the maturity of any Loan,
or reduce the rate or extend the time of payment of interest
thereon, or reduce the amount of any fees or commissions
receivable by the Lenders hereunder, or change the amount or
extend the expiration date of any Lender's Commitment, in each
case without the consent of each Lender directly affected
thereby, or (ii) amend, modify or waive any provision of Section
7.7(b) or (c) or of this Section 10.1, or reduce the percentage
specified in the definition of Majority Lenders or otherwise
reduce any other stated percentage of Lenders required to grant
any consent pursuant to this Agreement, in each case without the
written consent of all the Lenders, or (iii) amend, modify or
waive any provision of Section 9 without the written consent of
the Administrative Agent.
(b) Unless otherwise specified herein or therein, no
provision of the Program Documents (other than this Agreement)
may be amended, waived, supplemented, modified, restated,
discharged or terminated without the written consent of the
Administrative Agent, the Majority Lenders and the Borrower;
provided, however, that (i) no such amendment, waiver,
supplement, modification, restatement, discharge or termination
shall reduce the amount of any fees or commissions receivable by
the Lenders under the Administration Agreement without the
written consent of all the Lenders, (ii) any provision of the
Program Documents which by its terms requires the written consent
of all the Lenders shall not be amended, waived, supplemented,
modified, restated, discharged or terminated without prior
written consent of all the Lenders and (iii) any provision of the
Commercial Paper Agreement, the Commercial Paper Notes and the
Owner Trust Agreement (unless otherwise specified in any
provision thereof) may be amended, waived, supplemented,
modified, restated, discharged or terminated without the consent
of the Lenders (but not without a confirmation by each Rating
Agency of the ratings of the Commercial Paper) if such amendment,
waiver, supplement, modification, restatement, discharge or
termination would not adversely affect the Lenders.
(c) No amendment, waiver, supplement, modification,
restatement, discharge or termination pursuant to this Section
10.1 shall be made without a confirmation by each of the Rating
Agencies that such action will not result in a withdrawal or
downgrade of the ratings of the outstanding Commercial Paper
Notes referred to in Section 5.2(c) or the ratings of the Series
1998-1 Class A Security referred to in Section 5.1(b) of the
Series 1998-1 Class A Security Purchase Agreement.
(d) Any amendment, waiver, supplement, modification,
restatement, discharge or termination approved in accordance with
this Section 10.1 shall apply equally to each of the Lenders and
shall be binding upon the Borrower, the Lenders, the
Administrative Agent and all future holders of the obligations
owing by the Borrower hereunder. In the case of any waiver, the
Borrower, the Lenders and the Administrative Agent shall be
restored to their former position and rights hereunder, and any
Default or Event of Default waived shall be deemed to be cured
and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any
right consequent thereon.
10.2 Notices. Except where telephonic instructions or
notices are authorized herein to be given, all notices, requests
and demands to or upon the respective parties hereto to be
effective shall be in writing and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made
when delivered by hand or by overnight courier, or, in the case
of telecopy notice, when received, addressed as follows in the
case of the Borrower and the Administrative Agent, and as set
forth in an administrative questionnaire furnished to the
Administrative Agent in the case of the Lenders, or to such
address or other address as may be hereafter notified by the
respective parties hereto and any future holders of the
obligations owing by the Borrower hereunder:
The Borrower:
METRIS OWNER TRUST
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
Telecopy: 302-651-8882
The Administrative Agent:
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, New York 10017
Attention: Gail Weiss
Telecopy:
212-270-1789
With a copy to:
CHASE AGENCY SERVICES GROUP
One Chase Manhattan Plaza
New York, New York 10081
Attention: Janet Belden
Telecopy: 212-552-5658
provided, however, that any notice, request or demand to or upon
the Lenders or the Administrative Agent pursuant to Sections 2.3,
2.6, 2.7 and 2.11 shall not be effective until received by the
party or parties to whom such notice, request or demand is sent.
10.3 No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of any Lender or
the Administrative Agent, any right, remedy, power or privilege
hereunder, and no course of dealing between the Borrower and any
Lender, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law. No notice to or demand on any party
in any case shall entitle such party to any other or further
notice or demand in similar or other circumstances, or constitute
a waiver of the right of the other party to any other or further
action in any circumstances without notice or demand.
10.4 Survival of Representations and Warranties. All
representations and warranties made by the Borrower hereunder, in
any of the other Program Documents and in any other document,
certificate or statement delivered pursuant hereto or thereto or
in connection herewith or therewith shall survive the execution
and delivery of this Agreement and the making of the Loans
hereunder.
10.5 Payment of Expenses and Taxes. Subject to
Section 10.15, the Borrower agrees (a) to pay or reimburse the
Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development,
preparation and execution of this Agreement and the other
Facility Documents and any amendment, supplement or modification
to this Agreement and the other Facility Documents and any other
documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby,
including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay
or reimburse each Lender for the reasonable fees and
disbursements of counsel to such Lender incurred in connection
with the preparation, execution and delivery of the opinion
referred to in Section 5.1(d)(ii), (c) to pay or reimburse the
Administrative Agent and each Lender for all its costs and
expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, the other
Facility Documents and any such other documents, including,
without limitation, fees and disbursements of counsel to the
Administrative Agent and to the several Lenders, (d) to pay,
indemnify and hold each Lender and the Administrative Agent
harmless from, any and all recording and filing fees and any and
all liabilities with respect to, or resulting from any delay in
paying, stamp and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement,
any of the other Facility Documents and any such other documents,
and (e) to pay, indemnify and hold each Lender and the
Administrative Agent, and their respective directors, trustees,
officers, employees, agents and affiliates, harmless from and
against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever with respect to
the execution, delivery, enforcement, performance and
administration of this Agreement, any of the other Facility
Documents and any such other documents. The obligation of the
Borrower to make any payment pursuant to this Section 10.5 shall
be payable solely from amounts, if any, available therefor
pursuant to Section 5.3(a)(ii)(I) or Section 5.3(b)(v) of the
Collateral Trust Agreement.
10.6 Successors and Assigns; Participation. (a) This
Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Administrative Agent, all future
holders of the obligations of the Borrower owing hereunder and
their respective successors and assigns; provided, however, that
the Borrower shall not assign or transfer any or all its rights
and obligations hereunder without the prior written consent of
each Lender.
(b) Any Lender may, in the ordinary course of its
commercial banking or lending business and in accordance with
applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan
owing to such Lender, the Commitment of such Lender or any other
interest of such Lender hereunder. In the event of any such sale
by a Lender of participating interests to a Participant, such
Lender's obligations under this Agreement to the other parties to
this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall
remain the holder of its Commitment and its Loans for all
purposes under this Agreement and the Borrower and the
Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and
obligations under this Agreement. The Borrower agrees that each
Participant shall be entitled to the benefits, and subject to the
requirements, of Sections 2.17, 2.18, 2.19, 2.20, 2.23 and 10.5
with respect to its participation in the Commitment and the Loans
outstanding from time to time; provided, however, that no
Participant shall be entitled to receive any greater amount
pursuant to such Sections than the transferor Lender would have
been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such
Participant had no such transfer occurred. In the event of any
such sale by a selling Lender of a participating interest to a
Participant the selling Lender shall not grant any such
Participant any voting rights or veto power over any action by
the selling Lender under this Agreement, except that the selling
Lender may agree not to take any action which would require the
consent of such selling Lender under Section 10.1(a) or (b)
without the consent of such Participant.
(c) Any Lender may, in the ordinary course of its
commercial banking or lending business and in accordance with
applicable law, (i) at any time sell all or any part of its
rights and obligations under this Agreement to any Lender or any
affiliate thereof and (ii) with the consent of the Administrative
Agent and the Borrower (which in each case shall not be
unreasonably withheld or delayed) and subject to at least 10
days' advance notice to the Rating Agencies, sell to one or more
additional banks or financial institutions ("Purchasing
Lenders"), all or any part of its rights and obligations under
this Agreement, pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit A (an "Assignment and
Acceptance"), executed by such Purchasing Lender, such transferor
Lender (and, in the case of a Purchasing Lender that is not then
a Lender or an affiliate thereof, by the Administrative Agent and
the Borrower), and delivered to the Administrative Agent for its
acceptance and recording in the Register (as defined below);
provided that (A) such Purchasing Lender is an Eligible Assignee,
(B) such Purchasing Lender delivers to the Rating Agencies such
opinions of counsel as may be required by the Rating Agencies as
to the enforceability of this Agreement against such Purchasing
Lender, (C) such Assignment and Acceptance is accompanied by a
confirmation by each Rating Agency of the ratings of the
outstanding Commercial Paper and (D) after giving effect to any
such assignment (other than an assignment of all of a Lender's
interests under this Agreement), the transferor Lender (together
with any Lender which is an affiliate of such transferor Lender)
shall retain a Commitment and/or Loans aggregating not less than
$5,000,000. Upon such execution, delivery, acceptance and
recording, from and after the Transfer Effective Date (as defined
in the Assignment and Acceptance) determined pursuant to the
Assignment and Acceptance, (x) the Purchasing Lender thereunder
shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a
Lender hereunder with a Commitment as set forth therein, and (y)
the transferor Lender thereunder shall, to the extent of the
interest transferred, as reflected in such Assignment and
Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or
the remaining portion of a transferor Lender's rights and
obligations under this Agreement, such transferor Lender shall
cease to be a party hereto). Such Assignment and Acceptance
shall be deemed to amend this Agreement to the extent, and only
to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of Commitment
Percentages arising from the purchase by such Purchasing Lender
of all or a portion of the rights and obligations of such
transferor Lender under this Agreement.
(d) The Administrative Agent shall maintain at its
address referred to in Section 10.2 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the
Commitment of and the principal amount of any Loans of each
Lender from time to time. The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower,
the Administrative Agent and the Lenders may treat each Person
whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon
reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by a transferor Lender and a Purchasing Lender (and, in
the case of a Purchasing Lender that is not then a Lender or an
affiliate thereof, by the Borrower and the Administrative Agent),
together with payment to the Administrative Agent of a
registration and processing fee of $3,000, the Administrative
Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the Transfer Effective Date determined pursuant
thereto record the information contained therein in the Register
and give notice of such acceptance and recordation to the Lenders
and the Borrower.
(f) The Borrower authorizes each Lender to disclose to
any Participant or Purchasing Lender (each, a "Transferee") and
any prospective Transferee any and all financial information in
such Lender's possession which has been delivered to such Lender
pursuant to this Agreement or which has been delivered to such
Lender in connection with such Lender's credit evaluation prior
to becoming a party to this Agreement; provided, that, prior to
any such disclosure of information designated by the Borrower as
confidential, each Transferee or prospective Transferee shall
execute an agreement whereby such Transferee or prospective
Transferee shall agree (subject to customary exceptions) to
preserve the confidentiality of such confidential information.
(g) Nothing herein shall prohibit any Lender from
pledging or assigning all or any portion of its Loans to any
Federal Reserve Bank in accordance with applicable law. In order
to facilitate such pledge or assignment, the Borrower hereby
agrees that, upon the request of any Lender at any time and from
time to time after the Borrower has made its initial borrowing
hereunder, the Borrower shall provide to such Lender, at the
Borrower's expense, a promissory note (each, a "Note"),
substantially in the form of Exhibit I, evidencing the Loans made
by such Lender.
10.7 Adjustments. If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of
its Loans, or interest thereon, or receive any collateral in
respect thereof (whether voluntarily or involuntarily, by set-
off, pursuant to events or proceedings of the nature referred to
in Section 8(e) or otherwise) in a greater proportion than any
such payment to or collateral received by any other Lender, if
any, in respect of such other Lender's Loans, or interest
thereon, such Benefitted Lender shall purchase for cash from the
other Lenders such portion of each such other Lender's Loan, or
shall provide such other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be necessary to
cause such Benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such
Benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such
recovery, but without interest.
10.8 Counterparts. This Agreement may be executed by
one or more of the parties to this Agreement on any number of
separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same
instrument. Copies of this Agreement executed by all parties
hereto shall be lodged with the Borrower and the Administrative
Agent.
10.9 Severability. Any provision of this Agreement
which is 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.
10.10 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF NEW YORK.
10.11 Acknowledgements. The Borrower hereby
acknowledges that:
(a) neither the Administrative Agent nor any Lender
has any fiduciary relationship to the Borrower, and the
relationship between the Administrative Agent and Lenders
(in their capacities as such), on one hand, and the
Borrower, on the other hand, is solely that of debtor and
creditor; and
(b) no joint venture, partnership or any other kind of
entity has been created among the Lenders or among the
Borrower and the Lenders as a result of the execution,
delivery and performance by the Lenders and the Borrower of
this Agreement.
10.12 Submission to Jurisdiction; Waivers. (a) Each
of the parties hereto agrees that a final judgment in any New
York State court or any Federal court of the United States of
America sitting in New York City, or any appellate court with
respect to any of the foregoing, shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this Agreement shall
affect any right that any Lender or the Administrative Agent may
have to bring any action or proceeding relating to this Agreement
or the other Program Documents against the Borrower or its
properties in the courts of any jurisdiction.
(b) The Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Program
Documents in any New York State or Federal court, or any
appellate court with respect to any of the foregoing. Each of
the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 10.2. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner
permitted by law.
10.13 WAIVERS OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
PROGRAM DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.14 No Bankruptcy Petition. Each Lender and the
Administrative Agent, severally and not jointly, hereby covenants
and agrees that prior to (a) in the case of the Borrower, the
date which is one (1) year and one (1) day after the later to
occur of the Scheduled Termination Date and the payment in full
of all Commercial Paper Notes and (b) in the case of MRI and
Metris Master Trust, the date which is one (1) year and one (1)
day after payment in full of all invested amounts of all Series
(as defined in the Metris Pooling and Servicing Agreement, it
will not institute against, or join any other Person in
instituting against, the Borrower, Metris Master Trust or MRI 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.
Nothing in this Section 10.14 shall preclude, or be deemed to
estop, any Lender or the Administrative Agent from taking or
omitting to take any action prior to such date in (i) any case or
proceeding voluntarily filed or commenced by or on behalf of the
Borrower, Metris Master Trust or MRI under or pursuant to any
such law or (ii) any involuntary case or proceeding pertaining to
the Borrower, Metris Master Trust or MRI that is filed or
commenced by or on behalf of a Person other than any such Lender
or the Administrative Agent (or any Person to which any such
Lender or the Administrative Agent shall have assigned,
transferred or otherwise conveyed any part of the obligations of
the Borrower, Metris Master Trust or MRI hereunder) under or
pursuant to any such law.
10.15 Limited Recourse. The obligations of the
Borrower under this Agreement and all other Program Documents are
solely the obligations of the Borrower. Except as otherwise
provided in the Program Documents, no recourse shall be had for
the payment of any amount owing in respect of Loans or for the
payment of any fee or other obligation or claim arising out of or
based upon this Agreement or any other Program Document against
any holder of beneficial interest of the Borrower; provided,
however, that nothing in this Section 10.15 shall relieve any
such holder from any liability which any such holder may
otherwise have as a result of such holder's willful misconduct.
For purposes of this Section 10.15 the term "holder of beneficial
interest" shall mean and include such holder of beneficial
interest and all affiliates, employees, officers, directors,
stockholders and beneficial owners of such holder of beneficial
interest.
10.16 Limitation of Liability. It is expressly
understood and agreed by the parties hereto that (a) this
Agreement is executed and delivered by Wilmington Trust Company,
not individually or personally but solely as trustee of the
Borrower, in the exercise of the powers and authority conferred
and vested in it, (b) the representations, undertakings and
agreements herein made on the part of the Borrower are made and
intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but are made and intended
for the purpose of binding only the Borrower and (c) under no
circumstances shall Wilmington Trust Company be personally liable
for the payment of any indebtedness or expenses of the Borrower
or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the
Borrower under this Agreement or the other Facility Documents or
the Owner Trust Documents (as defined in the Owner Trust
Agreement).
10.17 Further Assurances. The Borrower agrees to do
such further acts and things and to execute and deliver to the
Administrative Agent such additional assignments, agreements,
powers and instruments, as the Administrative Agent may require
or deem advisable to carry into effect the purposes of this
Agreement and the other Facility Documents or to better assure
and confirm unto the Administrative Agent its rights, powers and
remedies hereunder.
10.18 Payments Pursuant to the Series 1998-1 Class A
Security Purchase Agreement. The Borrower acknowledges that any
payment owing by MRI to the Borrower pursuant to Section 2.4 of
the Series 1998-1 Class A Security Purchase Agreement shall be
made directly to the Administrative Agent, for the account of the
Lenders, at the Administrative Agent's office specified in
Section 10.2. The Administrative Agent shall in turn apply such
funds to pay Facility Fees or interest in respect of the Loans,
as applicable.
10.19 Limitation on Certain Claims. Notwithstanding
anything to the contrary herein, the Administrative Agent and the
Lenders shall be deemed not to have a claim against the Borrower
in a proceeding of the type described in Section 8(e) for any
amounts payable hereunder (other than (a) Loans and (b) amounts
falling within the parameters specified in Section 5.3(a)(ii)(A)
or 5.3(b)(i) of the Collateral Trust Agreement, as applicable),
except to the extent that amounts, if any, are available therefor
pursuant to the other relevant provisions of the Collateral Trust
Agreement. Nothing in this Section 10.19 shall be deemed to
modify any provision of this Agreement setting forth the
respective due dates for the amounts payable hereunder,
including, without limitation, for the purposes of Sections 2.13
and 8.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
METRIS OWNER TRUST
By: WILMINGTON TRUST COMPANY, not in
its individual capacity but solely
as Owner Trustee
By:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By:
Title:
SCHEDULE I
Commitments
TOTAL $300,000,000
EXECUTION COPY
3-YEAR LIQUIDITY AGREEMENT
among
METRIS OWNER TRUST,
as Borrower
The Several Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of July 30, 1998
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
1.1 Defined Terms 1
1.2 Other Definitional Provisions 14
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS AND LOANS 14
2.1 Commitment 14
2.2 Evidence of Indebtedness 15
2.3 Procedure for Revolving Loan Borrowings 16
2.4 Non-Pro Rata Revolving Loans by Non-
Extending Lenders 16
2.5 Non-Pro Rata Reserve Account Loans by
Downgraded Lenders 17
2.6 Procedures for Non-Pro Rata Revolving Loans
and Non-Pro Rata Reserve Account Loans 19
2.7 Refunding Loans; Procedure for Refunding
Loan Borrowings 20
2.8 Additional Commitments 21
2.9 Facility Fees 21
2.10 Termination or Reduction of Commitments 22
2.11 Conversions and Continuations. 22
2.12 Prepayments. 23
2.13 Interest Rates and Payment Dates 23
2.14 Computation of Facility Fees and Interest 24
2.15 Pro Rata Treatment and Payments 24
2.16 Inability to Determine Interest Rate 25
2.17 Reserve Requirements; Change in
Circumstances 26
2.18 Change in Legality 27
2.19 Indemnity 28
2.20 Taxes 28
2.21 Proceeds; Application of Funds 30
2.22 Extensions of Expiration Date and Expiry
Dates 31
2.23 Replacement of a Lender 32
SECTION 3. ISSUANCE OF COMMERCIAL PAPER 32
SECTION 4. REPRESENTATIONS AND WARRANTIES 33
4.1 Trust Existence; Compliance With Law 33
4.2 Power; Authorization; Enforceable
Obligations 34
4.3 No Legal Bar 34
4.4 No Material Litigation 34
4.5 No Default 34
4.6 Security Interest 34
4.7 Taxes 34
4.8 Federal Regulations 35
4.9 ERISA 35
4.10 Securities Laws 35
4.11 Ownership of Securities, etc 35
4.12 Collateral Trust Agreement 35
4.13 Financial Condition of the Borrower 35
SECTION 5. CONDITIONS PRECEDENT 35
5.1 Conditions to Effectiveness 35
5.2 Conditions Precedent to Each Credit
Utilization 37
5.3 Conditions Precedent to Making of Each
Refunding Loan, Non-Pro Rata Revolving Loan 39
SECTION 6. AFFIRMATIVE COVENANTS 39
6.1 Financial Statements 39
6.2 Certificates; Other Information 40
6.3 Maintenance of Existence; Governmental
Obligations; Compliance with Contractual
Obligations, Requirements of Law 40
6.4 Inspection of Property; Books and Records;
Discussions 40
6.5 Notices 41
SECTION 7. NEGATIVE COVENANTS 41
7.1 Limitation on Activities of the Borrower 41
7.2 Limitation on Indebtedness, Guarantees 41
7.3 Limitation on Liens 42
7.4 Limitation on Investments, Loans and
Advances 42
7.5 Limitation on Fundamental Changes and Sale
of Assets 42
7.6 Limitation on Payments, Capital
Expenditures 42
7.7 Other Agreements 42
7.8 Commercial Paper Notes 43
7.9 Amendment of Organizational Certificate 43
7.10 Series 1998-1 Class A Security 43
SECTION 8. EVENTS OF DEFAULT 44
SECTION 9. THE ADMINISTRATIVE AGENT 47
9.1 Appointment 47
9.2 Delegation of Duties 47
9.3 Exculpatory Provisions 47
9.4 Reliance by Agent 48
9.5 Notice of Default 48
9.6 Non-Reliance on Agent and Other Lenders 48
9.7 Indemnification 49
9.8 Administrative
Agent in Its Individual Capacity 49
9.9 Successor Administrative Agent 49
9.10 Administrative Agent's Fee 49
SECTION 10. MISCELLANEOUS 50
10.1 Amendments and Waivers 50
10.2 Notices 50
10.3 No Waiver; Cumulative Remedies 51
10.4 Survival of Representations and Warranties 51
10.5 Payment of Expenses and Taxes 51
10.6 Successors and Assigns; Participation 52
10.7 Adjustments 54
10.8 Counterparts 54
10.9 Severability 54
10.10 GOVERNING LAW 54
10.11 Acknowledgements 54
10.13 WAIVERS OF JURY TRIAL 55
10.14 No Bankruptcy Petition 55
10.15 Limited Recourse 55
10.16 Limitation of Liability 56
10.17 Further Assurances 56
10.18 Payments Pursuant to the Series 1998-1
Class A Security Purchase Agreement 56
10.19 Limitation on Certain Claims 56
SCHEDULE
Schedule I Commitments
EXHIBITS
Exhibit A Form of Assignment and Acceptance
Exhibit B Addendum
Exhibit C Administration Agreement
Exhibit D Collateral Trust Agreement
Exhibit E Depositary Agreement
Exhibit F Forms of Opinion of General Counsel of Metris
Companies Inc.
Exhibit G Forms of Opinions of Counsel to the Trustees
Exhibit H Form of Certificate of Lenders
Exhibit I Form of Note
SERIES 1998-A SUPPLEMENT, dated as of
September 15, 1998 (this "Series Supplement") by and
among METRIS RECEIVABLES, INC., a corporation organized
and existing under the laws of the State of Delaware, as
Transferor (the "Transferor"), DIRECT MERCHANTS CREDIT
CARD BANK, NATIONAL ASSOCIATION, a national banking
organization organized under the laws of the United
States, as Servicer (the "Servicer"), and THE BANK OF NEW
YORK (DELAWARE), a Delaware banking corporation organized
and existing under the laws of the State of Delaware as
trustee (together with its successors in trust thereunder
as provided in the Agreement referred to below, the
"Trustee"), under the Amended and Restated Pooling and
Servicing Agreement dated as of July 30, 1998 as amended,
supplemented or otherwise modified from time to time (the
"Agreement") among the Transferor, the Servicer and the
Trustee.
Section 6.9 of the Agreement provides, among
other things, that the Transferor and the Trustee may at
any time and from time to time enter into a supplement to
the Agreement for the purpose of authorizing the issuance
by the Trustee to the Transferor, for execution and
redelivery to the Trustee for authentication, of one or
more Series of Securities.
Pursuant to this Series Supplement, the
Transferor and the Trustee shall create a new Series of
Investor Securities and shall specify the Principal Terms
thereof.
SECTION Designation. There is hereby created a
Series of Investor Securities to be issued pursuant to
the Agreement and this Series Supplement to be known
generally as the "Series 1998-A Securities." The Series
1998-A Securities shall be issued in two Classes, which
shall be designated generally as the Variable Funding
Trust Security, Series 1998-A, Class A (the "Class A
Securities") and the Variable Funding Trust Security,
Series 1998-A, Class B (the "Class B Security").
I. SECTION Definitions. In the event that
any term or provision contained herein shall conflict
with or be inconsistent with any provision contained in
the Agreement, the terms and provisions of this Series
Supplement shall govern with respect to the Series 1998-A
Securities. All Article, Section or subsection
references herein shall mean Article, Section or
subsections of the Agreement, as amended or supplemented
by this Series Supplement, except as otherwise provided
herein. All capitalized terms not otherwise defined
herein are defined in the Agreement. Each capitalized
term defined herein shall relate only to the Series 1998-
A Securities and no other Series of Securities issued by
the Trust.
II.
III. "Additional Class A Invested Amounts"
shall have the meaning specified in Section 6.15 of the
Agreement.
IV.
V. "Additional Class B Invested Amounts"
shall have the meaning specified in Section 6.16 of the
Agreement.
VI.
VII. "Adjusted Invested Amount" shall mean,
with respect to any date of determination, an amount
equal to the Invested Amount minus the Defeasance Account
Balance on such date of determination.
VIII.
IX. "Alternate Rate" shall mean, on any date
of determination, a fluctuating rate of interest per
annum equal to the Federal Funds Rate most recently
determined by the Funding Agent, plus, after the
occurrence of a Pay Out Event, (x) for each date of
determination during the period from the Closing Date to
but excluding December 15, 1998, 1.50% and (y) for each
date of determination on and after December 15, 1998,
3.50%.
X.
XI. "Amortization Period" shall mean the
period beginning on the day following the last day of the
Revolving Period and ending on the Series 1998-A
Termination Date.
XII.
XIII. "Amortization Period Commencement
Date" shall mean (i) the earlier of the first day of the
October 2000 Monthly Period and the Pay Out Commencement
Date or (ii) if there is any Extension, the earlier of
the date specified as such in the most recent Extension
Notice and the Pay Out Commencement Date.
XIV.
XV. "APA Banks" shall have the meaning
provided in the Asset Purchase Agreement.
XVI.
XVII. "Applicable Pass-Through Rate" shall
mean, with respect to the Class A Securities, (a) with
respect to any Business Day on which the Class A
Securities are held for the benefit of the CP Vehicle,
the CP Rate for the CP Vehicle, plus the Used Fee, (b)
with respect to any Business Day on which the Class A
Securities are held for the benefit of the APA Banks, the
Bank Rate.
XVIII.
XIX. "Asset Purchase Agreement" shall mean an
agreement whereby the APA Banks agree to purchase Class A
Securities from the CP Vehicle to support the Commercial
Paper.
XX.
XXI. "Available Series 1998-A Finance Charge
Collections" shall have the meaning specified in
subsection 4.9(a) of the Agreement.
XXII.
XXIII. "Bank Rate" shall mean, for each
Business Day during any Monthly Period, an interest rate
per annum equal to LIBOR for such Monthly Period plus (x)
for each Business Day during the period beginning on the
Closing Date to but excluding December 15, 1998, 0.75%
and (y) for each Business Day on and after December 15,
1998, 2.25% (unless the Fee Letter specifies that a
lesser percentage be used) for such Business Day, except
that the Bank Rate shall equal the Alternate Rate:
XXIV.
(a) after the occurrence and during the
continuance of an event described in Section
6.6 of the Securities Purchase Agreement or a
Pay Out Event; or
(b) for each Business Day during any
Monthly Period (i) when the Class A Securities
are held by the APA Banks for less than the
entire Monthly Period or (ii) as to which the
Funding Agent did not receive notice or
determine, by noon (New York City time) on the
third Business Day preceding the first day of
such Monthly Period, that such Class A
Securities will be held by the APA Banks.
"Base Rate" shall mean, as of any Business Day,
the sum of (i) the Class A Interest Rate as of such
Business Day, plus (ii) the product of 2% per annum and
the percentage equivalent of a fraction the numerator of
which is the sum of the Adjusted Invested Amount and the
denominator of which is the Invested Amount.
"Class A Adjusted Invested Amount" shall mean,
with respect to any date of determination, an amount
equal to the Class A Invested Amount minus the Defeasance
Account Balance on such date of determination.
"Class A Costs" shall mean the amounts
specified pursuant to subsections 6.2, 6.3, 6.4, 6.5, 6.6
and 6.7 of the Securities Purchase Agreement.
"Class A Floating Percentage" shall mean, with
respect to any Business Day, the percentage equivalent of
a fraction, the numerator of which is the Class A
Adjusted Invested Amount on such day after taking into
account all adjustments of the Class A Invested Amount on
such day and the denominator of which is the greater of
(a) the sum of the aggregate amount of Principal
Receivables as of the beginning of such Business Day and
the amounts on deposit in the Excess Funding Account as
of the beginning of such Business Day after giving effect
to any deposits or withdrawals to be made to the Excess
Funding Account on such Business Day and (b) the sum of
the numerators used to calculate the applicable floating
or fixed/floating percentages with respect to all Classes
of all Series then outstanding.
"Class A Initial Invested Amount" shall mean
$30,000,000.
"Class A Interest" shall mean the interest
distributable in respect of the Class A Securities as
calculated in accordance with subsection 4.6(a) of the
Agreement.
"Class A Interest Rate" shall mean, with
respect to any Business Day, a rate per annum equal to
the Applicable Pass-Through Rate for the Class A
Securities.
"Class A Interest Shortfall" shall have the
meaning specified in Section 4.6 of the Agreement.
"Class A Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to (a)
the Class A Initial Invested Amount, minus (b) the
aggregate amount of principal payments made to Class A
Securityholders through and including such Business Day,
minus (c) the aggregate amount of Class A Series Charge-
Offs for all prior Distribution Dates, plus (d) the sum
of the aggregate amount allocated with respect to Class A
Series Charge-Offs and available on all prior
Distribution Dates pursuant to subsection 4.9(a)(v) of
the Agreement and, with respect to such subsection and
pursuant to subsections 4.10(a) and (b) and Section 4.14
of the Agreement, for the purpose of reinstating amounts
reduced pursuant to the foregoing clause (d) plus (e) the
aggregate principal amount of any Additional Class A
Invested Amounts purchased pursuant to Section 6.15 of
the Agreement.
"Class A Investor Percentage" shall mean, for
any Business Day, (a) with respect to Finance Charge
Receivables prior to the commencement of the Early
Amortization Period and Receivables in Defaulted Accounts
at any time or Collections of Principal Receivables
during the Revolving Period, the Class A Floating
Percentage and (b) with respect to Collections of Finance
Charge Receivables during the Early Amortization Period
and Collections of Principal Receivables during the
Amortization Period, the Fixed/Floating Percentage.
"Class A Maximum Invested Amount" shall mean
$400,000,000; provided, however, that such amount may be
reduced from time to time pursuant to Section 6.18 of the
Agreement.
"Class A Outstanding Principal Amount" shall
mean with respect to the Class A Securities, when used
with respect to any Business Day, an amount equal to (a)
the initial aggregate principal amount of the Class A
Securities, plus (b) the aggregate principal amount of
any Additional Class A Invested Amounts purchased by the
Class A Securityholders on or prior to such Business Day
pursuant to Section 6.15 of the Agreement minus (c) the
aggregate amount of principal payments made to the Class
A Securityholders on or prior to such Business Day.
"Class A Percentage" shall mean a fraction the
numerator of which is the Class A Invested Amount and the
denominator of which is the sum of the Class A Invested
Amount and the Class B Invested Amount.
"Class A Principal" shall mean the principal
distributable in respect of the Class A Securities as
calculated in accordance with subsection 4.7(a) of the
Agreement.
"Class A Required Amount" shall mean the amount
determined by the Servicer on each Business Day equal to
the excess, if any, of (x) the sum of (i) the amount
described in subsection 4.9(a)(i)(y) for such Business
Day, (ii) the Class A Percentage of the Daily Portion of
the Servicing Fee for the then current Monthly Period,
(iii) the Class A Floating Percentage of the Default
Amount, if any, for such Business Day and, to the extent
not previously paid, for any previous Business Day in
such Monthly Period, (iv) on each Transfer Date the Class
A Percentage of the Series 1998-A Percentage of the
Adjustment Payment required to be made by the Transferor
but not made on such Transfer Date and (v) the amount of
unreimbursed Class A Series Charge-Offs over (y) the
Available Series 1998-A Finance Charge Collections plus
any Excess Finance Charge Collections from other Series
and any Transferor Finance Charge Collections allocated
with respect to the amounts described in clauses (x)(i)
through (v).
"Class A Securities" shall mean the variable
funding securities executed by the Transferor and
authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A hereto.
"Class A Securityholder" shall mean each Person
in whose name a Class A Security is registered in the
Security Register.
"Class A Securityholders' Interest" shall mean
the portion of the Series 1998-A Securityholders'
Interest evidenced by the Class A Securities.
"Class A Series Charge-Offs" shall have the
meaning specified in subsection 4.13(b) of the Agreement.
"Class B Daily Principal" shall have the
meaning specified in Section 4.7(b) of the Agreement.
"Class B Excess Amount" shall mean, with
respect to any Business Day, the excess of the Class B
Invested Amount over the Stated Class B Amount on such
Business Day after taking into account all adjustments of
the Class A Adjusted Invested Amount on such day.
"Class B Fixed/Floating Percentage" shall mean
for any Business Day the percentage equivalent of a
fraction, the numerator of which is the Class B Invested
Amount at the end of the last day of the Revolving Period
and the denominator of which is the greater of (a) the
sum of the aggregate amount of Principal Receivables and
the amount on deposit in the Excess Funding Account as of
the beginning of such Business Day after giving effect to
any deposits or withdrawals to be made to the Excess
Funding Account on such Business Day and (b) the sum of
the numerators used to calculate the applicable floating
or fixed/floating percentages with respect to all Classes
of all Series then outstanding.
"Class B Floating Percentage" shall mean with
respect to any Business Day the percentage equivalent of
a fraction, the numerator of which is the Class B
Invested Amount on such day after taking into account all
adjustments of the Class B Invested Amount on such day
and the denominator of which is the greater of (a) the
sum of the aggregate amount of Principal Receivables and
the amount on deposit in the Excess Funding Account as of
the beginning of such Business Day after giving effect to
any deposits or withdrawals to be made to the Excess
Funding Account on such Business Day and (b) the sum of
the numerators used to calculate the applicable floating
or fixed/floating percentages with respect to all Classes
of all Series then outstanding.
"Class B Initial Invested Amount" shall mean
$2,968,000.
"Class B Invested Amount" shall mean, when used
with respect to any Business Day, an amount equal to
(a) the Class B Initial Invested Amount, plus (b) the
aggregate principal amount of any Additional Class B
Invested Amounts pursuant to Section 6.16 of the
Agreement, minus (c) the aggregate amount of principal
payments made to Class B Securityholders prior to such
Business Day, minus (d) the aggregate amount of Class B
Series Charge-Offs for all prior Distribution Dates,
minus (e) the aggregate amount of Redirected Principal
Collections for all prior Business Days, plus (f) the sum
of the aggregate amount allocated and available on all
prior Business Days pursuant to subsection 4.9(a)(viii)
of the Agreement and, with respect to such subsection,
pursuant to subsections 4.10(a) and (b) of the Agreement,
for the purpose of reinstating amounts reduced pursuant
to the foregoing clauses (d) and (e).
"Class B Investor Percentage" shall mean, for
any Business Day, (a) with respect to Collections of
Finance Charge Receivables prior to the commencement of
the Early Amortization Period and Receivables in
Defaulted Accounts at any time or Collections of
Principal Receivables during the Revolving Period, the
Class B Floating Percentage and (b) with respect to
Collections of Finance Charge Receivables during the
Early Amortization Period and Collections of Principal
Receivables during the Amortization Period, the Class B
Fixed/Floating Percentage.
"Class B Maximum Required Amount" shall mean on
any date of determination the greater of (i) zero and
(ii) a number rounded to the nearest dollar equal to the
product of the Class A Maximum Invested Amount and (x)
prior to November 15, 1998, a fraction the numerator of
which is 9 and the denominator of which is 91, (y) on and
after November 15, 1998 but prior to December 15, 1998, a
fraction the numerator of which is 11 and the denominator
of which is 89 or (z) on and after December 15, 1998, a
fraction the numerator of which is 19 and the denominator
of which is 81.
"Class B Outstanding Principal Amount" shall
mean, when used with respect to any Business Day, an
amount equal to (a) upon the initial issuance of the
Class B Securities, the initial amount designated by the
Transferor (which shall not be less than the Stated Class
B Amount), plus (b) the aggregate principal amount of any
Additional Class B Invested Amounts pursuant to Section
6.16 of the Agreement, minus (c) the aggregate amount of
principal payments made to Class B Securityholders prior
to such Business Day.
"Class B Principal" shall mean the principal
distributable in respect of the Class B Security as
specified in subsection 4.7(b) of the Agreement.
"Class B Principal Payment Commencement Date"
shall mean the earlier of (a) the first Distribution Date
on which the Class A Invested Amount is paid in full or,
if there are no Principal Collections allocable to the
Series 1998-A Securities remaining after payments have
been made to the Class A Securities on such Distribution
Date, the Distribution Date following the Distribution
Date on which the Class A Invested Amount is paid in full
and (b) the Distribution Date following a sale or
repurchase of the Receivables as set forth in Sections
2.4(e), 9.2, 10.2, 12.1 and 12.2 of the Agreement and
Section 3 of this Series Supplement.
"Class B Security" shall mean any of the
securities executed by the Transferor and authenticated
by or on behalf of the Trustee, substantially in the form
of Exhibit B hereto.
"Class B Securityholder" shall mean the Person
in whose name a Class B Security is registered in the
Security Register.
"Class B Securityholders' Interest" shall mean
the portion of the Series 1998-A Securityholders'
Interest evidenced by the Class B Security.
"Class B Series Charge-Offs" shall have the
meaning specified in subsection 4.13(a) of the Agreement.
"Closing Date" shall mean the date of initial
issuance of Securities of Series 1998-A.
"Commercial Paper" shall have the meaning
specified in the Securities Purchase Agreement.
"CP Rate" shall mean, for any Business Day,
with respect to the CP Vehicle, the per annum rate
equivalent to the "weighted average cost" (as defined
below) related to the issuance of Commercial Paper by the
CP Vehicle that is allocated, in whole or in part, to
maintain the CP Vehicle's investment in the Class A
Securities; provided, however, that if any component of
such rate is a discount rate, in calculating the CP Rate,
the rate used to calculate such component shall be a rate
resulting from converting such discount rate to an
interest-bearing equivalent rate per annum. As used in
this definition, the "weighted average cost" shall
consist of (a) the actual interest rate paid to
purchasers of the Commercial Paper issued by the CP
Vehicle (which rate shall reflect and give effect to the
commissions of placement agents and dealers in respect of
such Commercial Paper, to the extent such commissions are
allocated, in whole or in part, to such Commercial Paper
by the CP Vehicle and (b) interest paid on other
borrowing or funding sources by the CP Vehicle (other
than under the Asset Purchase Agreement), including to
fund small or odd dollar amounts that are not easily
accommodated in the commercial paper market.
"CP Vehicle" shall mean PARCO.
"Daily Portion" shall mean, with respect to any
amount determined pursuant hereto, the product of such
amount and a fraction the numerator of which shall be the
number of days from and including the preceding Business
Day to but excluding such Business Day and the
denominator of which shall be the number of days in the
then current Monthly Period.
"Default Recognition Date" shall mean the last
day of each calender month; provided, however, that with
respect to any Monthly Period the "related Default
Recognition Date" shall mean the Default Recognition Date
occurring closest to the last day of such Monthly Period
and any amounts allocated or applied on such Default
Recognition Date shall be deemed to apply to the related
Monthly Period.
"Default Recognition Percentage" shall mean,
with respect to each Default Recognition Date, the
percentage equivalent of a fraction, the numerator of
which is the Weighted Average Adjusted Invested Amount
for the related Monthly Period and the denominator of
which is the Weighted Average Principal Receivables in
the Trust for the related Monthly Period.
"Defeasance Account" shall have the meaning
specified in Section 9A of this Series Supplement.
"Defeasance Account Balance" shall mean, with
respect to any date of determination, the principal
amount, if any, on deposit in the Defeasance Account on
such date of determination.
"Distribution Date" shall mean October 20,
1998, and the twentieth day of each month thereafter, or
if such day is not a Business Day, the next succeeding
Business Day; provided, however, that the final
Distribution Date with respect to the payment of
principal and interest shall be the Scheduled Series 1998-
A Termination Date.
"Early Amortization Period" shall mean the
period beginning on the day on which a Series 1998-A Pay
Out Event occurs or is deemed to have occurred and ending
on the earlier of (i) the date on which the Class A
Invested Amount and the Class B Invested Amount have been
paid in full and (ii) the Series 1998-A Termination Date.
"Election Date" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Election Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Enhancement" shall mean, with respect to the
Class A Securities, the subordination of the Class B
Invested Amount.
"Excess Finance Charge Collections" shall mean,
with respect to any Business Day, as the context
requires, either (x) the amount described in subsection
4.9(a)(xi) of the Agreement allocated to the Series 1998-
A Securities but available to cover shortfalls in amounts
paid from Finance Charge Collections for other Series, if
any, or (y) the aggregate amount of Finance Charge
Collections allocable to other Series in excess of the
amounts necessary to make required payments with respect
to such Series, if any, and available to cover shortfalls
with respect to the Series 1998-A Securities.
"Excess Spread Percentage" shall mean with
respect to any Monthly Period the excess of the Portfolio
Yield for such Monthly Period over the weighted average
Base Rates for each Business Day during such Monthly
Period.
"Extension" shall mean the procedure by which
the Investor Securityholders consent to the extension of
the Revolving Period to the new Amortization Period
Commencement Date set forth in the Extension Notice,
pursuant to Section 6.17 of the Agreement.
"Extension Date" shall mean the last Business
Day of the September 2000 Monthly Period or if an
Extension has already occurred, the date of the next
Extension Date set forth in the Extension Notice relating
to the Extension then in effect (or, if any such date is
not a Business Day, the next preceding Business Day).
"Extension Notice" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Extension Tax Opinion" shall have the meaning
specified in subsection 6.17(a) of the Agreement.
"Federal Funds Rate" shall mean, for any day,
an interest rate per annum equal to (a) the weighted
average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as
published for such day (or, if such day is not a Business
Day, for the immediately preceding Business Day) by the
Federal Reserve Bank of New York, or (b) if such rate is
not so published for any day which is a Business Day, the
average of the quotations at approximately 11:00 A.M.
(New York time) on such day on such transactions received
by the Funding Agent from three (3) federal funds brokers
of recognized standing selected by the Funding Agent in
its sole discretion.
"Fee Letter" shall mean the letter dated as of
the date hereof from the Transferor addressed to the
Funding Agent and Chase Securities Inc., as Structuring
Agent, as such letter may be amended from time to time,
with respect to fees for the Class A Securities.
"Fixed/Floating Percentage" shall mean for any
Business Day the percentage equivalent of a fraction, the
numerator of which is the Invested Amount at the end of
the last day of the Revolving Period and the denominator
of which is the greater of (a) the sum of the aggregate
amount of Principal Receivables and the amount on deposit
in the Excess Funding Account as of the beginning of such
Business Day after giving effect to any deposits or
withdrawals to be made to the Excess Funding Account on
such Business Day and (b) the sum of the numerators with
respect to all Classes of all Series then outstanding
used to calculate the applicable floating or
fixed/floating percentage; provided, however, that on and
after the Pay Out Commencement Date, with respect to
allocations of Collections of Finance Charge Receivables,
the numerator used in the above calculation shall be the
Invested Amount as of the day immediately preceding the
Pay Out Commencement Date.
"Floating Percentage" shall mean for any
Business Day the sum of the applicable Class A Floating
Percentage and Class B Floating Percentage for such
Business Day.
"Funding Agent" shall mean The Chase Manhattan
Bank and any successor thereto.
"Funding Date" shall mean September 15, 1998.
"Funding Period" shall mean (x) with respect to
Class A Securities held for the benefit of the CP
Vehicle, each period for which Commercial Paper is issued
by the CP Vehicle and (y) with respect to Class A
Securities held for the benefit of the APA Banks, each
Monthly Period.
"Initial Invested Amount" shall mean
$32,968,000.
"Invested Amount" shall mean, when used with
respect to any Business Day, an amount equal to the sum
of (a) the Class A Invested Amount as of such Business
Day and (b) the Class B Invested Amount as of such
Business Day; provided, however, that for purposes of
determining the Servicing Fee and the Aggregate Invested
Amount, the Invested Amount shall mean an amount equal to
the sum of (a) the Class A Adjusted Invested Amount as of
such Business Day and (b) the Class B Invested Amount as
of such Business Day.
"Investment Earnings" shall mean, with respect
to any Business Day, the investment earnings on amounts
on deposit in (i) the Payment Reserve Account, deposited
in the Collection Account pursuant to subsection 4.16(c)
and (ii) the Defeasance Account, deposited in the
Collection Account pursuant to subsection 9A(a).
"Investor Securities" shall mean the Class A
Securities and the Class B Security.
"Investor Securityholder" shall mean the Holder
of record of an Investor Security of Series 1998-A.
"Investor Percentage" shall mean for any
Business Day, (a) with respect to Collections of Finance
Charge Receivables prior to the commencement of the Early
Amortization Period and Receivables in Defaulted Accounts
at any time or Collections of Principal Receivables
during the Revolving Period, the Floating Percentage and
(b) with respect to Collections of Finance Charge
Receivables during the Early Amortization Period and
Collections of Principal Receivables during the
Amortization Period, the Fixed/Floating Percentage.
"LIBOR" shall mean, on any Rate Determination
Date, the rate appearing on Page 3750 of the Telerate
Service (or on any successor or substitute page of such
Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those
currently provided on such page of such Service, as
determined by the Funding Agent from time to time for
purposes of providing quotations of interest rates
applicable to one-month dollar deposits in the London
interbank market) at approximately 11:00 A.M.(London
time) on such Rate Determination Date as the rate for one-
month dollar deposits. In the event that such rate is
not available at such time for any reason, then the
"LIBOR" shall be the rate at which one-month dollar
deposits of $5,000,000 are offered by the principal
London office of the Funding Agent in immediately
available funds in the London interbank market at
approximately 11:00 A.M. (London time) on such Rate
Determination Date.
"London Banking Day" shall mean any day on
which banks are open for business in London, England and
dealing in United States Dollar deposits.
"Minimum Retained Percentage" shall mean 2%.
"Minimum Transferor Percentage" shall mean 0%;
provided, however, that in certain circumstances such
percentage may be increased.
"Monthly Period" shall have the meaning
specified in the Agreement, except that the first Monthly
Period with respect to the Series 1998-A Securities shall
begin on and include the Closing Date and shall end on
and include September 30, 1998.
"Negative Carry Amount" shall have the meaning
specified in subsection 4.10(a) of the Agreement.
"Net Revolving Principal Collections" shall
have the meaning specified in Section 4.9(b) of the
Agreement.
"PARCO" shall mean Park Avenue Receivables
Corporation, its successors and assigns.
"Paying Agent" shall mean, for the Series
1998-A Securities, the Trustee.
"Payment Reserve Account" shall have the
meaning specified in subsection 4.16(a) of the Agreement.
"Pay Out Commencement Date" shall mean the date
on which a Trust Pay Out Event is deemed to occur
pursuant to Section 9.1 of the Agreement or a Series 1998-
A Pay Out Event is deemed to occur pursuant to Section 8
of this Series Supplement.
"Portfolio Yield" shall mean for the Series
1998-A Securities, with respect to any Monthly Period,
the annualized percentage equivalent of a fraction, the
numerator of which is an amount equal to the sum of the
aggregate amount of Available Series 1998-A Finance
Charge Collections for such Monthly Period (not including
the amounts on deposit in the Payment Reserve Account, if
any), if any, calculated on a cash basis, minus the
aggregate Series Default Amount for such Monthly Period
and the Series 1998-A Percentage of any Adjustment
Payments which the Transferor is required but fails to
make pursuant to the Agreement for such Monthly Period,
and the denominator of which is the average daily
Invested Amount.
"Principal Shortfalls" shall mean on any
Business Day (i) prior to the Amortization Period
Commencement Date, zero and (ii) after the Amortization
Period Commencement Date, the Invested Amount of the
class then receiving principal payments after the
application of Principal Collections on such Business
Day.
"QIB" shall mean a "qualified institutional
buyer" within the meaning of Rule 144A under the
Securities Act.
"Rate Determination Date" shall mean for each
Monthly Period the second London Banking Day preceding
such Monthly Period.
"Rating Agency" shall mean Standard & Poor's
and Moody's.
"Redirected Principal Collections" shall have
the meaning specified in Section 4.14 of the Agreement.
"Required Amount" shall have the meaning
specified in subsection 4.10(b) of the Agreement.
"Reserve Account Investment Proceeds" shall
mean, with respect to any Business Day, the investment
earnings on funds on deposit in the Payment Reserve
Account available in accordance with subsection 4.16(c)
of the Agreement on such Business Day.
"Revolving Period" shall mean the period from
and including the Closing Date to, but not including, the
Amortization Period Commencement Date.
"Revolving Principal Collections" shall have
the meaning specified in subsection 4.9(b) of the
Agreement.
"Scheduled Series 1998-A Termination Date"
shall mean October 2004, unless a different date shall be
set forth in any Extension Notice.
"Securities Purchase Agreement" shall mean the
Securities Purchase Agreement dated September 15, 1998
among the Transferor, Metris, the CP Vehicle, the APA
Banks party thereto and the Funding Agent.
"Series Charge-Offs" shall mean the sum of
Class A Series Charge-Offs and Class B Series Charge-
Offs.
"Series Default Amount" shall mean (i) on any
Business Day other than a Default Recognition Date, an
amount equal to the product of (a) the Floating
Percentage applicable on such Business Day and (b) the
aggregate Default Amount identified since the prior
reporting date and (ii) on any Default Recognition Date,
an amount equal to the product of (a) the Default
Recognition Percentage applicable on such Default
Recognition Date and (b) the Default Amount with respect
to such Default Recognition Date.
"Series 1998-A" shall mean the Series of the
Metris Master Trust represented by the Series 1998-A
Securities.
"Series 1998-A Pay Out Event" shall have the
meaning specified in Section 8 of this Series Supplement.
"Series 1998-A Percentage" shall mean, on any
date of determination, the percentage equivalent of a
fraction the numerator of which is the Invested Amount
and the denominator of which is the sum of the Invested
Amounts relating to all other Series then outstanding.
"Series 1998-A Securities" shall mean the Class
A Securities and the Class B Security.
"Series 1998-A Securityholder" shall mean the
holder of record of any Series 1998-A Security.
"Series 1998-A Securityholders' Interest" shall
have the meaning specified in Section 4.4 of the
Agreement.
"Series 1998-A Termination Date" shall mean the
earlier to occur of (i) the day after the Distribution
Date on which the Series 1998-A Securities are paid in
full, or (ii) the Scheduled Series 1998-A Termination
Date.
"Series Servicing Fee Percentage" shall mean
2.00% per annum.
"Servicing Fee" shall mean for any Business
Day, an amount equal to the product of (i) a fraction the
numerator of which is the actual number of days from but
excluding the next preceding Business Day to and
including such Business Day and the denominator of which
is 365 or 366, as the case may be, (ii) the applicable
Series Servicing Fee Percentage and (iii) the Adjusted
Invested Amount on such Business Day after giving effect
to all transactions on such Business Day.
"Shared Principal Collections" shall mean, as
the context requires, either (a) the amount allocated to
the Series 1998-A Securities which, in accordance with
subsections 4.9(b) and 4.9(c)(iii) of the Agreement, may
be applied in accordance with Section 4.3(d) of the
Agreement or (b) the amounts allocated to the investor
securities of other Series which the applicable Series
Supplements for such Series specify are to be treated as
"Shared Principal Collections" and which may be applied
to cover Principal Shortfalls with respect to the Series
1998-A Securities.
"Specified Reserve Amount" shall mean, (i) with
respect to each Determination Date beginning with the
Determination Date in November 1998, if the Excess Spread
Percentage is greater than 4.50%, zero and (ii) if the
Excess Spread Percentage for the preceding Monthly Period
is less than or equal to 4.50%, 2.50% of the sum of the
Class A Maximum Invested Amount and the Class B Maximum
Required Amount.
"Stated Class B Amount" shall mean on any date
of determination the greater of (i) zero and (ii) a
number rounded to the nearest dollar equal to the product
of the Class A Adjusted Invested Amount and (x) prior to
November 15, 1998, a fraction the numerator of which is 9
and the denominator of which is 91, (y) on and after
November 15, 1998 but prior to December 15, 1998, a
fraction the numerator of which is 11 and the denominator
of which is 89 or (z) on and after December 15, 1998, a
fraction the numerator of which is 19 and the denominator
of which is 81; provided, however, that in no event shall
the Stated Class B Amount exceed the Class B Maximum
Required Amount; provided further that during any Early
Amortization Period the Stated Class B Amount shall be
equal to the Stated Class B Amount immediately preceding
the commencement of the Early Amortization Period.
"Targeted Holder" shall mean (i) each holder of
a right to receive interest or principal with respect to
investor securities (or other interests in the Trust),
including the Class A Securities, other than securities
(or other such interests) with respect to which an
opinion is rendered that such securities (or other such
interests) will be treated as debt for Federal income tax
purposes and (ii) any holder of a right to receive any
amount in respect of the Transferor Interest; provided,
that any person holding more than one interest each of
which would cause such person to be a Targeted Holder
shall be treated as a single Targeted Holder.
"Termination Payment Date" shall mean the
earlier of the first Distribution Date following the
liquidation or sale of the Receivables as a result of an
Insolvency Event and the occurrence of the Scheduled
Series 1998-A Termination Date.
"Transferor Finance Charge Collections" shall
mean on any Business Day the product of (a) the Finance
Charge Collections for such Business Day, (b) the
Transferor Percentage and (c) the Series 1998-A
Percentage.
"Transferor Retained Finance Charge
Collections" shall mean with respect to each Business Day
other than a Default Recognition Date, the amount
specified in subsection 4.9(a)(xi).
"Transferor Retained Securities" shall mean
investor securities of any Series, including the Class B
Security, which the Transferor retains, but only to the
extent that and for so long as the Transferor is the
Holder of such Securities.
"Unused Fee" shall have the meaning specified
in the Fee Letter.
"Used Fee" shall have the meaning specified in
the Fee Letter.
"Weighted Average Adjusted Invested Amount"
shall mean with respect to any Monthly Period the
weighted average Adjusted Invested Amount based on the
Adjusted Invested Amount outstanding on each Business Day
after giving effect to all transactions on such Business
Day from but excluding the Default Recognition Date
related to the preceding Monthly Period to and including
the Default Recognition Date with respect to such Monthly
Period.
"Weighted Average Principal Receivables" shall
mean with respect to any Monthly Period the weighted
average sum of the total amount of Principal Receivables
and the amount on deposit in the Excess Funding Account
on each Business Day after giving effect to all
transactions on such Business Day from but excluding the
Default Recognition Date related to the preceding Monthly
Period to and including the Default Recognition Date with
respect to such Monthly Period.
I. SECTION Reassignment Terms. The Series
1998-A Securities shall be subject to termination by the
Transferor at its option, in accordance with the terms
specified in subsection 12.2(a) of the Agreement, on any
Distribution Date on or after the Distribution Date on
which the Class A Invested Amount is reduced to an amount
less than or equal to 10% of the highest Class A Invested
Amount during the Revolving Period; provided, however,
that if the Class A Securities are held for the benefit
of the CP Vehicle, such Distribution Date shall also be
the maturity date for all Commercial Paper, allocated in
whole or in part, to maintain the CP Vehicle's investment
in the Class A Securities. The deposit required in
connection with any such termination and final
distribution shall be equal to the sum of the Class A
Invested Amount plus accrued and unpaid interest on the
Series 1998-A Securities through the day prior to the
Distribution Date on which the final distribution occurs.
II.
III. SECTION Delivery and Payment for the
Series 1998-A Securities. The Transferor shall execute
and deliver the Series 1998-A Securities to the Trustee
for authentication in accordance with Section 6.1 of the
Agreement. The Trustee shall deliver the Series 1998-A
Securities to or upon the order of the Transferor when
authenticated in accordance with Section 6.2 of the
Agreement.
IV.
V. SECTION Form of Delivery of Series 1998-A
Securities. The Class A Securities and the Class B
Security shall be delivered as Registered Securities as
provided in Section 6.1 of the Agreement.
VI.
VII. SECTION Article IV of the Agreement.
Sections 4.1, 4.2 and 4.3 of the Agreement shall read in
their entirety as provided in the Agreement. Article IV
of the Agreement (except for Sections 4.1, 4.2 and 4.3
thereof) shall read in its entirety as follows and shall
be applicable only to the Series 1998-A Securities:
VIII.
4 ARTICLE RIGHTS OF SECURITYHOLDERS ANDALLOCATION AND
APPLICATION OF COLLECTIONS
1.4.4 SECTION Rights of Securityholders .
The Series 1998-A Securities shall represent undivided
interests in the Trust, including the right to receive,
to the extent necessary to make the required payments
with respect to such Series 1998-A Securities at the
times and in the amounts specified in this Agreement, (a)
the Floating Percentage and the Fixed/Floating Percentage
(as applicable from time to time) of Collections
(including Finance Charge Collections) available in the
Collection Account, (b) funds allocable to the Series
1998-A Securities on deposit in the Excess Funding
Account and (c) funds on deposit in the Interest Funding
Account, the Principal Account, the Distribution Account,
the Payment Reserve Account and the Defeasance Account
(for such Series, the "Series 1998-A Securityholders'
Interest"). The Class B Invested Amount shall be
subordinated to the Class A Securities to the extent
provided in this Article IV. Except in connection with a
payment of Class B Daily Principal pursuant to subsection
4.9(f) of this Agreement, the Class B Security will not
have the right to receive payments of principal until the
Class A Invested Amount has been paid in full.
1.4.4 SECTION Collections and Allocation;
Payments on Exchangeable Transferor Security .
1.4.5
(a) Collections and Allocations. The
Servicer will apply or will instruct the Trustee to apply
all funds on deposit in the Collection Account and the
Excess Funding Account allocable to the Series 1998-A
Securities, and all funds on deposit in the Interest
Funding Account, the Principal Account, the Distribution
Account, the Payment Reserve Account and the Defeasance
Account maintained for this Series, as described in this
Article IV. On each Business Day, (i) the amount of
Finance Charge Collections available in the Collection
Account allocable to Series 1998-A Securities shall be
determined by multiplying the aggregate amount of such
Finance Charge Collections by (x) prior to the Pay Out
Commencement Date, the Floating Percentage and (y) on and
after the Payment Commencement Date, the Fixed/Floating
Percentage, (ii) the amount of Principal Collections
available in the Collection Account allocable to the
Series 1998-A Securities shall be determined by
multiplying the aggregate amount of such Principal
Collections by (x) during the Revolving Period, the
Floating Percentage and (y) during any Amortization
Period, the Fixed/Floating Percentage, and (iii) the
Receivables in Defaulted Accounts allocable to the Series
1998-A Securities shall be determined by multiplying the
aggregate amount of such Receivables in Defaulted
Accounts by the Floating Percentage.
(b)
(c) Payments to the Holder of the
Exchangeable Transferor Security. On each Business Day,
the Servicer shall determine whether a Pay Out Event is
deemed to have occurred with respect to the Series 1998-A
Securities, and the Servicer shall allocate and pay
Collections in accordance with the Daily Report with
respect to such Business Day to the Holder of the
Exchangeable Transferor Security as follows:
(d)
(e) For each Business Day on and after the
Amortization Period Commencement Date, the amount of
payments of Principal Collections made to the Holder of
the Exchangeable Transferor Security shall be determined
as provided in subsection 4.3(b) of the Agreement.
(f)
1.4.6 SECTION Determination of Interest for
the Series 1998-A Securities . The amount of interest
(the "Class A Interest") allocable to the Class A
Securities with respect to any Business Day shall be an
amount equal to the product of (i) the Class A Interest
Rate for such Business Day and (ii) a fraction the
numerator of which is the actual number of days from and
including the immediately preceding Business Day to but
excluding such Business Day and the denominator of which
is (A) 360, if and to the extent the Applicable Pass-
Through Rate is based on the CP Rate or LIBOR, and (B)
365 or 366, as the case may be, if and to the extent the
Applicable Pass-Through Rate is based on the Alternate
Rate and (iii) the Class A Outstanding Principal Amount
on such Business Day after giving effect to all
transactions on such Business Day.
1.4.7
1.4.8 On each Determination Date, the
Servicer shall determine whether (x) the aggregate amount
of Class A Interest for each Business Day during the
related Monthly Period exceeds (y) the amount allocated
and available to pay such Class A Interest on the related
Distribution Date (any such excess, a "Class A Interest
Shortfall").
1.4.9
(a) SECTION Determination of Principal Amounts
. The amount of principal (the "Class A Principal")
distributable from the Distribution Account with respect
to the Class A Securities on each Business Day with
respect to (A) the Revolving Period shall be an amount
equal to the sum of (x) amounts deposited into the
Principal Account from the Defeasance Account pursuant to
Section 9A of this Series Supplement and (B) the
Amortization Period shall be equal to an amount
calculated as follows: the sum of (i) an amount equal to
the product of the Fixed/Floating Percentage and the
aggregate amount of Principal Collections (less the
amount of Redirected Principal Collections) with respect
to such Business Day, (ii) any amount on deposit in the
Excess Funding Account allocated to the Class A
Securities pursuant to subsection 4.9(d) with respect to
such Business Day, (iii) the amount, if any, allocated to
the Class A Securities pursuant to subsections 4.9(a)
(iii), (iv), (v) and (viii) of the Agreement and, with
respect to such subsections, pursuant to subsections
4.10(a) and (b), Section 4.14 and subsection 4.17(b) of
the Agreement on such Business Day and (iv) the amount of
Shared Principal Collections allocated to the Class A
Securities with respect to such Business Day pursuant to
Section 4.3(d); provided, however, that with respect to
any Business Day, Class A Principal may not exceed the
Class A Invested Amount; provided, further, that with
respect to the Scheduled Series 1998-A Termination Date,
the Class A Principal shall be an amount equal to the
Class A Invested Amount.
(b)
(c) The amount of principal (the "Class B
Principal") distributable from the Distribution Account
with respect to the Class B Security on each Distribution
Date beginning with the Class B Principal Payment
Commencement Date, or in the case of distributions of
Class B Daily Principal pursuant to the last proviso of
this subsection 4.7(b), on each Business Day, shall be an
amount equal to and calculated as follows: the sum of
(i) an amount equal to the product of the Fixed/Floating
Percentage of Principal Collections (less the amount of
Redirected Principal Collections) with respect to the
preceding Monthly Period (or, in the case of the first
Distribution Date following the date on which an amount
equal to the Class A Invested Amount is deposited in the
Principal Account to be applied to the payment of Class A
Principal, the Fixed/Floating Percentage of Principal
Collections from the date on which such deposit is made),
(ii) any amount on deposit in the Excess Funding Account
allocated to the Class B Security pursuant to subsection
4.9(d) with respect to the preceding Monthly Period, and
(iii) the amount, if any, allocated to the Class B
Security pursuant to subsections 4.9(a) (iii), (iv) and
(viii) of the Agreement and, with respect to such
subsections, pursuant to subsection 4.10(a) and (b) of
the Agreement with respect to such Distribution Date;
provided, however, that with respect to the Scheduled
Series 1998-A Termination Date, the Class B Principal
shall be an amount equal to the Class B Invested Amount;
provided further, that on any Business Day during any
period other than the Early Amortization Period, the
Transferor may designate that either (x) an amount up to
the lesser of (i) the excess of the Class B Invested
Amount over the Stated Class B Amount on such day after
taking into account all adjustments of the Class A
Invested Amount on such day and (ii) (I) during the
Revolving Period an amount equal to (x) the product of
the Floating Percentage and the amount of Principal
Collections on such Business Day minus (y) Redirected
Principal Collections on such Business Day or (II) after
the Amortization Period Commencement Date an amount equal
to (x) the product of the Fixed/Floating Percentage and
the amount of Principal Collections on such Business Day
minus (y) Redirected Principal Collections on such
Business Day minus (z) the amounts allocated with respect
to Class A Principal on such Business Day (such
designated amount, the "Class B Daily Principal") shall
be distributed in accordance with subsection 4.9(f) or
(y) an amount up to the excess of the Class B Invested
Amount over the Stated Class B Amount on such day after
taking into account all adjustments of the Class A
Invested Amount on such day, shall be subtracted from the
Class B Invested Amount and added to the Transferor
Interest.
(d)
1.4.10 SECTION Shared Principal Collections .
Shared Principal Collections allocated to the Series 1998-
A Securities and to be applied pursuant to subsections
4.9 (b), 4.9(c)(i)(y) and 4.9(c)(ii)(z) for any Business
Day shall mean an amount equal to the sum of (i) the
product of (x) Shared Principal Collections for all
Series for such Business Day and (y) a fraction, the
numerator of which is the Principal Shortfall for the
Series 1998-A Securities for such Business Day and the
denominator of which is the aggregate amount of Principal
Shortfalls for all Series for such Business Day and (ii)
Shared Principal Collections for all Series for such
Business Day, less the amount thereof to be applied with
respect to Principal Shortfalls for all Series for such
Business Day, which the Transferor has opted to apply to
Series 1998-A in accordance with Section 4.3(d) of the
Agreement.
(a) SECTION Application of Funds . On each
Business Day, the Servicer shall deliver to the Trustee a
Daily Report in which it shall instruct the Trustee to
withdraw, and the Trustee, acting in accordance with such
instructions, shall withdraw from the Collection Account,
to the extent of the sum of (v) prior to the Pay Out
Commencement Date, the Floating Percentage of Finance
Charge Collections available in the Collection Account
or, on and after the Pay Out Commencement Date, the
Fixed/Floating Percentage of Finance Charge Collections
available in the Collection Account, (w) Investment
Earnings on deposit in the Collection Account and (x)
amounts on deposit in the Payment Reserve Account, if
any, if and to the extent so designated by the Transferor
(the "Available Series 1998-A Finance Charge
Collections") the amounts set forth in subsections
4.9(a)(i) through 4.9(a)(xi) in the following priority.
(i) Class A Interest. On each Business
Day during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer, shall
withdraw first from the Collection Account and then from
the Payment Reserve Account and shall deposit in the
Interest Funding Account on such Business Day, to the
extent of the Available Series 1998-A Finance Charge
Collections, an amount equal to the lesser of (x) the
Available Series 1998-A Finance Charge Collections and
(y) the sum of (A) the Class A Interest for such Business
Day plus (B) the excess, if any, of the amount payable to
the Class A Securityholders pursuant to clause (A) on
each prior Business Day over the amount which has been
deposited in the Interest Funding Account or paid to the
Class A Securityholders with respect thereto on each
prior Business Day.
(i) Servicing Fee. On each Business Day,
the Trustee, acting in accordance with instructions from
the Servicer, shall withdraw first from the Collection
Account and then from the Payment Reserve Account and
distribute to the Servicer, to the extent of any
Available Series 1998-A Finance Charge Collections
remaining after giving effect to the withdrawal pursuant
to subsections 4.9(a)(i), an amount equal to the lesser
of (x) any such remaining Available Series 1998-A Finance
Charge Collections and (y) the Servicing Fee for such
Business Day plus any Servicing Fee due with respect to
any prior Business Day but not distributed to the
Servicer.
(i) Series Default Amount. On each
Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first,
only if such day is a Default Recognition Date, from the
Transferor an amount equal to the aggregate Transferor
Retained Finance Charge Collections for each day during
the related Monthly Period and then from the Collection
Account and then from the Payment Reserve Account to the
extent of any Available Series 1998-A Finance Charge
Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.9(a)(i) and (ii),
an amount equal to the lesser of (x) any such remaining
Available Series 1998-A Finance Charge Collections and
(y) the sum of (1) the aggregate Series Default Amount
for such Business Day plus (2) the unpaid Series Default
Amount for each previous Business Day during such Monthly
Period, such amount to be (A) during the Revolving Period
treated as Shared Principal Collections, (B) during the
Amortization Period on and prior to the day on which an
amount equal to the Class A Invested Amount is deposited
in the Principal Account, to be deposited in the
Principal Account for distribution to the Class A
Securityholders on the next Distribution Date and (C)
during the Amortization Period, on and after the day on
which such deposit to the Principal Account with respect
to the Class A Invested Amount has been made and on and
prior to the day on which an amount equal to the Class B
Invested Amount is paid to the Class B Securityholder, to
be paid to the Class B Securityholders.
(i) Adjustment Payment Shortfalls. On
each Business Day, the Trustee, acting in accordance with
instructions from the Servicer, shall withdraw first from
the Collection Account and then from the Payment Reserve
Account, to the extent of any Available Series 1998-A
Finance Charge Collections remaining after giving effect
to the withdrawals pursuant to subsections 4.9(a)(i)
through (iii), an amount equal to the lesser of (x) any
such remaining Available Series 1998-A Finance Charge
Collections and (y) an amount equal to the Series 1998-A
Percentage of any Adjustment Payment which the Transferor
is required but fails to make pursuant to subsection
3.8(a) of the Agreement, such amount, (i) during the
Revolving Period, to be treated as Shared Principal
Collections, (ii) during the Amortization Period on and
prior to the day on which an amount equal to the Class A
Invested Amount is deposited in the Principal Account, to
be deposited in the Principal Account for distribution to
the Class A Securityholders on the next Distribution Date
and (iii) during the Amortization Period, on and after
the day on which such deposit to the Principal Account
with respect to the Class A Invested Amount has been made
and on and prior to the day on which an amount equal to
the Class B Invested Amount is paid to the Class B
Securityholders, to be paid to the Class B
Securityholder.
(i) Reimbursement of Class A Series
Charge-Offs. On each Business Day, the Trustee, acting
in accordance with instructions from the Servicer, shall
withdraw first from the Collection Account and then from
the Payment Reserve Account, to the extent of any
Available Series 1998-A Finance Charge Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (iv), an amount equal to
the lesser of (x) any such remaining Available Series
1998-A Finance Charge Collections and (y) the
unreimbursed Class A Series Charge-Offs, if any; such
amount will be applied to reimburse Class A Series Charge-
Offs, and, during the Revolving Period, will be treated
as Shared Principal Collections, and during the
Amortization Period on and prior to the day on which an
amount equal to the Class A Invested Amount is deposited
in the Principal Account will be deposited in the
Principal Account for distribution to the Class A
Securityholders on the next Distribution Date.
(i) Unused Fees. On each Business Day
during a Monthly Period, the Trustee, acting in
accordance with instructions from the Servicer, shall
withdraw first from the Collection Account and then from
the Payment Reserve Account and shall deposit in the
Interest Funding Account, to the extent of the Available
Series 1998-A Finance Charge Collections remaining after
giving effect to the withdrawal pursuant to subsections
4.9(a)(i) through (v), an amount equal to the lesser of
(x) any such remaining Available Series 1998-A Finance
Charge Collections and (y) an amount equal to the Daily
Portion of the Unused Fee payable to the Funding Agent
for the benefit of the CP Vehicle pursuant to subsection
16(a) of this Supplement on the Distribution Date related
to the then current Monthly Period.
(i) Class A Costs. On each Business Day,
the Trustee acting in accordance with instructions from
the Servicer, shall withdraw first from the Collection
Account and then from the Payment Reserve Account and
shall deposit in the Interest Funding Account, to the
extent of any Available Series 1998-A Finance Charge
Collections remaining after giving effect to the
withdrawals pursuant to subsections 4.9(a)(i) through
(vi), an amount equal to the lesser of (x) any such
remaining Available Series 1998-A Finance Charge
Collections and (y) the Class A Costs and any other
amounts owed to the Funding Agent on behalf of the CP
Vehicle and the APA Banks pursuant to the Asset Purchase
Agreement or the Securities Purchase Agreement, to be
applied in accordance with this Series Supplement, the
Asset Purchase Agreement or the Securities Purchase
Agreement.
(i) Reimbursement of Class B Series
Charge-Offs. On each Business Day, the Trustee, acting
in accordance with instructions from the Servicer, shall
withdraw first from the Collection Account and then from
the Payment Reserve Account, to the extent of any
Available Series 1998-A Finance Charge Collections
remaining after giving effect to the withdrawals pursuant
to subsections 4.9(a)(i) through (vii), an amount equal
to the lesser of (x) any such remaining Available Series
1998-A Finance Charge Collections and (y) the
unreimbursed amount by which the Class B Invested Amount
has been reduced on prior Business Days pursuant to
clauses (d) and (e) of the definition of Class B Invested
Amount, if any, such amount, (i) during the Revolving
Period, to be treated as Shared Principal Collections,
(ii) during the Amortization Period, on and prior to the
day on which an amount equal to the Class A Invested
Amount is deposited in the Principal Account, to be
deposited in the Principal Account for distribution to
the Class A Securityholders on the next Distribution Date
and (ii) during the Amortization Period, on and after the
day on which such deposit has been made and on and prior
to the day on which an amount equal to the Class B
Invested Amount is deposited in the Principal Account, to
be deposited in the Principal Account for payment to the
Class B Securityholders on the next Distribution Date.
(i) Reserve Account. On each Business
Day, the Trustee acting in accordance with instructions
from the Servicer, shall withdraw first from the
Collection Account and then from the Payment Reserve
Account, to the extent of any Available Series 1998-A
Finance Charge Collections remaining after giving effect
to withdrawals pursuant to subsections 4.9(a)(i) through
(viii), an amount equal to the lesser of (x) any such
remaining Available Series 1998-A Finance Charge
Collections and (y) the amount by which the Specified
Reserve Amount exceeds the amount on deposit in the
Reserve Account, and deposit such amount, if any, into
the Reserve Account.
(i) Payment Reserve Account. On each
Business Day, the Trustee acting in accordance with
instructions from the Servicer, shall withdraw first from
the Collection Account, to the extent of any Available
Series 1998-2 Finance Charge Collections remaining after
giving effect to the withdrawals pursuant to subsections
4.9(a)(i) through (ix) an amount equal to the lesser of
(x) any such remaining Available Series 1998-2 Finance
Charge Collections and (y) the amount designated by the
Transferor in writing (which include facsimile
transmission) in its instructions to the Trustee on such
Business Day and deposit such amount, if any, into the
Payment Reserve Account.
(i) Excess Finance Charge Collections.
Any amounts remaining in the Collection Account to the
extent of any Available Series 1998-A Finance Charge
Collections remaining after giving effect to the
withdrawals pursuant to subsection 4.9(a)(i) through (x),
shall be treated as Excess Finance Charge Collections,
and the Servicer shall direct the Trustee in writing on
each Business Day to withdraw such amounts from the
Collection Account and the Payment Reserve Account and to
first make such amounts available to pay to
Securityholders of other Series to the extent of
shortfalls, if any, in amounts payable to such
Securityholders from Finance Charge Collections allocated
to such other Series, then to pay any unpaid commercially
reasonable costs and expenses of a Successor Servicer, if
any, and then on each Business Day other than the Default
Recognition Date, pay to the Transferor to be treated as
"Transferor Retained Finance Charge Collections," and, on
each Default Recognition Date pay any remaining Excess
Finance Charge Collections to the Transferor.
(a) For each Business Day with respect to
the Revolving Period, the funds on deposit in the
Collection Account to the extent of the lesser of (A) the
Class A Invested Amount and (B) the sum of (x) the
product of the Floating Percentage and (ii) the amount of
Principal Collections on such Business Day (such product
the "Revolving Principal Collections") less the amount of
Redirected Principal Collections on such Business Day
(the Revolving Principal Collections less the Redirected
Principal Collections on the related Business Day, the
"Net Revolving Principal Collections"), and (y) the
amount of Shared Principal Collections allocated to the
Series 1998-A Securities in accordance with Section 4.8
on such Business Day may, at the option of the
Transferor, or shall, if the Stated Class B Amount
exceeds the Class B Invested Amount on such Business Day
after giving effect to any increase thereof on such
Business Day, pursuant to instructions delivered to the
Servicer and the Trustee by facsimile or other similar
means of documented communication, be deposited into the
Defeasance Account and applied as provided in Section
9A(b) of this Series Supplement; provided, however, that
any such amount shall be required to be so deposited only
to the extent necessary for the Class B Invested Amount
to be equal to the Stated Class B Amount following the
payment of such amount to the Class A Securityholders or
the deposit of such amount in the Defeasance Account.
During the Revolving Period, an amount equal to the Net
Revolving Principal Collections less any amount deposited
to the Defeasance Account pursuant to the immediately
preceding sentence shall be treated as Shared Principal
Collections and applied pursuant to the written direction
of the Servicer in the Daily Report for such Business
Day, as provided in Section 4.3(d) of the Agreement.
(b)
(c) For each Business Day on and after
the Amortization Period Commencement Date, the amount of
funds on deposit in the Collection Account and the other
amounts described below will be distributed, pursuant to
the written direction of the Servicer in the Daily Report
for such Business Day in the following priority:
(d)
(i) on and prior to the day on which an
amount equal to the Class A Invested Amount has been
deposited in the Principal Account to be applied to the
payment of Class A Principal, an amount (not in excess of
the Class A Invested Amount) equal to the sum of (v) the
product of the Fixed/Floating Percentage and Principal
Collections in the Collection Account at the end of the
preceding Business Day (less the amount thereof to be
applied as Redirected Principal Collections on such
Business Day), (w) any amount on deposit in the Excess
Funding Account allocated to the Class A Securities on
such Business Day pursuant to subsection 4.9(d), (x)
amounts to be paid pursuant to subsections 4.9(a)(iii),
(iv), (v) and (viii) of the Agreement from Available
Series 1998-A Finance Charge Collections and from amounts
available pursuant to subsections 4.10(a) and (b),
Section 4.14 and subsection 4.17(b) of the Agreement on
such Business Day and (y) the amount of Shared Principal
Collections allocated to the Series 1998-A Securities in
accordance with Section 4.8 on such Business Day, will be
paid to the Class A Securityholders;
(i) on and after the day on which an
amount equal to the Class A Invested Amount has been
deposited in the Principal Account to be applied to the
payment of Class A Principal, an amount equal to the sum
of (w) an amount equal to the product of the
Fixed/Floating Percentage and Principal Collections in
the Collection Account at the end of the preceding
Business Day (less the amount thereof to be applied as
Redirected Principal Collections on such Business Day),
(x) any amount on deposit in the Excess Funding Account
allocated to the Class B Security on such Business Day
pursuant to subsection 4.9(d), (y) the amount, if any,
allocated to be paid to the Class B Security pursuant to
subsections 4.9(a)(iii), (iv) and (viii) of the Agreement
from Available Series 1998-A Finance Charge Collections
and from amounts available pursuant to subsections
4.10(a) and (b) of the Agreement with respect to such
Business Day and (z) the amount of Shared Principal
Collections allocated to the Series 1998-A Securities in
accordance with Section 4.8 on such Business Day (such
sum, the "Class B Daily Principal Amount") will be
distributed to the Class B Securityholders; and
(i) an amount equal to the excess, if
any, of (A) the sum of the amounts described in clauses
(i)(v) and (x) above over (B) the sum of Class A
Principal will be treated as Shared Principal Collections
and applied as provided in subsection 4.3(d) of the
Agreement.
(a) On the first Business Day of the
Amortization Period, funds on deposit in the Excess
Funding Account will be deposited in the Principal
Account, provided that if any other Series enters its
Amortization Period, as defined in its related Series
Supplement, the amount of the foregoing deposit shall be
equal to the product of an amount equal to the amount of
funds on deposit in the Excess Funding Account and a
fraction the numerator of which is the Invested Amount
and the denominator of which is equal to the sum of the
invested amounts of each Series then entering its related
Amortization Period as defined in its related Series
Supplement. Amounts deposited in the Principal Account
pursuant to the foregoing sentence will be allocated to
the Class A Securities in an amount not to exceed the
Class A Principal after subtracting therefrom any amounts
to be paid to the Class A Securityholders with respect
thereto pursuant to subsections 4.9(c)(i)(v), (x) and
(y). On and after the Class B Principal Payment
Commencement Date any amounts remaining on deposit in the
Excess Funding Account and allocated to the Series 1998-A
Securities will be deposited in the Principal Account in
an amount not to exceed the Class B Invested Amount after
subtracting therefrom any amounts to be deposited in the
Principal Account with respect thereto pursuant to
subsections 4.9(c)(ii)(w), (y) and (z).
(b)
(c) [reserved]
(d)
(e) On each Business Day on which Class B
Daily Principal has been allocated pursuant to subsection
4.7(b) of the Agreement, funds on deposit in the
Collection Account in an amount equal to the Class B
Daily Principal Amount designated by the Transferor with
respect to such Business Day will be distributed to the
Class B Securityholders.
(f)
(g) SECTION Coverage of Required Amount for
the Series 1998-A Securities . To the extent that any
amounts are on deposit in the Excess Funding Account on
any Business Day, the Servicer shall apply, in the manner
specified for application of Available Series 1998-A
Finance Charge Collections in subsections 4.9(a)(i)
through (viii), Transferor Finance Charge Collections in
an amount equal to the excess of (x) the product of (a)
the Base Rate for such Business Day, (b) the amounts on
deposit in the Excess Funding Account and (c) the number
of days elapsed since the previous Business Day divided
by the actual number of days in such year over (y) the
aggregate amount of all earnings since the previous
Business Day available from the Cash Equivalents in which
funds on deposit in the Excess Funding Account are
invested (the "Negative Carry Amount").
(h)
(i) To the extent that on any Business Day
payments are being made pursuant to any of subsections
4.9(a)(i) through (viii), respectively, and the full
amount to be paid pursuant to any such subsection
receiving payments on such Business Day is not paid in
full on such Business Day, the Servicer shall apply, in
the manner specified for application of Available Series
1998-A Finance Charge Collections in subsections
4.9(a)(i) through (viii), all or a portion of the Excess
Finance Charge Collections from other Series with respect
to such Business Day allocable to the Series 1998-A
Securities in an amount equal to the excess of the full
amount to be allocated or paid pursuant to the applicable
subsection over the amount applied with respect thereto
from Available Series 1998-A Finance Charge Collections
and Transferor Finance Charge Collections on such
Business Day (the "Required Amount"). Excess Finance
Charge Collections allocated to the Series 1998-A
Securities for any Business Day shall mean an amount
equal to the product of (x) Excess Finance Charge
Collections available from all other Series for such
Business Day and (y) a fraction, the numerator of which
is the Required Amount for such Business Day and the
denominator of which is the aggregate amount of
shortfalls in required amounts or other amounts to be
paid from Finance Charge Collections for all Series for
such Business Day.
(j)
1.4.5 SECTION Payment of Interest and Fees.
On each day specified below, the Trustee, acting in
accordance with instructions from the Servicer set forth
in the Daily Report for such day, shall withdraw the
amount on deposit in the Interest Funding Account
allocable to the Series 1998-A Securities and deposit
such amount in the Distribution Account. The Paying
Agent shall pay from the Distribution Account in
accordance with Section 5.1 of the Agreement to the Class
A Securityholders the amount deposited into the Interest
Funding Account pursuant to subsection 4.9(a)(i) of the
Agreement and shall pay to the Funding Agent the amount
deposited into the Interest Funding Account pursuant to
subsection 4.9(a)(vi) and (vii) of the Agreement
(including, with respect to such subsection, amounts
applied thereto pursuant to subsections 4.10(a) and (b),
4.16(b) and Section 4.14 of the Agreement) in the manner
and priority set forth below.
1.4.6
(a) Interest Payments and Other Payments
Between Distribution Dates. Pursuant to instructions
from the Servicer set forth in the Daily Report for such
day, on any Business Day the Trustee shall withdraw an
amount on deposit in the Interest Funding Account and
distribute such amount as follows:
(b)
(i) pay to the Class A Securityholders
first the Class A Interest Shortfall, if any, with
respect to the portion of the Class A Invested Amount
held for Funding Periods ending on prior Business Days
and then the portion of Class A Interest accrued with
respect to the portion of the Invested Amount held for
Funding Periods ending on such Business Day; provided,
however, that any portion of the Class A Interest
comprising the Used Fee shall be paid as provided in
subsection 4.11(b)(i); and
(i) at the option of the Transferor, pay
to the Funding Agent, an amount equal to the portion of
Class A Costs accrued and unpaid on such Business Day.
(a) Payments on Distribution Dates. On
each Transfer Date, the Trustee, acting in accordance
with instructions from the Servicer set forth in the
Daily Report for such day, shall withdraw the amount on
deposit in the Interest Funding Account with respect to
the previous Monthly Period remaining after the
applications pursuant to subsection 4.11(a) of the
Agreement and deposit such amount in the Distribution
Account. On each Distribution Date, the Paying Agent
shall make the following payments in accordance with
Section 5.1 of the Agreement in the following priority to
the extent of such deposit into the Distribution Account:
(b)
(i) to the Funding Agent, an amount equal
to the Used Fee and the Unused Fee accrued with respect
to the preceding Monthly Period to be applied first to
the Used Fee and then to the Unused Fee; and
(i) to the extent not paid pursuant to
subsection 4.11(a)(ii) above, to the Funding Agent, an
amount equal to the Class A Costs, if any, accrued with
respect to the preceding Monthly Period.
1.4.4 SECTION Payment of Principal .
1.4.5
(a) On each Business Day during the
Revolving Period on which there is a Commercial Paper
maturity or which is a Distribution Date, the Trustee,
acting in accordance with instructions from the Servicer
set forth in the Daily Report for such day, shall
withdraw from the Principal Account the amount deposited
therein pursuant to subsection 9A(b) of the Agreement and
pay such amount to the Class A Securityholders pursuant
to Section 5.1 of the Agreement on the next Business Day.
If so designated in writing by the Transferor with
respect to such Business Day, after giving effect to the
payments described in the preceding sentence, the Class B
Excess Amount, if any, may be subtracted from the Class B
Invested Amount and added to the Transferor Interest;
provided that, if such payment is being made on a
Business Day on which there is Commercial Paper maturing,
the amount of any such payment shall not exceed the net
proceeds of such Commercial Paper when issued.
(a) On any Business Day during the
Amortization Period on which there is a Commercial Paper
maturity, upon the direction of the Transferor, any
amounts on deposit in the Principal Account pursuant to
subsection 4.9(c) of the Agreement may be withdrawn from
the Principal Account and deposited in the Distribution
Account, to the extent of funds available, for
distribution on the next Business Day, pursuant to
Section 5.1 of the Agreement, to be applied to the
payment of Class A Principal until the Class A Invested
Amount is paid in full, then to the payment of Class B
Principal until the Class B Invested Amount is paid in
full; provided that, if such distribution is being made
on a Business Day on which there is Commercial Paper
maturing, the amount of any such distribution shall not
exceed the net proceeds of such Commercial Paper when
issued.
(b)
(c) On the Transfer Date preceding each
Distribution Date during the Amortization Period, the
Trustee, acting in accordance with instructions from the
Servicer set forth in the Daily Report for such day,
shall withdraw from the Principal Account, to the extent
of funds available, an amount equal to the Class A
Principal for such Distribution Date and deposit such
amount in the Distribution Account. On each Distribution
Date with respect to the Amortization Period until the
Class A Invested Amount is paid in full, the Paying Agent
shall pay in accordance with Section 5.1 of the Agreement
to the Class A Securityholders from the Distribution
Account such amounts deposited with respect to Class A
Principal into the Distribution Account on the related
Transfer Date; provided that, if on such Distribution
Date the Class A Securities are held for the benefit of
the CP Vehicle and such Distribution Date is not a day on
which there is a Commercial Paper maturity, the Payment
Agent shall retain such amount and pay it to the Class A
Securityholders on each Business Day thereafter on which
there is a Commercial Paper maturity in an amount equal
to the net proceeds of such Commercial Paper when issued.
(d)
(e) On the Transfer Date preceding the
Class B Principal Payment Commencement Date and each
Business Day thereafter, the Trustee, acting in
accordance with instructions from the Servicer set forth
in the Daily Report for such day, shall make payments of
principal to the Class B Securityholders in accordance
with subsection 4.9(c)(ii) of the Agreement. On each
Business Day the Trustee acting in accordance with
instructions from the Servicer set forth in the Daily
Report for such Business Day shall make payments of
principal to the Class B Securityholders of Class B Daily
Principal, if any, designated by the Transferor pursuant
to Section 4.7(b) of the Agreement. Notwithstanding the
foregoing, if so designated in writing by the Transferor,
any such payment of Class B Principal shall not be made
to the Class B Securityholder but such amount shall
nonetheless be subtracted from the Class B Invested
Amount and added to the Transferor Interest and on each
Transfer Date Class B Excess Amounts may be subtracted
from the Class B Invested Amount and added to the
Transferor Interest whether or not such amount has been
deposited into the Distribution Account.
(f)
(g) Any amounts remaining in the Principal
Account and allocable to the Series 1998-A Securities,
after the Class B Invested Amount has been paid in full,
will be treated as Shared Principal Collections and
applied in accordance with subsection 4.3(d) of the
Agreement.
(h)
(i) SECTION Series Charge-Offs . If, on any
Determination Date, the aggregate Series Default Amount
and the Series 1998-A Percentage of unpaid Adjustment
Payments, if any, for each Business Day in the preceding
Monthly Period exceeded the Available Series 1998-A
Finance Charge Collections applied to the payment thereof
pursuant to subsections 4.9(a)(iii) and (iv) of the
Agreement and the amount of Transferor Finance Charge
Collections and Excess Finance Charge Collections
allocated thereto pursuant to Section 4.10 of the
Agreement, and the amount of Redirected Principal
Collections applied with respect thereto pursuant to
Section 4.14 of the Agreement, the Class B Invested
Amount will be reduced by the amount by which the
remaining aggregate Series Default Amount and Series 1998-
A Percentage of unpaid Adjustment Payments exceed the
amount applied with respect thereto during such preceding
Monthly Period (a "Class B Series Charge-Off").
(j)
(k) In the event that any such reduction of
the Class B Invested Amount would cause the Class B
Invested Amount to be a negative number, the Class B
Invested Amount will be reduced to zero, and the Class A
Invested Amount will be reduced by the amount by which
the Class B Invested Amount would have been reduced below
zero, but not more than the remaining aggregate Series
Default Amount and Series 1998-A Percentage of unpaid
Adjustment Payments for such Monthly Period (a "Class A
Series Charge-Off").
(l)
1.4.5 SECTION Redirected Principal
Collections for the Series 1998-A Securities . On each
Business Day, the Servicer will determine an amount equal
to the least of (i) the Class B Invested Amount, (ii) the
product of (x)(I) during the Revolving Period, the Class
B Floating Percentage or (II) during an Amortization
Period, the Class B Fixed/Floating Percentage and (y) the
amount of Principal Collections with respect to such
Business Day and (iii) an amount equal to the Class A
Required Amount for such Business Day (such amount called
"Redirected Principal Collections") and shall apply
Principal Collections in an amount equal to such amount
to the components of the Class A Required Amount in the
same priority as amounts are applied to such components
from Available Series 1998-A Finance Charge Collections
pursuant to subsection 4.9(a).
1.4.6
(a) SECTION Determination of LIBOR . On
each Rate Determination Date, the Trustee shall determine
LIBOR.
(b)
(c) Promptly after the end of each Monthly
Period, the Funding Agent will give facsimile notice to
the Servicer and the Trustee of the Class A Interest Rate
applicable for such Monthly Period. Such rate may be
obtained by any Class A Securityholder by telephoning the
Trustee at its Corporate Trust Office at (212) 815-5737.
(d)
1.4.7 SECTION Payment Reserve Account .
1.4.8
(a) The Servicer shall establish and
maintain or cause to be established and maintained with a
Qualified Institution, which may be the Trustee, in the
name of the Trustee, on behalf of the Securityholders,
the "Payment Reserve Account," which shall be a
segregated trust account with the corporate trust
department of such Qualified Institution, bearing a
designation clearly indicating that the funds deposited
therein are held for the benefit of the Securityholders.
The Trustee shall possess all right, title and interest
in all funds on deposit from time to time in the Payment
Reserve Account and in all proceeds thereof. The Payment
Reserve Account shall be under the sole dominion and
control of the Trustee for the benefit of the
Securityholders. If, at any time, the institution
holding the Payment Reserve Account ceases to be a
Qualified Institution, the Trustee shall within 20
Business Days establish a new Payment Reserve Account
meeting the conditions specified above with a Qualified
Institution, and shall transfer any cash or any
investments to such new Payment Reserve Account. From
the date such new Payment Reserve Account is established,
it shall be the "Payment Reserve Account."
(b)
(c) The Transferor, at its discretion,
may withdraw on any Determination Date a part or all of
any amounts remaining in the Payment Reserve Account
after giving effect to any withdrawals required to be
made under subsection 4.9(a) above.
(d)
(e) Funds on deposit in the Payment
Reserve Account shall be invested in Cash Equivalents by
the Trustee (or, at the direction of the Trustee, by the
Servicer on behalf of the Trustee) at the direction of
the Servicer. Funds on deposit in the Payment Reserve
Account on any Business Day, after giving effect to any
withdrawals from the Payment Reserve Account, shall be
invested in Cash Equivalents that will mature so that
such funds will be available for withdrawal on or prior
to the following Business Day. The proceeds of any such
investments shall be invested in Cash Equivalents that
will mature so that such funds will be available for
withdrawal on or prior to the following Business Day. On
each Business Day following a deposit of funds to the
Payment Reserve Account, the aggregate proceeds of any
such investment shall be deposited in the Collection
Account and treated as Investment Proceeds for
application as Available Series 1998-A Finance Charge
Collections.
(f)
1.4.9 SECTION Reserve Account .
1.4.10
(a) The Servicer, for the benefit of the
Class A Securityholders, shall establish and maintain or
cause to be established and maintained with a Qualified
Institution, which may be the Trustee, in the name of the
Trustee, on behalf of the Class A Securityholders, a
reserve account (the "Reserve Account"), which shall be a
segregated trust account with the corporate trust
department of such Qualified Institution, bearing a
designation clearly indicating that the funds deposited
therein are held for the benefit of the Class A
Securityholders. The Trustee will possess all right,
title and interest in all funds on deposit from time to
time in the Class A Reserve Account and in all proceeds
thereof. The Class A Reserve Account will be under the
sole dominion and control of the Trustee for the benefit
of the Class A Securityholders. If, at any time, the
institution holding the Reserve Account ceases to be a
Qualified Institution, the Trustee will within 10
Business Days establish a new Reserve Account meeting the
conditions specified above with a Qualified Institution,
and shall transfer any cash or any investments to such
new Reserve Account. From the date such new Reserve
Account is established, it shall be the "Reserve
Account."
(b)
(c) The Servicer shall on each Business
Day deposit in the Reserve Account an amount equal to the
excess of the Specified Reserve Amount over the amount on
deposit in the Reserve Account to the extent of funds
available therefor pursuant to subsection 4.9(a)(ix) of
the Agreement. Funds on deposit in the Reserve Account
shall be withdrawn by the Servicer in the following order
of priority: (i) on each Default Recognition Date an
amount not exceeding the amount deposited in the Reserve
Account during the then current Monthly Period pursuant
to subsection 4.9(a)(ix) of the Agreement, shall be
applied to any shortfalls in amounts payable pursuant to
subsection 4.9(a)(iii) of the Agreement which have not
been paid from Available Series 1998-A Finance Charge
Collections or Transferor Retained Finance Charge
Collections (prior to application of amounts described
herein), which amount shall be treated as Transferor
Retained Finance Charge Collections and applied in
accordance with subsection 4.9(a)(iii) of the Agreement,
(ii) on each Business Day amounts remaining in the
Reserve Account shall be applied to any shortfalls in
amounts payable pursuant to subsections 4.9(a)(i) of the
Agreement which have not been paid from Available Series
1998-A Finance Charge Collections, Transferor Finance
Charge Collections, Excess Finance Charge Collections or
Redirected Principal Collections, which amounts shall be
applied in accordance with subsections 4.9(a)(i) of the
Agreement, and (iii) the first Distribution Date with
respect to the Amortization Period an amount equal to the
Class A Series Charge-Offs, if any, shall be applied in
accordance with subsection 4.9(c)(i) of the Agreement.
Amounts on deposit in the Reserve Account may be
subsequently released therefrom to the extent that such
amounts exceed the Specified Reserve Amount and shall be
treated as Transferor Retained Finance Charge Collections
to be applied for the then current Monthly Period in
accordance with subsection 4.9(a) of the Agreement.
(d)
(e) Funds on deposit in the Reserve
Account will be invested by the Trustee (or, at the
direction of the Trustee, by the Servicer on behalf of
the Trustee) at the direction of the Servicer in Cash
Equivalents that will mature so that such funds will be
available for withdrawal on or prior to the following
Business Day. The interest and other investment income
(net of investment expenses and losses) earned on such
investments will be retained in the Reserve Account (to
the extent the amount on deposit therein is less than the
Specified Reserve Amount) or shall be deposited in the
Collection Account and treated as Investment Proceeds for
application as Available Series 1998-A Finance Charge
Collections.
(f)
2. SECTION Article V of the Agreement.
Article V of the Agreement shall read in its entirety as
follows and shall be applicable only to the Series 1998-A
Securities:
3.
4. 5 ARTICLE DISTRIBUTIONS AND REPORTS TO
INVESTORSECURITYHOLDERS
(a) SECTION Distributions . On each
Distribution Date, the Paying Agent shall distribute (in
accordance with the Settlement Statement delivered by the
Servicer to the Trustee and the Paying Agent pursuant to
subsection 3.4(c)) to the Class A Securityholders of
record on the preceding Record Date (other than as
provided in subsection 2.4(e) or in Section 12.3
respecting a final distribution) each such
Securityholder's pro rata share (based on the aggregate
Undivided Interests represented by the Class A Securities
held by such Securityholder) of amounts on deposit in the
Distribution Account as are payable to the Class A
Securityholders pursuant to Section 4.11 of the Agreement
and amounts deposited in the Principal Account pursuant
to subsection 9A(b) of this Supplement and amounts on
deposit in the Principal Account or Principal Funding
Account pursuant to subsection 4.9(c)(i) of the
Agreement, payable pursuant to Section 4.12 of the
Agreement by wire transfer to an account or accounts
designated by such Class A Securityholders by written
notice given to the Paying Agent not less than five days
prior to such Business Day; provided, however, that the
final payment in retirement of the Class A Securities
will be made only upon presentation and surrender of the
Class A Securities at the office or offices specified in
the notice of such final distribution delivered by the
Trustee pursuant to Section 12.3.
(b)
(c) SECTION Securityholders' Statement . On
the 20th day of each calendar month (or if such day is
not a Business Day the next succeeding Business Day), the
Paying Agent shall forward to each Securityholder and the
Rating Agencies a statement substantially in the form of
Exhibit C prepared by the Servicer and delivered to the
Trustee and the Paying Agent on the preceding
Determination Date setting forth the following
information:
(d)
(i) the total amount distributed;
(i) the amount of such distribution
allocable to Class A Principal and Class B Principal;
(i) the amount of such distribution
allocable to Class A Interest and Class A Default
Interest;
(i) the amount of Principal Collections
received in the Collection Account during the preceding
Monthly Period and allocated in respect of the Class A
Securities and the Class B Security, respectively;
(i) the amount of Finance Charge
Collections processed during the preceding Monthly Period
and allocated in respect of the Class A Securities and
the Class B Security, respectively;
(i) the aggregate amount of Principal
Receivables, the Invested Amount, the Class A Invested
Amount and the Class B Invested Amount, the Floating
Percentage and, during the Amortization Period, the
Fixed/Floating Percentage, as of the end of the day on
the last day of the related Monthly Period;
(i) the aggregate outstanding balance of
Receivables which are current, 30-59, 60-89, and 90 days
and over delinquent as of the end of the day on the last
day of the related Monthly Period;
(i) the aggregate Series Default Amount
for the preceding Monthly Period;
(i) the aggregate amount of Class A
Series Charge-Offs and Class B Series Charge-Offs for the
preceding Monthly Period;
(i) the amount of the Servicing Fee for
the preceding Monthly Period;
(i) the amount of unreimbursed Redirected
Principal Collections for the related Monthly Period; and
(i) the aggregate amount of funds in the
Excess Funding Account as of the last day of the Monthly
Period immediately preceding the Distribution Date.
(a) Annual Securityholders' Tax Statement.
On or before January 31 of each calendar year, beginning
with calendar year 1999, the Paying Agent shall
distribute to each Person who at any time during the
preceding calendar year was a Series 1998-A
Securityholder, a statement prepared by the Servicer
containing the information required to be contained in
the regular report to Series 1998-A Securityholders, as
set forth in subclauses (i), (ii) and (iii) above,
aggregated for such calendar year or the applicable
portion thereof during which such Person was a Series
1998-A Securityholder, together with, on or before
January 31 of each year, beginning in 1999, such other
customary information (consistent with the treatment of
the Securities as debt) as the Trustee or the Servicer
deems necessary or desirable to enable the Series 1998-A
Securityholders to prepare their tax returns. Such
obligations of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to
any requirements of the Internal Revenue Code as from
time to time in effect.
(b)
(c) SECTION 7A. Article VI of the
Agreement. Article VI (except for Sections 6.01 through
6.14 thereof) shall read in its entirety as follows and
shall be applicable only to the Series 1998-A:
(d)
(e)
6 ARTICLE THE SECURITIES
1.5.15 SECTION Additional Class A Invested
Amounts . The Class A Securityholders agree, by
acceptance of the Class A Securities, that the Transferor
may from time to time, other than after a Pay Out
Commencement Date, and not more frequently than once each
calendar week, request that the Class A Securityholders
acquire on any Business Day additional undivided
interests in the Trust in specified amounts (such
amounts, the "Additional Class A Invested Amounts");
provided, however, that if such an increase in the Class
A Invested Amount would cause a Trust Pay Out Event or a
Series 1998-A Pay Out Event to occur, then the amount of
the increase in the Class A Invested Amount shall be
limited on such Business Day to the maximum increase in
the Class A Invested Amount that may be obtained without
causing either a Trust Pay Out Event or a Series 1998-A
Pay Out Event to occur; and provided further, that in no
case shall the Class A Invested Amount be increased above
the Class A Maximum Invested Amount. The Additional
Class A Invested Amounts on any Business Day shall not
exceed an amount equal to the excess of the aggregate
amount of Principal Receivables over the greater of (a)
the sum of (i) the aggregate invested amount of each
Series then outstanding as of such day including the
Class A Securities (prior to the addition of such
Additional Class A Invested Amount) minus amounts on
deposit in the Principal Account or Principal Funding
Account for any Series, if any, and (ii) the Minimum
Transferor Interest as of such day or (b) the Minimum
Aggregate Principal Receivables. The Class A
Securityholders shall acquire such Additional Class A
Invested Amount, only if (a) the Class B Invested Amount
following the acquisition of such Additional Class A
Invested Amount shall be at least equal to the Stated
Class B Amount (including increases to the Class B
Invested Amount pursuant to Section 6.16 of the
Agreement), (b) after giving effect to the proposed
increase in the Class A Invested Amount no Series 1998-A
Pay Out Event shall occur as a result of such increase
and (c) the Transferor shall have delivered to each Class
A Securityholder (i) no later than Noon, New York City
time, on the Business Day prior to the proposed
acquisition date, an Officer's Certificate substantially
in the form of Exhibit D setting forth an estimate of the
amount of the proposed increase in the Class A Invested
Amount and (ii) no later than 11:00 a.m., New York City
time, on the date of acquisition, an Officer's
Certificate substantially in the form of Exhibit D
setting forth the actual amount of the increase in the
Class A Invested Amount (which shall not be more than
$10,000,000 greater than or less than the estimated
amount of the proposed increase). If the Class A
Securityholders acquire such Additional Class A Invested
Amount, such Class A Securityholders shall pay an amount
equal to the Additional Class A Invested Amount to the
Trustee and, in consideration of such Securityholders'
payment of the Additional Class A Invested Amount, the
Servicer shall appropriately note such Additional Class A
Invested Amount (and the increased Class A Invested
Amount) on the next succeeding Servicer's report and
direct the Trustee in writing to pay to the Transferor an
amount equal to the remaining proceeds in an amount not
to exceed such Additional Class A Invested Amount, and
the Invested Amount of the Class A Securities will be
equal to the Invested Amount of the Class A Securities
stated in such Servicer's report.
1.5.16
1.5.17 The purchase of any Additional Class
A Invested Amount shall be in an aggregate principal
amount that is not less than $1,000,000 or integral
multiples of $1,000,000 in excess thereof.
1.5.18
The outstanding amounts of any Additional Class
A Invested Amount purchased by the Class A
Securityholders shall be evidenced by a Class A Security
to be issued on the Closing Date substantially in the
form of Exhibit A hereto. Each Class A Securityholder
shall be and is hereby authorized to record on the grid
attached to its Class A Security (or at such Class A
Securityholder's option, in its internal books and
records) the date and amount of any Additional Class A
Invested Amount purchased by it, and each repayment
thereof; provided that failure to make any such
recordation on such grid or any error in such grid shall
not adversely affect such Class A Securityholder's rights
with respect to its Class A Invested Amount and its right
to receive interest payments in respect of the Class A
Invested Amount held by such Class A Securityholder.
1.5.15 SECTION Additional Class B Invested
Amounts .
1.5.16
(a) On any Business Day while any Series
1998-A Securities are outstanding, the Transferor may
elect to increase the Class B Invested Amount (such
additional amounts, "Additional Class B Invested
Amounts") by written notice to the Trustee on such date
which notice shall specify the effective date and the
amount of such increase in the Class B Invested Amount;
provided, however, that if such an increase in the Class
B Invested Amount would cause a Trust Pay Out Event or a
Series 1998-A Pay Out Event to occur, then the amount of
the increase in the Class B Invested Amount shall be
limited on such Business Day to the maximum increase in
the Class B Invested Amount that may be obtained without
causing either a Trust Pay Out Event or a Series 1998-A
Pay Out Event to occur; provided further that no such
increase in the Class B Invested Amount shall be
permitted under this Section 6.16 unless: (i) after
giving effect to the proposed increase in Class B
Invested Amount the Transferor Interest shall equal or
exceed the Minimum Transferor Interest and(ii) no Series
1998-A Pay Out Event will occur as a result of such
increase in the Class B Invested Amount.
(a) SECTION Extension . If a Pay Out Event
has not occurred or has occurred but has been remedied on
or before the 30th Business Day preceding the Extension
Date, the Transferor, in its sole discretion, may deliver
to the Trustee on or before such date a notice
substantially in the form of Exhibit E (the "Extension
Notice") to this Series Supplement. The Trustee shall
deliver a copy of the Extension Notice and all documents
annexed thereto to the Investor Securityholders of record
on the date of receipt thereof. The Transferor shall
state in the Extension Notice that it intends to extend
the Revolving Period until the later Amortization Period
Commencement Date set forth in the Extension Notice. The
Extension Notice shall also set forth the next Extension
Date. The following documents shall be annexed to the
Extension Notice: (i) a form of the Opinion of Counsel
addressed to the Transferor and the Trustee to the effect
that despite the extension the Trust will not be treated
as an association taxable as a corporation (the
"Extension Tax Opinion"); (ii) a form of the Opinion of
Counsel addressed to the Transferor and the Trustee (the
"Extension Opinion") to the effect that (A) the
Transferor has the corporate power and authority to
effect the Extension, (B) the extension has been duly
authorized by the Transferor, and (C) all conditions
precedent to the Extension required by this Section 6.17
have been fulfilled; and (iii) a form of Investor
Securityholder Election Notice substantially in the form
of Exhibit F (the "Election Notice") to this Series
Supplement. In addition, the Extension Notice shall
state that any Investor Securityholder electing to
approve the Extension must do so on or before the
Election Date (as defined below) by returning the annexed
Election Notice properly executed to the Trustee in the
manner described below. The Extension Notice shall also
state that an Investor Securityholder may withdraw any
such election in whole or in part on or before the
Election Date, and the Transferor, in its sole
discretion, may, prior to the Election Date, withdraw its
election to extend the Revolving Period. Any Holder that
elects to approve an Extension hereunder shall deliver a
duly executed Election Notice to the Trustee at the
address designated in the Extension Notice on or before
3:00 p.m., New York City time, on or before the fifth
Business Day preceding the Extension Date (such Business
Day constituting the "Election Date").
(b)
(c) No extension shall occur unless each of
the following conditions have been satisfied prior to the
close of business on the Election Date: (i) no Pay Out
Event shall have occurred and be continuing, (ii) there
shall have been delivered to the Trustee the Extension
Tax Opinion and the Extension Opinion, each addressed to
the Trustee (iii) each of the holders of the Class A
Securities shall have elected to approve the Extension by
returning to the Trustee on or before the Election Date
the executed Election Notice annexed to the Extension
Notice delivered to the Investor Securityholders pursuant
to subsection 6.17(a) of the Agreement. If, by the close
of business on the Election Date, all of the conditions
stated in this subsection 6.17(b) of the Agreement have
not been satisfied and all such documents delivered to
the Trustee pursuant to this subsection 6.17(b) of the
Agreement are not in form satisfactory to it, or if the
Transferor has notified the Trustee, prior to the
Election Date, that the Transferor has exercised its
right to withdraw its election of an Extension, no
Extension shall occur.
(d)
(e) The execution by the required number
of Investor Securityholders of the applicable Election
Notice and return thereof to the Trustee by the required
Date and time, the continued election by the Transferor
to extend the Revolving Period at the Election Date, and
the compliance with all of the provisions of this Section
6.17, shall evidence an extension or renewal of the
obligations represented by the Investor Securities, and
not a novation or extinguishment of such obligations or a
substitution with respect thereto.
(f)
(g) To the extent required by applicable
laws and regulations, as evidenced by an Opinion of
Counsel delivered by the Transferor to the Trustee, the
provisions of this Section 6.17 shall or may be modified
to comply with all applicable laws and regulations in
effect at the time of the Extension.
(h)
1.5.16 SECTION Permanent Reductions in Maximum
Class A Invested Amount . The Transferor may at any time
elect to reduce permanently the Maximum Class A Invested
Amount by giving at least 30 days' prior written notice
to the CP Vehicle, the Funding Agent, the Trustee and the
APA Banks of such reduction in the Maximum Class A
Invested Amount, including the amount of such proposed
reduction and the proposed date on which such reduction
will commence.
1.5.17
2. SECTION Series 1998-A Pay Out Events. If
any one of the following events shall occur with respect
to the Series 1998-A Securities:
3.
(a) failure on the part of the Transferor
(i) to make any payment or deposit required to be made by
the Transferor by the terms of (A) the Agreement or (B)
this Series Supplement, on or before the date occurring
five Business Days after the date such payment or deposit
is required to be made herein, (ii) to perform in all
material respects the Transferor's covenant not to sell,
pledge, assign, or transfer to any person, or grant any
unpermitted lien on, any Receivable; or (iii) duly to
observe or perform in any material respect any covenants
or agreements of the Transferor set forth in the
Agreement or this Series Supplement, which failure has a
material adverse effect on the Series 1998-A
Securityholders and which continues unremedied for a
period of 60 days after the date on which written notice
of such failure, requiring the same to be remedied, shall
have been given to the Transferor by the Trustee, or to
the Transferor and the Trustee by the Holders of Series
1998-A Securities evidencing Undivided Interests
aggregating not less than 50% of the Class A Invested
Amount and continues to affect materially and adversely
the interests of the Series 1998-A Securityholders for
such period;
(b)
(c) any representation or warranty made
by the Transferor in the Agreement or this Series
Supplement, (i) shall prove to have been incorrect in any
material respect when made, which continues to be
incorrect in any material respect for a period of 60 days
after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given
to the Transferor by the Trustee, or to the Transferor
and the Trustee by the Holders of the Series 1998-A
Securities evidencing Undivided Interests aggregating
more than 50% of the Class A Invested Amount and (ii) as
a result of which the interests of the Series 1998-A
Securityholders are materially and adversely affected and
continue to be materially and adversely affected for such
period; provided, however, that a Series 1998-A Pay Out
Event pursuant to this subsection 8(b) shall not be
deemed to have occurred hereunder if the Transferor has
accepted reassignment of the related Receivable, or all
of such Receivables, if applicable, during such period in
accordance with the provisions of the Agreement;
(d)
(e) the average of the Portfolio Yields
for any three consecutive Monthly Periods is reduced to a
rate which is less than the weighted average Base Rates
for each Business Day during such three consecutive
Monthly Periods;
(f)
(g) (i) the Transferor Interest shall be
less than the Minimum Transferor Interest, (ii) the
Series 1998-A Percentage of the sum of the total amount
of Principal Receivables plus amounts on deposit in the
Excess Funding Account shall be less than (B) the sum of
the Class A Outstanding Principal Amount and the Class B
Outstanding Principal Amount or (iii) the total amount of
Principal Receivables and the amount on deposit in the
Excess Funding Account shall be less than the Minimum
Aggregate Principal Receivables, in each case as of any
Determination Date;
(h)
(i) any Servicer Default shall occur
which would have a material adverse effect on the Series
1998-A Securityholders; or
(j)
(k) the amount on deposit in the Excess
Funding Account as a percentage of the sum of the
aggregate amount of Principal Receivables plus the amount
on deposit in the Excess Funding Account shall equal or
exceed 30% on the last day of three consecutive Monthly
Periods;
(l)
(m) then, in the case of any event described in
subparagraph (a), (b) or (e), after the applicable grace
period, if any, set forth in such subparagraphs, the
Holders of Class A Securities evidencing Undivided
Interests aggregating more than 50% of the Class A
Invested Amount by notice then given in writing to the
Trustee, the Transferor and the Servicer may declare that
a pay out event (a "Series 1998-A Pay Out Event") has
occurred as of the date of such notice, and in the case
of any event described in subparagraphs (c), (d) or (f),
a Series 1998-A Pay Out Event shall occur without any
notice or other action on the part of the Trustee or the
Series 1998-A Securityholders immediately upon the
occurrence of such event.
(n)
4. SECTION Series 1998-A Termination. The
right of the Series 1998-A Securityholders to receive
payments from the Trust will terminate on the first
Business Day following the Series 1998-A Termination Date
unless such Series is an Affected Series as specified in
Section 12.1(c) of the Agreement and the sale
contemplated therein has not occurred by such date, in
which event the Series 1998-A Securityholders shall
remain entitled to receive proceeds of such sale when
such sale occurs.
5.
(a) SECTION 9A. Class A Pre-Payment. During
the Revolving Period, the Holder of the Exchangeable
Transferor Security may specify upon an Exchange,
pursuant to Section 6.9 of the Agreement, that the
purchaser of a newly issued Series deposit payment
therefor, in full or in part, in the Defeasance Account
in an amount not to exceed the Class A Invested Amount on
such date. In addition, during the Revolving Period
amounts may be deposited in the Defeasance Account at the
direction of the Transferor pursuant to subsection 4.9(b)
of the Agreement. On the Closing Date the Trustee shall,
for the benefit of the Class A Securityholder, establish
and maintain with a Qualified Institution in the name of
the Trust, a certain segregated trust account (the
"Defeasance Account"). Any amounts on deposit in the
Defeasance Account on any Business Day shall be invested
at the direction of the Servicer in Cash Equivalents
which mature on the next succeeding Business Day. On
each Business Day following a deposit of funds to the
Defeasance Account, the aggregate proceeds of any such
investment shall be deposited in the Collection Account
and treated as Investment Proceeds for application as
Available Series 1998-A Finance Charge Collections.
(b)
(c) Upon the direction of the Servicer any
amounts, up to the Class A Invested Amount, on deposit in
the Defeasance Account may, or upon the occurrence of a
Pay Out Event the amount on deposit in the Defeasance
Account shall, be deposited in the Principal Account for
distribution on the next Business Day on which there is a
Commercial Paper maturity or which is a Distribution
Date, which amount shall be applied to the payment of
Class A Principal; provided that, if such distribution is
being made on a Business Day on which there is Commercial
Paper maturing, the amount of any such distribution shall
not exceed the net proceeds of such Commercial Paper when
issued. Such amounts shall be applied and paid in
accordance with Sections 4.7, 4.12 and 5.1 of the
Agreement. Subsequent to any reduction of the Class A
Invested Amount as a result of payments pursuant to this
Section 9A, the Class A Invested Amount may be increased
pursuant to the terms and conditions set forth in Section
6.15 of the Agreement.
1. SECTION Legends; Transfer and Exchange;
Restrictions on Transfer of Series 1998-A Securities; Tax
Treatment.
2.
(a) Each Class A Security shall bear a
legend substantially in the following form:
THIS SECURITY (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. THE TRANSFER OF
THIS SECURITY IS SUBJECT TO CERTAIN CONDITIONS SET
FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
(a) Each Class A Security and Class B
Security shall bear a legend substantially in the
following form:
(b)
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF METRIS RECEIVABLES, INC. AND THE TRUSTEE
THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT
PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF
TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION
4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE") THAT IS SUBJECT TO SECTION 4975
OF THE CODE, (III) A GOVERNMENTAL PLAN, AS DEFINED
IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL,
STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT,
SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DEFINED
IN 29 C.F.R. SECTION 2510.3-101 OR OTHERWISE UNDER
ERISA) BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" OF
ANY SUCH PLAN (INCLUDING WITHOUT LIMITATION, FOR
PURPOSES OF CLAUSE (IV) AND THIS CLAUSE (V), AS
APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT,
BUT EXCLUDING ANY ENTITY REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
Each Security Owner by virtue of its beneficial
interest in the Class A Securities or the Class B
Security, as applicable, shall be deemed to have made the
representations and warranties stated in such legend.
(a) Each Class B Security will bear a
legend substantially in the following form:
(b)
THIS SECURITY (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW OF ANY STATE AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR EXEMPT
FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY
OTHER APPLICABLE SECURITIES LAW. METRIS
RECEIVABLES, INC. SHALL BE PROHIBITED FROM
TRANSFERRING ANY INTEREST IN OR PORTION OF THIS
SECURITY UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL
HAVE DELIVERED TO THE TRUSTEE AN OPINION OF COUNSEL
TO THE EFFECT THAT SUCH PROPOSED TRANSFER WILL NOT
ADVERSELY AFFECT THE FEDERAL, MINNESOTA OR DELAWARE
INCOME TAX CHARACTERIZATION OF ANY OUTSTANDING
SERIES OF INVESTOR SECURITIES OR THE TAXABILITY (OR
TAX CHARACTERIZATION) OF THE TRUST UNDER FEDERAL,
MINNESOTA OR DELAWARE INCOME TAX LAWS. THE TRANSFER
OF THIS SECURITY IS SUBJECT TO CERTAIN CONDITIONS
SET FORTH IN THE POOLING AND SERVICING AGREEMENT
REFERRED TO HEREIN.
(a) Metris Receivables, Inc. shall be
prohibited from transferring any interest in or portion
of the Class B Security unless, prior to such Transfer,
it shall have delivered to the Trustee an Opinion of
Counsel to the effect that such proposed Transfer will
not adversely affect the Federal, Minnesota or Delaware
income tax characterization of any outstanding Series of
Investor Securities or the taxability (or tax
characterization) of the Trust under Federal, Minnesota
or Delaware income tax laws. In no event shall any
interest in or portion of the Class B Security be
transferred to MCI. As a condition to transfer of an
interest in or portion of the Class B Security the
transferee shall be required to agree not to institute
against, or join any other Person in instituting against,
the Trust any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding
under any federal or state bankruptcy or similar law, for
one year and one day after all Investor Securities are
paid in full. The Transferor shall provide prompt
written notice to the Rating Agencies of any such
transfer.
(b)
(c) In accordance with Section 6.2 of the
Agreement, no sale, assignment, participation, pledge,
hypothecation, transfer or other disposition (a
"Transfer") of a Class A Security (or any interest
therein) shall be made unless the Transferor shall have
granted its prior consent thereto, which consent may not
be unreasonably withheld; provided, however, that for
purposes of this sentence, it shall in all cases be
reasonable for the Transferor to withhold consent to such
proposed sale, assignment, participation, pledge,
hypothecation, transfer or other disposition of all or
any part of a Class A Security (or any interest therein)
if the transaction would, if effected, give rise to any
adverse tax consequence or if such Transfer would create
more than an insubstantial risk that the Trust would be
classified for federal or any applicable state tax
purposes as an association or publicly traded partnership
taxable as a corporation, each as determined in the sole
and absolute discretion of the Transferor; provided,
further, that any attempted Transfer that would cause the
number of Targeted Holders (as defined herein) to exceed
one-hundred shall be void; and provided, further, that
there shall not at any time be more than twelve Class A
Securityholders or such greater number as may be
consented to by the Transferor which consent may be
withheld in its sole and absolute discretion. The
Transferor hereby consents to the Transfer by PARCO, as
the initial purchaser of the Class A Securities, to the
APA Banks of PARCO's interest in the Class A Securities,
provided that any such Transfer shall not cause the
number of Targeted Holders to exceed one hundred and
shall not cause there to be more than twelve holders of
interests in the Class A Securities and each such APA
Bank shall satisfy the conditions set forth in
subsections 10(f), (g) and (h) of this Series Supplement.
The Transferor hereby agrees that it will not consent to
any Transfer of Investor Securities that would cause the
number of Targeted Holders of interests in the Trust
other than the Class A Securities to exceed 88.
(d)
(e) Each purchaser of an interest in a
Class A Security shall represent and warrant that it is a
Person who is either (A)(i) a citizen or resident of the
United States, (ii) a corporation or other entity
organized in or under the laws of the United States or
any political subdivision thereof or (iii) a Person not
described in (i) or (ii) whose ownership of the Class A
Securities is effectively connected with such person's
conduct of a trade or business within the United States
(within the meaning of the Internal Revenue Code) and
whose ownership of any interest in a Class A Security
will not result in any withholding obligation with
respect to any payments with respect to the Class A
Securities by any Person or (B) an estate the income of
which is includible in gross income for United States
federal income tax purposes or any trust if a court
within the United States is able to exercise primary
supervision over the administration of the trust and one
or more United States fiduciaries have the authority to
control all substantial decisions of the trust. Each
such purchaser shall agree that if they are a Person
described in clause (A)(iii) above, they will furnish to
the Person from whom they are acquiring a Class A
Security, the Servicer and the Trustee, a properly
executed U.S. Internal Revenue Service Form 4224 and a
new Form 4224, or any successor applicable form, upon the
expiration or obsolescence of any previously delivered
form (and such other certifications, representations or
opinions of counsel as may be requested by the
Transferor, the Servicer or the Trustee).
(f)
(g) Each purchaser of an interest in the
Class A Securities shall represent and warrant that if it
is not created or organized under the laws of the United
States or any State thereof (including the District of
Columbia) it will, upon written notice by the Transferor
that the Transferor intends, pursuant to Section 1446 or
other applicable section of the Internal Revenue Code, to
withhold U.S. tax (a "Withholding Tax") from amounts paid
or accruing hereunder to such purchaser (such
determination being a "Withholding Event"), for tax years
for which the purchaser has already filed U.S. federal
income tax returns (each a "Prior Tax Year") prior to
proper notice of such Withholding Event, provide (A) a
signed officer's certificate of such purchaser stating
that amounts paid or accruing hereunder have been
included in such purchaser's U.S. federal income tax
returns for each such Prior Tax Year, which certificate
may be relied on by the Transferor in asserting to the
Internal Revenue Service the applicability of Section
1463 of the Internal Revenue Code with respect to any
Withholding Tax for each such Prior Tax Year and (B)
provide information to the Transferor or, at the option
of such purchaser, to the Internal Revenue Service in
support of the application of Section 1463 of the
Internal Revenue Code for each such Prior Tax Year.
(h)
(i) Each purchaser of an interest in the
Class A Securities shall represent and warrant that it is
not and will not become a partnership, subchapter S
corporation or grantor trust for United States federal
income tax purposes for so long as such purchaser holds a
beneficial interest in the Class A Securities.
(j)
(k) Each purchaser of an interest in a
Class A Security shall represent and warrant that it has
neither acquired nor will it Transfer the Class A
Securities (or any interest therein) or cause the Class A
Securities (or any interest therein) to be marketed on or
through (i) an "established securities market" within the
meaning of Section 7704(b)(1) of the Internal Revenue
Code, and any treasury regulation thereunder, including,
without limitation, an over-the-counter market or an
interdealer quotation system that regularly disseminates
firm buy or sell quotations or (ii) a "secondary market"
within the meaning of Section 7704(b)(2) of the Internal
Revenue Code and any treasury regulation thereunder,
including a market wherein the Class A Securities (or any
interest therein) are regularly quoted by any person
making a market in such interests and a market wherein
any person regularly makes available bid or offer quotes
with respect to the Class A Securities (or any interest
therein) and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf
of others. Such purchaser shall acknowledge that it is
aware that the opinion of special tax counsel to the
Transferor regarding the Trust's status is dependent in
part on the accuracy of the preceding sentence.
(l)
(m) No subsequent transfer of a Class A
Securities is permitted unless (i) such transfer is of a
Class A Security with a minimum principal amount of at
least $500,000 and (ii) the condition specified in clause
(j) above shall have been satisfied; provided, that any
attempted Transfer that would cause the number of
Targeted Holders to exceed one-hundred shall be void.
(n)
2. SECTION Ratification of Agreement. As
supplemented by this Series Supplement, the Agreement is
in all respects ratified and confirmed and the Agreement
as so supplemented by this Series Supplement shall be
read, taken, and construed as one and the same
instrument.
3.
4. SECTION Counterparts. This Series
Supplement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an
original, but all of such counterparts shall together
constitute but one and the same instrument.
5.
6. SECTION GOVERNING LAW. THIS SERIES
SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAWS.
7.
8. SECTION Instructions in Writing. All
instructions or other communications given by the
Servicer or any other person to the Trustee pursuant to
this Series Supplement shall be in writing, and, with
respect to the Servicer, may be included in a Daily
Report or Settlement Statement.
9.
10. SECTION Amendments. Solely with respect
to any amendment pursuant to Section 13.1(b) of the
Agreement and any consent required pursuant thereto from
the Holders of Investor Securities of Series 1998-A, this
Series Supplement and the Agreement may be amended from
time to time by the Servicer, the Transferor and the
Trustee with the consent of the Holders of Class A
Securities evidencing Undivided Interests aggregating not
less than 51% of the Class A Invested Amount to the
extent that such class would be adversely affected, for
the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this
Series Supplement or the Agreement or of modifying in any
manner the rights of the Securityholders of any Class of
the Series 1998-A Securities then issued and outstanding;
provided, however, that no such amendment under this
Section 15 shall (i) reduce in any manner the amount of,
or delay the timing of, distributions which are required
to be made on any Investor Security of such Class without
the consent of all of the related Investor
Securityholders; (ii) change the definition of or the
manner of calculating the interest of any Investor
Security of such Class without the consent of the related
Investor Securityholders or (iii) reduce the aforesaid
percentage required to consent to any such amendment, in
each case without the consent of all such Investor
Securityholders.
11.
12. SECTION Class A Fees and Costs.
13.
(a) Unused Fee. The Funding Agent, on
behalf of the CP Vehicle, shall be entitled to receive
the Unused Fee for each Monthly Period, which shall be
payable on each Distribution Date for the related Monthly
Period. If on any Distribution Date the amount
distributed to the CP Vehicle pursuant to Article IV of
the Agreement with respect to such fee is less than the
amount of such fee, then the Transferor shall pay to the
CP Vehicle, in immediately available funds on such
Distribution Date, any portion of such fee that has not
been so paid.
(b)
(c) Limited Recourse. The obligation of
the Trust and the Trustee to pay any Class A Costs are
limited to the funds to be applied pursuant to Article
IV.
(d)
14. SECTION Nonpetition. From the date hereof
until one day following the first anniversary of payment
in full by the CP Vehicle of all Commercial Paper issued
by it, the Transferor, the Servicer and the Trustee, and
each of them, shall not initiate, file or join in any
involuntary petition against the CP Vehicle under any
present or future state or federal statute, law or
regulation relating to bankruptcy, insolvency or other
relief for debtors.
15.
16.
IN WITNESS WHEREOF, the Transferor, the
Servicer and the Trustee have caused this Series 1998-A
Supplement to be duly executed by their respective
officers as of the day and year first above written.
METRIS RECEIVABLES, INC.
Transferor
By:_______________________
Name:
Title:
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL
ASSOCIATION
Servicer
By:_________________________
Name:
Title:
THE BANK OF NEW YORK (DELAWARE)
Trustee
By:_________________________
Name:
Title:
EXHIBIT A
[FORM OF CLASS A VARIABLE FUNDING SECURITY]
THIS SECURITY (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS SECURITY
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OR ANY APPLICABLE STATE SECURITIES LAW OF ANY
STATE AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT
TO OR EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT AND ANY OTHER APPLICABLE
SECURITIES LAW. THE TRANSFER OF THIS SECURITY IS
SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF METRIS RECEIVABLES, INC. AND THE
TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN
EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3)
OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO
THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975 (E)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE")
THAT IS SUBJECT TO SECTION 4975 OF THE CODE,
(III) A GOVERNMENTAL PLAN, AS DEFINED IN SECTION
3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR
LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR
TO THE PROVISIONS OF SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS
DEFINED IN 29 C.F.R. SECTION 2510.3-101 OR
OTHERWISE UNDER ERISA) BY REASON OF A PLAN'S
INVESTMENT IN THE ENTITY OR (V) A PERSON
INVESTING "PLAN ASSETS" OF ANY SUCH PLAN
(INCLUDING WITHOUT LIMITATION, FOR PURPOSES OF
CLAUSE (IV) AND THIS CLAUSE (V) AS APPLICABLE, AN
INSURANCE COMPANY GENERAL ACCOUNT, BUT EXCLUDING
ANY ENTITY REGISTERED UNDER THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED).
No. Percentage Interest: ___%
METRIS MASTER TRUST
VARIABLE FUNDING TRUST
SECURITY, SERIES 1998-A, CLASS A
Evidencing an undivided interest in a trust,
the corpus of which consists of receivables generated
from time to time in the ordinary course of business
from a portfolio of open end or revolving credit
receivables generated or to be generated by Direct
Merchants Credit Card Bank, National Association (the
"Bank" or the "Servicer") and other assets and interests
constituting the Trust under the Agreement described
below.
(Not an interest in or a recourse obligation
of Metris Receivables, Inc., the Bank or any affiliate
of either of them.)
This certifies that _________ (the
"Securityholder") is the registered owner of a
fractional undivided interest in the Metris Master Trust
(the "Trust") issued pursuant to the Amended and
Restated Pooling and Servicing Agreement, dated as of
July 30, 1998 (the "Pooling and Servicing Agreement";
such term to include any amendment thereto) by and
between Metris Receivables, Inc., as Transferor (the
"Transferor"), the Bank , as the Servicer, and The Bank
of New York (Delaware), as Trustee (the "Trustee"), and
the Series 1998-A Supplement, dated as of September 15,
1998 (the "Series 1998-A Supplement"), among the
Transferor, the Bank, as Servicer, and the Trustee (the
Pooling and Servicing Agreement, as supplemented by the
Series 1998-A Supplement, is herein referred to as the
"Agreement"). The corpus of the Trust consists of all
of the Transferor's right, title and interest in, to and
under (i) the Trust Property (as defined in the
Agreement) and (ii) the property described in Section
4.4 of the Agreement.
This Security does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Security is entitled the
"Metris Master Trust Variable Funding Trust Security,
Series 1998-A, Class A" (the "Class A Security"), and
represents a fractional undivided interest in the Trust,
and is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which
Agreement, as amended from time to time, the
Securityholder by virtue of the acceptance hereof
assents and by which the Securityholder is bound. In
the case of any conflict between terms specified in this
Security and terms specified in the Agreement, the terms
of the Agreement shall govern.
The Transferor has structured the Agreement
and the Class A Securities with the intention that the
Class A Securities will qualify under applicable tax law
as indebtedness, and both the Transferor and each holder
of a Class A Security (a "Class A Securityholder") or
any interest therein by acceptance of its Security or
any interest therein, agrees to treat the Class A
Securities for purposes of federal, state and local
income or franchise taxes and any other tax imposed on
or measured by income, as indebtedness.
Except in certain circumstance described in
the third succeeding paragraph no principal will be
payable to the Class A Securityholders before the first
Business Day in the Amortization Period. Except in
connection with a payment of Class B Daily Principal,
the Class B Security will not have the right to receive
payments of principal until the Class A Invested Amount
has been paid in full.
Upon issuance, the Class A Securities
represent the right to receive, on each Business Day, an
amount equal to the lesser of (x) the Available Series
1998-A Finance Charge Collections for such Business Day
and (y) the sum of (A) the Class A Interest for such
Business Day, plus (B) the excess, if any, of the amount
payable to the Class A Securityholders pursuant to
clause (A) on each prior Business Day over the amount
which has been deposited in the Interest Funding Account
or paid to the Class A Securityholders with respect
thereto on each prior Business Day.
Unless there is any Extension, on the earlier
of the November 2000 Distribution Date and the Pay Out
Commencement Date, interest and principal will be
distributed to the Class A Securityholders on each
Business Day prior to the Series Termination Date. If
in accordance with Section 6.17 of the Agreement, the
Transferor elects to issue an Extension Notice and the
conditions precedent for Extension specified therein
have been satisfied, no principal will be payable with
respect to the Class A Security until the date specified
in such Extension Notice or in the last of any
subsequent Extension Notices. Interest for any Business
Day due but not paid on any Business Day will be due on
the next succeeding Business Day.
On any Business Day during the Revolving
Period which is a Distribution Date or on which
Commercial Paper is maturing, the Transferor may specify
an amount, not to exceed the Net Revolving Principal
Collections, to be deposited into the Defeasance
Account. Any amounts so deposited, shall be paid to the
Class A Securityholders in accordance with Section 4.12
of the Agreement and Section 9A of the Series Supplement
and upon payment shall reduce the Class A Invested
Amount by an amount equal to any such payment. In
addition the Transferor may specify, upon the issuance
of a new Series pursuant to an Exchange made at any time
during the Revolving Period, that the proceeds of such
issuance be deposited into the Defeasance Account for
payment to the Class A Securityholders pursuant to
Section 9A of the Series Supplement. The Class A
Invested Amount will be reduced by an amount equal to
the amount of any such payments made.
In addition, pursuant to Section 6.15 of the
Agreement, the holders of this Security may from time to
time be required, prior to the commencement of the
Amortization Period, to purchase Additional Class A
Invested Amounts on the terms and conditions specified
therein. The holder of this Security is authorized to
record on the grid attached to its Class A Security (or
at such Securityholder's option, in its internal books
and records) the date and amount of any Additional Class
A Invested Amount purchased by it, and each repayment
thereof; provided that failure to make any such
recordation on such grid or any error in such grid shall
not adversely affect such Securityholder's rights with
respect to its Class A Invested Amount and its right to
receive interest payments in respect of the Class A
Invested Amount held by such Securityholder.
"Class A Invested Amount" means, when used
with respect to any Business Day, an amount equal to (a)
the Class A Initial Invested Amount, minus (b) the
aggregate amount of principal payments made to Class A
Securityholders through and including such Business Day,
minus (c) the aggregate amount of Class A Series Charge-
Offs for all prior Distribution Dates, plus (d) the sum
of the aggregate amount allocated with respect to Class
A Series Charge-Offs and available on all prior
Distribution Dates pursuant to subsection 4.9(a)(v) of
the Agreement and, with respect to such subsection and
pursuant to subsections 4.10(a) and (b) and Section 4.14
of the Agreement, for the purpose of reinstating amounts
reduced pursuant to the foregoing clause (d) plus (e)
the aggregate principal amount of any Additional Class A
Invested Amounts purchased pursuant to Section 6.15 of
the Agreement.
Subject to the Agreement, payments of
principal are limited to the unpaid Class A Invested
Amount of the Class A Securities, which may be less than
the unpaid balance of the Class A Securities pursuant to
the terms of the Agreement. All principal of and
interest on the Class A Securities is due and payable no
later than October 20, 2004 (the "Series 1998-A
Termination Date"). After the Series 1998-A Termination
Date neither the Trust nor the Transferor will have any
further obligation to distribute principal or interest
on the Class A Securities. In the event that the Class
A Invested Amount is greater than zero on the Series
1998-A Termination Date, the Trustee will sell or cause
to be sold, to the extent necessary, an amount of
interests in the Receivables or certain of the
Receivables up to 110% of the Class A Invested Amount
and the Class B Invested Amount at the close of business
on such date (but not more than the total amount of
Receivables allocable to the Investor Securities), and
shall pay the proceeds to the Class A Securityholders
pro rata in final payment of the Class A Securities and
then to the Class B Securityholders pro rata in final
payment of the Class B Security.
Unless the certificate of authentication
hereon has been executed by or on behalf of the Trustee,
by manual signature, this Security shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Security to be duly executed.
METRIS RECEIVABLES, INC.
By:____________________________
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is the Class A Security referred to in
the within-mentioned Pooling and Servicing Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:___________________________
Name:
Title:
Date Beginning Additions Payments Ending
Principal Principal
Balance Balance
EXHIBIT B
[FORM OF CLASS B VARIABLE FUNDING SECURITY]
THIS SECURITY (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS SECURITY HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW OF ANY STATE
AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS REGISTERED PURSUANT TO OR
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT
AND ANY OTHER APPLICABLE SECURITIES LAW. METRIS
RECEIVABLES INC. SHALL BE PROHIBITED FROM
TRANSFERRING ANY INTEREST IN OR PORTION OF THIS
SECURITY UNLESS, PRIOR TO SUCH TRANSFER, IT SHALL
HAVE DELIVERED TO THE TRUSTEE AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH PROPOSED TRANSFER
WILL NOT ADVERSELY AFFECT THE FEDERAL, MINNESOTA
OR DELAWARE INCOME TAX CHARACTERIZATION OF ANY
OUTSTANDING SERIES OF INVESTOR SECURITIES OR THE
TAXABILITY (OR TAX CHARACTERIZATION) OF THE TRUST
UNDER FEDERAL, MINNESOTA OR DELAWARE INCOME TAX
LAWS. THE TRANSFER OF THIS SECURITY IS SUBJECT TO
CERTAIN CONDITIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN.
EACH PURCHASER REPRESENTS AND WARRANTS FOR THE
BENEFIT OF METRIS RECEIVABLES, INC. AND THE
TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE
BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974,
AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE
PROVISIONS OF TITLE I OF ERISA, (II) A PLAN
DESCRIBED IN SECTION 4975(e)(1) OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE") THAT
IS SUBJECT TO SECTION 4975 OF THE CODE, (III) A
GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF
ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW
WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE
PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975
OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING
ASSETS INCLUDE "PLAN ASSETS" (AS DEFINED IN 29
C.F.R. SECTION 2510.3-101 OR OTHERWISE UNDER
ERISA) BY REASON OF A PLAN'S INVESTMENT IN THE
ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" OF
ANY SUCH PLAN (INCLUDING WITHOUT LIMITATION, FOR
PURPOSES OF CLAUSE (IV) AND THIS CLAUSE (V), AS
APPLICABLE, AN INSURANCE COMPANY GENERAL ACCOUNT,
BUT EXCLUDING ANY ENTITY REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED).
No. ___ Percentage Interest: 100%
METRIS MASTER TRUST
FLOATING RATE ASSET BACKED TRUST
SECURITY, SERIES 1998-A, CLASS B
Evidencing an undivided interest in a trust,
the corpus of which consists of receivables generated
from time to time in the ordinary course of business
from a portfolio of open end or revolving credit
receivables generated or to be generated by Direct
Merchants Credit Card Bank, National Association (the
"Bank" or the "Servicer") and other assets and interests
constituting the Trust under the Agreement described
below.
(Not an interest in or a recourse obligation
of Metris Receivables, Inc., the Bank or any affiliate
of either of them.)
This certifies that METRIS RECEIVABLES, INC.
(the "Securityholder") is the registered owner of a
fractional undivided interest in the Metris Master Trust
(the "Trust") issued pursuant to the Amended and
Restated Pooling and Servicing Agreement, dated as of
July 30, 1998 (the "Pooling and Servicing Agreement";
such term to include any amendment or Series Supplement
thereto) by and between Metris Receivables, Inc., as
Transferor (the "Transferor"), the Bank, as the
Servicer, and The Bank of New York (Delaware), as
Trustee (the "Trustee"), and the Series 1998-A
Supplement, dated as of September 15, 1998 (the "Series
1998-A Supplement"), among the Transferor, the Bank, as
Servicer and the Trustee (the Pooling and Servicing
Agreement, as supplemented by the Series 1998-A
Supplement, is herein referred to as the "Agreement").
The corpus of the Trust consists of all of the
Transferor's right, title and interest in, to and under
(i) the Trust Property (as defined in the Agreement) and
(ii) the property described in Section 4.4 of the
Agreement.
This Security does not purport to summarize
the Agreement and reference is made to the Agreement for
information with respect to the interests, rights,
benefits, obligations, proceeds, and duties evidenced
hereby and the rights, duties and obligations of the
Trustee. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed
to them in the Agreement. This Security is one of a
series of Securities entitled "Metris Master Trust
Variable Funding Trust Securities, Series 1998-A, Class
B" (the "Class B Security"), each of which represents a
fractional undivided interest in the Trust, and is
issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement, as
amended from time to time, the Securityholder by virtue
of the acceptance hereof assents and by which the
Securityholder is bound.
Metris Receivables, Inc. shall be prohibited
from Transferring any interest in or portion of the
Class B Security unless, prior to such Transfer, it
shall have delivered to the Trustee an Opinion of
Counsel to the effect that such proposed Transfer will
not adversely affect the Federal, Minnesota or Delaware
income tax characterization of any outstanding Series of
Investor Security or the taxability (or tax
characterization) of the Trust under Federal, Minnesota
or Delaware income tax laws.
Except in connection with a payment of Class B
Daily Principal, no principal will be payable to the
Class B Securityholders until the Class B Principal
Payment Commencement Date, which is the Distribution
Date either on or following the Distribution Date on
which the Class A Invested Amount had been paid in full.
Interest will not accrue on the unpaid
principal amount of the Class B Security.
"Class B Invested Amount" means, when used
with respect to any Business Day, an amount equal to
(a) the Class B Initial Invested Amount, plus (b) the
aggregate principal amount of any Additional Class B
Invested Amounts pursuant to Section 6.16 of the
Agreement, minus (c) the aggregate amount of principal
payments made to Class B Securityholders prior to such
Business Day, minus (d) the aggregate amount of Class B
Series Charge-Offs for all prior Distribution Dates,
minus (e) the aggregate amount of Redirected Principal
Collections for all prior Business Days, plus (f) the
sum of the aggregate amount allocated and available on
all prior Business Days pursuant to subsection
4.9(a)(viii) of the Agreement and, with respect to such
subsection, pursuant to subsections 4.10(a) and (b) of
the Agreement, for the purpose of reinstating amounts
reduced pursuant to the foregoing clauses (d) and (e).
Subject to the Agreement, payments of
principal are limited to the unpaid Class B Invested
Amount of the Class B Security, which may be less than
the unpaid balance of the Class B Security pursuant to
the terms of the Agreement. All principal of and
interest on the Class B Security is due and payable no
later than October 20, 2004 (the "Series 1998-A
Termination Date"). After the Series 1998-A Termination
Date neither the Trust nor the Transferor will have any
further obligation to distribute principal on the Class
B Security. In the event that the Class B Invested
Amount is greater than zero on the Series 1998-A
Termination Date, the Trustee will sell or cause to be
sold, to the extent necessary, an amount of interests in
the Receivables or certain of the Receivables up to 110%
of the Class A Invested Amount and the Class B Invested
Amount at the close of business on such date (but not
more than the total amount of Receivables allocable to
the Investor Securities), and shall pay the proceeds to
the Class A Securityholders pro rata in final payment of
the Class A Securities and then to the Class B
Securityholders pro rata in final payment of the Class B
Security.
Unless the certificate of authentication
hereon has been executed by or on behalf of the Trustee,
by manual signature, this Security shall not be entitled
to any benefit under the Agreement, or be valid for any
purpose.
IN WITNESS WHEREOF, the Transferor has caused
this Security to be duly executed.
METRIS RECEIVABLES, INC.
By:
Name:
Title:
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Security referred
to in the within-mentioned Pooling and Servicing
Agreement.
THE BANK OF NEW YORK (DELAWARE)
By:
Name:
Title:
EXHIBIT C
[Form of Monthly Securityholders' Statement]
EXHIBIT D
FORM OF REQUEST FOR ADDITIONAL CLASS A INVESTED AMOUNTS
Metris Master Trust
Variable Funding Trust
Security, Series 1998-A, Class A
This Notice is delivered pursuant to Section 6.15 of the
Series 1998-A Supplement dated as of September 15, 1998
to the Amended and Restated Pooling and Servicing
Agreement dated as of July 30, 1998, each among Metris
Receivables, Inc., as Transferor, Direct Merchants
Credit Card Bank, National Association, as Servicer and
The Bank of New York (Delaware), as Trustee.
We hereby request an increase in the Class A Invested
Amount as follows:
Date of Proposed Increase:
Amount of Proposed Increase:
We hereby confirm that after giving effect to the
proposed increase:
- - - no Trust Pay Out Event or Series 1998-A Pay Out
Event shall occur as a result of the increase;
- - - the Class A Invested Amount shall not exceed the
Class A Maximum Invested Amount as a result of the
increase;
- - - the Class B Invested Amount following the
acquisition of the Additional Class A Invested
Amount will be at least equal to the Stated Class B
Amount, (including increases to the Class B
Invested Amount pursuant to Section 6.16 of the
Agreement).
METRIS RECEIVABLES, INC.
as Transferor
By:
Name:
Title:
EXHIBIT E
FORM OF EXTENSION NOTICE
METRIS CARD MASTER TRUST, SERIES 1998-A
The undersigned, a duly authorized
representative of Metris Receivables, Inc., a Delaware
corporation (the "Transferor"), as Transferor pursuant
to the Amended and Restated Pooling and Servicing
Agreement dated as of July 30, 1998 (the "Pooling and
Servicing Agreement"), by and between the Transferor, as
transferor, Direct Merchants Credit Card Bank, National
Association, as servicer (the "Servicer"), and The Bank
of New York (Delaware), as trustee (the "Trustee"), as
supplemented by the Series 1998-A Supplement, dated as
of September 15, 1998 (the "Series 1998-A Supplement"),
by and between the Transferor, the Servicer and the
Trustee (the Pooling and Servicing Agreement, as
supplemented by the Series 1998-A Supplement, or as the
Pooling and Servicing Agreement may from time to time be
amended, supplemented, or modified, the "Agreement"),
does hereby notify the Trustee (or any successor
Trustee) and the Investor Securityholders:
A. Capitalized terms used but not defined
in this Security shall have the respective meanings set
forth in the Agreement. References herein to certain
sections and subsections are references to the
respective sections and subsections of the Agreement.
B.
C. The undersigned is a [Vice President]
or more senior officer of the Transferor who is duly
authorized to execute and deliver this Security on
behalf of the Transferor.
D.
E. This Certificate is being delivered
pursuant to Section 6.17(a) of the Agreement.
F.
G. The Transferor is the Transferor under
the Agreement.
H.
I. No Pay Out Event has occurred that has
not been remedied pursuant to the provisions of the
Agreement.
J.
K. The Certificate is being delivered to
the Trustee on or before the date specified in
subsection 6.17(a) for delivery.
L.
M. NOTIFICATION OF EXTENSION
N.
O. Pursuant to subsection 6.17(a) and in
respect of [ , ] (the "Current Extension
Date"), the Transferor hereby notifies the Trustee and
the Investor Securityholders of the Transferor's
intention to extend the Revolving Period in respect of
Series 1998-A on the Current Extension Date pursuant to
the provisions of Section 6.17, until the date set forth
below (such extension, the "Extension").
P.
Q. REQUIREMENTS TO COMPLETE EXTENSION
R.
(1) Annexed hereto is an election notice
(an "Election Notice") to be returned by any Investor
Securityholder electing to approve the Extension. No
Extension shall occur unless Investor Securityholders
holding at least more than fifty percent of each of the
aggregate principal amount of Class A Securities and
Class B Security, respectively, shall return properly
executed Election Notices approving the Extension by the
Election Date (as defined below). Any Investor
Securityholder electing to approve the Extension must
deliver a properly executed Election Notice at the
office of the Trustee, [ ] on or
before 3:00 p.m., [ ] time, on [ , ] (the
"Election Date"). Any Investor Securityholder may
withdraw any Election Notice delivered by it to the
Trustee by notifying the Trustee in writing at the
address set forth in the previous sentence on or prior
to the Election Date.
(2)
(3) THE EXTENSION SHALL NOT OCCUR UNTIL
PRIOR SATISFACTION OF CERTAIN CONDITIONS PRECEDENT BY
THE CLOSE OF BUSINESS ON THE ELECTION DATE, INCLUDING
THE APPROVAL OF SUCH EXTENSION BY THE INVESTOR
SECURITYHOLDERS HOLDING THE REQUIRED AGGREGATE PRINCIPAL
AMOUNT OF CLASS A SECURITIES AND CLASS B SECURITY, THAT
NO PAY OUT EVENT SHALL HAVE OCCURRED AND BE CONTINUING,
AND THAT CERTAIN LEGAL OPINIONS AND RATING AGENCY
CONFIRMATIONS SHALL HAVE BEEN DELIVERED TO THE
TRANSFEROR AND THE TRUSTEE PURSUANT TO SECTION 6.17(b).
THE TRANSFEROR MAY IN ITS SOLE DISCRETION WITHDRAW THIS
EXTENSION NOTICE AT ANY TIME ON OR PRIOR TO THE ELECTION
DATE BY DELIVERING NOTICE OF SUCH WITHDRAWAL IN WRITING
TO THE TRUSTEE. IF ANY SUCH NOTICE OF WITHDRAWAL SHALL
BE SO DELIVERED, NO EXTENSION SHALL OCCUR.
(4)
S. NEW PROVISIONS TO BECOME EFFECTIVE ON
THE EXTENSION DATE
T.
(1) The new Amortization Period
Commencement Date shall be the earlier of (a) [ ,
] or (b) the Pay Out Commencement Date.
(2)
(3) The new Extension Date shall be
[ , ].
(4)
(5) [The new Scheduled Series 1998-A
Termination Date shall be [ , ].]
(6)
(7) The new Class A Expected Payment
Date is ______.
(8)
(9) The new Class B Expected Payment
Date is ______.
(10)
(11) The new CTO Expected Payment Date is
______.
(12)
(13) [The following are additional
provisions that will apply to the Investor Securities on
and after the Extension Date:
(14)
(15) INSERT PROVISIONS]
(16)
U. Annexed hereto are the following:
V.
(1) the form of Extension Tax Opinion.
(2)
(3) the form of Extension Opinion.
(4)
(5) the Election Notice.
(6)
(1) IN WITNESS WHEREOF, the undersigned has
duly executed this certificate this [ ] day of
[ , ].
(2)
(3)
(4) METRIS RECEIVABLES, INC.
(5)
(6)
(7)
By:_________________________
(8) Name:
(9) Title:
(10)
EXHIBIT F
FORM OF INVESTOR SECURITYHOLDER ELECTION NOTICE
[INSERT NAME
AND ADDRESS OF TRUSTEE]
Re: Metris Master Trust:
Election Notice to Extend Series 1998-A
Ladies and Gentlemen:
The undersigned hereby elects to approve the
extension of the Revolving Period for Series 1998-A
until the Amortization Period Commencement Date set
forth in the Extension Notice dated [ , ] (the
"Extension Notice") and delivered to the undersigned
pursuant Section 6.17(a) of the Amended and Restated
Pooling and Servicing Agreement, dated as of July 30,
1998, including the Series 1998-A Supplement thereto,
dated as of September 15, 1998, each by and among Metris
Receivables, Inc., as transferor, Direct Merchants
Credit Card Bank, National Association, as servicer, and
The Bank of New York (Delaware), as trustee (the
"Pooling and Servicing Agreement"). The undersigned
hereby acknowledges that, commencing on the Current
Extension Date (as defined in the Extension Notice), the
terms and provisions of the Pooling and Servicing
Agreement shall be modified as set forth in the
Extension Notice.
IN WITNESS WHEREOF, the undersigned registered
owner(s) has [have] executed this Election Notice as of
the date set forth below.
Dated:
Name(s):
Address:
(Please Print)
Signature(s):
TABLE OF CONTENTS
PAGE
SECTION 1. Designation 1
SECTION 2. Definitions 1
SECTION 3. Reassignment Terms 21
SECTION 4. Delivery and Payment for the Series
1998-A Securities 22
SECTION 5. Form of Delivery of Series 1998-A
Securities 22
SECTION 6. Article IV of the Agreement 22
ARTICLE IV RIGHTS OF SECURITYHOLDERS AND
ALLOCATION AND APPLICATION OF
COLLECTIONS 22
SECTION 4.4 Rights of Securityholders 22
SECTION 4.5 Collections and Allocation;
Payments on Exchangeable
Transferor Security 23
SECTION 4.6 Determination of Interest
for the Series 1998-A
Securities 24
SECTION 4.7 Determination of Principal
Amounts 24
SECTION 4.8 Shared Principal
Collections 26
SECTION 4.9 Application of Funds 27
SECTION 4.10 Coverage of Required Amount
for the Series 1998-A
Securities 35
SECTION 4.11 Payment of Interest and
Fees. 36
SECTION 4.12 Payment of Principal 38
SECTION 4.13 Series Charge-Offs 40
SECTION 4.14 Redirected Principal
Collections for the Series
1998-A Securities 40
SECTION 4.15 Determination of LIBOR 41
SECTION 4.16 Payment Reserve Account 41
SECTION 4.17 Reserve Account 42
SECTION 7. Article V of the Agreement 44
ARTICLE V DISTRIBUTIONS AND REPORTS
TO INVESTOR
SECURITYHOLDERS 44
SECTION 5.1 Distributions 44
SECTION 5.2 Securityholders' Statement
45
SECTION 7A. Article VI of the Agreement 47
ARTICLE VI THE SECURITIES 47
SECTION 6.15 Additional Class A Invested
Amounts 47
SECTION 6.16 Additional Class B Invested
Amounts 49
SECTION 6.17 Extension 49
SECTION 6.18 Permanent Reductions in
Maximum Class A Invested
Amount 51
SECTION 8. Series 1998-A Pay Out Events 52
SECTION 9. Series 1998-A Termination 54
SECTION 9A. Class A Pre-Payment 54
SECTION 10. Legends; Transfer and Exchange;
Restrictions on Transfer of Series
1998-A Securities; Tax Treatment 55
SECTION 11. Ratification of Agreement 60
SECTION 12. Counterparts 60
SECTION 13. GOVERNING LAW 61
SECTION 14. Instructions in Writing 61
SECTION 15. Amendments 61
SECTION 16. Class A Fees and Costs 62
SECTION 17. Nonpetition 62
EXHIBITS
Exhibit A Form of Class A Variable Funding
Security
Exhibit B Form of Class B Variable Funding
Security
EXHIBIT C Form of Monthly Securityholders'
Statement
EXHIBIT D Form of Request for Additional
Class A Invested Amounts
EXHIBIT E Form of Extension Notice
EXHIBIT F Form of Investor Securityholder
Election Notice
METRIS RECEIVABLES, INC.
Transferor
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
Servicer
and
THE BANK OF NEW YORK (DELAWARE)
Trustee
on behalf of the Series 1998-A Securityholders
Series 1998-A SUPPLEMENT
Dated as of September 15, 1998
to
AMENDED AND RESTATED
POOLING AND SERVICING AGREEMENT
Dated as of July 30, 1998
____________________________________
METRIS MASTER TRUST
Variable Funding Trust
Securities, Series 1998-A, Class A
0% Variable Funding Trust
Securities, Series 1998-A, Class B
_______________________________
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METRIS COMPANIES INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I
PURPOSES 1
ARTICLE II
CERTAIN DEFINITIONS 1
2.1 Accrued Obligations 1
2.2 Agreement Term 1
2.3 Article 2
2.4 Beneficial owner 2
2.5 Cause 2
2.6 Change of Control 2
2.7 Code 3
2.8 Disability 3
2.9 Effective Date 3
2.10 Good Reason 4
2.11 Imminent Control Change Date 4
2.12 IRS 4
2.13 1934 Act 4
2.14 Notice of Termination 4
2.15 Plans 4
2.16 Policies 4
2.17 Post-Change Period 4
2.18 SEC 4
2.19 Section 4
2.20 Subsidiary 4
2.21 Termination Date 5
2.22 Voting Securities 5
ARTICLE III
POST-CHANGE PERIOD PROTECTIONS 5
3.1 Position and Duties 5
3.2 Compensation 6
3.3 Stock Options 7
ARTICLE IV
TERMINATION OF EMPLOYMENT 8
4.1 Disability 8
4.2 Death 8
4.3 Cause 8
4.4 Good Reason 9
4.5 Termination Prior to Effective Date 10
ARTICLE V
OBLIGATIONS OF THE COMPANY UPON TERMINATION 10
5.1 If by the Executive for Good Reason or by the
Company Other Than for Cause or Disability 10
5.2 If by the Company for Cause 12
5.3 if by the Executive Other Than for Good Reason 12
5.4 If by the Company for Disability 12
5.5 If upon Death 12
5.6 Certain Additional Payments by the Company 14
5.7 Withholding Taxes 17
5.8 Continued Employment 17
ARTICLE VI
NON-EXCLUSIVITY OF RIGHTS 17
6.1 Waiver of Other Severance Rights 17
6.2 Other Rights 17
ARTICLE VII
EXPENSES AND INTEREST 18
7.1 Legal Fees and Other Expenses 18
7.2 Interest 18
ARTICLE VIII
SET-OFF OR MITIGATION 18
8.1 Set-Off by Company 18
8.2 No Mitigation 19
ARTICLE IX
CONFIDENTIALITY AND NONCOMPETITION 19
9.1 Confidentiality 19
9.2 Intellectual Property 19
9.3 Noncompetition/Nonsolicitation 20
9.4 Remedy 21
9.5 Survival 22
ARTICLE X
MISCELLANEOUS 22
10.1 No Assignability 22
10.2 Successors 22
10.3 Payments to Beneficiary 22
10.4 Non-alienation of Benefits 22
10.5 Severability 22
10.6 Amendments 23
10.7 Notices 23
10.8 Counterparts 23
10.9 Governing Law 23
10.10 Captions 23
10.11 Employment with Subsidiaries 23
10.12 Company's Option to Fix Expiration Date 23
10.13 No Waiver 24
10.14 Entire Agreement 24
METRIS COMPANIES INC.
CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS AGREEMENT dated as of May 15, 1998 is made between
METRIS COMPANIES INC., a Delaware corporation having its
principal place of business in St. Louis Park, Minnesota (the
"Company"), and Ronald N. Zebeck (the "Executive"), a resident of
the State of Minnesota.
ARTICLE I
PURPOSES
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and
its stockholders to assure that the Company will have the
continued service of the Executive in the event of any threat or
occurrence of, or negotiation or other action that could lead to,
or create the possibility of, a Change of Control (as defined in
Section 2.6). The Board believes it is imperative to reduce the
distraction of the Executive that would result from the personal
uncertainties caused by a pending or threatened change of
control, to encourage the Executive's full attention and
continued dedication to the Company, and to provide the Executive
with compensation and benefits arrangements upon a change of
control which ensure that the expectations of the Executive will
be satisfied and are competitive with those of similarly-situated
corporations. The Board also believes that there is a need to
protect confidential records, data and intellectual property of
the Company and provide certain noncompetition protection. This
Agreement is intended to accomplish these objectives.
ARTICLE II
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall
have the following meanings:
2.1 "Accrued Obligations" has the meaning set forth in
Section 5.3.
2.2 "Agreement Term" means the period commencing on the
date of this Agreement and ending on the date (the "Expiration
Date") which is the first to occur of (a) the date on which the
Executive's employment by the Company terminates prior to the
Effective Date, (b) if the Executive's employment by the Company
terminates by reason of death, the date of death of the Executive
or (c) the expiration date fixed by the Board pursuant to Section
10.12.
2.3 "Article" means an article of this Agreement.
2.4 "Beneficial owner" means such term as defined in Rule
13d-3 of the SEC under the 1934 Act.
2.5 "Cause" has the meaning set forth in Section 4.3(b).
2.6 "Change of Control" means, except as otherwise provided
below, the occurrence of any of the following:
a. any person (as such term is used in Rule 13d-5 of
the SEC under the 1934 Act) or group (as such term is defined in
Section 13(d) of the 1934 Act), other than a Subsidiary or any
employee benefit plan (or any related trust) of the Company or a
Subsidiary, becomes, directly or indirectly, the beneficial owner
of 25% or more of the common stock of the Company or of Voting
Securities representing 25% or more of the combined voting power
of all Voting Securities of the Company, except that no Change of
Control shall be deemed to have occurred solely by reason of any
Merger (as defined below) if, immediately after such Merger, each
of the conditions described in clauses (i), (ii) and (iii) of
Section 2.6.c(1) are satisfied.
b. individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board; provided
that any individual who becomes a director after the Effective
Date whose election, or nomination for election by the Company's
stockholders, was approved by a vote or written consent of at
least two-thirds of the directors then comprising the Incumbent
Directors shall be considered an Incumbent Director, but
excluding, for this purpose, any such individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11
of the SEC under the 1934 Act); or
c. approval by the stockholders of the Company of any
of the following:
(1) a merger, reorganization or consolidation
("Merger") unless immediately after such Merger (i) more
than 50% of the then outstanding shares of common stock of
the corporation resulting from such merger and more than 50%
of the combined voting power of the then outstanding Voting
Securities of such corporation is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals or entities in substantially the same proportion
as their ownership immediately prior to the Merger; (ii) no
person (as such term is used in Rule 13d-5 of the SEC under
the 1934 Act) or group (as such term is defined in Section
13(d) of the 1934 Act), other than a Subsidiary or any
employee benefit plan (or any related trust) of the Company
or a Subsidiary becomes the beneficial owner of 25% or more
of the combined voting power of all Voting Securities of the
Company and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such
Merger were Incumbent Directors at the time of execution of
the original agreement or action of the Board providing for
such Merger.
(2) the sale or other disposition of all or
substantially all of the assets of the Company; or
(3) a plan of complete liquidation or dissolution of
the Company.
Despite clauses (a), (b) and (c) of this definition, a Change of
Control shall not occur with respect to the Executive if (A) the
Executive is, by written agreement executed before such Change of
Control, a participant on such Executive's own behalf in a
transaction in which the persons or entities (or their
affiliates) with whom the Executive has the written agreement
Acquire the Company (as defined below) and, pursuant to the
written agreement, the Executive has an equity interest in the
resulting entity or a right to acquire such an equity interest,
(B) the transaction that would otherwise give rise to a Change in
Control is the contemplated transaction in which the shares of
common stock of the Company which are owned by Fingerhut
Companies, Inc. ("Fingerhut") are distributed by Fingerhut to all
of its stockholders or (c) Fingerhut merges with the Company or a
subsidiary of the Company if at the time of such merger, or
immediately prior thereto, Fingerhut owned at least 80% or more
of the common stock of the Company and no person (as defined in
clause 2.6a) owned 25% or more of the common stock of Fingerhut.
"Acquire the Company" means the acquisition of beneficial
ownership by purchase, merger, or otherwise, of either more than
50% of the stock (such percentage to be computed in accordance
with Rule 13d-3(d)(1)(i) of the SEC under the 1934 Act) or
substantially all of the assets of the Company or its successors.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended.
2.8 "Disability" has the meaning set forth in Section
4.1.b.
2.9 "Effective Date" means the first date on which a Change
of Control occurs during the Agreement Term. Despite anything in
this Agreement to the contrary, if the Company terminates the
Executive's employment before the date of a Change of Control,
and if the Executive reasonably demonstrates that such
termination of employment (a) was at the request of a third party
who had taken steps reasonably calculated to effect the Change of
Control or (b) otherwise arose in connection with or in
anticipation of the Change of Control, then "Effective Date"
shall mean the date immediately before the date of such
termination of employment.
2.10 "Good Reason" has the meaning set forth in Section
4.4.b.
2.11 "Imminent Control Change Date" means any date on which
occurs (a) a presentation to the Company's stockholders generally
or any of the Company's directors or executive officers of a
proposal or offer for a Change of Control, (b) the public
announcement (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) of a
proposal or offer for a Change of Control, or (c) such proposal
or offer remains effective and unrevoked.
2.12 "IRS" means the Internal Revenue Service.
2.13 "1934 Act" means the Securities Exchange Act of 1934.
2.14 "Notice of Termination" means a written notice given
in accordance with Section 10.7 which sets forth (a) the specific
termination provision in this Agreement relied upon by the party
giving such notice, (b) in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under such termination provision and (c)
if the Termination Date is other than the date of receipt of such
Notice of Termination, the Termination Date.
2.15 "Plans" means plans, programs, policies or practices
of the Company.
2.16 "Policies" means policies, practices or procedures of
the Company.
2.17 "Post-Change Period" means the period commencing on
the Effective Date and ending on the second anniversary of such
date.
2.18 "SEC" means the Securities and Exchange Commission.
2.19 "Section" means, unless the context otherwise
requires, a section of this Agreement.
2.20 "Subsidiary" means (a) a corporation of which more
than 50% of the combined voting power of the Voting Securities is
owned, directly or indirectly, by the Company or by one or more
other Subsidiaries of the Company or by the Company and one or
more Subsidiaries or (b) any partnership, limited liability
company, joint venture, business trust or other entity (other
than a corporation) in which the Company or one or more other
Subsidiaries of the Company or the Company and one or more other
Subsidiaries, directly or indirectly, has at least majority
ownership thereof and power to direct the policies, management
and affairs thereof.
2.21 "Termination Date" means the date of receipt of the
Notice of Termination or any later date specified in such notice
(which date shall be not more than 15 days after the giving of
such notice), as the case may be; provided, however, that (a) if
the Company terminates the Executive's employment other than for
Cause or Disability, then the Termination Date shall be the date
of receipt of such Notice of Termination and (b) if the
Executive's employment is terminated by reason of death or
Disability, then the Termination Date shall be the date of death
of the Executive or the Disability Effective Date (as defined in
Section 4.1.a), as the case may be.
2.22 "Voting Securities" of a corporation means securities
of such corporation that are entitled to vote generally in the
election of directors of such corporation.
ARTICLE III
POST-CHANGE PERIOD PROTECTIONS
3.1 Position and Duties.
a. During the Post-Change Period, (1) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least
commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 90-
day period immediately before the Effective Date and (2) the
Executive's services shall be performed at the location where the
Executive was employed immediately before the Effective Date or
any other location less than 40 miles from such former location.
b. During the Post-Change Period (other than any
periods of vacation, sick leave or disability to which the
Executive is entitled), the Executive agrees to devote the
Executive's full attention and time to the business and affairs
of the Company and, to the extent necessary to discharge the
duties assigned to the Executive in accordance with this
Agreement, to use the Executive's best efforts to perform
faithfully and efficiently such duties. During the Post-Change
Period, the Executive may (1) serve on corporate, civic or
charitable boards or committees, (2) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (3)
manage personal investments, so long as such activities are
consistent with the Policies of the Company at the Effective Date
and do not significantly interfere with the performance of the
Executive's duties under this Agreement. To the extent that any
such activities have been conducted by the Executive before the
Effective Date and were consistent with the Policies of the
Company at the Effective Date, the continued conduct of such
activities (or activities similar in nature and scope) after the
Effective Date shall not be deemed to interfere with the
performance of the Executive's duties under this Agreement.
3.2 Compensation.
a. Base Salary. During the Post-Change Period, the
Company shall pay or cause to be paid to the Executive an annual
base salary in cash ("Guaranteed Base Salary"), which shall be
paid in a manner consistent with the Company's payroll practices
in effect immediately before the Effective Date at a rate at
least equal to 12 times the highest monthly base salary paid or
payable to the Executive by the Company in respect of the 12-
month period immediately before the Effective Date. During the
Post-Change Period, the Guaranteed Base Salary shall be reviewed
at least annually and shall be increased at any time and from
time to time as shall be substantially consistent with increases
in base salary awarded to other peer executives of the Company.
Any increase in Guaranteed Base Salary shall not limit or reduce
any other obligation of the Company to the Executive under this
Agreement. After any such increase, the Guaranteed Base Salary
shall not be reduced and the term "Guaranteed Base Salary" shall
thereafter refer to the increased amount.
b. Incentive, Compensation, Savings and Retirement
Plans. In addition to Guaranteed Base Salary payable as provided
in this Section, the Executive shall be entitled to participate
during the Post-Change Period in all incentive (including long-
term incentives), compensation, savings and retirement Plans
applicable to other peer executives of the Company, but in no
event shall such Plans provide the Executive with incentive
(including long-term incentives), compensation, savings and
retirement benefits which, in any case, are less favorable, in
the aggregate, than the most favorable of those provided by the
Company for the Executive under such Plans as in effect at any
time during the 90-day period immediately before the Effective
Date.
c. Welfare Benefit Plans. During the Post-Change
Period, the Executive and the Executive's family shall be
eligible to participate in, and receive all benefits under,
welfare benefit Plans provided by the Company (including, without
limitation, medical, prescription, dental, disability, salary
continuance, individual life, group life, dependent life,
accidental death and travel accident insurance Plans) and
applicable to other peer executives of the Company and their
families, but in no event shall such Plans provide benefits which
in any case are less favorable, in the aggregate, than the most
favorable of those provided to the Executive under such Plans as
in effect at any time during the 90-day period immediately before
the Effective Date.
d. Fringe Benefits. During the Post-Change Period,
the Executive shall be entitled to fringe benefits in accordance
with the most favorable Plans applicable to peer executives of
the Company, but in no event shall such Plans provide fringe
benefits which in any case are less favorable, in the aggregate,
than the most favorable of those provided by the Company to peer
executives under such Plans in effect at any time during the 90-
day period immediately before the Effective Date.
e. Expenses. During the Post-Change Period, the
Executive shall be entitled to prompt reimbursement of all
reasonable employment-related expenses incurred by the Executive
upon the Company's receipt of accounting in accordance with the
most favorable Policies applicable to peer executives of the
Company, but in no event shall such Policies be less favorable,
in the aggregate, than the most favorable of those provided by
the Company for the Executive under such Policies in effect at
any time during the 90-day period immediately before the
Effective Date.
f. Office and Support Staff. During the Post-Change
Period, the Executive shall be entitled to an office or offices
of a size and with furnishings and other appointments, and no
exclusive personal secretarial and other assistance in accordance
with the most favorable Policies applicable to peer executives of
the Company, but in no event shall such Policies be less
favorable, in the aggregate, than the most favorable of those
provided by the Company for the Executive under such Policies in
effect at any time during the 90-day period immediately before
the Effective Date.
g. Vacation. During the Post-Change Period, the
Executive shall be entitled to paid vacation in accordance with
the most favorable Policies applicable to peer executives of the
Company, but in no event shall such Policies be less favorable,
in the aggregate, than the most favorable of those provided by
the Company for the Executive under such Policies in effect at
any time during the 90-day period immediately before the
Effective Date.
3.3 Stock Options.
In addition to the other benefits provided in this
Section, on the Effective Date, the Executive shall become fully
vested in any and all outstanding stock options granted to the
Executive for shares of common stock of the Company or to the
extent that such options are not vested, shall receive a lump-sum
cash payment equal to the spread of all non-vested, forfeited
options as of the date such options are forfeited.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Disability.
a. During the Post-Change Period, the Company may
terminate the Executive's employment upon the Executive's
Disability (as defined in Section 4.1.b) by giving the Executive
or his legal representative, as applicable, (1) written notice in
accordance with Section 10.7 of the Company's intention to
terminate the Executive's employment pursuant to this Section and
(2) a certification of the Executive's Disability by a physician
selected by the Company or its insurers and reasonably acceptable
to the Executive or the Executive's legal representative. The
Executive's employment shall terminate effective on the 30th day
(the "Disability Effective Date") after the Executive's receipt
of such notice unless, before the Disability Effective Date, the
Executive shall have resumed the full-time performance of the
Executive's duties.
b. "Disability" means any medically determinable
physical or mental impairment that has lasted for a continuous
period of not less than six months and can be expected to be
permanent or of indefinite duration, and that renders the
Executive unable to perform the duties required under this
Agreement.
4.2 Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Post-Change
Period.
4.3 Cause.
a. During the Post-Change Period, the Company may
terminate the Executive's employment for Cause.
b. "Cause" means any of the following:
(1) a material breach by the Executive of those duties
and responsibilities of the Executive which do not differ in
any material respect from the duties and responsibilities of
the Executive during the 90-day period immediately before
the Effective Date (other than as a result of incapacity due
to physical or mental illness) which is demonstrably willful
and deliberate on the Executive's part, which is committed
in bad faith or without reasonable belief that such breach
is in the best interests of the Company and which is not
remedied within a reasonable period of time after receipt of
written notice from the Company specifying such breach;
(2) any intentional act of fraud, embezzlement or theft
by the Executive in connection with the Executive's duties
in the course of the Executive's employment hereunder or any
prior employment, or the Executive's admission or conviction
of a felony or of any crime involving moral turpitude,
fraud, embezzlement, theft or misrepresentation;
(3) any gross negligence or willful misconduct of the
Executive in performing the Executive's duties which, if
curable, has not been cured within 10 days of delivery by
the Company to the Executive of written notice of such gross
negligence or willful misconduct; or
(4) any violation in any material respect of any
statutory or common law duty of loyalty to the Company or
any of its affiliates which, if curable, has not been cured
within 10 days of delivery by the Company to the Executive
of written notice of such violation.
c. Any termination of the Executive's employment by
the Company for Cause shall be communicated to the Executive by
Notice of Termination.
4.4 Good Reason.
a. During the Post-Change Period, the Executive may
terminate his or her employment for Good Reason.
b. "Good Reason" means, without the Executive's
express written consent, any of the following:
(1) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by
Section 3.1.a(1), or any other action by the Company which
results in a diminution or other material adverse change in
such position, authority or duties;
(2) any failure by the Company to comply with any of
the provisions of Article III;
(3) the Company's requiring the Executive to be based
at any office or location other than the location described
in Section 3.1.a(2);
(4) any other material adverse change to the terms and
conditions of the Executive's employment; or
(5) any purported termination by the Company of the
Executive's employment other than as expressly permitted by
this Agreement (any such purported termination shall not be
effective for any other purpose under this Agreement).
Any reasonable determination of "Good Reason" made in good faith
by the Executive shall be conclusive; provided, however, that an
isolated, insubstantial and inadvertent action taken in good
faith and which is remedied by the Company promptly after receipt
of written notice thereof given by the Executive shall not
constitute "Good Reason."
c. Any termination of employment by the Executive for
Good Reason shall be communicated to the Company by Notice of
Termination within 60 days of the occurrence of the Good Reason.
A failure by the Executive to include in the Notice of
Termination any fact or circumstance which contributes to a
showing of Good Reason shall not waive any right of the Executive
under this Agreement or preclude the Executive from asserting
such fact or circumstance in enforcing rights under this
Agreement.
4.5 Termination Prior to Effective Date. Nothing in this
Agreement shall be deemed to entitle the Executive to continued
employment with the Company or any Subsidiary, and if the
Executive's employment with the Company or any Subsidiary shall
terminate prior to the Effective Date, the Executive shall have
no rights under Articles III, IV or V.
ARTICLE V
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company
Other Than for Cause or Disability. If, during the Post-Change
Period, the Company shall terminate the Executive's employment
other than for Cause or Disability, or if the Executive shall
terminate employment for Good Reason, the Company shall
immediately pay the Executive, in addition to all vested rights
arising from the Executive's employment as specified in Article
III, a cash amount equal to the sum of the following amounts:
a. to the extent not previously paid, the Guaranteed
Base Salary and any accrued vacation pay through the Termination
Date;
b. an amount equal to the Executive's highest annual
bonus (or annualized for any fiscal year consisting of less than
12 full months or with respect to which the Executive has been
employed by the Company for less than 12 full months) paid or
payable, including by reason of any deferral, to the Executive by
the Company and its affiliated companies in respect of the two
fiscal years of the Company (or such portion thereof during which
the Executive shall have been employed by the Company for less
than such two-year period) immediately preceding the fiscal year
in which the Effective Date occurs, multiplied by a fraction, the
numerator of which is the number of days in the fiscal year in
which the Effective Date occurs through the Termination Date and
the denominator of which is 365 or 366, as applicable;
c. all amounts previously deferred by or an accrual to
the benefit of the Executive under any nonqualified deferred
compensation or pension plan, together with any accrued earnings
thereon, and not yet paid by the Company;
d. an amount equal to the product of (1) three
multiplied by (2) the sum of (A) Guaranteed Base Salary and (B)
the Executive's highest annual bonus (or annualized bonus for any
fiscal year consisting of less than 12 full months or with
respect to which the Executive has been employed by the Company
for less than 12 full months), paid or payable, including by
reason of any deferral, to the Executive by the Company and its
affiliated companies in respect of the two fiscal years of the
Company if the Executive shall have been employed by the Company
for less than such two fiscal year period) immediately preceding
the fiscal year in which the Effective Date occurs;
e. an amount equal to the sum of the value of the
unvested portion of the Executive's accounts or accrued benefits
under any qualified plan maintained by the Company as of the
Termination Date; and
f. pay on behalf of the Executive all fees and costs
charged by the outplacement firm selected by the Executive to
provide outplacement services or at the election of the
Executive, cash equal to the fees and expenses such outplacement
firm would charge.
Until the first anniversary of the Termination Date or such later
date as any Plan of the Company may specify, the Company shall
continue to provide to the Executive and the Executive's family
welfare benefits (including, without limitation, medical,
prescription, dental, disability, salary continuance, individual
life, group life, accidental death and travel accident insurance
plans and programs) which are at least as favorable as the most
favorable Plans of the Company applicable to other peer
executives and their families as of the Termination Date, but
which are in no event less favorable than the most favorable
Plans of the Company applicable to other peer executives and
their families during the 90-day period immediately before the
Effective Date. The cost of such welfare benefits shall not
exceed the cost of such benefits to the Executive immediately
before the Termination Date or, if less, the Effective Date.
Notwithstanding the foregoing, if the Executive is covered under
any medical, life, or disability insurance plan(s) provided by a
subsequent employer, then the amount of coverage required to be
provided by the Employer hereunder shall be reduced by the amount
of coverage provided by the subsequent employer's medical, life,
or disability insurance plan(s). The Executive's rights under
this Section shall be in addition to, and not in lieu of, any
post-termination continuation coverage or conversion rights the
Executive may have pursuant to applicable law, including, without
limitation, continuation coverage required by Section 4980 of the
Code.
5.2 If by the Company for Cause. If the Company terminates
the Executive's employment for Cause during the Post-Change
Period, this Agreement shall terminate without further obligation
by the Company to the Executive, other than the obligation
immediately to pay the Executive in cash the Executive's
Guaranteed Base Salary through the Termination Date, plus the
amount of any compensation previously deferred by the Executive,
plus any accrued vacation pay, in each case to the extent not
previously paid.
5.3 If by the Executive Other Than for Good Reason. If the
Executive terminates employment during the Post-Change Period
other than for Good Reason, Disability or death, this Agreement
shall terminate without further obligations by the Company, other
than the obligation immediately to pay the Executive in cash all
amounts specified in clauses (a), (b) and (c) of the first
sentence of Section 5.1 (such amounts collectively, the "Accrued
Obligations").
5.4 If by the Company for Disability. If the Company
terminates the Executive's employment by reason of the
Executive's Disability during the Post-Change Period, this
Agreement shall terminate without further obligations to the
Executive, other than
a. the Company's obligation immediately to pay the
Executive in cash all Accrued Obligations, and
b. the Executive's right after the Disability
Effective Date to receive disability and other benefits at least
equal to the greater of (1) those provided under the most
favorable disability Plans applicable to disabled peer executives
of the Company in effect immediately before the Termination Date
or (2) those provided under the most favorable disability Plans
of the Company in effect at any time during the 90-day period
immediately before the Effective Date.
5.5 If upon Death. If the Executive's employment is
terminated by reason of the Executive's death during the Post-
Change Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this
Agreement other than the obligation immediately to pay the
Executive's estate or beneficiary in cash all Accrued
Obligations. Despite anything in this Agreement to the contrary,
the Executive's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the
Company to the surviving families of peer executives of the
Company under such Plans, but in no event shall such Plans
provide benefits which in each case are less favorable, in the
aggregate, than the most favorable of those provided by the
Company to the Executive under such Plans in effect at any time
during the 90-day period immediately before the Effective Date.
5.6 Certain Additional Payments by the Company.
a. Notwithstanding anything to the contrary in this
Agreement, in the event it shall be determined that any payment
or distribution by the Company or its affiliated companies to or
for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5.6) (a
"Payment") would be subject to the excise tax imposed by Section
4999 of the Code, or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive
of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
b. Subject to the provisions of Section 5.6.c, all
determinations required to be made under this Section 5.6,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the
Company's public accounting firm (the "Accounting Firm") which
shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the receipt
of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the Change in Control,
the Executive shall appoint another nationally recognized public
accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-
Up Payment, as determined pursuant to this Section 5.6, shall be
paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's
applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. Any determination
by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 5.6.c and the Executive
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
c. The Executive shall notify the Company in writing
of any claim by the IRS that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than 10 business days after the Executive is informed in writing
of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which the Executive gives
such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such
claim, the Executive shall:
(1) give the Company any information reasonably
requested by the Company relating to such claim,
(2) take such action in connection with contesting
such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional
interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless,
on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing
provisions of this Section 5.6.c, the Company shall control
all proceedings taken in connection with such contest and,
at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided further, that if
the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax (including interest
or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with
respect to such advance; and provided further, that any
extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
d. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5.6.c, the Executive
becomes entitled to receive, and receives, any refund with
respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5.6.c)
promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5.6.c, a
determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
5.7 Withholding Taxes. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate)
hereunder all taxes which, by applicable federal, state, local or
other law, the Company is required to withhold therefrom.
5.8 Continued Employment. Nothing expressed or implied
herein shall create any right or duty of continued employment of
the Executive by the Company or any Subsidiary. The Company and
each of its Subsidiaries reserves all rights to terminate the
Executive's employment at any time with or without cause unless
otherwise protected by law or contract.
ARTICLE VI
NON-EXCLUSIVITY OF RIGHTS
6.1 Waiver of Other Severance Rights. To the extent that
payments are made to the Executive pursuant to Section 5.1, the
Executive hereby waives the right to receive severance payments
under any other Plan or agreement of the Company.
6.2 Other Rights. Except as provided in Section 6.1, this
Agreement shall not prevent or limit the Executive's continuing
or future participation in any benefit, bonus, incentive or other
Plans, provided by the Company or any of its Subsidiaries and for
which the Executive may qualify, nor shall this Agreement limit
or otherwise affect such rights as the Executive may have under
any other agreements with the Company or any of its Subsidiaries.
Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any Plan of the Company or
any of its Subsidiaries and any other payment or benefit required
by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly
modified by this Agreement.
ARTICLE VII
EXPENSES AND INTEREST
7.1 Legal Fees and Other Expenses. a. If the Executive
incurs legal fees or other expenses in a good faith effort to
obtain benefits under this Agreement, the Company shall reimburse
the Executive on a current basis for such fees and expenses to
the extent not reimbursed under the Company's officers and
directors liability insurance policy, if any. The existence of
any controlling case or regulatory law which is directly
inconsistent with the position taken by the Executive shall be
evidence that the Executive did not act in good faith.
b. Reimbursement of legal fees and expenses shall be
made monthly upon the written submission of a request for
reimbursement together with evidence that such fees and expenses
are due and payable or were paid by the Executive. If the
Company shall have reimbursed the Executive for legal fees and
expenses and it is later determined that the Executive was not
acting in good faith or the resolution of the dispute includes a
finding denying, in total, the Executive's claims in such
dispute, all amounts paid on behalf of, or reimbursed to, the
Executive shall be promptly refunded to the Company.
7.2 Interest. If the Company does not pay any amount due
to the Executive under this Agreement within three days after
such amount became due and owing, interest shall accrue on such
amount from the date it became due and owing until the date of
payment at a annual rate equal to two percent (2.0%) above the
corporate base rate announced by Norwest Bank Minnesota, National
Association, in effect from time to time during the period of
such nonpayment.
ARTICLE VIII
SET-OFF OR MITIGATION
8.1 Set-Off by Company. Except as provided in the
following sentence, the Executive's right to receive when due the
payments and other benefits provided for under this Agreement is
absolute, unconditional and subject to no set-off, counterclaim
or legal or equitable defense. Notwithstanding anything to the
contrary in this Agreement, in the event that the Executive
breaches in any material respect any covenant or obligation set
forth in Article IX, the Company may withhold any further payment
otherwise due to the Executive pursuant to clauses d. and f. of
Section 5.1. Time is of the essence in the performance by the
Company of its obligations under this Agreement.
8.2 No Mitigation. The Executive shall not have any duty
to mitigate the amounts payable by the Company under this
Agreement by seeking new employment following termination.
Except as specifically otherwise provided in this Agreement, all
amounts payable pursuant to this Agreement shall be paid without
reduction regardless of any amounts of salary, compensation or
other amounts which may be paid or payable to the Executive as
the result of the Executive's employment by another employer.
ARTICLE IX
CONFIDENTIALITY AND NONCOMPETITION
9.1 Confidentiality. Executive acknowledges that it is the
policy of the Company and its subsidiaries to maintain as secret
and confidential all valuable and unique information and
techniques acquired, developed or used by the Company and its
relating to their business, operations, employees and customers,
which gives the Company and its Subsidiaries a competitive
advantage in the businesses in which the Company and its
Subsidiaries are engaged except to the extent that such
information is a matter of public record or is published and made
available to the general public ("Confidential Information").
Executive recognizes that all such Confidential Information is
the sole and exclusive property of the Company and its
Subsidiaries, and that disclosure of Confidential Information
would cause damage to the Company and its Subsidiaries.
Executive agrees that, except as required by the duties of
Executive's employment with the Company and/or its Subsidiaries
and except in connection with enforcing the Executive's rights
under this Agreement or if compelled by a court or governmental
agency, Executive will not, without the consent of the Company,
disseminate or otherwise disclose any Confidential Information
obtained during Executive's employment with the Company. When
the Executive shall cease to be employed by the Company, the
Executive shall surrender to the Company all records, computer
tapes, software or other documents or data obtained by Executive
or entrusted to Executive (together with all copies thereof)
which pertain to the businesses engaged in by the Company or its
affiliates.
9.2 Intellectual Property. The Executive hereby assigns to
the Company the Executive's entire right, title and interest in
and to all discoveries and improvements, patentable or
otherwise, trade secrets and ideas, writings and copyrightable
material, which may be conceived by the Executive or developed or
acquired by the Executive during the Executive's employment,
which may pertain directly or indirectly to the business of the
Company or any of its affiliates. The Executive agrees to
disclose fully all such developments to the Company upon its
request, which disclosure shall be made in writing promptly
following any such request. The Executive shall, upon the
Company's request, execute, acknowledge and deliver to the
Company all instruments and do all other acts which are necessary
or desirable to enable the Company or any of its affiliates to
file and prosecute applications for, and to acquire, maintain and
enforce, all patents, trademarks and copyrights in all countries.
All copyrightable subject matter developed by the Executive under
this Agreement is work made for hire vesting title in the
Company.
9.3 Noncompetition/Nonsolicitation. a. The Executive
agrees that, during the period of his employment with the Company
and/or its Subsidiaries and, if the Executive's employment is
terminated for any reason, thereafter for a period of three
years, the Executive will not at any time directly or indirectly,
in any capacity, engage or participate in, or become employed by
or render advisory or consulting or other services in connection
with any Prohibited Business (as defined in Section 9.3.d).
b. The Executive agrees that, during the period of the
Executive's employment with the Company and/or its Subsidiaries
and, if the Executive's employment is terminated for any reason,
thereafter for a period of three years, the Executive shall not
make any financial investment, whether in the form of equity or
debt, or own any interest, directly or indirectly, in any
Prohibited Business. Nothing in this Section 9.3.b shall,
however, restrict the Executive from making any investment in a
mutual fund or diversified investment company or any company
whose stock is listed on a national securities exchange or
actively traded in the over-the-counter market; provided that (1)
such investment does not give the Executive the right or ability
to control or influence the policy decisions of any Prohibited
Business, (2) such investment does not create a conflict of
interest between the Executive's duties hereunder and the
Executive's interest in such investment and (3) such investment
does not exceed three percent of the outstanding stock of any
class of stock of a corporation or three percent of the ownership
interest of any other entity.
c. The Executive agrees that, during the period of his
employment with the Company and/or its Subsidiaries and, if the
Executive's employment is terminated for any reason, thereafter
for a period of three years, the Executive shall not (1) employ
any employee of the Company and/or its Subsidiaries or (2)
interfere with the Company's or any of its Subsidiaries'
relationship with, or endeavor to entice away from the Company
and/or its Subsidiaries any person, firm, corporation, or other
business organization who or which at any time (whether before or
after the date of the Executive's termination of employment), was
an employee, customer, vendor or supplier of, or maintained a
business relationship with, any business of the Company and/or
its Subsidiaries which was conducted at any time during the
period commencing one year prior to the termination of
employment.
d. For the purpose of this Section 9.2, "Prohibited
Business" shall be defined as any business or other entity and
any branch, office or operation thereof, which is engaged in
managing, distributing, marketing, administering or otherwise
providing general purpose payment cards or credit cards, extended
service plans and warranties, consumer credit products, fee-based
products and services or any other business being conducted by or
contemplated by the Company or any of its Subsidiaries as of the
Termination Date, in any geographic area in which the Company
does business, in the United States or abroad.
9.4 Remedy. a. The Executive and the Company specifically
agree that, in the event that the Executive shall breach the
Executive's obligations under this Article IX, the Company and
its subsidiaries will suffer irreparable injury and no adequate
remedy for such breach, and shall be entitled to injunctive
relief or other relief in order to enforce or present any such
violation thereof (including the extension of the non-competition
and nonsolicitation periods by a period equal to the length of
the violation and the length of proceedings necessary to stop
such violation). In particular, without limiting the generality
of the foregoing, the Company shall not be precluded from
pursuing any and all remedies it may have at law or in equity for
breach of such obligations.
If, at any time of enforcement of this Article IX, a
court or an arbitrator holds that the restrictions stated herein
are unreasonable under circumstances then existing, the parties
hereto agree that the maximum period, scope or geographical area
reasonable under such circumstances shall be substituted for the
stated period, scope or area and that the court or arbitrator
shall be allowed to revise the restrictions contained herein to
cover the maximum period, scope and area permitted by law. This
Agreement shall not authorize a court or arbitrator to increase
or broaden any of the restrictions in this Article IX.
b. In addition to any other remedies provided for
herein, in the event that the Executive shall breach in any
material respect any obligation under this Article IX, the
Executive shall refund to the Company all compensation paid to
the Executive pursuant to paragraphs d. and f. of Section 5.1.
Any such refund shall neither relieve the Executive of his
obligations under this Article IX nor limit the remedies the
Company may have at law or in equity for breach of such
obligation.
9.5 Survival Article IX of this Agreement shall survive
and continue in full force and effect in accordance with its
terms, notwithstanding the expiration of the Agreement Term.
ARTICLE X
MISCELLANEOUS
10.1 No Assignability. This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
10.2 Successors. This Agreement shall inure to the benefit
of and be binding upon the Company and its successors and
assigns. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company
to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
Any successor to the business and/or assets of the Company which
assumes or agrees to perform this Agreement by operation of law,
contract, or otherwise shall be jointly and severally liable with
the Company under this Agreement as if such successor were the
Company.
10.3 Payments to Beneficiary. If the Executive dies before
receiving amounts to which the Executive is entitled under this
Agreement, such amounts shall be paid in a lump sum to the
beneficiary designated in writing by the Executive, or if none is
so designated, to the Executive's estate.
10.4 Non-alienation of Benefits. Benefits payable under
this Agreement shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind,
either voluntary or involuntary, before actually being received
by the Executive, and any such attempt to dispose of any right to
benefits payable under this Agreement shall be void.
10.5 Severability. If any one or more articles, sections
or other portions of this Agreement are declared by any court or
governmental authority to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate any
article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to
be unlawful or invalid shall be construed so as to effectuate the
terms of such article, section or other portion to the fullest
extent possible while remaining lawful and valid.
10.6 Amendments. Except as provided in Section 2.2, this
Agreement shall not be altered, amended or modified except by
written instrument executed by the Company and the Executive.
10.7 Notices. All notices and other communications under
this Agreement shall be in writing and delivered by hand or by
first class registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Ronald N. Zebeck
998 Wildhurst Trail
Mound, MN 55364
If to the Company:
Metris Companies Inc.
600 South Highway 169
Interchange Tower, Suite 1800
St. Louis Park, Minnesota 55426-1222
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing. Notice and communications shall be
effective when actually received by the addressee.
10.8 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original,
but all of which together constitute one and the same instrument.
10.9 Governing Law. This Agreement shall be interpreted
and construed in accordance with the laws of the State of
Minnesota, without regard to its choice of law principles.
10.10 Captions. The captions of this Agreement are not a
part of the provisions hereof and shall have no force or effect.
10.11 Employment with Subsidiaries. Employment with the
Company for purposes of this Agreement shall include employment
with any Subsidiary.
10.12 Company's Option to Fix Expiration Date. The Company
shall have the right prior to the Effective Date, in its sole
discretion, pursuant to action by the Board, to determine on
expiration date for the Agreement Term, which expiration date
shall not become effective until the date fixed by the Board for
such expiration date, which date shall be at least 30 days after
notice thereof is given by the Company to the Executive in
accordance with Section 10.7; provided, however, that no such
action shall be taken by the Board following an Imminent Control
Change Date until, in the opinion of the Board, any such proposal
or offer has been abandoned or terminated; and provided further,
that in no event shall the Board fix an expiration date pursuant
to this Section on and after the Effective Date.
10.13 No Waiver. The Executive's failure to insist upon
strict compliance with any provision of this Agreement shall not
be deemed a waiver of such provision or any other provision of
this Agreement. A waiver of any provision of this Agreement
shall not be deemed a waiver of any other provision, and any
waiver of any default in any such provision shall not be deemed a
waiver of any later default thereof or of any other provision.
10.14 Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to
its subject matter.
IN WITNESS WHEREOF, the Executive and the Company have executed
this Agreement as of the date first above written.
______________________________
METRIS COMPANIES INC.
By: _________________________
Title: _______________________
SCHEDULE
CHANGE OF CONTROL AGREEMENTS
The following executive officers executed a Change of
Control Severance Agreement substantially identical to the
agreement with Mr. Zebeck filed herewith except that instead of
three times the compensation set forth in Section 5.1(d) the
multiplier is as set forth below and that the number of years for
which Section 9.3 applies is as set forth below:
Number for
Officer Date of Agreement Section 5.1(d) and
9.3(b)
Z. Jill Barclift 4/30/98 Two
Joseph Hoffman 4/21/98 Two
Patrick Fox 4/21/98 Two
Douglas Scaliti 4/30/98 Two
William Brennan 4/21/98 Two
David Reak 4/21/98 Two
Douglas McCoy 4/30/98 Two
Paul Runice 4/21/98 One
Jean Benson 4/21/98 One
jen\g:\m\metris\gencorp\misc\sched1.wpd
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (this "Agreement")
dated as of September 4, 1998 by and between the PNC NATIONAL
BANK, a national banking association ("Seller"), and DIRECT
MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION, a national
banking association ("Purchaser").
RECITALS
WHEREAS, Seller is the owner of certain credit card
Accounts and Related Receivables; and
WHEREAS, Seller desires to sell and Purchaser desires
to purchase, upon the terms and subject to the conditions set
forth herein, the properties, rights and privileges of Seller in
and to certain credit card Accounts and Related Receivables owned
by Seller.
NOW THEREFORE, in consideration of the mutual covenants
and agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, the
following terms where written with an initial capital letter
shall have the following respective meanings (such terms to be
equally applicable to both the singular and plural forms of the
terms defined):
"Account" means all of Seller's MasterCard Card and
VISA Card (whether standard, Gold, or Platinum) accounts in the
Portfolio as of the Cut-Off Date which are not Excluded Accounts,
Secured Accounts or Business Accounts.
"Account Documentation" means all existing records
relating to the Accounts in the Portfolio, including without
limitation, to the extent that the same exist, credit card
applications, Cardholder Agreements (or the form thereof),
documents, disclosure statements, credit information files,
credit card slips, receipts, drafts, instruments, customer lists,
billing error notices and other records relating to the Accounts
in the Portfolio, whether on paper, microfilm, microfiche,
magnetic tape, computer disc or in any other form as maintained
by Seller or by Seller's data processor.
"Accountants" has the meaning set forth in Section
2.5(d).
"Adjustment Statement" means a statement prepared by
Seller relating to and specifying in reasonable detail the
calculation of the Purchase Price and any adjustments thereto
provided for in Section 2.5(a), substantially in the form of
Exhibit C, together with such back-up detail as may be reasonably
requested by Seller.
"Adjustment Payment" means the amount by which the
Purchase Price differs from the adjusted Purchase Price set forth
on the Adjustment Statement.
"Affiliate" means, with respect to Seller or Purchaser,
as the case may be, any entity that directly or indirectly
controls, is controlled by, or which is under common control with
Seller or Purchaser, as the case may be.
"Agreement" means this Purchase Agreement, including
all schedules, exhibits and addenda hereto, as the same may be
amended, modified or supplemented and in effect from time to
time.
"Allocation Schedule" has the meaning set forth in
Section 2.6.
"Assets to be Sold" has the meaning set forth in
Section 2.1.
"Assignment" means the Assignment to be delivered by
Seller to Purchaser on the Payment Date, in substantially the
form of Exhibit A, pursuant to which Seller will sell, transfer
and assign the Assets to be Sold to Purchaser.
"Assumed Liabilities" has the meaning set forth in
Section 2.2.
"Bankrupt" means an Account which fits one or more of
the following descriptions:
(i) is externally statused as "B" on the FDR system;
(ii) is contained in a special designated "bankruptcy"
collection queue;
(iii) has been flagged on the FDR system as a pending
bankrupt account; or
(iv) the Cardholder files for bankruptcy before
the Cut-Off Date and Seller receives notification of
such filing from any source before the Adjustment
Statement date.
"Business Account" means an Account for which any
cardholder or guarantor is an existing business entity or sole
proprietorship.
"Business Day" means a day during which Seller and
Purchaser actually conduct their general business activities, but
shall not include a Saturday, a Sunday or a day on which banking
institutions by Delaware or Arizona law or executive order are
authorized or obligated to close and, in case of either Seller or
Purchaser, its offices in such state are closed.
"Card" means a credit card which is issued or was
acquired by Seller, directly or indirectly, pursuant to the
Governing Regulations and which bears the service mark of
"MasterCard or "VISA".
"Cardholder" means a natural person or persons to whom
a Card is issued by Seller in connection with an Account and in
whose name or names the corresponding Account is established and
any other person obligated under or, authorized to use, an
Account.
"Cardholder Agreement" means the agreement containing
the terms and conditions applicable to an Account made between
Seller and a Cardholder pursuant to which the Account of such
Cardholder is established, as such agreement may be amended by
any "change in terms" notices in effect from time to time, copies
of which are attached hereto as Exhibit H and incorporated herein
by reference.
"Charge-off" or "Charged-off" means an Account which
fits one of the following descriptions:
(i) Accounts externally statused as "Z" on the FDR system;
(ii) Accounts with balances that are equal to or more than
180 days contractually delinquent (or 210 FDR days delinquent);
(iii) Accounts that are "early outs" (that is, Accounts that
have been sent to a collection agency prior to being externally
statused as "Z" on the FDR system) but excluding Accounts that
constitute "outsourced" accounts serviced by third parties in the
normal course of Seller's business; or
(iv) any Accounts that are not currently externally statused
as "Z" but should have been so statused prior to the Cut-Off Date
based on Seller's business practices.
"Claim" has the meaning set forth in Section 9.3.
"Closing" means the actions taken by both Seller and
Purchaser to consummate the Sale Transaction on or around the
Payment Date.
"Conversion" means the process of transferring from
Seller, or from Seller's data processing servicer, to Purchaser,
or to Purchaser's data processing servicer, all record keeping
and servicing functions related to the ongoing activity of the
Accounts.
"Conversion Date" means the date on which the
Conversion is completed, which date shall be February 12, 1999 or
such other later date as is mutually agreeable to the parties but
in no event later than March 31, 1999.
"Credit Card Marks" has the meaning set forth in
Section 3.7.
"Customer Base" means the proprietary information
relating to the Accounts which includes the customer lists
containing names and the most recent addresses of the Cardholders
with respect to such Accounts and all information reported on
Seller's data processing system relating thereto.
"Cut-Off Date" means the time of the close of
processing by Seller of the Accounts on November 4, 1998, or such
other date as may be agreed to in writing by Seller and
Purchaser.
"Deceased" means an Account for which the Cardholder
(who is not an authorized user) has died before the Cut-Off Date
and Seller receives notification of the Cardholder's death from
any source before the Adjustment Statement date.
"Excluded Account" means any Account that is deemed to
be Bankrupt, Charged-off or Charge-off, Fraud, Lost/Stolen or
Deceased as of the Cut-Off Date.
"FDR" means First Data Resources Inc., its successors
and assigns, which provides Account servicing to the Seller.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day during
such period 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 Bloomberg Financial Markets under the
index name FEDL01, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for
such day on such transactions received by Seller from three
Federal funds brokers of recognized standing selected by it.
"Fraud" means an Account which has an external status
of "U" on the FDR system or had any fraudulent transaction
posted to the Account prior to the Cut-Off Date and Seller
receives notification of the fraudulent transaction from any
source before the Adjustment Statement date.
"Governing Organization" means each of MasterCard
International, Inc. and VISA U.S.A. Inc.
"Governing Regulations" means the bylaws, rules and
regulations of the applicable Governing Organization.
"Indemnified Party" has the meaning set forth in
Section 9.3.
"Indemnifying Party" has the meaning set forth in
Section 9.3.
"Interim Servicing Agreement" means the Interim
Servicing Agreement separately executed by the parties as of the
Payment Date.
"Loss" has the meaning set forth in Section 9.1.
"Lost/Stolen" means an Account which has been
externally statused as "L" on the FDR system.
"Payment Date" means the next Business Day following
the Cut-Off Date.
"Payment Statement" means a statement prepared by
Seller relating to and specifying in reasonable detail the
calculation of the Purchase Price provided for in Section 2.3,
substantially in the form of Exhibit B, together with such back-
up detail as may be reasonably requested by Purchaser.
"Portfolio" means Accounts to be sold to Purchaser by
Seller, which Accounts represent all Accounts which have a
mailing address that is outside the Seller's current six state
bank service area (Pennsylvania, New Jersey, Delaware, Kentucky,
and parts of Ohio, and Indiana) and which do not have any other
known customer relationships with Seller and are not included in
Seller's co-brand or affinity credit card relationships. In no
event does this definition expand to any accounts not included on
the masterfile tape provided to Purchaser as of May 31, 1998
other than those new Accounts established to maintain the good
receivables from a Fraud Account or Lost/Stolen Account.
"Protected Party" has the meaning set forth in Section
5.1(b).
"Purchase Price" has the meaning set forth in Section
2.3.
"Regulation Z" means Regulation Z of the Board of
Governors of the Federal Reserve System of the United States, as
the same may be amended and in effect from time to time.
"Related Receivables" means the amount owing by the
Cardholder to Seller on the Cardholder's Account (including
outstanding extensions of credit, billed finance charges, and any
other charges and fees assessed on said Account ) as recorded in
the periodic statement of such Account most recently rendered
prior to the Cut-Off Date, plus all debits and less all credits
properly posted to such Account pursuant to the terms of the
Cardholder Agreement on or before the Cut-Off Date.
"Sale Transaction" means the sale of the Assets to be
Sold and the other transactions contemplated by this Agreement.
"Secured Account" means a credit card account secured
by money, real estate or other property which serves as
collateral for any outstanding balances on the credit card
account in the event the cardholder defaults on the terms of the
account.
"Unposted Accrued Finance Charges" means the aggregate
amount of finance charges that have been correctly accrued, but
have not been posted, to each Account from the last settlement
date of such Account to (and including) the Cut-Off Date and
which charges are subsequently properly billed to the Cardholder
in accordance with the terms of the applicable Cardholder
Agreement.
Section 1.2 Other Definitional Terms. The words "hereof",
"herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not
to any particular provision of this Agreement. References to
Article, Section, Schedule, Exhibit and like references refer to
this Agreement unless otherwise specified.
ARTICLE II. SALE AND PURCHASE OF ASSETS.
Section 2.1 Sale and Purchase.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, Seller agrees to sell, assign and transfer to
Purchaser, and Purchaser agrees to purchase and receive from
Seller, all right, title and interest of Seller in and to the
following assets and the following rights and privileges of the
Seller (collectively, the "Assets to be Sold") and to assume the
obligations described in Section 2.2:
(i) the Accounts in the Portfolio;
(ii) the Related Receivables relating to the Accounts;
(iii) the Customer Base of the Accounts;
(iv) the Cards and all Account Documentation relating
to the Accounts in a format mutually agreed upon by
both parties;
(v) all of Seller's rights and privileges accruing
pursuant to the Cardholder Agreements governing the
Accounts and the related Cards;
(vi) all of Seller's rights to any interchange fees
paid or payable by a Governing Organization with respect to the
Accounts which are attributable to all periods after the Cut-Off
Date; and
(vii) assignment of the incentive travel product
agreement between Media Marketing Services and Seller, dated as
of December 30, 1996.
Such purchase and sale shall be evidenced by Seller's delivery to
the Purchaser on the Payment Date of the Assignment and by
Purchaser's payment to Seller on the Payment Date of the Purchase
Price. The sale of the Assets to be Sold shall be without
recourse to Seller, subject only to Seller's covenants in this
Agreement (including, without limitation, Seller's covenants in
Section 2.5, Section 3.5, Article III, Article V and Article X)
and Seller's representations and warranties in Article VI.
(b) On the Payment Date and subject to all of the terms and
conditions set forth herein, Seller shall assign to Purchaser all
payments from time to time paid or payable to Seller under
agreements with third party providers of services to Cardholders
identified on Exhibit I hereto that pertain to Accounts and
relate to transactions or periods following the Cut-Off Date, and
Seller agrees to execute and deliver to Purchaser on the Payment
Date and thereafter one or more instruments of assignment to
evidence such assignment and to cooperate with Purchaser in
arranging, to the extent possible, for direct payment of the
amounts subject to this assignment by the third party providers.
Within 60 days of the Conversion Date, Purchaser shall have
entered into separate contractual arrangements with third party
providers for the payment of any amounts assigned to Purchaser
under this Section 2.1(b) and Seller's obligation to forward to
Purchaser any payments that are rightfully Purchaser's shall
terminate.
Section 2.2 Assumption of Liabilities. At the Closing, upon
the satisfaction or waiver of each condition precedent and
payment of the Purchase Price, Purchaser shall assume only the
following obligations, each without the execution or delivery of
any additional documents (collectively, the "Assumed
Liabilities"):
(i) all of the obligations of Seller arising after the Cut-Off
Date to perform under the Cardholder Agreements included in the
Assets to be Sold;
(ii) the obligation to make payments to Seller equal to any
amounts payable by Seller to MasterCard or VISA related to
activity in the Accounts after the Cut-Off Date (but in no event
shall Purchaser assume any liability in connection with any
cancellation or other modification of any of Seller's agreements
or arrangements with MasterCard or VISA);
(iii) all of the obligations of Seller arising after the Cut-
Off Date to perform with respect to the Assets to be Sold under
any Governing Regulation;
(iv) obligations of Seller under the incentive travel
product agreement between Media Marketing Services and Seller,
dated as of December 30, 1996 and assigned to Purchaser pursuant
to Section 2.1(a)(vii).
Section 2.3 Purchase Price. The purchase price of the Assets
to be Sold (the "Purchase Price") shall be equal to the sum of:
(a) 1.00 multiplied by the result of
(i) the total amount of Related Receivables with respect to the
Accounts calculated as of the Cut-Off Date;
minus
(b) a discount of two percent (2%) of the amount calculated
pursuant to Section 2.3(a) above;
plus
(c) 1.00 multiplied by the Unposted Accrued Finance Charges.
Section 2.4 Payment of the Purchase Price.
(a) At least five Business Days before the Cut-Off Date, Seller
shall forward to Purchaser the masterfile tape for that day.
Seller shall calculate the Purchase Price as of the Cut-Off Date
and prepare the Payment Statement, the form of which is attached
hereto and incorporated herein as Exhibit B . Seller shall
forward to Purchaser the Payment Statement and Seller's reports
verifying the figures used in the calculation of the Purchase
Price. Purchaser shall review the Payment Statement and confirm
the Purchase Price.
(b) Purchaser shall pay Seller the Purchase Price, on the
Payment Date by wire transfer of immediately available funds to
an account designated in writing by Seller no fewer than three
days prior to the Payment Date. Upon payment by the Purchaser of
the Purchase Price, Purchaser shall own all the Assets to Be Sold
as of the Cut-Off Date and Seller shall have no further income
participation or ownership interest in any of the Accounts.
Section 2.5 Adjustment of the Purchase Price; Dispute
Resolution.
(a) Sixty days after the Payment Date, the parties shall conduct
and complete a review of the Accounts and Related Receivables and
Seller will prepare an Adjustment Statement, a form of which is
attached hereto as Exhibit C and incorporated herein by
reference. The Adjustment Statement will adjust the Purchase
Price for any Excluded Accounts that were inadvertently included
in, or excluded from, the calculation of the Purchase Price set
forth on the Payment Statement. The Seller shall deliver the
Adjustment Statement to Purchaser along with FDR system reports,
a masterfile, and any Seller reports or documentation required to
support the Adjustment Statement.
(b) Purchaser will notify Seller in writing within fifteen
Business Days after receipt of the Adjustment Statement of any
disagreement with supporting documentation of such disputed item.
If there are no disputed items either of the following will
occur:
(i) if the adjusted Purchase Price on the Adjustment
Statement is less than the Purchase Price on the
Payment Statement, Seller shall pay to Purchaser the
Adjustment Payment, plus interest calculated at the
Federal Funds Rate from the Payment Date to the date
the Adjustment Payment is made; or
(ii) if the adjusted Purchase Price on the Adjustment
Statement is more than the Purchase Price on the
Payment Statement, Purchaser shall pay to Seller the
Adjustment Payment, plus interest calculated at the
Federal Funds Rate from the Payment Date to the date
the Adjustment Payment is made.
(c) Each party will use its best efforts to resolve any
disputes regarding the contents of the Adjustment Statement in
good faith. However, if Purchaser and Seller do not mutually
agree upon the correct amounts for all line items in the
Adjustment Statement within fifteen Business Days after Seller
has delivered the Adjustment Statement to Purchaser, the parties
shall
(i) pay to each other any undisputed amounts in the
Adjustment Statement that are owed, plus interest
calculated at the weighted Federal Funds Rate from the
Payment Date to the date the undisputed payments are
made; and
(ii) resolve any outstanding disputed line items in the
Adjustment Statement by resorting to the dispute
resolution procedures that are set forth in Section
2.5(d).
(d) The parties agree to attempt in good faith to resolve any
disputes arising in connection with the payments made by the
parties hereunder. In the event Purchaser and Seller are unable
to resolve any such dispute, then an independent, nationally
recognized firm of independent Accountants (the "Accountants")
mutually agreed upon by both parties shall be retained, to
determine the amounts of any valuations in dispute. Any such
request shall be in writing, shall specify with particularity the
disputed amounts being submitted for determination and shall
contain a direction to the Accountants to proceed with such
review as soon as practicable. The requesting party shall
furnish the other party hereto with a copy of such request at the
same time it is submitted to the Accountants. Purchaser and
Seller shall cooperate fully in assisting the Accountants in
their review, including, without limitation, by providing the
Accountants full access to all files, books and records relevant
thereto and providing such other information as the Accountants
may reasonably request in connection with any such review. One-
half of the fees and disbursements of such Accountants arising
out of such review shall be borne by each of Purchaser and
Seller; provided, that, Seller and Purchaser shall have agreed,
prior to the designation of the Accountants, on the maximum
amount of such fees and disbursements. In the event the
determination made by the Accountants indicates that a payment is
due from one party to the other, such party shall make such
payment no later than five Business Days following receipt from
the Accountants of written notice to both parties of such
determination, together with interest thereon at a per annum rate
equal to the Federal Funds Rate for the period from (and
including) the original due date thereof to (but not including)
the date of the payment thereof.
Section 2.6 Allocation Schedule. The Purchase Price shall
be allocated by the parties over the Assets To Be Sold in
accordance with the Allocation Schedule attached hereto as
Exhibit D ("Allocation Schedule"). The parties agree to take
any and all action necessary to amend the Allocation Schedule
based on any adjustment to the Purchase Price made pursuant to
Sections 2.5and 2.8. Each party agrees to reflect the
allocations set forth in the Allocation Schedule in their books
of record and in any filings required by the Internal Revenue
Code of 1986, as amended.
Section 2.7 Collections on the Accounts; Notice to
Cardholders.
(a) In any circumstance in which either party receives a payment
to which the other party is entitled, such receiving party shall
deliver the payment to the entitled party by overnight courier at
the addresses as specified in writing by the parties and, until
so delivered, such receiving party shall hold such payments in
trust for the benefit of the entitled party. The obligations set
forth in this Section 2.7(a) shall terminate six months after the
Conversion Date.
(b) Seller and Purchaser shall cooperate with each other in good
faith to enable Purchaser to prepare, print and mail a notice
notifying each Cardholder obligated on an Account of the purchase
of such Account by Purchaser and of such other matters which
Purchaser determines to be appropriate. The notice will be
mailed promptly upon the Closing but in no event later than
thirty days after the Closing. If Purchaser so chooses, Seller
shall also provide Purchaser with access to its periodic
statements in order that Purchaser may deliver such purchase
notifications, cardholder agreements or change in terms
notifications to Cardholders via statement inserts. All notices
shall be prepared solely by Purchaser, which notice(s) shall be
in a form approved by Seller prior to mailing, which approval
shall not be unreasonably withheld or delayed. Purchaser shall
bear the expenses of preparation, printing and mailing all such
notices.
Section 2.8 Repurchase Obligations of Seller. Seller shall
repurchase each Account and Related Receivable with respect to
which any warranty set forth in Sections 6.6, 6.7, 6.8, 6.9 and
6.12 herein was not true and correct in all material respects on
the Payment Date. Purchaser's request for a repurchase pursuant
to Sections 6.7, 6.8, 6.9 and 6.12 must be made in writing no
later than sixty days after the Conversion Date. Any request
made with respect to Section 6.6 may be made within one year
after the Closing Date. The repurchase price payable shall be
payable in immediately available funds at Purchaser's main office
and shall be equal to the lesser of the then outstanding balance
or the compensation paid by Purchaser under Section 2.3 herein
for said Account, together with interest thereon at the Federal
Funds Rate from the Payment Date to the date the repurchase price
is paid. Purchaser shall deliver to Seller all Account
Documentation of or relating to each Account repurchased
hereunder by Seller, execute and deliver such assignments and
other instruments reasonably required to evidence transfer and
assignment of such Accounts and Related Receivables to Seller and
take such other actions and cooperate with Seller in all respects
necessary or appropriate to effect an orderly and efficient
transfer of repurchased Accounts and Related Receivables to
Seller.
Section 2.9 Fees and Charges.
(a) Seller will be responsible for (i) all fees, charges and
other expenses related to the Accounts and periodic activity
thereon, including but not limited to the data processor's
charges and fees incurred through the Cut-Off Date and VISA and
MasterCard assessments and similar charges accrued with respect
to activities and periods prior to the Cut-Off Date, and (ii) all
Seller's expenses and costs incurred in connection with the sale
of the Accounts, including but not limited to, broker and sales
commissions.
(b) Purchaser will be responsible for (i) all data processing
conversion expenses incurred by Purchaser, at its direction,
applicable to conversion of computer Cardholder records relating
to Cardholder activity on the Accounts from the computer system
of Seller's data processor to Purchaser's data processor or any
other computer system designated by Purchaser, and (ii) all
Purchaser's expenses and costs incurred in connection with the
sale of the Accounts, including but not limited to, broker and
sales commissions.
ARTICLE III. COVENANTS OF SELLER
Section 3.1 Conduct of Business Pending Closing. During the
period between the date of this Agreement and the Closing, Seller
shall manage, operate and service the Assets to be Sold in
accordance with the usual and customary operating procedures
utilized by it in the management, operation and servicing of its
credit card accounts and related assets, including the Accounts.
During this same period, except with the prior written consent of
Purchaser or except as required by any Governing Organization or
applicable law, Seller shall not undertake or permit any of the
following:
(i) the amendment of any term of the Cardholder Agreement
applicable to the Accounts;
(ii) the transfer, pledge or assignment of Seller's right,
title or interest in the Accounts to any Affiliate thereof or to
any third party;
(iii) the disposal of any of the Accounts, or the Account
Documentation, other than in the ordinary course of business,
provided that Seller shall use reasonable efforts to ensure that
any of the Account Documentation scheduled to be destroyed from
and after the date hereof be retained and forwarded to Purchaser;
(iv) conducting any activities that would move the Accounts
to any BIN/system/PRIN/Agent combination outside of the existing
Portfolio structure as of the Cut-Off Date;
(v) the granting of a security interest in any of the Assets to
be Sold; or
(vi) the modification of any of its policies or procedures
(including, without limitation, its policies and procedures
applicable to collections, credit line adjustments, changes in
its delinquency accounting or reporting methods or its method of
assigning and releasing status codes) which would materially
affect the Accounts or the servicing thereof unless, and then to
the extent that, such modification is approved by Purchaser. The
term "modification" in clause (vi) of this Section 3.1 shall not
mean customary departures from collection procedures in the case
of individual collection efforts, unless the aggregate effect of
such departures would materially affect the Accounts as a whole.
Section 3.2 Information. Seller shall provide Purchaser and
its officers, accountants, counsel and other representatives full
but reasonable access during Seller's normal business hours
throughout the period prior to the Conversion Date to the Account
Documentation and such other properties, books, contracts,
customer records, commitments, records, policies and procedures,
and account management tools of Seller that relate to the
Accounts. Purchaser shall provide reasonable notice to Seller
prior to any visit to Seller's premises to review books and
records that relate to the Accounts. Purchaser shall be
responsible for all of its own expenses in connection with its
review of Seller's books and records. Seller shall furnish
Purchaser during such period with all such additional information
concerning the Assets to be Sold as Purchaser may reasonably
request, including, without limitation, the delivery by Seller to
Purchaser of the month-end master file data on the Accounts for
the period beginning August, 1998 through the Conversion Date.
Seller shall also provide Purchaser with the weekly masterfiles
and FDR reports such as CD 622 and CD 128, or the equivalent
thereof, so long as Purchaser bears all expenses for ordering
and receiving such reports. Without limiting the foregoing,
Purchaser shall be permitted from to time to time prior to the
Payment Date to inspect, review and audit all Account
Documentation; provided however, that Purchaser's inspection and
audit rights shall be conducted during normal business hours in a
manner which does not unreasonably interfere with Seller's normal
business operations, customer and employee relations. Seller
shall comply with its obligations under this Section 3.2 in a
manner and to the extent consistent with applicable law.
Section 3.3 Execution of Additional Documents. Seller shall
execute all documents that Purchaser may reasonably require to
evidence Purchaser's ownership of the Assets to be Sold,
including, without limitation, financing statements under the
Uniform Commercial Code. Seller shall take no action after the
Payment Date that would be inconsistent with the effective
transfer by Seller to Purchaser hereunder of Seller's entire
right, title and interest in and to the Assets to be Sold.
Section 3.4 Conversion. Seller shall cooperate with Purchaser
in arranging the Conversion and shall take such action as may
reasonably be necessary to enable the Conversion to be completed
by the Conversion Date or such other date as is mutually
agreeable to the parties. After the Conversion Date, Seller
shall provide Purchaser with reasonable assistance and support in
dealing with Conversion-related operational issues for a period
of not less than ninety days after the Conversion Date.
Section 3.5 Covenant Not to Compete.
(a) None of Seller or any of its Affiliates shall use the
Customer Base, including the customer list or any part thereof,
to solicit any Cardholder obligated on any Account for Visa,
MasterCard or any other general purpose credit card services, any
credit insurance products or any card enhancement fee-based
products and services until Seller deletes from its customer
information database all records of Cardholders contained within
the Portfolio. Seller will delete all Cardholder records from
its customer information database within 90 days after the
Conversion Date and deliver to Purchaser a certificate to that
effect. Seller may use names in the Customer Base to the extent
that such names become available to Seller from (i) a source
other than Purchaser and such source is not and was not bound by
a confidentiality agreement with Purchaser, or (ii) an extraction
from a general database not owned by Seller on the Cut-Off Date.
The foregoing shall not be construed to prohibit Seller from
advertising any of its products or services by television, radio,
newspapers, magazines and or other mass media.
(b) After the Cut-Off Date, none of Seller or any of its
Affiliates shall use, sell, rent or share the Customer Base,
including the customer list or any part thereof with any third
party.
Section 3.6 No Impairment. After the Payment Date, Seller
shall take no action to impair Purchaser's rights in the Accounts
or the related Cards or Cardholder Agreements or to prevent
Purchaser from collecting the balances owed on the Accounts.
Section 3.7 Limited Right to Use Marks and Forms. Seller
hereby grants Purchaser a limited, irrevocable, nonexclusive, non-
transferable license to use, from the Cut-Off Date to a date
which is sixty days after the Conversion Date, the name "PNC
National Bank" and variations thereof and such other names,
tradenames, and service marks as have been used by Seller prior
to the Cut-Off Date in connection with the Accounts and the Cards
(the "Credit Card Marks") solely for identification purposes, and
in any Conversion-related communication efforts with Cardholders.
Purchaser shall submit to certain of Seller's personnel,
specifically designated by Seller in writing, for approval, the
form of any communications to Cardholders in which Purchaser
proposes to use the names and Credit Card Marks covered by this
license. Seller's designated personnel shall have five Business
Days after receipt with which to review the proposed use of the
Credit Card Marks. Any failure to respond to Purchaser within
such five day period shall be deemed to be an approval of such
proposed use of the Credit Card Marks. Seller agrees it will not
unreasonably withhold approval of any proposed use of its Credit
Card Marks. The license granted to Purchaser under this Section
is not assignable by Purchaser, and Purchaser shall not
sublicense or authorize any other party to make use of the Credit
Card Marks without the prior written consent of Seller.
Section 3.8 Further Assurances. Prior to and after the
Payment Date to the Conversion Date, Seller shall (i) give such
further assurances to Purchaser, execute, acknowledge and deliver
all such acknowledgments and other instruments and take such
further action as reasonably requested by Purchaser as may be
necessary and appropriate to fully and effectively carry out the
transactions contemplated hereby, and to discharge Purchaser from
any obligations relating to the Assets to be Sold which were
incurred prior to the Cut-Off Date, and (ii) reasonably assist
Purchaser in the orderly transition of the operations and
servicing relating to the Assets to be Sold.
Section 3.9 Non-Retention of Data and Information. At the
Closing, Purchaser shall receive all of Seller's right, title and
interest in and to the Account Documentation. Seller shall at or
promptly after the Closing, give possession of and deliver to
Purchaser the Account Documentation, except for that Account
Documentation necessary for Seller to service the Accounts for
Purchaser under the Interim Servicing Agreement, and any Account
Documentation that is commingled on fiche with Seller's other
loan documents. In cases where Account Documentation is so
commingled, Seller shall provide copies of such Account
Documentation to Purchaser in accordance with the procedures
specified on Exhibit K. Seller may retain copies of such
documents (other than the Customer Base) which Seller considers
necessary for it to retain under applicable law, but subject to
the confidentiality and covenant not compete provisions of
Sections 5.1 and 3.5 of this Agreement.
Section 3.10 Change in Name, Identity, Corporate Structure and
Location. Until the Conversion Date, Seller shall provide
Purchaser thirty days notice prior to any change in Seller's
name, location of chief executive , or corporate identity where
such change may cause any financing statement filed by Purchaser
against Seller to be misleading or fail to perfect the transfer
of the Assets to be Sold to Purchaser. Seller agrees to supply
any UCC financing statements prior to any such change as
Purchaser may request.
ARTICLE IV. COVENANTS OF PURCHASER
Section 4.1 Further Assurances. On and after the Payment
Date, Purchaser shall give such further assurances to Seller and
shall execute, acknowledge and deliver all such acknowledgments
and other instruments and take such further action as may be
necessary and appropriate fully and effectively to relieve and
discharge Seller from any Assumed Liabilities.
Section 4.2 Issuance of New Credit Cards. Within sixty days
after the Conversion Date, Purchaser shall issue Credit Cards
bearing Purchaser's name to each Cardholder with an Account not
externally statused.
Section 4.3 Conversion. Purchaser shall cooperate with Seller
in arranging the Conversion. Purchaser or its designee shall be
fully responsible for managing the conversion process.
ARTICLE V. MUTUAL COVENANTS
Section 5.1 Mutual Covenants and Agreements. Seller and
Purchaser each covenant and agree that:
(a) Cooperation. Each shall cooperate fully with the other
party hereto in furnishing any information or performing any
action reasonably requested by that party, which information or
action is necessary to the speedy and successful consummation of
the transactions contemplated by this Agreement.
(b) Confidentiality. All information furnished by one party,
including any Affiliate or agent thereof (the "Protected Party")
to the other party in connection with this Agreement and the
transactions contemplated hereby (including this Agreement) shall
be kept confidential by such other party, and shall be used by it
only in connection with this Agreement and the transactions
contemplated hereby, except to the extent that such information
(i) at the time of disclosure or thereafter, is generally
available to and known by the public (other than as a result of a
disclosure directly or indirectly by such other party), (ii) was
available to such other party on a nonconfidential basis from a
source other than the Protected Party or its advisers, provided
that such source, to the best of such other party's knowledge, is
not and was not bound by a confidentiality agreement with the
Protected Party, (iii) has been independently acquired or
developed by such other party without violating any of such other
party's obligations under this Agreement, (iv) is required to be
disclosed in the financial statements of such other party or its
Affiliates, to the extent required by applicable generally
accepted accounting principles, or in any filing with the
Securities and Exchange Commission, (v) is required to be
disclosed to a Governing Organization or to a regulatory
authority having authority over such other party, (vi) is
required to be disclosed to its Affiliates, auditors, counsel,
agents, lenders, or other providers of funding(including
investors) provided that such Affiliates, auditors, counsel,
agents, lenders, or other providers of funding(including
investors) agree to be bound by the provisions of this Section
5.1(b), (vii) is required to be disclosed to any rating agency,
or (viii) is required by law, regulation or court order to be
disclosed by such other party, provided that prior notice of such
disclosure has been given to the Protected Party, when legally
permissible, and that such party which is required to make the
disclosure uses its best efforts to provide sufficient notice to
permit the Protected Party to take legal action to prevent the
disclosure. This Section 5.1(b) shall survive any termination of
this Agreement for a period of thirty-six months.
(c) Coordination of Public Statements. Except as may be
required by law or regulation or a court or regulatory authority,
neither Seller nor Purchaser, nor any of their respective
Affiliates, shall, either prior to or after the Payment Date,
issue a press release or make any public announcement related to
the transactions contemplated hereby (except as permitted by
Section 2.7(b) and by Section 5.1(b)) without the prior written
consent of the other party hereto, which consent shall not be
unreasonably withheld or delayed. Any determination by either
party that this is a material contract once executed to be
attached to any report filed by such party with the Securities
and Exchange Commission shall be final and not subject to
question by the other party. This Section 5.1(c) shall survive
any termination of this Agreement.
(d) Miscellaneous Agreements and Consents. Subject to the terms
and conditions herein provided, each party to this Agreement
shall use its best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things, necessary,
appropriate or desirable hereunder and under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement. Each party to this Agreement
will use its best efforts to obtain consents of all third parties
and governmental bodies necessary for the consummation of the
transactions contemplated by this Agreement, if any. The parties
shall use their best efforts to take such further actions
subsequent to the Payment Date as are reasonably necessary,
appropriate or desirable to carry out the purposes of this
Agreement.
(e) Advice of Material Changes. Between the date hereof and the
Payment Date, each party hereto shall promptly advise the other
in writing of any fact which, if existing or known at the date
hereof, would have been required to be set forth or disclosed in,
or pursuant to, this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the
representations contained herein untrue in any material respect.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
Section 6.1 Organization and Good Standing. Seller is a
national banking association duly organized, validly existing and
in good standing under the laws of the United States of America.
Seller has the corporate power and authority to conduct its
banking business under such laws.
Section 6.2 Authority and Due Authorization. Seller has the
requisite corporate power and authority to enter into, deliver
and perform this Agreement and to perform all of its obligations
hereunder. All necessary corporate action to authorize the
execution and delivery of this Agreement by Seller has been duly
taken by Seller.
Section 6.3 Binding Obligation. This Agreement constitutes
the legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship,
moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' or obligees' rights in
general or the rights of creditors or obligees of a national
bank, the deposits of which are insured by the Federal Deposit
Insurance Corporation, and except as such enforceability may be
limited by general principles of equity (whether considered in a
suit at law or in equity).
Section 6.4 No Conflict. The execution and delivery of this
Agreement by Seller, the performance of the transactions
contemplated hereby and the fulfillment of the terms hereof
applicable to Seller (i) will not conflict with or violate the
charter or bylaws of Seller, (ii) will not conflict in any
material respect with or violate in any material respect any
material indenture, contract, agreement, mortgage, deed of trust
or other instrument to which Seller is a party or by which it is
bound, (iii) to the best of Seller's knowledge, will not conflict
with or violate any law, rule, regulation, order, judgment or
decree applicable to or binding on Seller, and (iv) will not
result in the creation of any material lien, charge or
encumbrance upon any of the properties or assets of Seller,
except for any lien or encumbrance in favor of Purchaser which is
created by this Agreement. Seller is not subject to any
agreement with any regulatory authority which would prevent the
consummation by Seller of the transactions contemplated hereby.
No conservator or receiver has been appointed for Seller or any
of its assets and no proceeding for such appointment has been
instituted or, to Seller's knowledge, is being considered by any
regulatory authority.
Section 6.5 Consents. No consent of any person and no
consent, license, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration
with, any governmental authority is required to be obtained or
made by Seller in connection with the execution, delivery or
performance of this Agreement by Seller, the validity or
enforceability of this Agreement against Seller, or the
consummation of the transactions contemplated hereby.
Section 6.6 Title to Accounts; Absence of Liens and
Encumbrances; Further Assurances. As of the Payment Date, Seller
will be the sole owner of and have good title to the Assets to be
Sold free and clear of all security interests, pledges, liens or
other encumbrances or adverse claims of any kind or character,
other than the liens of any attorney in connection with any
Account that has been referred for collection. The Assignment,
when executed and delivered to Purchaser in accordance with the
terms of this Agreement, shall (i) vest in Purchaser all of the
right, title and interest of Seller in and to the Assets to be
Sold, free and clear of any security interest, pledge, lien or
other encumbrance other than the liens of any attorney in
connection with any Account that has been referred for
collection, and (ii) constitute a valid assignment of Seller's
interest in the Assets to be Sold enforceable, upon the filing of
all appropriate Uniform Commercial Code financing statements,
against all other persons.
Section 6.7 Litigation, etc. There is no material litigation
or any other proceeding or any investigation pending or, to
Seller's knowledge, threatened against Seller with respect to the
Assets to be Sold or any of them. Without limiting the
foregoing, there are no suits, actions, claims, counterclaims or
defenses pending or filed against Seller in any court alleging
any violation of any law, rule or regulation applicable to any
Asset to be Sold. There is no litigation or any other proceeding
pending, or to the Seller's knowledge, threatened, against Seller
that is intended to or is reasonably likely to prevent
consummation of the Sale Transaction.
Section 6.8 Account and Customer Base Data. Data and
information provided to Purchaser by Seller regarding the Account
used by Purchaser in determining the Purchase Price of the
Accounts accurately reflects the Related Receivables of the
Accounts as of the date of such information, subject to possible
immaterial inaccuracies, and that the classification of the
Related Receivables of Accounts as of the Cut-Off Date as
provided by Seller to Purchaser is accurate, subject to possible
immaterial inaccuracies. All Accounts have been originated by or
purchased by Seller substantially in accordance with its credit
review and acceptance criteria and any deviations therefrom are
immaterial. The Cardholder Agreements accurately reflect the
method Seller uses to calculate and impose charges, collect fees
and payments and generally to process and service the Accounts.
Except as set forth in such Cardholder Agreements, Seller has
made no promise, agreement or commitment to any Cardholder in
connection with the Accounts, except in the ordinary course of
business in connection with Seller's established collection
practices and customer policies, which individually and in the
aggregate would not have a material adverse effect on the value
of the Accounts or the Related Receivables.
Section 6.9 Marketing Agreements. Except as listed on
Exhibit E, there are no contracts, agreements, licenses, or
binding commitments to which Seller is a party or by which Seller
or any of its assets are bound or obligated which relate to the
marketing of any product or service to the Cardholders obligated
on any Account included in the Accounts or which relate to the
Accounts in any way.
Section 6.10 Investment Bankers, Finders or Brokers. Seller
has procured the services of an investment banker, agent, broker,
finder or other person in connection with this Agreement and the
Sale Transaction. In no event will Purchaser be liable for the
fees or expenses of any such person retained by Seller.
Section 6.11 Governmental Notices. Seller has not received
notice from any federal or state governmental agency indicating
that such agency would oppose or not grant or issue its consent
or approval, if required, with respect to the transactions
contemplated hereby.
Section 6.12 Compliance with Laws. To the best of Seller's
knowledge, the terms of the Accounts, and of the Account
Documentation, and the manner in which the Accounts have been
administered and serviced, comply in all material respects with
all material federal, state or local laws, rules, regulations or
ordinances applicable thereto, including, without limitation, the
Federal Truth-in-Lending Act, Regulation Z, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and
applicable state laws, rules and regulations relating to consumer
protection, installment sales and usury. To the best of Seller's
knowledge, each Cardholder Agreement and the Related Receivable
is the legal, valid and binding obligation of the Cardholder and
any guarantor named therein and is enforceable in accordance with
its terms except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by
general equity principles and, except for the rights of
Cardholders under Section 226.12 (b) and (c) and Section 226.13
of Regulation Z, to the best of Seller's knowledge each of the
Related Receivables arises from a bona fide sale or loan
transaction; except for the reason that payment on certain
Related Receivables is overdue, Seller has no reason to believe
that any specific Related Receivable is not collectible in the
ordinary course of business except for Excluded Accounts and
Accounts which are Charged-Off, Bankrupt, Fraud, Lost, Stolen,
and Deceased after the Cut-Off Date; all applications for the
Accounts have been taken and evaluated and applicants notified in
a manner which is in compliance with all provisions of the Equal
Credit Opportunity Act and its implementing regulation, as
amended, in all material respects; and all disclosures made in
connection with the Accounts to be sold are and have been in
compliance with the provisions of the Consumer Credit Protection
Act and Regulation Z in all material respects.
Section 6.13 Conversion. Seller has the capability of
effecting an orderly and efficient Conversion by no later than
the Conversion Date, or such other later date as is mutually
agreed upon by the parties to this Agreement; provided however,
that in the event that FDR can not meet the Conversion Date
agreed upon by the parties, the parties shall agree upon a
subsequent date for the Conversion that is feasible for FDR and
no breach of this Agreement shall be deemed to have occurred.
Section 6.14 Full Disclosure. Copies of all documents which
have been delivered or made available to Purchaser by Seller for
inspection at due diligence pursuant hereto are true and complete
copies thereof and include all amendments, supplements or
modifications thereto or waivers thereunder.
Section 6.15 Sale in the Ordinary Course. The sale of the
Assets to be Sold is in the ordinary course of Seller's business
and will not result in the Seller exiting any geographic market.
ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
Section 7.1 Organization and Good Standing. Purchaser is a
national banking association organized, validly existing and in
good standing under the laws of the United States of America
and has the corporate power and authority necessary to conduct
its banking business under such laws.
Section 7.2 Authority and Due Authorization. The Purchaser
has the requisite corporate power and authority to enter into,
deliver and perform this Agreement and to perform all of its
obligations hereunder. All necessary corporate action to
authorize the execution, delivery and performance of this
Agreement by Purchaser has been duly taken by Purchaser.
Section 7.3 Binding Obligation. This Agreement constitutes
the legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship,
moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' or obligees' rights in
general or the rights of creditors or obligees of banks, the
deposits of which are insured by the Federal Deposit Insurance
Corporation, and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law
or in equity).
Section 7.4 No Conflict. The execution and delivery of this
Agreement by Purchaser, the performance of the transactions
contemplated hereby and the fulfillment of the terms hereof
applicable to Purchaser (i) will not conflict with or violate the
charter or bylaws of Purchaser, (ii) will not conflict in any
material respect with or violate in any material respect any
material indenture, contract, agreement, mortgage, deed of trust
or other instrument to which Purchaser is a party or by which it
is bound, and (iii) will not conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to or
binding on Purchaser. Purchaser is not subject to any agreement
with any regulatory authority which would prevent consummation by
Purchaser of the transactions contemplated hereby. No
conservator or receiver has been appointed for Purchaser or any
of its assets and no proceeding for such appointment has been
instituted or, to the Purchaser's knowledge, is being considered
by any regulatory authority.
Section 7.5 Consents. No consent of any person and no
consent, license, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration
with, any governmental authority is required to be obtained or
made by Purchaser in connection with the execution, delivery or
performance of this Agreement by Purchaser, the validity or
enforceability of this Agreement against Purchaser, or the
consummation of the transactions contemplated hereby or thereby.
Purchaser makes this representation in reliance upon Seller's
representations in Section 6.15.
Section 7.6 Investment Bankers, Finders or Brokers. Purchaser
has retained the services of a broker in connection with this
Agreement or the Sale Transaction. In no event will Seller be
liable for the fees or expenses of any such person retained by
Purchaser.
Section 7.7 Governmental Notices. Purchaser has not received
notice from any federal or state governmental agency indicating
that such agency would oppose or not grant or issue its consent
or approval, if required, with respect to the Sale Transaction.
Section 7.8 Litigation. There is no litigation or any other
proceeding pending or, to the Purchaser's knowledge threatened,
against Purchaser that is intended to or is reasonably likely to
prevent consummation of the Sale Transaction.
Section 7.9 Conversion. Purchaser has the capability of
effecting an orderly and efficient Conversion by no later than
the Conversion Date, or such other later date as is mutually
agreed upon by the parties to this Agreement; provided however,
that in the event that FDR can not meet the Conversion Date
agreed upon by the parties, the parties shall agree upon a
subsequent date for the Conversion that is feasible for FDR and
no breach of this Agreement shall be deemed to have occurred.
ARTICLE VIII. CONDITIONS PRECEDENT TO CLOSING
The obligations of Purchaser and Seller under this
Agreement are subject to fulfillment of the following conditions
precedent at or prior to the Payment Date, each of which is
hereby individually deemed material, and any one or more of which
may be waived in writing by the Purchaser or Seller, as the case
may be.
Section 8.1 Approvals. All licenses, approvals, consents and
notifications of or to any relevant state and federal regulatory
agencies required of Seller or Purchaser in respect of the Sale
Transaction, if any, shall have been obtained or made, and all
necessary conditions to consummation of the Sale Transaction,
including all legally required waiting, notice or protest periods
of such licenses, approvals, consents and notifications, shall
have been fully satisfied by Seller or Purchaser, as the case may
be. All board approvals and any approvals required pursuant to
any material contract shall have been obtained.
Section 8.2 Representations, Warranties and Covenants. The
representations and warranties of Seller or Purchaser, as the
case may be, herein contained shall be true in all material
respects as of the Payment Date and Seller or Purchaser, as the
case may be, shall have performed all obligations and complied
with all covenants in all material respects required by this
Agreement to be performed or complied with by it on or prior to
the Payment Date.
Section 8.3 No Adverse Proceedings. No action or proceeding
against Purchaser or Seller or the consummation of the Sale
Transaction shall have been instituted or threatened, and no
order of any court shall have been entered, which Purchaser or
Seller, as the case may be, reasonably determines (after
consultation with its counsel) would (i) prohibit, materially
restrict or otherwise materially adversely affect the
consummation of the Sale Transaction, (ii) result in a material
amount of damages to Purchaser or Seller, as the case may be, or
any of their respective Affiliates if the Sale Transaction were
consummated, or (iii) have a material adverse effect on the
Assets to be Sold or on Purchaser or Seller, as the case may be,
if the Sale Transaction were consummated. No conservator or
receiver shall have been appointed for Purchaser or Seller, as
the case may be, or any of their respective assets and no
proceedings for such appointment shall have been instituted or,
to either party's knowledge, shall be under consideration by any
regulatory authority.
Section 8.4 Consents and Requisite Authority.
(a) All requisite consents, undertakings and agreements of any
third parties required to be obtained by Seller or Purchaser, as
the case may be, shall have been obtained or waived by such third
parties.
(b) Seller and Purchaser each acknowledges that it has, on the
date hereof, all necessary requisite corporate authority to enter
into and perform this Agreement to which it or its Affiliates is
a party, that it has all the necessary requisite approval to
consummate the transactions contemplated hereunder and such
conditions precedent are satisfied.
Section 8.5 Acquisition Lawful. The acquisition of the Assets
to be Sold shall not violate any applicable statute, rule or
regulation in effect on the Payment Date.
Section 8.6 Items to be Delivered by Seller. Seller shall
have delivered to Purchaser on or prior to the Payment Date (or,
with respect to the item specified in paragraph (a), no later
than the Business Day immediately following the Payment Date),
all in form and substance reasonably satisfactory to Purchaser,
the following items:
(a) a list of the Accounts, in both "hard" copy and computer
tape form containing, with respect to each Account, the Account
number and such additional available information as Purchaser may
reasonably require to verify all pertinent information regarding
the Accounts;
(b) a copy of the Assignment, duly executed by Seller;
(c) Uniform Commercial Code financing statements, duly executed
by Seller;
(d) such other documents as may be required by Purchaser in
order to assist Purchaser in procuring funding for the purchase
of the Portfolio;
(e) an opinion of counsel for Seller, dated the Payment Date,
substantially in the form of Exhibit F;
(f) a certificate of an officer of Seller certifying that (i)
the warranties and representations of Seller in Article VI are
true in all material respects as of the Payment Date or, if any
such warranties and representations are not then true, but have
been waived by Purchaser, specifying the deficiency and waiver in
reasonable detail; and (ii) the obligations and covenants of
Seller to be performed and the conditions precedent to be
complied with hereunder by Seller on or prior to the Payment Date
have been performed and complied with in all material respects,
or, if any such covenants or agreements have not been performed
or conditions precedent complied with, but have been waived by
Purchaser, specifying the deficiency and waiver in reasonable
detail;
(g) resolutions of Seller's Board of Directors, certified by its
Secretary or an Assistant Secretary, authorizing the execution
and delivery of this Agreement and the consummation of the Sale
Transaction, together with certificates of incumbency for, and
true signatures of, the officers of Seller authorized by such
consent to execute this Agreement and the Assignment on behalf of
Seller;
(h) a list of all of the Cardholder Agreements for the Accounts
in the Portfolio and the applicable travel program terms and
conditions attached as Exhibit H, which reflect the Cardholder
Agreements and travel program terms and conditions previously
provided to Purchaser by Seller; and
(i) a copy of the Interim Servicing Agreement, duly executed by
Seller.
Section 8.7 Items to be Delivered by Purchaser. Purchaser
shall pay and deliver to Seller on or prior to the Payment Date,
all in form and substance reasonably satisfactory to Seller, the
following items.
(a) the Purchase Price;
(b) resolutions of the Board of Directors of the Purchaser,
certified by its Secretary or Assistant Secretary, authorizing
the execution and delivery of this Agreement and the consummation
of the Sale Transaction, together with certificates of incumbency
for, and true signatures of, the officers of Purchaser authorized
by such resolutions to execute this Agreement on behalf of such
Purchaser;
(c) a certificate signed by a duly authorized officer of
Purchaser certifying that (i) the warranties and representations
of Purchaser in Article VII are true in all material respects as
of the Payment Date or, if any such warranties and
representations are not then true, but have been waived by
Seller, specifying the deficiency and waiver in reasonable
detail; and (ii) the obligations and covenants of Purchaser to be
performed and the conditions precedent to be complied with
hereunder on or prior to Payment Date have been performed and
complied with in all material respects, or, if any such covenants
or agreements have not been performed or conditions precedent
complied with and have been waived by Seller, specifying the
deficiency and waiver in reasonable detail;
(d) an opinion of counsel to Purchaser, dated the Payment
Date, substantially in the form of Exhibit G;
(e) a copy of the Interim Servicing Agreement, duly
executed by Purchaser; and
(f) a copy of the Allocation Schedule, duly executed by Seller
and Purchaser;
Section 8.8 No Material Adverse Change. Purchaser and
Seller agree that the Portfolio will likely decrease in total
outstanding balances from July 26, 1998 through the Cut-Off Date
and the financial performance of the Portfolio will likely change
due to the high percentage of introductory interest rates in the
Portfolio. Due to the seasoning/vintage of the Portfolio, it is
expected that delinquency rates and losses (charge-offs) on this
Portfolio will increase. The Seller agrees to perform portfolio
management practices on the Portfolio consistent with its
retained portfolio. In no event will the likely negative trends
in the Portfolio constitute a material adverse change for
purposes of this Agreement.
ARTICLE IX. INDEMNIFICATION
Section 9.1 Indemnification by Seller. Seller shall
indemnify, defend and hold harmless Purchaser, its Affiliates and
their respective agents and employees from and against any third
party claim, demand, proceeding and suit, and from every
liability, damage, cost, charge, expense (including reasonable
attorneys' fees) and loss (each such amount referred to in this
Article IX as a "Loss") arising out of or resulting from (i) any
breach of this Agreement by Seller, (ii) any breach by Seller of
any representation or warranty of Seller contained in this
Agreement, and (iii) any act or omission after the Cut-Off Date
by Seller, its agents (other than Purchaser) or employees with
respect to any Assets to be Sold which results in a Loss to
Purchaser; provided, that Seller shall not be required to
indemnify Purchaser, its Affiliates and their respective agents
and employees against a Loss to the extent such Loss arises from
or relates to the negligence, gross negligence or willful
misconduct of Purchaser, or its Affiliates. Except for breach of
Section 6.6, the obligation of Seller to indemnify Purchaser
under this Section 9.1 shall not apply to Losses incurred more
than two years after the Conversion Date, except with respect to
Claims as to which Purchaser has notified Seller prior to the
expiration of such two-year period. Seller shall remain liable
for any Losses arising from a breach of the representation in
Section 6.6 for as long as any applicable statute of limitations
shall permit. The provisions of this Section 9.1 shall survive
the termination of this Agreement.
Section 9.2 Indemnification by Purchaser. Purchaser shall
indemnify, defend and hold harmless Seller, its Affiliates and
their respective agents and employees from and against any third
party Loss arising out of or resulting from (i) any breach of
this Agreement by Purchaser, (ii) any breach by Purchaser of any
representation or warranty of Purchaser contained in this
Agreement and (iii) any act or omission after the Cut-Off Date by
Purchaser, its agents (other than Seller) or employees with
respect to any Assets to be Sold which results in a Loss to
Seller; provided, that Purchaser shall not be required to
indemnify Seller, its Affiliates and their respective agents and
employees against a Loss to the extent such Loss arises from or
relates to the negligence, gross negligence or willful misconduct
of Seller, or its Affiliates. The obligation of Purchaser to
indemnify Seller under this Section 9.2 shall not apply to Losses
incurred more than two years after the Conversion Date, except
with respect to Claims as to which Seller has notified Purchaser
prior to the expiration of such two-year period. The provisions
of this Section 9.2 shall survive the termination of this
Agreement.
Section 9.3 Notice; Defense of Claims. A party seeking
indemnification pursuant to this Agreement (the "Indemnified
Party") shall give prompt written notice to the party from whom
such indemnification is sought (the "Indemnifying Party") of each
claim (a "Claim") that, in the opinion of the Indemnified Party,
is likely to give rise to a right of indemnification under this
Agreement; provided, however, that failure to give such notice of
a Claim shall not affect the obligations of the Indemnifying
Party under this Article IX except to the extent of the
Indemnifying Party's demonstrated actual damage caused by such
failure. Such notice shall describe the Claim in reasonable
detail and shall indicate the amount (estimated, if necessary) of
the Loss that has been or may be suffered by the Indemnified
Party. Provided prompt notice is given, the Indemnifying Party
shall promptly, at its own expense, defend, contest, or
otherwise protect the Indemnified Party against such Claim, using
counsel of its own choosing, which shall be reasonably
satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of assumption of the
defense, conduct or settlement of the Claim, the Indemnifying
Party shall not be liable to the Indemnified Party for any legal
or other expenses subsequently incurred by the Indemnified Party
in connection with the defense, conduct or settlement of such
Claim. The Indemnified Party shall cooperate with the
Indemnifying Party in connection with any such Claim, make
personnel and books and records (to the extent not inconsistent
with any applicable privilege) relevant to the Claim available to
the Indemnifying Party, and grant such authorizations or powers
of attorney to the agents, representatives and counsel of the
Indemnifying Party as such Indemnifying Party may reasonably
consider desirable in connection with the defense of any such
Claim. The Indemnifying Party shall inform the Indemnified Party
on a regular basis of the status of such third party Claim and
the Indemnifying Party's defense thereof. In the event that the
Indemnifying Party does not assume the defense, conduct or
settlement of a Claim, the Indemnified Party shall not settle any
such Claim for an amount in excess of $500. without the consent
of the Indemnifying Party, which consent shall not be
unreasonably withheld. The Indemnified Party shall use its
reasonable best efforts consistent with sound business practice
to defend any Claim and to mitigate the Losses giving rise to any
claim for indemnification hereunder. Amounts owing under this
Article IX shall be paid promptly upon written demand thereof
which demand shall reasonably detail the basis therefor.
ARTICLE X. TERMINATION
Section 10.1 Termination. This Agreement shall terminate prior
to the Closing and shall be of no further force or effect (other
than those provisions that expressly are to survive termination,
including without limitation, the provisions of this Article X):
(i) upon mutual agreement of the parties;
(ii) upon notice given by either party to the other
party in the event a law, regulation or judicial decree
prohibits the Sale Transaction; or
(iii) upon notice given by either party to the
other party in the event that any representation or
warranty made by the other party herein was incorrect
in any material respect when made, or that such other
party has failed to perform any covenant contained
herein in any material respect and such inaccuracy or
failure has not been waived by the non-breaching party
and such failure has continued for sixty days following
notice of such failure.
Section 10.2 Other Remedies. Notwithstanding any termination
of this Agreement under Section 10.1, each party shall retain all
rights and remedies against the other party provided by law for
any material breach of this Agreement.
Section 10.3 Remedies. If this Agreement is terminated pursuant
to Section 10.1 solely because of a party's failure to obtain any
regulatory approval or consent referred to in Sections 6.5, 7.5,
8.1, and 8.4 the applicable party shall reimburse the other party
for all of such other party's reasonable out-of-pocket expenses,
including reasonable attorneys' fees, incurred in connection with
the negotiation of this Agreement and the transactions
contemplated hereby.
ARTICLE XI. MISCELLANEOUS
Section 11.1 Notices. All notices, demands and other
communications hereunder shall be in writing and shall be deemed
to have been duly given if delivered in person (including
delivery by overnight courier) or sent by United States mail,
return receipt requested, or facsimile transmission addressed as
follows:
(i)If to Purchaser, to: Ronald N. Zebeck
Chief Executive Officer
Direct Merchants Credit Card Bank,
National Association
6909 East Greenway Parkway
Scottsdale, Arizona 85254
FAX: (602) 718-4830
With Copy to: Z. Jill Barclift
Vice President, General Counsel
600 South Highway 169, Suite 1800
St. Louis Park, MN 55426
FAX: (612) 525-5098
(ii)If to Seller, to: PNC National Bank
300 Bellevue Parkway
Wilmington, DE 19809
Attn.: President
With Copy to: PNC Bank Corp.
One PNC Plaza, 21st Floor
249 Fifth Avenue
Pittsburgh, PA 15222
Attn.: Consumer Bank General
Counsel
Such persons, addresses or telecopier numbers may be changed from
time to time by notice given pursuant to the provisions of this
Section 11.1. Any notice, demand or other communication given
pursuant to the provisions of this Section 11.1 shall be deemed
to have been given on the date actually delivered by hand,
certified mail, or facsimile.
Section 11.2 Successors and Assigns. All terms and provisions
of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective transferees,
successors and assigns; provided, however, that this Agreement
and rights, privileges, duties and obligations of the parties to
one another herein may not be assigned or delegated by either
party without the written consent of the other party except that
Seller may assign its rights, privileges, and duties, but not its
obligations under this Agreement, this Agreement itself or its
ownership of Accounts being sold under this Agreement, to an
Affiliate without the consent of Purchaser and provided, that as
owner of the Assets to be Sold after the Closing, Purchaser may
transfer the Assets to be Sold to any person.
Section 11.3 Governing Law. THE LAWS OF THE STATE OF DELAWARE
SHALL GOVERN THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT
AND THE PERFORMANCE OF THE PARTIES HERETO OF THEIR RESPECTIVE
DUTIES AND OBLIGATIONS HEREUNDER.
Section 11.4 Captions. All captions and headings contained in
this Agreement are for convenience of reference only and do not
form a part of this Agreement.
Section 11.5 Entire Agreement; Amendments. The making,
execution and delivery of this Agreement by the parties hereto
have been induced by no representations, statements, warranties
or agreements other than those expressed or incorporated herein.
This Agreement (including the Exhibits) and documents delivered
pursuant hereto embody the entire agreement of the parties with
respect to the subject matter hereof, and supersede all prior
representations, warranties, offers, acceptances, agreements and
understandings, written or oral, relating to the subject matter.
This Agreement may be amended or modified or any provision
thereof may be waived only by a written instrument signed by both
parties or their duly respective authorized agents.
Section 11.6 Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of
this Agreement.
Section 11.7 No Third Party Beneficiary. The parties
expressly agree that this Agreement does not create nor shall it
be construed to create any rights enforceable by a party not a
party to this Agreement other than rights enforceable by
Affiliates of the same afforded to such Affiliates by the terms
of this Agreement.
Section 11.8 Counterparts. This Agreement may be executed
separately by Seller and Purchaser in any number of counterparts,
each of which when executed and delivered shall be an original,
but such counterparts shall together constitute one and the same
instrument.
Section 11.9 Rule of Construction. Seller, Purchaser, and their
respective counsel all participated fully in the negotiation and
preparation of this Agreement. Each party agrees that any rule
of construction that provides that an ambiguity in a document
shall be interpreted against the drafter thereof shall not be
employed in any dispute or litigation.
Section 11.10 Expenses. Except as otherwise specifically
provided for in this Agreement, or in the Interim Servicing
Agreement, each party shall pay their own costs and expenses in
connection with this Agreement, including but not limited to,
attorney's fee, accounting fees, any regulatory fees, and other
expenses.
Section 11.11 Waiver of Jury Trial. In any litigation in
which the parties are adverse, the parties agree to waive their
respective right to a trial by jury.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above
written.
Seller:
PNC NATIONAL BANK
By:
Title:
Purchaser:
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION
By:
Title: Chief Executive Officer
