<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1998
333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
METRIS COMPANIES INC. METRIS DIRECT, INC.
(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE MINNESOTA
(State or other jurisdiction of incorporation or (State or other jurisdiction of incorporation or
organization) organization)
6159 6159
(Primary Standard Industrial Classification Code Number) (Primary Standard Industrial Classification Code Number)
41-1849591 41-1111974
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
600 SOUTH HIGHWAY 169 600 SOUTH HIGHWAY 169
SUITE 1800 SUITE 1800
ST LOUIS PARK, MINNESOTA 55426 ST LOUIS PARK, MINNESOTA 55426
(612) 525-5020 (612) 525-5020
(Address, including zip code, and telephone number, (Address, including zip code, and telephone number,
including area code, of registrant's principal executive including area code, of registrant's principal executive
offices) offices)
</TABLE>
Z. JILL BARCLIFT, ESQ.
GENERAL COUNSEL
METRIS COMPANIES INC.
600 SOUTH HIGHWAY 169, SUITE 1800
ST. LOUIS PARK, MINNESOTA 55426
(612) 525-5020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
Elizabeth C. Hinck, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
(612) 340-2600
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- -------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- -------------
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
10% Senior Notes Due 2004................... $100,000,000 100% $100,000,000 $29,500
Guarantee relating to Senior Notes.......... (2) (2) (2) None
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2) Pursuant to Rule 457(n), no separate consideration will be received for the
Guarantee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 6, 1998
PROSPECTUS
METRIS COMPANIES INC.
[LOGO]
OFFER TO EXCHANGE ITS 10% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING 10% SENIOR NOTES DUE 2004
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
Metris Companies Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus (as
the same may be amended or supplemented from time to time, the "Prospectus") and
in the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"), to exchange up to $100,000,000 aggregate principal amount of
its 10% Senior Notes Due 2004 (the "New Notes") which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus constitutes
a part, for a like principal amount of its outstanding 10% Senior Notes Due 2004
(the "Old Notes"), of which $100,000,000 aggregate principal amount is
outstanding.
The terms of the New Notes are identical in all material respects to the terms
of the Old Notes, except that (i) the New Notes have been registered under the
Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Notes and will not be entitled to registration
rights, and (ii) the New Notes will not provide for any liquidated damages
thereon. In that regard, the Old Notes provide that, if the Exchange Offer is
not consummated by April 5, 1998, the Company will be obligated to pay
liquidated damages to each holder of the Old Notes in an amount equal to $0.192
per week per $1,000 principal amount of the Old Notes held by such holder
commencing on April 6, 1998 until the Exchange Offer is consummated. See
"Description of the Old Notes." The New Notes are being offered for exchange in
order to satisfy certain obligations of the Company and the Guarantor (as
defined herein) under the Exchange and Registration Rights Agreement dated as of
November 7, 1997 (the "Registration Rights Agreement") between the Company,
Metris Direct, Inc., as guarantor (the "Guarantor"), and the Initial Purchasers
(as defined herein) of the Old Notes. The New Notes will be issued under the
same Indenture (as defined herein) as the Old Notes and the New Notes and the
Old Notes will constitute a single series of debt securities under the
Indenture. Pursuant to the Exchange Offer, the Guarantor is also exchanging its
guarantee of the payment obligations under the Old Notes (the "Old Guarantee")
for a like guarantee of the New Notes (the "New Guarantee" and together with the
Old Guarantee, the "Guarantees") which have also been registered under the
Securities Act. In the event that the Exchange Offer is consummated, any Old
Notes which remain outstanding after consummation of the Exchange Offer and the
New Notes issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount of Notes (as defined herein) have taken certain
actions or exercised certain rights under the Indenture. The New Notes and the
Old Notes are sometimes collectively referred to herein as the "Notes." See
"Description of the New Notes" and "Description of the Old Notes."
SEE "RISK FACTORS" COMMENCING ON PAGE 20 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY HOLDERS WHO TENDER OLD NOTES IN THE EXCHANGE OFFER.
Interest on the New Notes is payable semiannually on May 1 and November 1 of
each year (each, an "Interest Payment Date"), commencing on the first such date
following the original issuance date of the New Notes. The New Notes will mature
on November 1, 2004. The New Notes are not entitled to any sinking fund. The New
Notes are redeemable at the option of the Company prior to maturity, in whole or
in part, at any time on or after November 1, 2001, at the redemption prices set
forth herein, plus accrued and unpaid interest thereon, if any, to the
redemption date. See "Description of the New Notes--Optional Redemption." In
addition, upon the occurence of a Change of Control, the Company will be
required to make an offer to repurchase the New Notes at a price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest
thereon, if any, to the date of purchase. See "Description of the New
Notes--Change of Control."
-------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------------------------------
The date of this Prospectus is , 1998.
<PAGE>
The New Notes will be unconditionally guaranteed on a senior basis, jointly
and severally, by the Guarantor, and all future subsidiaries of the Company that
guarantee any of the Company's indebtedness (the "Future Guarantors" and
together with the Guarantor, the "Guarantors"), including the Revolving Credit
Facility (as defined herein). The New Guarantee will be unsecured obligations of
the Guarantors and will rank PARI PASSU with all existing and future
unsubordinated Indebtedness (as hereinafter defined) of such Guarantors. The
Notes will be effectively subordinated in right of payment to all secured
Indebtedness of the Company and the Guarantors to the extent of the value of the
assets securing any such Indebtedness. As of September 30, 1997, on a pro forma
basis after giving effect to the offering of the Old Notes and the application
of the net proceeds therefrom, the aggregate principal amount of the Company's
outstanding unsubordinated Indebtedness would have been approximately $153
million (excluding unused commitments of $247 million under the Revolving Credit
Facility), all of which is secured Indebtedness. See "Description of the New
Notes--Ranking--Subsidiary Guarantees."
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, the Company believes that New Notes issued pursuant to this Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing New Notes, or any broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A")
or any other available exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive letters,
(b) will not be permitted or entitled to tender such Old Notes in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds Old
Notes acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Notes for New Notes, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes. See "The Exchange Offer--Resales
of New Notes."
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company or
the Guarantor or, if it is such an affiliate, such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
See "The Exchange Offer--Resales of New Notes."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
2
<PAGE>
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
during the period referred to below in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities. The
Company has agreed that for a period of 90 days after the Expiration Date, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Notes. The New Notes will be a new issue of
securities for which there currently is no market. Although the Initial
Purchasers have informed the Company that they each currently intend to make a
market in the New Notes, they are not obligated to do so, and any such market
making may be discontinued at any time without notice. Accordingly, there can be
no assurance as to the development or liquidity of any market for the New Notes.
The Company currently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Notes held by them. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered Old Notes could be
adversely affected. See "Risk Factors--Consequences of a Failure to Exchange Old
Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York
City time, on , 1998 (such time on such date being hereinafter called
the "Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount of $1,000 and integral multiples thereof, provided that if
any Old Note is tendered for exchange in part, the untendered principal amount
thereof must be $1,000 or any integral multiple of $1,000 in excess thereof. The
Company has agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer--Fees and Expenses." Each New Note will bear interest from the most recent
date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no such interest has been paid
or duly provided for on such Old Note, from November 7, 1997. Holders of the Old
Notes whose Old Notes are accepted for exchange will not receive accrued
interest on such Old Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Old
Notes prior to the original issue date of the New Notes or, if no such interest
has been paid or duly provided for, will not receive any accrued interest on
such Old Notes, and will be deemed to have waived the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after November
7, 1997. This
3
<PAGE>
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders of Old Notes as of , 1998.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds From Sale of Old Notes" and "Plan of
Distribution."
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information...................................................................................... 6
Incorporation of Certain Documents by Reference............................................................ 6
Summary.................................................................................................... 7
Risk Factors............................................................................................... 20
Use of Proceeds from Sale of Old Notes..................................................................... 28
Capitalization............................................................................................. 29
Selected Consolidated Financial Information................................................................ 30
Description of Credit Arrangements......................................................................... 32
The Exchange Offer......................................................................................... 34
Description of the New Notes............................................................................... 43
Description of the Old Notes............................................................................... 67
Certain United States Federal Income Tax Considerations.................................................... 68
Plan of Distribution....................................................................................... 69
Validity of New Notes...................................................................................... 70
Experts.................................................................................................... 70
</TABLE>
5
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (The "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and copies of
such material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such information may also be accessed electronically by means of the
Commission's home page on the Internet (http://www.sec.gov). Such reports, proxy
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, 1735 K Street N.W., Washington, D.C.
20006, which supervises the Nasdaq National Market on which the Common Stock is
traded.
No separate financial statements of the Guarantor have been included herein.
The Company and the Guarantor do not consider that such financial statements
would be material to the holders of the Notes. However, the Guarantor's
financial information has been included in a note to the Company's consolidated
financial statements. The Company does not expect that the Guarantor will file
reports under the Exchange Act with the Commission.
This Prospectus constitutes a part of the Registration Statement filed by
the Company and the Guarantor with the Commission under the Securities Act. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the Notes. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997 (as
amended by Form 10-Q/A filed November 18, 1997); and
(iii) the Company's Current Reports on Form 8-K dated October 15, 1997
and November 7, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Exchange Offer of the Notes shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from and
after the respective dates of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
(including any beneficial owner) to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents for which
the Company may impose a copying charge. Requests for such copies should be
directed to Robert W. Oberrender, Senior Vice President, Chief Financial
Officer, Metris Companies Inc., 600 South Highway 169, Suite 1800, St Louis
Park, Minnesota 55426 (612) 525-5020.
6
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
INDICATES, REFERENCES TO THE COMPANY REFER TO METRIS COMPANIES INC. AND ITS
SUBSIDIARIES. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "BELIEVE," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE,"
"FORECAST," "PROJECT" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR
COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING RISKS AND UNCERTAINTIES,
WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY
Metris Companies Inc. is an information-based direct marketer of consumer
credit products, fee-based products and services and extended service plans to
moderate income consumers. Management believes the moderate income market (i.e.,
households with annual incomes of $15,000 to $35,000) which currently represents
31% of all U.S. households, is underserved by the traditional providers of many
of the Company's products and services. The Company's strategy is to first
establish a customer relationship through the issuance of a general purpose
credit card, and then to expand this customer relationship by cross-selling
additional fee-based products and services. The Company provides credit to this
market by utilizing a risk-based pricing strategy based on proprietary databases
and credit scoring systems. The Company's agreements with Fingerhut Companies,
Inc. ("FCI") or its subsidiaries provide for the use of the proprietary database
(the "Fingerhut Database") of Fingerhut Corporation ("Fingerhut") to market the
Company's products and services, including general purpose credit cards. The
Fingerhut Database contains demographic, behavioral and payment history
information on more than 30 million individuals, the majority of whom are
moderate income consumers. The Fingerhut Database also includes Fingerhut's
"suppress" file (the "Suppress File"), which contains information on
approximately 8 million individuals about whom it has information relating to
fraud and similar indicators of unacceptably high risk. Fingerhut does not
report its credit information to the credit bureaus, which means this
information is not publicly available. The Company's management believes this
access to the Fingerhut Database and the ability to utilize Fingerhut's
proprietary credit scoring models, as well as its own proprietary scoring
models, give it a competitive advantage in targeting and lending to moderate
income consumers.
The Company's consumer credit products are primarily unsecured credit cards,
including the Fingerhut co-branded MasterCard-Registered Trademark- and the
MasterCard and Visa-Registered Trademark- issued by the Company's subsidiary,
Direct Merchants Credit Card Bank, National Association ("Direct Merchants
Bank"). The Company's customers and prospects include both Fingerhut's existing
customers ("Fingerhut Customers") and individuals who are not Fingerhut
Customers but for whom credit bureau information is available ("External
Prospects"). Once a prospective customer is targeted, the Company uses its
proprietary credit scoring models and a risk-based pricing strategy to assign
the annual fee, annual percentage rate and credit line based upon the expected
risk of the individual prospect. As of September 30, 1997, as a result of the
risk profile that is typical of the Company's customers, approximately 80% of
the existing credit card accounts carry an annual fee, annual percentage rates
range from 15.0% to 26.2%, and the average initial credit line is approximately
$1,800 (excluding the accounts of the credit card portfolio of Key Bank USA,
National Association that was acquired by the Company in September 1997).
Management believes this average initial credit line is below the industry
average.
The Company finances the growth in its credit card loans primarily through a
commonly used form of asset backed securitization known as a master trust (the
"Metris Master Trust"). As the Company generates credit card loans, it sells a
portion of the loans to the Metris Master Trust. The trust is authorized to sell
multiple series and classes of certificates of beneficial ownership interests in
the loans
7
<PAGE>
and other assets that are part of the trust. Both the loans and the certificates
held by third parties are removed from the Company's balance sheet for financial
and regulatory accounting purposes. Following a sale, the Company receives daily
excess cash flow distributions from the trust for the difference between the
interest and fees received from the obligors on the loans and the interest on
the asset-backed certificates paid to investors, net of losses and expenses. The
Company received excess cash flow of $229.0 million and $151.0 million from the
trust for the nine months ended September 30, 1997 and the year ended December
31, 1996, respectively. As of September 30, 1997, the Company had received
cumulative net proceeds of approximately $2.3 billion from the securitization of
credit card loans, of which $14.7 million was deposited in an investor reserve
account for the benefit of the trust's certificateholders. With respect to the
portion of credit card loans the Company does not securitize, such loans remain
on the Company's consolidated balance sheet, and the Company earns a net
interest margin on such loans.
Metris markets its fee-based products and services, including debt waiver
programs, card registration, third party insurance and membership clubs to its
credit card customers, Fingerhut Customers and customers of other third party
partners. As a result of the Company's direct marketing and cross-selling
efforts, approximately 60% of the Company's credit card customers have purchased
one or more fee-based products. As an additional service, the Company develops
highly tailored marketing lists, derived from its proprietary database, for
third parties. Cash flow from sales of fee-based products and services to the
Company's credit card customers is generated through the collection of credit
card loans described above, as the fees for these products and services are
billed to cardholders on their monthly statement. Card registration fees
generated from customers of Household Credit Services, Inc. ("Household") as
described below are received on a monthly basis. Card registration fees
generated from customers of Bank of America, N.A. ("Bank of America") as
described below are received on a daily basis.
The Company also provides extended service plans on certain categories of
products that extend service coverage beyond the manufacturer's warranty.
Although these plans historically have been available only on consumer
electronics, jewelry and furniture sold by Fingerhut, the Company may offer
plans on additional types of products in the future. Through focused marketing,
the Company increased the percentage of Warrantable Products (as defined herein)
sold that are covered by its plans from 15% in 1994 to approximately 27% in the
first nine months of 1997. Management believes that opportunities for growth in
extended service plans exist through further increasing the percentage of
Fingerhut's Warrantable Products sold with an extended service plan, identifying
new Warrantable Product categories for Fingerhut products, and marketing
extended service plans through channels other than Fingerhut. In this regard, in
April 1997, the Company introduced Purchase Shield-Registered Trademark-, an
extended warranty service, whereby Metris Direct, Inc. and Direct Merchants Bank
have offered to Direct Merchants Bank credit card holders (including holders of
the Fingerhut co-branded credit card) extended service plans on approved
purchases made with such credit cards while such customer is an active member of
the Purchase Shield-Registered Trademark- program. In addition, the Company is
engaged in an active sales effort to sign up outside third party credit card
issuers. The Company currently receives cash from sales of extended service
plans on a daily basis from Fingerhut. This payment represents aggregate plan
fees paid by customers, net of returns and Fingerhut commissions. The Company's
principal executive office is located at 600 South Highway 169, Suite 1800, St.
Louis Park, Minnesota 55426, telephone number (612) 525-5020.
BACKGROUND
Metris is a Delaware corporation incorporated on August 20, 1996, and is
currently an 83% owned indirect subsidiary of FCI. The Company became a publicly
held company in October 1996 after completing an initial public offering.
8
<PAGE>
FCI is a database marketing company that sells a broad range of products and
services via catalogs, telemarketing, television and other media. Its principal
subsidiaries are the Company, Fingerhut and Figi's Inc. Fingerhut has been in
the direct mail marketing business for over 45 years and sells a broad range of
general merchandise, products and services to moderate income consumers.
Fingerhut's merchandise includes a broad mix of brand name and private label
products. Fingerhut makes substantially all of its sales using proprietary
closed-end credit, offering extended payment terms on all purchases under
fixed-term, fixed payment installment contracts.
Metris has entered into a number of intercompany agreements (the
"Intercompany Agreements") with FCI or its subsidiaries, including the Tax
Sharing Agreement, the Co-brand Credit Card Agreement, the Data Sharing
Agreement, the Extended Service Plan Agreement, the Database Access Agreement
and the Administrative Services Agreement. In addition to providing the Company
use of the Fingerhut Database for the marketing of financial service products,
the Intercompany Agreements provide for continued access to information about
Fingerhut Customers, for marketing of extended service plans and for a variety
of administrative and other services during the term (generally expiring in
2003) of these agreements. Additionally, FCI has guaranteed the Company's $300
million revolving credit facility (the "Revolving Credit Facility").
FCI has filed an application with the Internal Revenue Service for a
tax-free distribution of all of its ownership in Metris. See "--Recent
Developments--Proposed Spin Off."
BUSINESS STRATEGY
The Company's business strategy is to continue its growth by targeting new
customers through the issuance of credit cards and expanding its customer
relationships through the sale of additional products and services. The
principal components of the Company's strategy are the following:
- INCREASE THE NUMBER OF FINGERHUT CUSTOMERS USING THE COMPANY'S PRODUCTS
AND SERVICES. The Company's strategy is to continue to use its proprietary
risk, response and profitability models to solicit existing and future
Fingerhut Customers for credit cards, and to focus its cross-selling
activities in order to increase the volume of fee-based services and
extended service plans purchased by these customers.
- IDENTIFY AND SOLICIT ADDITIONAL EXTERNAL PROSPECTS FOR CREDIT CARDS. The
Company intends to continue adding moderate income consumers who are
currently not Fingerhut Customers through the use of its own internally
developed risk models. The Company has developed its own proprietary
credit risk modeling system (the "Proprietary Modeling System"). By
incorporating credit information from its own customer history and from
the major credit bureaus into this Proprietary Modeling System and
eliminating those individuals contained in the Suppress File, the Company
expects to continue to generate additional customer relationships from
External Prospects.
- CROSS-SELL MULTIPLE PRODUCTS AND SERVICES TO EACH CUSTOMER. The Company
intends to maximize the profitability of each customer relationship by
cross-selling additional products, thereby leveraging its account
acquisition costs and infrastructure. Currently, the Company focuses its
cross-selling efforts on selling fee-based products to its credit card
customers and credit card customers of third parties.
- USE RISK-BASED PRICING. The specific pricing for a prospective credit card
customer offer is determined by the prospective customer's risk profile
and expected responsiveness prior to solicitation. After the customer has
responded, the customer's credit bureau score is updated before the
customer is approved and assigned a credit line. This practice is known as
"risk-based pricing." Management believes the use of risk-based pricing
allows it to maximize the profitability of customer relationships.
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- ACCESS ADDITIONAL CUSTOMERS BY ESTABLISHING RELATIONSHIPS WITH THIRD
PARTIES. The Company will seek to access additional customers for the
Company's products and services by establishing relationships with third
parties whose customers fit the Company's target market profile. In
January 1997, the Company began to offer card registration services to the
Visa and MasterCard customers of Household, a subsidiary of Household
International, Inc., under a long-term marketing alliance with Household.
In April 1997, the Company introduced a co-branded MasterCard with Bally
Total Fitness which will primarily be marketed to qualified Bally Total
Fitness members. In the third quarter of 1997, the Company began to offer
card registration services to the Visa and MasterCard customers of Bank of
America under a long-term marketing alliance with Bank of America.
- PURSUE ACQUISITIONS OF CREDIT CARD PORTFOLIOS. The Company will continue
to pursue acquisitions of credit card portfolios and/or other businesses
whose customers fit the Company's product and target market profile or
which otherwise strategically fit with the Company's business. In
September 1997, the Company acquired a $317 million credit card portfolio
from Key Bank USA, National Association. In addition, in October 1997, the
Company acquired a $405 million credit card portfolio from Mercantile Bank
National Association.
RECENT DEVELOPMENTS
PROPOSED SPIN OFF
On October 9, 1997, FCI announced that its Board of Directors had approved
the filing of an application with the Internal Revenue Service (the "IRS") for a
ruling on a tax-free distribution of FCI's stock of the Company (the "Spin
Off"). FCI filed the ruling request with the IRS on October 23, 1997. The
proposed Spin Off of the Company would be subject to receipt of a favorable
ruling from the IRS, to approval of Fingerhut's Board of Directors and to market
conditions. If approved, the Spin Off would be expected to be completed during
1998. There can be no assurance that the Spin Off will be consummated.
In the event the proposed Spin Off is consummated, the Company believes that
it will be able to pursue expansion of its business and operations without
certain limitations that currently exist as a result of FCI's ownership of the
Company, including limitations on the Company's ability to issue additional
common equity. Following the Spin Off, the Company believes that it will be able
more effectively to develop relationships with retailers other than Fingerhut
with respect to its extended service plans, because the Company will no longer
be viewed as affiliated with a competitor of such retailers. In addition,
following the Spin Off, the Company will seek to amend its Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") to eliminate
the detailed provisions concerning the business activities in which the Company
is permitted to engage, which provisions were originally adopted to address
certain potential conflicts of interest between FCI and the Company. For a
discussion of the Company's relationship with FCI, see "Risk Factors--Potential
Conflicts of Interest; Relationship with FCI."
If the proposed Spin Off is consummated, the Company will be required to
negotiate with its lenders to refinance the Revolving Credit Facility, which is
currently guaranteed by FCI and is terminable by the lenders in the event FCI
owns less than 51% of the Company's common stock. While the Company believes
that it will be able to obtain stand-alone financing, no assurance can be given
that it will be able to do so on terms as favorable as the Revolving Credit
Facility. Any such stand-alone financing is expected to result in higher funding
costs than currently available under the Revolving Credit Facility. See "Risk
Factors--Need to Refinance Revolving Credit Facility."
Each of the Intercompany Agreements, other than the Tax Sharing Agreement,
will remain in effect after the Spin Off is consummated. Although the
Administrative Services Agreement remains in effect in the event of the Spin
Off, it is expected that, following consummation of the Spin Off, the only
continuing
10
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administrative services to be provided by FCI to the Company will be treasury,
tax, insurance and information systems, and that such services will continue to
be provided for no longer than 18 months following the Spin Off. The Company
believes that the impact of providing or procuring these administrative services
without the assistance previously provided by FCI will result in higher costs to
the Company but will not be material to the Company's financial condition or
results of operations.
Following the Spin Off, no individual will hold titles of officer or
director at both FCI and the Company, except for Theodore Deikel, who will be
Chairman of the Board, Chief Executive Officer and President of FCI and
non-executive Chairman of the Board of the Company.
Consummation of the Spin Off will not constitute a Change of Control of the
Company as defined in the Indenture. See "Description of the New Notes--Change
of Control."
Until such time as the proposed Spin Off may be consummated, FCI will
continue to effectively control all matters affecting the Company through its
ability to elect all the directors of the Company, including the adoption of
amendments to the Company's Certificate of Incorporation, any determination with
respect to the acquisition or disposition of assets, future issuances of the
Company's common stock or other securities of the Company, the Company's
incurrence of debt, and any dividend payable on the common stock.
REORGANIZATION OF THE COMPANY
On December 23, 1997, the Company consummated a corporate reorganization,
after giving effect to which the Guarantor became the only direct subsidiary of
the Company and all other subsidiaries of the Company became direct subsidiaries
of the Guarantor.
METRIS DIRECT, INC.
The Guarantor markets and provides extended service plans to customers of an
affiliate. The Guarantor also markets fee based products including debt waiver
products, credit card registration, third party insurance and membership clubs
to credit card customers of an affiliate and other third parties. In addition,
the Guarantor performs certain credit card operations for an affiliate. The
Guarantor's principal executive office is located at 600 South Highway 169,
Suite 1800, St. Louis Park, Minnesota 55426, telephone number (612) 525-5020.
RISK FACTORS
Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" for risks involved with an investment in the Notes.
11
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THE EXCHANGE OFFER
On November 7, 1997, the Company issued $100,000,000 principal amount of Old
Notes. The Old Notes were sold pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. Chase Securities, Inc., Bear, Stearns & Co.
Inc. and NationsBanc Montgomery Securities, Inc. (the "Initial Purchasers"), as
a condition to their purchase of the Old Notes, required that the Company and
the Guarantor agree to commence the Exchange Offer following the Offering. The
New Notes will evidence the same class of debt as the Old Notes and will be
issued pursuant to, and be entitled to the benefits of, the Indenture.
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THE EXCHANGE OFFER................ Up to $100,000,000 aggregate principal amount of New
Notes are being offered in exchange for a like aggregate
principal amount of Old Notes. Old Notes may be tendered
for exchange in whole or in part in a principal amount
of $1,000 and integral multiples thereof, provided that
if any Old Note is tendered for exchange in part, the
untendered principal amount thereof must be $1,000 or
any integral multiple of $1,000 in excess thereof. The
Company is making the Exchange Offer in order to satisfy
its obligations under the Registration Rights Agreement
relating to the Old Notes. For a description of the
procedures for tendering Old Notes, see "The Exchange
Offer-- Procedures for Tendering Old Notes."
EXPIRATION DATE................... 5:00 p.m., New York City time, on , 1998
(such time on such date being hereinafter called the
"Expiration Date") unless the Exchange Offer is extended
by the Company (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer--Expiration Date; Extensions; Amendments."
CONDITIONS TO THE EXCHANGE OFFER.. The Exchange Offer is subject to certain conditions,
which may be waived by the Company in its sole
discretion. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being
tendered. See "The Exchange Offer-- Conditions to the
Exchange Offer."
The Company reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and
from time to time, (i) to delay the acceptance of the
Old Notes for exchange, (ii) to terminate the Exchange
Offer if certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Old Notes tendered
pursuant to the Exchange Offer, subject, however, to the
right of holders of Old Notes to withdraw their tendered
Old Notes, or (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any respect.
See "The Exchange Offer--Expiration Date; Extensions;
Amendments."
WITHDRAWAL RIGHTS................. Tenders of Old Notes may be withdrawn at any time on or
prior to the Expiration Date by delivering a written
notice of such withdrawal to the Exchange Agent in
conformity with certain procedures set forth below under
"The Exchange Offer-- Withdrawal Rights."
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PROCEDURES FOR TENDERING OLD
NOTES........................... Tendering holders of Old Notes must complete and sign a
Letter of Transmittal in accordance with the
instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any
other required documents, to the Exchange Agent, either
with the Old Notes to be tendered or in compliance with
the specified procedures for guaranteed delivery of Old
Notes. Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect tenders by
book-entry transfer. Holders of Old Notes registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee are urged to contact such
person promptly if they wish to tender Old Notes
pursuant to the Exchange Offer. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Letters of Transmittal and certificates representing Old
Notes should not be sent to the Company. Such documents
should only be sent to the Exchange Agent. Questions
regarding how to tender and requests for information
should be directed to the Exchange Agent. See "The
Exchange Offer--Exchange Agent."
RESALES OF NEW NOTES.............. The Company is making the Exchange Offer in reliance on
the position of the staff of the Division of Corporation
Finance of the Commission as set forth in certain
interpretive letters addressed to third parties in other
transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance
that the staff of the Division of Corporation Finance of
the Commission would make a similar determination with
respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance, and subject to the two immediately
following sentences, the Company believes that New Notes
issued pursuant to this Exchange Offer in exchange for
Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such
holder's business and that such holder is not
participating, and has no arrangement or understanding
with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New
Notes. However, any holder of Old Notes who is an
"affiliate" of the Company or who intends to participate
in the Exchange Offer for the purpose of distributing
the New Notes, or any broker-dealer who purchased the
Old Notes from the Company to resell pursuant to Rule
144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the
interpretations of the staff of the Division of
Corporation Finance of the
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Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender
such Old Notes in the Exchange Offer and (c) must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection with
any sale or other transfer of such Old Notes unless such
sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own
account as a result of market-making or other trading
activities and exchanges such Old Notes for New Notes,
then such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resales of such New Notes. See "The
Exchange Offer-- Resales of New Notes."
Each holder of Old Notes who wishes to exchange Old
Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an "affiliate,"
as defined under Rule 405 of the Securities Act, of the
Company or the Guarantor or, if it is such an affiliate,
such holder will comply with the registration and
prospectus delivery requirements of the Securities Act
to the extent applicable, (ii) any New Notes to be
received by it are being acquired in the ordinary course
of its business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities Act)
of such New Notes, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and does
not intend to engage in, a distribution (within the
meaning of the Securities Act) of such New Notes. See
"The Exchange Offer--Resales of New Notes."
Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with
any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of
market-making or other trading activities. The Company
has agreed that for a period ending 90 days after the
Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with such
sale. See "Plan of Distribution."
EXCHANGE AGENT.................... The exchange agent with respect to the Exchange Offer is
The First National Bank of Chicago (the "Exchange
Agent"). The addresses, and telephone and facsimile
numbers of the Exchange Agent are set forth in "The
Exchange Offer-- Exchange Agent" and in the Letter of
Transmittal.
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USE OF PROCEEDS................... The Company will not receive any cash proceeds from the
issuance of the New Notes offered hereby. See "Use of
Proceeds From Sale of Old Notes."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS....... Holders of Old Notes should review the information set
forth under "Certain United States Federal Income Tax
Considerations" prior to tendering Old Notes in the
Exchange Offer.
</TABLE>
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any state
securities laws and therefore may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act
and any other applicable securities laws, or pursuant to an exemption therefrom
or in a transaction not subject thereto, and in each case in compliance with
certain other conditions and restrictions, including the Company's and the
Trustee's right in certain cases to require the delivery of opinions of counsel,
certifications and other information prior to any such transfer. Old Notes which
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes registered
under the Securities Act or to any similar rights under the Registration Rights
Agreement (subject to certain limited exceptions). The Company currently does
not intend to register under the Securities Act any Old Notes which remain
outstanding after consummation of the Exchange Offer (subject to such limited
exceptions, if applicable).
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes have been designated for trading
in the Private Offerings, Resales and Trading through Automated Linkages
("PORTAL") market, to the extent that Old Notes are tendered and accepted in
connection with the Exchange Offer, any trading market for Old Notes which
remain outstanding after the Exchange Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will constitute a single series of debt securities under
the Indenture and, accordingly, will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the New Notes--General."
The Old Notes provide that, if the Exchange Offer is not consummated by
April 5, 1998, the Company will be obligated to pay liquidated damages to each
holder of the Old Notes in an amount equal to $0.192 per week per $1,000
principal amount of the Old Notes held by such holder, commencing April 6, 1998,
until the Exchange Offer is consummated. See "Description of the Old Notes."
Following consummation of the Exchange Offer, the Old Notes will not be entitled
to any liquidated damages thereon. The New Notes will not be entitled to any
such liquidated damages thereon.
THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes.
The New Notes will bear interest from the most recent date to which interest has
been paid on the Old Notes or, if no interest has been paid on the Old Notes,
from November 7, 1997. Accordingly, registered holders of New Notes on the
relevant record date for the first Interest Payment Date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid, from November 7, 1997. Old Notes accepted for exchange will cease
to accrue
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interest from and after the date of consummation of the Exchange Offer. Holders
whose Old Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Notes otherwise payable on any Interest Payment
Date the record date for which occurs on or after consummation of the Exchange
Offer.
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SECURITIES OFFERED................ Up to $100,000,000 aggregate principal amount of the
Company's 10% Senior Notes Due 2004 which have been
registered under the Securities Act. The New Notes will
be issued and the Old Notes were issued under an
Indenture dated as of November 7, 1997 (the "Indenture")
between the Company, the Guarantor and The First
National Bank of Chicago, as trustee (the "Trustee").
The New Notes and any Old Notes which remain outstanding
after consummation of the Exchange Offer will constitute
a single series of debt securities under the Indenture
and, accordingly, will vote together as a single class
for purposes of determining whether holders of the
requisite percentage in outstanding principal amount
thereof have taken certain actions or exercised certain
rights under the Indenture. See "Description of the New
Notes--General." The terms of the New Notes are
identical in all material respects to the terms of the
Old Notes, except that (i) the New Notes have been
registered under the Securities Act and therefore are
not subject to certain restrictions on transfer
applicable to the Old Notes and will not be entitled to
registration rights or other rights under the
Registration Rights Agreement, and (ii) the New Notes
will not provide for any liquidated damages thereon. See
"The Exchange Offer-- Purpose of the Exchange Offer,"
"Description of the New Notes" and "Description of the
Old Notes."
MATURITY.......................... November 1, 2004.
INTEREST PAYMENT DATES............ May 1 and November 1 of each year, commencing on the
first such date following the original issuance of the
New Notes.
DENOMINATIONS..................... The New Notes will be issued in minimum denominations of
$1,000 and integral multiples of $1,000 in excess
thereof.
SINKING FUND...................... None.
OPTIONAL REDEMPTION............... The Company may not redeem the Notes prior to November
1, 2001. On or after such date, the Company may redeem
the Notes, in whole or in part, at the redemption prices
set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. See
"Description of the New Notes-- Optional Redemption."
CHANGE OF CONTROL................. Upon the occurrence of a Change of Control, the Company
will be required to make an offer to repurchase the
Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if
any, to the date of purchase. See "Description of the
New Notes--Change of Control."
RANKING........................... The Notes will constitute senior unsecured obligations
of the Company and will rank PARI PASSU with all senior
Indebtedness of the Company. The Notes will be
effectively subordinated in
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right of payment to all secured Indebtedness of the
Company and the Guarantors to the extent of the value of
the assets securing any such Indebtedness and to any
Indebtedness of subsidiaries of the Company that are not
Guarantors. As of September 30, 1997, on a pro forma
basis after giving effect to the Offering and the
application of the net proceeds therefrom, the aggregate
principal amount of the Company's outstanding
Indebtedness would have been $153 million (excluding
unused commitments of $247 million under the Revolving
Credit Facility). See "Description of the New
Notes--Ranking."
GUARANTEES........................ The Notes will be guaranteed on a senior basis, jointly
and severally, by each of the Guarantors. The Guarantees
will be senior unsecured obligations of the Guarantors.
Metris Direct, Inc., the only Guarantor as of the Issue
Date, has also guaranteed all obligations of the Company
under the Revolving Credit Facility. The Notes will not
be secured by any of the assets of the Company or its
subsidiaries. The Indebtedness incurred under the
Revolving Credit Facility is secured by a pledge of the
capital stock of certain of the Company's subsidiaries
and by a lien against certain accounts receivable and
interests held therein by the Company. See "Description
of the New Notes--Subsidiary Guarantees."
RESTRICTIVE COVENANTS............. The indenture under which the Notes will be issued (the
"Indenture") will limit, to the extent described herein,
(i) the incurrence of additional Indebtedness by the
Company and its Restricted Subsidiaries (as defined),
(ii) the payment of dividends on, and redemption of,
capital stock of the Company and its Restricted
Subsidiaries, (iii) investments, (iv) sales of assets,
(v) transactions with affiliates, (vi) consolidations,
mergers and transfers of all or substantially all of the
Company's assets and (vii) the creation of certain
liens. The Indenture will also prohibit certain
restrictions on distributions from Restricted
Subsidiaries. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the
New Notes--Certain Covenants."
ABSENCE OF MARKET FOR THE NEW
NOTES........................... The New Notes will be a new issue of securities for
which there currently is no market. Although the Initial
Purchasers have informed the Company that they each
currently intend to make a market in the New Notes, they
are not obligated to do so, and any such market making
may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Company currently does not intend to apply
for listing of the New Notes on any securities exchange
or for quotation through the National Association of
Securities Dealers Automated Quotation System.
</TABLE>
FOR FURTHER INFORMATION REGARDING THE NEW NOTES, SEE "DESCRIPTION OF THE NEW
NOTES."
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary consolidated financial data for the
Company. Income before income taxes, net income, extended service plan revenues,
fee-based product revenues, total debt and stockholders' equity presented below
as of December 31, 1995 and 1996 and for each of the years in the three-year
period ended December 31, 1996, have been derived from the audited financial
statements and the notes thereto. Such data as of December 31, 1994, have been
derived from the audited financial statements of the Company not included
herein. All other summary consolidated financial information presented below are
unaudited, and reflect, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of such data. The results for the nine months ended September 30, 1997, are not
necessarily indicative of the results to be expected for the entire year. The
summary consolidated financial information should be read in conjunction with
"Description of Credit Arrangements," the Company's Consolidated Financial
Statements (including related notes thereto) included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and the
quarterly report on Form 10-Q for the quarter ended September 30, 1997
incorporated by reference herein and the Company's Consolidated Financial
Statements (including related notes thereto) included elsewhere in this
Prospectus.
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<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
----------------------------------- ------------
1994 1995 1996 1996
--------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA (MANAGED)(1):
Net interest income........................................................... $ 487 $ 26,354 $ 143,391 $ 95,940
Provision for loan losses..................................................... 26,234 136,305 85,814
Other operating income........................................................ 14,238 52,969 126,647 82,168
Other operating expenses...................................................... 11,222 45,640 101,287 68,398
Income before income taxes.................................................... 3,503 7,449 32,546 23,896
Net income.................................................................... 2,198 4,581 20,016 14,696
CREDIT CARD DATA (MANAGED)(1):
Total accounts................................................................ 703 1,418 1,117
Period-end loans.............................................................. $ 543,619 $ 1,615,940 $ 1,276,687
Period-end assets............................................................. $ 9,856 622,983 1,687,227 1,330,819
Average loans................................................................. 183,274 1,018,856 890,067
Average interest earning assets............................................... 6,615 193,086 1,040,924 909,414
Average assets................................................................ 7,076 214,363 1,078,346 946,425
CREDIT QUALITY DATA (MANAGED)(1):
Net charge-off ratio(2)....................................................... 2.2% 6.2% 5.6%
Loan loss reserve............................................................. $ 22,219 $ 95,669 $ 70,635
Loan loss reserve ratio(3).................................................... 4.1% 5.9% 5.5%
Delinquency ratio(4).......................................................... 4.0% 5.5% 5.2%
Ratio of loan loss reserves to delinquent receivables(5)...................... 103% 107% 107%
PROFITABILITY RATIOS (MANAGED)(1):
Net interest margin(6)........................................................ 7.4% 13.7% 13.8% 14.1%
Return on average assets...................................................... 31.1% 2.1% 1.9% 2.1%
Return on average equity...................................................... 41.0% 15.2% 21.6% 25.0%
Ratio of other operating expenses to average loans............................ 24.9% 9.9% 7.7%
Operating efficiency ratio(7)................................................. 50.8% 28.4% 26.6% 26.7%
EXTENDED SERVICE PLAN DATA:
Net extended service plan revenues(8)......................................... $ 12,244 $ 17,779 $ 20,420 $ 13,789
Warrantable product unit penetration rates(9)................................. 15.3% 20.4% 24.4% 24.3%
FEE-BASED PRODUCTS AND SERVICES DATA:
Fee-based product revenues.................................................... $ 1,994 $ 6,662 $ 29,853 $ 20,549
CAPITALIZATION:
Total debt.................................................................... $ 63,482 $ 54,163 $ 53,385
Stockholders' equity.......................................................... $ 6,737 71,318 138,718 86,014
Ratio of stockholders' equity to managed assets............................... 68.4% 11.4% 8.2% 6.5%
Ratio of stockholders' equity plus reserves to managed assets................. 68.4% 15.0% 13.9% 11.8%
<CAPTION>
1997
------------
<S> <C>
INCOME STATEMENT DATA (MANAGED)(1):
Net interest income........................................................... $ 204,838
Provision for loan losses..................................................... 210,919
Other operating income........................................................ 146,233
Other operating expenses...................................................... 94,633
Income before income taxes.................................................... 45,519
Net income.................................................................... 27,994
CREDIT CARD DATA (MANAGED)(1):
Total accounts................................................................ 1,802
Period-end loans.............................................................. $ 2,683,877
Period-end assets............................................................. 2,742,923
Average loans................................................................. 1,979,957
Average interest earning assets............................................... 2,025,808
Average assets................................................................ 2,034,598
CREDIT QUALITY DATA (MANAGED)(1):
Net charge-off ratio(2)....................................................... 8.7%
Loan loss reserve............................................................. $ 190,626
Loan loss reserve ratio(3).................................................... 7.1%
Delinquency ratio(4).......................................................... 6.4%
Ratio of loan loss reserves to delinquent receivables(5)...................... 112%
PROFITABILITY RATIOS (MANAGED)(1):
Net interest margin(6)........................................................ 13.5%
Return on average assets...................................................... 1.8%
Return on average equity...................................................... 24.5%
Ratio of other operating expenses to average loans............................ 4.8%
Operating efficiency ratio(7)................................................. 20.6%
EXTENDED SERVICE PLAN DATA:
Net extended service plan revenues(8)......................................... $ 3,249
Warrantable product unit penetration rates(9)................................. 26.8%
FEE-BASED PRODUCTS AND SERVICES DATA:
Fee-based product revenues.................................................... $ 39,082
CAPITALIZATION:
Total debt.................................................................... $ 153,000
Stockholders' equity.......................................................... 166,166
Ratio of stockholders' equity to managed assets............................... 6.1%
Ratio of stockholders' equity plus reserves to managed assets................. 13.0%
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
18
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- ------------------------
(1) The Company reports its financial performance on an owned loan portfolio
basis in accordance with generally accepted accounting principles. However,
the Company manages its business and analyzes its financial performance on a
managed loan portfolio basis whereby the income statement and balance sheet
are adjusted to reverse the effects of securitization. The Company believes
the presentation of its Summary Consolidated Financial Information on a
managed basis is a more meaningful presentation of its financial
performance.
(2) The net charge-off ratio represents actual principal amounts charged off,
less recoveries, as a percentage of average loans, annualized for the nine
month periods.
(3) The loan loss reserve ratio represents loan loss reserves at period-end as a
percentage of period-end loans.
(4) The delinquency ratio represents credit card loans that were at least 30
days contractually past due at period-end as a percentage of period-end
loans.
(5) The ratio of loan loss reserves to delinquent receivables represents loan
loss reserves at period-end as a percentage of credit card loans that were
at least 30 days contractually past due at period-end.
(6) The net interest margin represents net interest income divided by average
interest earning assets and includes the Company's actual cost of funds plus
all costs associated with asset securitizations, including the interest
expense paid to the certificateholders and amortization of the discount and
fees, annualized for the nine month periods.
(7) The operating efficiency ratio represents total operating expenses less
credit card account and other product solicitation and marketing expenses as
a percentage of net interest income and other operating income.
(8) Net extended service plan revenues include revenues from sales of extended
service plans, net of a provision for service plan returns. The Company
began performing administrative services and retained the claims risk for
all extended service plans sold on or after January 1, 1997. As a result,
extended service plan revenues are deferred and recognized over the life of
the related extended service plan contracts. Prior to January 1, 1997, the
Company contracted with a third-party underwriter and claims administrator
to service and absorb the risk of loss for most claims and the revenues
related to these contract sales were recognized immediately.
(9) Warrantable product unit penetration rates reflect the percentage of
extended service plans sold to all Warrantable Products sold. Percentage for
all years presented reflect the inclusion of jewelry and furniture products
as Warrantable Products even though extended service plans for such products
were not introduced until the middle of 1995.
19
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE DECIDING WHETHER TO ACCEPT THE EXCHANGE OFFER.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF NOTES
The Company is a holding company, the principal assets of which consist of
equity interests in its subsidiaries. The Notes are a direct unsecured
obligation of the Company, which derives substantially all of its revenues from
the operations of its subsidiaries. As a result, the Company will be dependent
on the earnings and cash flow of, and dividends and distributions or advances
from, its subsidiaries to provide the funds necessary to meet its debt service
obligations, including the payment of principal of and interest on the Notes.
The payment of dividends from the subsidiaries to the Company and the payment of
any interest on or the repayment of any principal of any loans or advances made
by the Company to any of its subsidiaries may be subject to statutory
restrictions and are contingent upon the earnings of such subsidiaries. In
particular, Direct Merchants Bank is limited in its ability to declare dividends
to the Company. As a result, earnings of Direct Merchants Bank (principally
comprised of fee income from sales of fee-based products and services, servicing
fees and interchange fees) may not be available to the Company.
The Notes will be senior unsecured obligations of the Company and will rank
PARI PASSU in right of payment to all senior Indebtedness of the Company and
will rank senior in right of payment to all subordinated Indebtedness of the
Company. The Notes will be unconditionally guaranteed, jointly and severally, by
each of the Guarantors. The Guarantees will be senior obligations of the
Guarantors and will rank PARI PASSU in right of payment to all senior
Indebtedness of the Guarantors and will rank senior in right of payment to all
senior Indebtedness of the Guarantors. However, the Notes will be effectively
subordinated to secured Indebtedness of the Company and the Guarantors to the
extent of the value of the assets securing such Indebtedness and to any
Indebtedness of subsidiaries of the Company that are not Guarantors. In the
event of a default on such secured Indebtedness, or a bankruptcy, liquidation or
reorganization of the Company and its subsidiaries, such assets will be
available to satisfy obligations with respect to the secured Indebtedness before
any payment therefrom will be made on the Notes. As of September 30 1997, on a
pro forma basis after giving effect to the offering of the Old Notes and the
application of the net proceeds therefrom, the aggregate principal amount of the
Company's outstanding Indebtedness would have been approximately $153 million
(excluding unused commitments of $247 million under the Revolving Credit
Facility). Metris Direct, Inc., the only Guarantor as of the Issue Date, is also
a guarantor of the Revolving Credit Facility. The Notes will not be secured by
any of the assets of the Company or its subsidiaries. The Indebtedness incurred
under the Revolving Credit Facility is secured by a pledge of the capital stock
of all the Company's subsidiaries except Direct Merchants Bank and by a lien
against certain accounts receivable and interests held therein by the Company.
DEPENDENCE ON FCI AND FINGERHUT
As of September 30, 1997, Fingerhut Customers represented approximately 43%
of the Company's credit card accounts and approximately 44% of the Company's
managed loans. In addition, Fingerhut Customers currently are substantially all
of the Company's customers for extended service plans. Moreover, until the
Company further develops its own database of information based upon its
experience as an independent, stand-alone entity, its success in the credit card
business will remain largely dependent upon its rights to use information in the
Fingerhut Database, particularly with respect to the experience of Fingerhut
with its customers. Similarly, until the Company develops extended service plan
marketing relationships with other companies or through other marketing
channels, its success in the extended service plan business will remain largely
dependent upon its right to provide extended service plans to Fingerhut
Customers and the level of Fingerhut's sales of Warrantable Products. Metris has
20
<PAGE>
entered into agreements with FCI or its subsidiaries relating to (i) credit
cards issued to Fingerhut Customers, (ii) use of information in the Fingerhut
Database and (iii) marketing of extended service plans to Fingerhut Customers.
These agreements generally expire in 2003, but may expire earlier upon certain
events of default or bankruptcy. In addition, in the event that a person or
persons other than Fingerhut, or FCI, in the case of the Administrative Services
Agreement, acquires 25% or more of the voting stock of the Company, or in the
case of the Data Sharing Agreement, Direct Merchants Bank, Fingerhut or FCI, as
the case may be, has the right to terminate these agreements. The loss of the
ability to use information from the Fingerhut Database or to market to Fingerhut
Customers prior to the expiration of these agreements would have a significant
adverse economic impact on the Company's results of operations and future
prospects. Significant adverse changes which materially affect Fingerhut's
ability to maintain its database or to continue its catalog sales business would
also have an adverse impact on the Company. Although the Company believes that,
to the extent that it is desirable to do so, it will be able to extend the term
of these Intercompany Agreements, there can be no assurance that it will be able
to do so on terms favorable to the Company or at all.
FCI is a guarantor of the Revolving Credit Facility. Breaches of covenants
contained in the guarantee, including various financial covenants of FCI, would
be events of default under the Revolving Credit Facility. Upon the occurrence of
any such event, the Revolving Credit Facility would be terminable at the option
of the lenders. Such events could have a material adverse impact on the
Company's financial condition and results of operations. To the extent that the
FCI guarantee contains certain financial covenants and the cost of maintaining
availability and borrowing under the Revolving Credit Facility is based on FCI's
credit rating, the Company will be dependent on the financial strength and
performance of FCI. As described above, the Company anticipates that it will be
required to refinance the Revolving Credit Facility. See "--Need to Refinance
Revolving Credit Facility" and "Summary--Recent Developments--Proposed Spin
Off."
LACK OF PRIOR OPERATING HISTORY AS STAND-ALONE ENTITY
FCI's financial services business, including Direct Merchants Bank, has been
consolidated within Metris only since September 1996 and therefore has operated
as a separate operating group for a limited time. In addition, the Company's
management team has operated the Company as a stand-alone entity for a limited
time. A number of significant changes occurred in the funding and operations of
the Company in connection with the consummation of the initial public offering
in October 1996. These changes include the establishment of the Revolving Credit
Facility and the Company's own incentive compensation and stock option plans. As
a result, the historical financial information included in this Offering
Memorandum does not necessarily reflect the financial position and results of
operations of the Company in the future or what the financial position and
results of operations of the Company would have been had it been operated as a
stand-alone entity during all periods presented. Because FCI has guaranteed the
Company's indebtedness (other than the Notes), the Company's historical funding
costs have been lower than will be the case in the absence of such a guarantee.
See "--Need to Refinance Revolving Credit Facility."
Metris has entered into the Administrative Services Agreement, under which
subsidiaries of FCI have agreed to provide a variety of administrative services
to the Company on a transitional basis. Following the termination of the
Administrative Services Agreement, the Company will be required to provide or
procure these administrative services without the assistance previously provided
by FCI. The Company believes that the impact of providing or procuring these
administrative services without the assistance previously provided by FCI will
result in higher costs to the Company but will not be material to the Company's
financial condition or results of operations. See "Summary--Recent
Developments-- Proposed Spin Off."
21
<PAGE>
LACK OF SEASONING OF CREDIT CARD PORTFOLIO
The average age of a credit card issuer's portfolio of accounts is an
indicator of the stability of delinquency and loss levels of that portfolio; a
portfolio of older accounts generally behaves more predictably than a newly
originated portfolio. Almost 60% of the Company's credit card accounts were
originated within the last 18 months and approximately 16% were originated
within the last six months. As a result, there can be no assurance as to the
levels of delinquencies and losses, which may affect earnings through net
charge-offs, that can be expected over time with respect to the Company's
portfolio. Until the accounts become more seasoned, it is likely that the levels
of such delinquencies and losses will increase as the average age of the
Company's accounts increases. Any material increases in delinquencies and losses
above management's expectations would have a material adverse impact on the
Company's results of operations and financial condition.
ABILITY TO SUSTAIN AND MANAGE GROWTH
In order to meet its strategic objectives, the Company must continue to
achieve growth in its credit card loan portfolio. In September 1997, the Company
acquired a $317 million credit card portfolio consisting of approximately
260,000 accounts from Key Bank USA, National Association, of which approximately
197,000 accounts are active accounts. In addition, in October 1997, the Company
acquired a $405 million credit card portfolio consisting of approximately
460,000 accounts from Mercantile Bank National Association, of which
approximately 240,000 accounts are active accounts. Continued growth in the
Company's credit card loan portfolio depends on (i) the Company's ability to
attract new cardholders, (ii) growth in both existing and new account balances,
(iii) the degree to which the Company loses accounts and account balances to
competing card issuers, (iv) levels of delinquencies and losses, (v) the
availability of funding (including, but not limited to, securitizations) on
favorable terms, (vi) the continued availability of credit card portfolios for
purchase by the Company at prices and with terms acceptable to the Company and
(vii) general economic and other factors beyond the control of the Company. The
Company's growth is also dependent on the level of the Company's marketing
expenditures used to solicit new customers and the number of responses the
Company receives with respect to solicitations for its consumer credit,
fee-based and other financial service products. Any increases in postal rates
could have a negative impact on the level and cost of direct mail marketing
activities. No assurance can be given as to the future growth in the Company's
loan portfolio or its profitability.
Further growth of the Company will require employment and training of new
personnel, expansion of facilities, expansion of management systems and access
to additional capital. If the Company is unable to manage its growth
effectively, the Company's profitability and its ability to achieve its
strategic objectives may be adversely affected.
RISKS RELATED TO TARGET MARKET
The Company targets its consumer credit products to moderate income
consumers. Lenders historically have not solicited this market to the same
extent as more affluent market segment consumers. As a result, in addition to
higher delinquency and loss rates, there is less historical experience with
respect to the credit risk and performance of moderate income consumers. There
can be no assurance that the Company can successfully target and evaluate the
creditworthiness of moderate income consumers so as to minimize the expected
higher delinquencies and losses or that the Company's risk-based pricing system
can offset the negative impacts the expected higher delinquency and loss
experience for this market segment has on overall profitability. In addition,
there can be no assurance that the Company can profitably price its fee based
products and manage claims and service costs.
Primary risks associated with unsecured lending, especially to the Company's
target market of moderate income consumers, are that (i) delinquencies and
credit losses will increase because of future
22
<PAGE>
economic downturns, (ii) an increasing number of customers will default on the
payment of their outstanding balances or seek protection under bankruptcy laws,
resulting in accounts being charged off as uncollectible, (iii) fraud by
cardholders and third parties will increase and (iv) unfavorable changes in
consumers' attitudes toward financing purchases with debt or in cardholder
payment behavior, such as increases in discretionary repayment of account
balances, will result in diminished interest income. At September 30, 1997 and
December 31, 1996, the Company's managed credit card loans 30 days or more
delinquent were 6.4% and 5.5%, respectively, of managed loans compared to 5.2%
and 4.0%, respectively, at September 30, 1996 and December 31, 1995. A portion
of this increase is to be expected as the Company's portfolio continues to
mature. Additionally, general economic factors, such as the rate of inflation,
unemployment levels and interest rates may affect the Company's target market
customers more severely than other market segments.
LIMITED HISTORY OF CREDIT CARD OPERATIONS
The Company began originating and servicing credit card accounts in March
1995, and thus has limited underwriting and servicing experience, and limited
delinquency, default and loss experience with respect to its credit card
accounts. Although the Company has experienced substantial growth in credit card
loans outstanding, revenues and net earnings, there can be no assurances that
these rates of growth will be sustainable or indicative of future results. In
addition, the Company's results of operations, financial condition and liquidity
depend, to a material extent, on its ability to manage its credit card business
and on the performance of the credit card loans outstanding.
INTEREST RATE RISK
The Company's credit card accounts generally have finance charges set at a
variable rate with a spread above a designated prime rate or other designated
index. Although the Company intends to manage its interest rate risk through
asset and liability management, as the interest rate environment fluctuates the
Company may be adversely affected by changes in its cost of funds as well as in
the relationship between the indices used in the Company's securitizations and
other funding and the indices used to determine the finance charges on account
balances.
NEED TO REFINANCE REVOLVING CREDIT FACILITY
The Company currently borrows under the Revolving Credit Facility to fund
on-balance sheet loans and for other general corporate purposes. The Revolving
Credit Facility, which is guaranteed by FCI, expires in September 2001, but may
be terminated earlier in the event that FCI owns less than 51% of the common
stock of the Company. The Company will be required to negotiate with its lenders
to refinance the Revolving Credit Facility. While the Company believes that it
will be able to obtain stand-alone financing, no assurance can be given that it
will be able to do so on terms as favorable as the Revolving Credit Facility.
Any such stand-alone financing is expected to result in higher funding costs
than currently available under the Revolving Credit Facility. See "Description
of Credit Arrangements."
FUNDING AND SECURITIZATION CONSIDERATIONS
The Company depends heavily upon the securitization of its credit card loans
to fund its operations and to date has been able to complete securitization
transactions on terms that it believes are favorable. There can be no assurance,
however, that the securitization market will continue to offer attractive
funding alternatives. In addition, the Company's ability to securitize its
assets depends on the continued availability of credit enhancement on acceptable
terms and the continued favorable legal, regulatory, accounting and tax
environment for securitization transactions. While the Company does not at
present foresee any significant problems in any of these areas, any such adverse
change could force the Company to rely on other potentially more expensive
funding sources. See "Description of Credit Arrangements."
23
<PAGE>
Adverse changes in the performance of the Company's securitized assets,
including increased delinquencies and losses, could result in a downgrade or
withdrawal of the ratings on the outstanding certificates under the Company's
securitization transactions or cause early amortization of such certificates.
This could jeopardize the Company's ability to effect other securitization
transactions on acceptable terms, thereby decreasing the Company's liquidity and
forcing the Company to rely on other funding sources to the extent available.
In addition, upon consummation of the Spin Off, it is anticipated that the
advance rate in the Company's securitization transactions will decrease 2.5
percentage points. In such event, the Company will experience reduced cash flow
from the Metris Master Trust until the retained interest reaches the required
level. Based upon the Company's current level of receivables, the total impact
of the advance rate change would be approximately $60 million.
REGULATION
The activities of Metris are subject to extensive regulation under both
federal and state laws and regulations. Such laws and regulations significantly
limit the activities in which the Company and the Company's credit card
subsidiary, Direct Merchants Bank, will be permitted to engage. Numerous
legislative and regulatory proposals are advanced each year which, if adopted,
could adversely affect the Company's profitability or limit the manner in which
the Company conducts its activities. Moreover, the Company's interactions with
FCI pursuant to certain of the Intercompany Agreements are constrained under
those agreements by the requirements of the Fair Credit Reporting Act ("FCRA").
Failure to comply with such requirements could result in termination of such
agreements and/or the Company and/or Fingerhut becoming a consumer reporting
agency under the FCRA. The FCRA imposes a number of complex and burdensome
regulatory requirements and restrictions on a consumer reporting agency,
including restrictions on the circumstances under which a consumer reporting
agency may furnish information to others. Accordingly, if Fingerhut were to
become a consumer reporting agency, the FCRA would restrict the Company's access
to the Fingerhut Database. Similarly, if the Company were to become a consumer
reporting agency its ability to furnish information to third parties would be
restricted by the FCRA. Such restrictions on the Company's ability to access the
Fingerhut Database and/or on the Company's ability to furnish information to
third parties could have a significant adverse economic impact on the Company's
results of operations and future prospects.
Direct Merchants Bank is also subject to regulation by the Federal Reserve
Board, the Federal Deposit Insurance Corporation and the Office of the
Comptroller of the Currency (the "OCC"). Such regulations include limitations on
the nature of the businesses Direct Merchants Bank may conduct.
CONSUMER AND DEBTOR PROTECTION LAWS
Metris is subject to numerous federal and state consumer protection laws
that impose requirements related to offering and extending credit, and laws
affecting other aspects of the business. The United States Congress and the
states may enact laws and amendments to existing laws to further regulate the
credit card industry or to reduce finance charges or other fees or charges
applicable to credit card and other consumer revolving loan accounts. Such laws,
as well as any new laws or rulings which may be adopted, may adversely affect
the Company's ability to collect on account balances or maintain previous levels
of periodic rate finance charges and other fees and charges with respect to the
accounts, as well as the sale of other products and services. Any failure by the
Company to comply with such legal requirements also could adversely affect its
ability to collect the full amount of the account balances. Changes in federal
and state bankruptcy and debtor relief laws could adversely affect the Company
if such changes result in, among other things, additional administrative
expenses and accounts being written off as uncollectible.
24
<PAGE>
COMPETITION
As a marketer of consumer credit products, Metris faces increasing
competition from numerous providers of financial services, many of which have
greater resources than the Company. In particular, the Company's credit card
business competes with national, regional and local bank card issuers as well as
other general purpose credit card issuers, such as American Express, Discover
Card and Diners Club. Over 6,000 issuers are affiliated with MasterCard alone.
Many general purpose credit card issuers are substantially larger and have more
seasoned credit card portfolios than the Company and often compete for customers
by offering lower interest rates and/or fee levels. In general, customers are
attracted to credit card issuers largely on the basis of price, credit limit and
other product features and customer loyalty is often limited.
As the Company attempts to expand its extended service plan business to the
customers of third-party retailers, it will compete with manufacturers,
financial institutions, insurance companies and a number of independent
administrators, many of which have greater operating experience and financial
resources than the Company.
There are numerous competitors in the fee-based products and services
market, including insurance companies, financial services institutions and other
membership-based consumer services providers, many of which are larger, better
capitalized and more experienced than the Company.
POTENTIAL CONFLICTS OF INTEREST; RELATIONSHIP WITH FCI
CORPORATE OPPORTUNITIES
Until such time as the proposed Spin Off may be consummated, the
relationship between the respective businesses of the Company and FCI may give
rise to certain conflicts of interest regarding corporate opportunities. Because
both the Company and FCI sell to the same client base, use direct mail and
provide credit, business opportunities may arise that either could pursue. While
Fingerhut is prohibited under the Co-Brand Credit Card Agreement between
Fingerhut, Direct Merchants Bank and Metris Direct, Inc. from directly or
indirectly issuing a competing, general purpose credit card, Fingerhut National
Bank offers closed-end and revolving credit private label credit cards to its
customers for use in purchasing Fingerhut products and services. As a result,
and as is the case now, FCI and Metris expect that Fingerhut customers who are
also Metris cardholders will generally continue to use Fingerhut credit for
Fingerhut purchases and use their Metris credit cards for other purposes. In
addition, Fingerhut National Bank offers various types of credit-related
insurance products in connection with the private label credit cards it issues.
To address the potential for conflicts between the Company and FCI, the
Certificate of Incorporation currently contains detailed provisions concerning
the business activities in which the Company is permitted to engage until the
day after the third shareholder meeting held after FCI owns less than 50% of the
Company's voting stock. The Company intends to amend its Certificate of
Incorporation to eliminate any such restrictions on its business in the event
the proposed Spin Off is consummated. See "Summary--Recent
Developments--Proposed Spin Off."
The relevant provisions are intended to permit Metris to continue all
activities in which it currently engages, and to expand into certain related
financial service products. These provisions generally permit the Company to
continue providing consumer credit products, extended service plans, and fee-
based products and services, and a variety of other financial service products
and services, provided that the Company shall not offer any closed-end
installment or revolving credit loans to Fingerhut Customers for the exclusive
purchase of Fingerhut merchandise. The Company may engage in any other business
with the consent of FCI or authorized by a majority vote of its shareholders.
Because these limitations may restrict the Company's ability to offer new
products or services, they may limit the Company's ability to compete.
25
<PAGE>
The Certificate of Incorporation provides that no opportunity, transaction,
agreement or other arrangement to which FCI or an entity in which FCI has an
interest or is a party, shall be a corporate opportunity of the Company unless
such opportunity, transaction, agreement or other arrangement shall have been
initially offered to the Company before it is offered to FCI or such other
entity, and either (i) the Company has an enforceable contractual interest in
such opportunity, transaction, agreement or other arrangement or (ii) the
subject matter of such opportunity, transaction, agreement or other arrangement
is a constituent element of an activity in which the Company is then actively
engaged. Even if the foregoing conditions were met, such fact alone would not
conclusively render such opportunity the property of the Company. The
Intercompany Agreements limit FCI's ability to engage in the financial services
business during the terms of such agreements, except through its ownership of
Common Stock of the Company. The foregoing provisions of the Certificate of
Incorporation of the Company were determined by FCI after consultation with
management of the Company but were not the result of arm's-length negotiations.
OTHER POTENTIAL CONFLICTS OF INTEREST
Conflicts of interest may arise in the future between the Company and FCI in
a number of areas relating to their past and ongoing relationships, including
potential acquisitions of businesses or properties, the election of new or
additional directors, dividends, incurrence of indebtedness, tax matters,
financial commitments, registration rights, administration of benefit plans,
service arrangements, issuances and sales of capital stock of the Company and
public policy matters. In addition, there are overlapping directors and
executive officers between the Company and FCI. The Company has not instituted
any formal plan or arrangement to address potential conflicts of interest that
may arise between the Company and FCI. However, the directors intend to exercise
reasonable judgment and take such steps as they deem necessary under all of the
circumstances in resolving any specific conflict of interest that may occur and
will determine what, if any, specific measures may be necessary or appropriate.
There can be no assurance that any conflicts will be resolved in favor of the
Company.
The Company and Fingerhut have entered into a number of agreements for the
purpose of defining the ongoing relationship between them. Pursuant to these
arrangements, Fingerhut will provide benefits to the Company that it might not
provide to a third party, and there is no assurance that the terms and
conditions of any future arrangements between Fingerhut and the Company will be
as favorable to the Company as in effect now. In addition, notwithstanding the
Tax Sharing Agreement between the Company and FCI, under ERISA and Federal
income tax law each member of a consolidated group (for Federal income tax and
ERISA purposes) is also jointly and severally liable for the Federal income tax
liability, funding and termination liabilities, certain benefit plan taxes and
certain other liabilities of each other member of the consolidated group.
Similar rules may apply under state income tax laws.
DEPENDENCE ON KEY PERSONNEL
The Company's management and operations are dependent upon the skills and
experience of a small number of senior management and operating personnel
including Ronald Zebeck, President and Chief Executive Officer; Douglas McCoy,
Senior Vice President, Operations; Robert Oberrender, Senior Vice President,
Chief Financial Officer; Douglas Scaliti, Senior Vice President, Marketing;
William Brennan, Senior Vice President, Sales and Account Management; and David
Reak, Vice President, Credit Risk. The Company does not have employment
agreements with its executive officers and does not maintain key-man life
insurance on any executive officer. The loss of the services of members of
senior management could have an adverse impact on the Company.
EXTENDED SERVICE PLAN UNDERWRITING
Historically, Metris contracted with a third party to perform services
related to most of its extended service plans and to underwrite the risks
related to performance under those extended service plans for
26
<PAGE>
a fee. The Company terminated this agreement for sales on and after January 1,
1997, and currently administers the extended service plans internally. The
Company retains the risks associated with performance under the extended service
plans entered into on or after January 1, 1997, but has not assumed any risks
already transferred to the third party. There can be no assurance that the
Company will not experience higher than anticipated costs in connection with the
internal administration and underwriting of these plans.
LIMITATION ON CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to make an offer to
purchase all the outstanding Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the date of
purchase. If a Change of Control occurs which also constitutes an event of
default under the Revolving Credit Facility, the lenders thereunder would be
entitled to exercise the remedies available to a secured lender under applicable
law and pursuant to the terms of the Revolving Credit Facility. Accordingly, any
secured claims of such lenders with respect to the assets of the Company will be
prior to any claim of the holders of the Notes with respect to such assets.
There can be no assurance that the Company will have funds available to
repurchase the Notes upon the occurrence of a Change of Control. If the Company
fails to repurchase all the tendered Notes, such failure would constitute an
event of default under the Indenture. See "Description of the New Notes--Change
of Control."
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any state
securities laws and therefore may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act
and any other applicable securities laws, or pursuant to an exemption therefrom
or in a transaction not subject thereto, and in each case in compliance with
certain other conditions and restrictions, including the Company's and the
Trustee's right in certain cases to require the delivery of opinions of counsel,
certifications and other information prior to any such transfer. Old Notes which
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Old Notes which remain
outstanding will not be entitled to any rights to have such Old Notes registered
under the Securities Act or to any similar rights under the Registration Rights
Agreement (subject to certain limited exceptions). The Company currently does
not intend to register under the Securities Act any Old Notes which remain
outstanding after consummation of the Exchange Offer (subject to such limited
exceptions, if applicable).
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes have been designated for trading
in the PORTAL market, to the extent that Old Notes are tendered and accepted in
connection with the Exchange Offer, any trading market for Old Notes which
remain outstanding after the Exchange Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will constitute a single series of debt securities under
the Indenture and, accordingly, will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the New Notes--General."
The Old Notes provide that, if the Exchange Offer is not consummated by
April 5, 1998, the Company will be obligated to pay liquidated damages to each
holder of the Old Notes in an amount equal to $0.192 per week per $1,000
principal amount of the Old Notes held by such holder, commencing April 6, 1998,
until the Exchange Offer is consummated. See "Description of the Old Notes."
Following consummation of the Exchange Offer, the Old Notes will not be entitled
to any liquidated damages thereon. The New Notes will not be entitled to any
such liquidated damages thereon.
27
<PAGE>
ABSENCE OF PUBLIC MARKET
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. The Old Notes have not been
registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for the New Notes.
Although the New Notes will generally be permitted to be resold or otherwise
transferred by the holders (who are not affiliates of the Company) without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market.
The Company has been advised by the Initial Purchasers that the Initial
Purchasers presently intend to make a market in the New Notes. However, the
Initial Purchasers are not obligated to do so and any market-making activity
with respect to the New Notes may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or the Old Notes or as to the liquidity of
or the trading market for the New Notes or the Old Notes. If an active public
market does not develop, the market price and liquidity of the New Notes may be
adversely affected.
If a public trading market develops for the New Notes, future trading prices
of such securities will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount.
Notwithstanding the registration of the New Notes in the Exchange Offer,
holders who are "affiliates" (as defined under Rule 405 of the Securities Act)
of the Company may publicly offer for sale or resell the New Notes only in
compliance with the provisions of Rule 144 under the Securities Act.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Old Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Company of such Old Notes,
a properly completed and duly executed Letter of Transmittal and all other
required documents. Therefore, holders of the Old Notes desiring to tender such
Old Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Old Notes for exchange.
USE OF PROCEEDS FROM SALE OF OLD NOTES
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes in exchange for
Old Notes as described in this Prospectus, the Company will receive Old Notes in
like principal amount. The Old Notes surrendered in exchange for the New Notes
will be retired and cancelled. Accordingly, the issuance of the New Notes will
not result in any change in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes was
approximately $97 million. The Company has used all of such net proceeds from
the issuance of the Old Notes to repay short-term indebtedness under the
Revolving Credit Facility which was incurred to fund on-balance sheet loans and
for general corporate purposes. The Revolving Credit Facility bears interest at
variable rates (7.85% at November 30, 1997) and will terminate in September
2001.
28
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company at September 30, 1997, as adjusted to give effect to the sale by the
Company of $100,000,000 aggregate principal amount of the Old Notes on November
7, 1997. The issuance of the New Notes in exchange for the Old Notes pursuant to
the Exchange Offer will have no effect on the capitalization of the Company. See
"Use of Proceeds From Sale of Old Notes."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------
PRO FORMA
--------------------
(IN THOUSANDS)
<S> <C>
Short-term borrowings under Revolving Credit Facility(1).................................... $ 53,000
----------
----------
Long-term debt:
10% Senior Notes Due 2004................................................................. $ 100,000
Shareholders' equity:
Common Stock--$.01 per share: authorized 100,000,000 shares, issued and outstanding
19,225,000 shares....................................................................... 192
Paid-in capital........................................................................... 107,059
Retained earnings......................................................................... 58,915
----------
Total stockholders' equity.............................................................. 166,166
----------
Total capitalization.................................................................. $ 319,166
----------
----------
</TABLE>
- ------------------------
(1) Represents the amount outstanding under the $300 million Revolving Credit
Facility expiring September 2001. As of November 30, 1997, the Company had
$240 million outstanding under the Revolving Credit Facility and had $60
million of additional availability under the Revolving Credit Facility. See
"Description of Credit Arrangements."
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected consolidated financial data for the
Company. Income before income taxes, net income, earnings per share, extended
service plan revenues, fee-based product revenues, total debt, stockholders'
equity and cash flow data presented below as of December 31, 1995 and 1996 and
for each of the years in the three-year period ended December 31, 1996, have
been derived from the audited financial statements and the notes thereto. Such
data as of December 31, 1993 and 1994 and for the period ended December 31,
1993, have been derived from the audited financial statements of the Company not
included herein. All other selected consolidated financial information presented
below are unaudited, and reflect, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of such data. The results for the nine months ended September 30, 1997, are not
necessarily indicative of the results to be expected for the entire year. The
selected consolidated financial information should be read in conjunction with
"Description of Credit Arrangements," the Company's Consolidated Financial
Statements (including related notes thereto) included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and the
quarterly report on Form 10-Q for the quarter ended September 30, 1997
incorporated by reference herein and the Company's Consolidated Financial
Statements (including related notes thereto) included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- ----------- -------------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (MANAGED)(1):
Net interest income............................................... $ 149 $ 279 $ 487 $ 26,354 $ 143,391
Provision for loan losses......................................... 26,234 136,305
Other operating income............................................ 7,630 10,053 14,238 52,969 126,647
Other operating expense........................................... 4,658 8,333 11,222 45,640 101,287
Income before income taxes........................................ 3,121 1,999 3,503 7,449 32,546
Net income........................................................ 1,995 1,262 2,198 4,581 20,016
Earnings per share--fully diluted................................. $ 0.12 $ 0.08 $ 0.14 $ 0.28 $ 1.16
CREDIT CARD DATA (MANAGED)(1):
Total accounts.................................................... 703 1,418
Period-end loans.................................................. $ 543,619 $ 1,615,940
Period-end assets................................................. $ 5,061 $ 6,615 $ 9,856 622,983 1,687,227
Average loans..................................................... 183,274 1,018,856
Average interest-earning assets................................... 2,497 4,531 6,615 193,086 1,040,924
Average assets.................................................... 2,561 5,191 7,076 214,363 1,078,346
CREDIT QUALITY DATA (MANAGED)(1):
Net charge-off ratio(2)........................................... 2.2% 6.2%
Loan loss reserve................................................. $ 22,219 $ 95,669
Loan loss reserve ratio(3)........................................ 4.1% 5.9%
Delinquency ratio(4).............................................. 4.0% 5.5%
Ratio of loan loss reserves to delinquent
receivables(5).................................................. 103% 107%
PROFITABILITY RATIOS (MANAGED)(1):
Net interest margin(6)............................................ 6.0% 6.2% 7.4% 13.7% 13.8%
Return on average assets.......................................... 77.1% 24.3% 31.1% 2.1% 1.9%
Return on average equity.......................................... 99.5% 32.3% 41.0% 15.2% 21.6%
Ratio of other operating expenses to average loans................ 24.9% 9.9%
Operating efficiency ratio(7)..................................... 31.8% 41.0% 50.8% 28.4% 26.6%
EXTENDED SERVICE PLAN DATA:
Net extended service plan revenues(8)............................. $ 5,906 $ 7,935 $ 12,244 $ 17,779 $ 20,420
Warrantable product unit penetration rates(9)..................... 13.3% 12.9% 15.3% 20.4% 24.4%
FEE-BASED PRODUCTS AND SERVICES DATA:
Fee-based product revenues........................................ $ 1,726 $ 2,118 $ 1,994 $ 6,662 $ 29,853
CAPITALIZATION:
Total debt........................................................ $ 63,482 $ 54,163
Stockholders' equity.............................................. $ 3,277 $ 4,539 $ 6,737 71,318 138,718
Ratio of stockholders' equity to managed assets................... 64.8% 68.6% 68.4% 11.4% 8.2%
Ratio of stockholders' equity plus reserves to managed assets..... 64.8% 68.6% 68.4% 15.0% 13.9%
CASH FLOW DATA:
Net cash provided by (used in) operating activities............... $ 3,286 $ 1,380 $ 3,412 $ (2,006) $ 92,976
Net cash used in investing activities............................. (14) (1,384) (3,454) (87,756) (133,702)
Net cash provided by (used in) financing activities............... (3,202) 124,482 38,065
Net (decrease) increase in cash and cash
equivalents..................................................... 69 (4) (42) 34,720 (2,661)
OTHER DATA:
Ratio of earnings to fixed charges(10)............................ 134.2x 6.9x 50.5x
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
INCOME STATEMENT DATA (MANAGED)(1):
Net interest income............................................... $ 95,940 $ 204,838
Provision for loan losses......................................... 85,814 210,919
Other operating income............................................ 82,168 146,233
Other operating expense........................................... 68,398 94,633
Income before income taxes........................................ 23,896 45,519
Net income........................................................ 14,696 27,994
Earnings per share--fully diluted................................. $ 0.89 $ 1.38
CREDIT CARD DATA (MANAGED)(1):
Total accounts.................................................... 1,117 1,802
Period-end loans.................................................. 1,276,687 2,683,877
Period-end assets................................................. 1,330,819 2,742,923
Average loans..................................................... 890,067 1,979,957
Average interest-earning assets................................... 909,414 2,025,808
Average assets.................................................... 946,425 2,034,598
CREDIT QUALITY DATA (MANAGED)(1):
Net charge-off ratio(2)........................................... 5.6% 8.7%
Loan loss reserve................................................. 70,635 190,626
Loan loss reserve ratio(3)........................................ 5.5% 7.1%
Delinquency ratio(4).............................................. 5.2% 6.4%
Ratio of loan loss reserves to delinquent
receivables(5).................................................. 107% 112%
PROFITABILITY RATIOS (MANAGED)(1):
Net interest margin(6)............................................ 14.1% 13.5%
Return on average assets.......................................... 2.1% 1.8%
Return on average equity.......................................... 25.0% 24.5%
Ratio of other operating expenses to average loans................ 7.7% 4.8%
Operating efficiency ratio(7)..................................... 26.7% 20.6%
EXTENDED SERVICE PLAN DATA:
Net extended service plan revenues(8)............................. 13,789 3,249
Warrantable product unit penetration rates(9)..................... 24.3% 26.8%
FEE-BASED PRODUCTS AND SERVICES DATA:
Fee-based product revenues........................................ 20,549 39,082
CAPITALIZATION:
Total debt........................................................ 53,385 153,000
Stockholders' equity.............................................. 86,014 166,166
Ratio of stockholders' equity to managed assets................... 6.5% 6.1%
Ratio of stockholders' equity plus reserves to managed assets..... 11.8% 13.0%
CASH FLOW DATA:
Net cash provided by (used in) operating activities............... $ 70,400 $ 124,751
Net cash used in investing activities............................. (67,378) (204,819)
Net cash provided by (used in) financing activities............... (10,097) 97,451
Net (decrease) increase in cash and cash
equivalents..................................................... (7,075) 17,383
OTHER DATA:
Ratio of earnings to fixed charges(10)............................ 8.5x 7.6x
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
30
<PAGE>
- ------------------------------
(1) The Company reports its financial performance on an owned loan portfolio
basis in accordance with generally accepted accounting principles. However,
the Company manages its business and analyzes its financial performance on a
managed loan portfolio basis whereby the income statement and balance sheet
are adjusted to reverse the effects of securitization. The Company believes
the presentation of its Selected Consolidated Financial Information on a
managed basis is a more meaningful presentation of its financial
performance.
(2) The net charge-off ratio represents actual principal amounts charged off,
less recoveries, as a percentage of average loans, annualized for the nine
month periods.
(3) The loan loss reserves ratio represents loan loss reserves at period-end as
a percentage of period-end loans.
(4) The delinquency ratio represents credit card loans that were at least 30
days contractually past due at period-end as a percentage of period-end
loans.
(5) The ratio of loan loss reserves to delinquent receivables represents loan
loss reserves at period-end as a percentage of credit card loans that were
at least 30 days contractually past due at period-end.
(6) The net interest margin represents net interest income divided by average
interest earning assets and includes the Company's actual cost of funds plus
all costs associated with asset securitizations, including the interest
expense paid to the certificateholders and amortization of the discount and
fees, annualized for the nine month periods.
(7) The operating efficiency ratio represents total operating expenses less
credit card account and other product solicitation and marketing expenses as
a percentage of net interest income and other operating income.
(8) Net extended service plan revenues include revenues from sales of extended
service plans, net of a provision for service plan returns. The Company
began performing administrative services and retained the claims risk for
all extended service plans sold on or after January 1, 1997. As a result,
extended service plan revenues are deferred and recognized over the life of
the related extended service plan contracts. Prior to January 1, 1997, the
Company contracted with a third-party underwriter and claims administrator
to service and absorb the risk of loss for most claims and the revenues
related to these contract sales were recognized immediately.
(9) Warrantable product unit penetration rates reflect the percentage of
extended service plans sold to all Warrantable Products sold. Percentage for
all years presented reflect the inclusion of jewelry and furniture products
as Warrantable Products even though extended service plans for such products
were not introduced until the middle of 1995.
(10) For the purposes of such computation, (i) earnings consist of earnings from
continuing operations before income taxes, plus fixed charges, and (ii)
fixed charges consist of interest and a portion of rental expense deemed
representative of the interest factor. The ratio of earnings to fixed
charges is calculated on an owned basis.
31
<PAGE>
DESCRIPTION OF CREDIT ARRANGEMENTS
REVOLVING CREDIT FACILITY
The Company borrows under the Revolving Credit Facility to fund on-balance
sheet loans and for other general corporate purposes. The Chase Manhattan Bank
("Chase") acts as the Administrative Agent and Issuing Bank under the Revolving
Credit Facility. The Company may borrow up to $300 million on a revolving basis
under the Revolving Credit Facility, provided that the Company may borrow
amounts in excess of $200 million ("Excess Amounts") under the Revolving Credit
Facility only to the extent that the Company has unutilized commitments
allocable to the Metris Master Trust under a liquidity facility of the Fingerhut
Owner Trust (the "Fingerhut Liquidity Agreement") (or any replacement facility)
or cash in connection with a pre-funded asset-backed term security equal to such
Excess Amounts. At September 30, 1997, the Company had outstanding borrowings of
$153 million under the Revolving Credit Facility. Borrowings under the Revolving
Credit Facility bear interest at a rate per annum equal to (at the Company's
option): (i) an adjusted London inter-bank offered rate ("Adjusted LIBOR") plus
.17% to .50% per annum based on the credit rating of FCI's senior unsecured
long-term debt or (ii) an alternate base rate (equal to the highest of Chase's
prime rate, a certificate of deposit rate plus 1% and the Federal Funds
effective rate plus 1/2 of 1%. The weighted average interest rate on the
Revolving Credit Facility borrowings at September 30, 1997 was 7.9%. The
Revolving Credit Facility is guaranteed by FCI and is secured by the pledge of
the stock of certain subsidiaries of the Company and certain accounts receivable
and interests held therein by the Company. The Revolving Credit Facility
contains certain financial covenants standard for revolving credit facilities of
this type, including minimum net worth, minimum equity to managed assets ratio,
maximum leverage and a limitation on indebtedness. The Revolving Credit Facility
also contains customary events of default. In addition, the FCI guarantee
includes certain covenants including interest coverage, leverage and minimum net
worth for FCI. The Revolving Credit Facility expires in September 2001, but may
be terminated earlier in the event that FCI owns less than 51% of the Common
Stock of Metris. See "Risk Factors--Need to Refinance the Revolving Credit
Facility."
SECURITIZATIONS
A significant source of funding for the Company has been the securitization
of credit card loans. At September 30, 1997, the Company had received cumulative
net proceeds of approximately $2.3 billion from sales of credit card loans, of
which $14.7 million was deposited in an investor reserve account held by the
trustee of the Metris Master Trust for the benefit of the Trust's
certificateholders. Cash generated from these transactions was used to reduce
short-term borrowings and to fund credit card loan growth.
The Metris Master Trust was formed pursuant to a pooling and servicing
agreement between Metris Receivables, Inc., as transferor (the "Transferor"),
Direct Merchants Bank, as servicer, and a bank trustee. The Metris Master Trust
currently has three series of certificates outstanding: Series 1995-1 variable
funding certificates with a maximum principal amount of $1,025.2 million (of
which maximum amount $800 million is allocable to the Metris Master Trust under
the Fingerhut Liquidity Agreement), Series 1996-1 with a principal amount of
$655.5 million and Series 1997-1 with a principal amount of $794.8 million. In
connection with the Spin Off, the Company is considering establishing its own
asset-backed commercial paper program similar to the Fingerhut Owner Trust.
Subject to limitations on the number of new accounts that may be added in
any year without rating agency approval, all loans in substantially all Direct
Merchants Bank credit card accounts are transferred to the Metris Master Trust.
The loans transferred to the Metris Master Trust, except for loans in accounts
from acquired portfolios which may be financed through a third party conduit,
include those outstanding in the selected accounts at the time certificates
representing participation interests in the trust are sold, and those arising
under the accounts from time to time. The Company also transfers to the Metris
Master Trust for the benefit of the certificateholders the cash collected in
payment of loans, interest and fees. The credit quality of the loans is
supported by a credit enhancement, generally in the form of a subordinated
interest
32
<PAGE>
in the trust or a cash collateral account. The Company may be required to
designate additional accounts to the extent they are available and transfer
present and future loans relating to such additional accounts to the trust if
the amount of the loans in the trust declines below a minimum dollar amount. All
additional accounts transferred to the trust must meet the same eligibility
standards imposed on the existing accounts. All proceeds of the loans and the
annual fees, cash advance fees, late fees and similar fees received or to be
received for each account are similarly transferred to the trust. Interchange
fees have not been transferred to the trust in the Company's existing
transactions.
Certificates representing beneficial ownership interests in the assets of
the Metris Master Trust are sold to investors. The Transferor receives the
proceeds of the sale and uses the proceeds to purchase more loans from the
Company. The amount of loans transferred to the trust for the benefit of the
certificateholders always exceeds the initial principal amount of the
certificates sold to investors. Consequently, the Company retains an interest in
the trust in an amount equal to the amount of the retained subordinated
certificates of each series held by the Transferor plus the amount equal to the
loans in excess of the principal balance of the certificates. The Company's
interest in the trust varies as the credit card account holders make principal
payments and incur new charges on the designated accounts.
Direct Merchants Bank acts as servicer and receives servicing fees generally
equal to 2% per annum of the certificates sold to investors and collateralized
by the securitized loans. As servicer, Direct Merchants Bank continues to
provide customer service and all other services typically performed for its
customers. Accordingly, its relationship with its credit card customers is not
affected by the securitization.
During the revolving period relating to a series of certificates, the
certificateholders are entitled to receive periodic interest payments at a fixed
rate, a floating rate or a variable rate. The interest rate on the existing
fixed rate certificate is substantially below the yield on the pool of loans.
The existing floating rate certificates are based on a LIBOR calculation and the
existing variable rate certificates are based on a commercial paper cost of
funds rate. Certificates may contain built-in interest rate caps, although the
Metris Master Trust has issued only uncapped certificates to date. The Company
has purchased interest rate caps for certain certificates. Since all of the
Company's credit card accounts currently have variable rates of interest, the
floating rate issuance also has a rate substantially below the yield on the pool
of loans. Cardholder payments in excess of the amount needed to pay the rate of
interest are used to pay the servicing fee, to absorb the investors' share of
credit losses and to pay other master trust expenses, and, finally, paid to the
Transferor.
After the end of the revolving period relating to a series of certificates,
the amortization period for that series commences. Certificateholders are
entitled to receive principal payments either through monthly payments during an
amortization period or in one lump sum after an accumulation period.
Amortization may begin sooner in certain circumstances, including if the
annualized portfolio yield (consisting, generally, of interest, annual fees and
other credit card fees) net of credit losses for a three-month period drops
below the sum of the certificate rate payable to investors and loan servicing
fees during the period or if certain other events occur.
Prior to the commencement of the amortization period relating to a series of
certificates, all principal payments received on the trust receivables are
reinvested in new loans of the selected accounts for the benefit of the trust.
During an amortization period, the investors' share of principal payments are
paid to the certificateholders until they are paid in full. Acceleration of the
amortization period would accelerate the Company's funding requirement with
respect to the underlying loans. The trust will continue in existence until the
earliest of the date on which all certificateholders of all series are repaid
the principal amounts of their certificates, at which time all remaining loans
and funds held in the trust are reassigned to the Transferor, the occurrence of
an insolvency event (as defined therein), and May 26, 2095.
In addition, the Company finances the acquisition of credit card portfolios
by selling undivided ownership interests in these receivables to third party
conduits.
33
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company and the Guarantor
entered into the Registration Rights Agreement with the Initial Purchasers,
pursuant to which the Company and the Guarantor agreed to file and to cause to
become effective with the Commission a registration statement with respect to
the exchange of the Old Notes for debt securities with terms identical in all
material respects to the terms of the Old Notes. A copy of the Registration
Rights Agreement has been filed as an Exhibit to the Registration Statement of
which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Guarantor under the Registration Rights Agreement. The form
and terms of the New Notes are the same as the form and terms of the Old Notes
except that: (i) the New Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Old Notes and will not be entitled to registration and other rights under
the Registration Rights Agreement, and (ii) the New Notes will not provide for
any liquidated damages thereon. In that regard, the Old Notes provide, among
other things, that, if the Exchange Offer is not consummated by April 5, 1997,
the Company will be obligated to pay liquidated damages to each holder of the
Old Notes in an amount equal to $0.192 per week per $1,000 principal amount of
the Old Notes held by such holder commencing on April 6, 1997, until the
Exchange Offer is consummated. Upon consummation of the Exchange Offer, holders
of Old Notes will not be entitled to any liquidated damages thereon or any
further registration rights under the Registration Rights Agreement, except
under limited circumstances. See "Risk Factors--Consequences of a Failure to
Exchange Old Notes" and "Description of the Old Notes."
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company or
the Guarantor or, if it is such an affiliate, such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent possible, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage in
a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making or other trading activities. The Company has agreed that for a
period ending 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Old Notes are registered on
the books of the Company or any other person who has obtained a properly
completed bond power from the registered holder, or any person whose Old Notes
are held of record by The Depository Trust Company who desires to deliver such
Old Notes by book-entry transfer at The Depository Trust Company.
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TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100,000,000 aggregate principal amount of New Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date (as defined below) and not properly withdrawn in accordance with
the procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $100,000,000 of New
Notes in exchange for a like principal amount of outstanding Old Notes tendered
and accepted in connection with the Exchange Offer. Holders may tender their Old
Notes in whole or in part in a principal amount of $1,000 and integral multiples
thereof, provided that if any Old Note is tendered for exchange in part, the
untendered principal amount thereof must be $1,000 or any integral multiple of
$1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered. As of the date of this Prospectus $100,000,000 aggregate
principal amount of the Old Notes is outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for or are
tendered but not accepted in connection with the Exchange Offer will remain
outstanding and be entitled to the benefits of the Indenture, but will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Risk Factors--Consequences
of a Failure to Exchange Old Notes" and "Description of Old Notes."
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Old Notes in connection with the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes in connection with the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer (whether or not any Old Notes have theretofore been accepted for
exchange) if the Company determines, in its sole and absolute discretion, that
any of the events or conditions referred to under "--Conditions to the Exchange
Offer" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain all Old Notes tendered pursuant
to the Exchange Offer, subject, however, to the right of holders of Old Notes to
withdraw their
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tendered Old Notes as described under "--Withdrawal Rights," and (iv) to waive
any condition or otherwise amend the terms of the Exchange Offer in any respect.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, or if the Company waives a material condition of
the Exchange Offer, the Company will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to the registered holders of
the Old Notes, and the Company will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, New Notes for Old
Notes validly tendered and not withdrawn (pursuant to the withdrawal rights
described under "--Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depositary Trust Company ("DTC"), (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Old Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent of the Company's acceptance of such Old
Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of Old Notes,
Letters of Transmittal and related documents, and as agent for tendering holders
for the purpose of receiving Old Notes, Letters of Transmittal and related
documents and transmitting New Notes to validly tendering holders. Such exchange
will be made promptly after the Expiration Date. If for any reason whatsoever,
acceptance for exchange or the exchange of any Old Notes tendered pursuant to
the Exchange Offer is delayed (whether before or after the Company's acceptance
for exchange of Old Notes) or the Company extends the Exchange Offer or is
unable to accept for exchange or exchange Old Notes tendered pursuant to the
Exchange Offer, then, without prejudice to the Company's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Company and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Notes and
such Old Notes may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant
and agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer Old Notes, that the Company will
acquire good, marketable and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The holder also will warrant and agree that it will, upon
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request, execute and deliver any additional documents deemed by the Company or
the Exchange Agent to be necessary or desirable to complete the exchange, sale,
assignment, and transfer of the Old Notes tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER. Except as set forth below, in order for Old Notes to be
validly tendered pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must be received by the
Exchange Agent at its address set forth under "--Exchange Agent," and either (i)
tendered Old Notes must be received by the Exchange Agent, or (ii) such Old
Notes must be tendered pursuant to the procedures for book-entry transfer set
forth below and a book-entry confirmation must be received by the Exchange
Agent, in each case on or prior to the Expiration Date, or (iii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering holder should
fill in the amount of Old Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in DTC's book-entry transfer facility system may make a book-
entry delivery of the Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "--Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT
SIGNATURE GUARANTEES. Certificates for the Old Notes need not be endorsed
and signature guarantees on the Letter of Transmittal are unnecessary unless (a)
a certificate for the Old Notes is registered in a name other than that of the
person surrendering the certificate or (b) such registered holder completes the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Notes must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
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GUARANTEED DELIVERY. If a holder desires to tender Old Notes pursuant to
the Exchange Offer and the certificates for such Old Notes are not immediately
available or time will not permit all required documents to reach the Exchange
Agent on or before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Old Notes may nevertheless
be tendered, provided that all of the following guaranteed delivery procedures
are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees and any other documents required
by the Letter of Transmittal, are received by the Exchange Agent within
five New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when Old Notes, book-entry confirmations with respect to Old
Notes and other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "--Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
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should so indicate when signing, and unless waived by the Company, proper
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
REQUIRED REPRESENTATIONS AND ACKNOWLEDGMENTS. By tendering, each holder
will represent to the Company that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the holder, and that neither the holder nor such other person has any
arrangement or understanding with any person to participate in the distribution
of the New Notes. If any Holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company or is engaged in or
intends to engage in, or has an arrangement or understanding with any person to
participate in, a distribution of such New Notes to be acquired pursuant to the
Exchange Offer, such holder or any such other person (i) may not rely on the
applicable interpretation of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that New Notes
issued pursuant to this Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company or
who intends to participate in the Exchange Offer for the purpose of distributing
New Notes, or any broker-dealer who purchased Old Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Old Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Notes unless such sale is
made pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Notes acquired for its own account as a
result of market-making or other trading activities and exchanges such Old Notes
for New Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company, or
the Guarantor, or if it is an affiliate, such holder will comply with the
registration and
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prospectus delivery requirements of the Securities Act to the extent possible
(ii) any New Notes to be received by it are being acquired in the ordinary
course of its business, (iii) it has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of such New Notes, and (iv) if such holder is not a broker-dealer, such
holder is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer during the period referred to below in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer for its own account as a
result of market-making or other trading activities. The Company has agreed that
for a period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Each broker-dealer who participates in the Exchange Offer and who acquired
the Old Notes for its own account as a result of market-making or other trading
activities (a "Participating Broker-Dealer") may indicate on the Letter of
Transmittal that they wish to receive 10 additional copies of this Prospectus
(and any amendment or supplement thereto). Each Participating Broker-Dealer who
surrenders Old Notes pursuant to the Exchange Offer will be deemed to have
agreed, by execution of the Letter of Transmittal, that, upon receipt of notice
from the Company of the occurrence of any event or the discovery of any fact
which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Notes pursuant to this Prospectus
until the Company has amended or supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the amended or supplemented
Prospectus to such Participating Broker-Dealer or the Company has given notice
that the sale of the New Notes may be resumed, as the case may be. If the
Company gives such notice to suspend the sale of the New Notes, it shall extend
the 90-day period referred to above during which Participating Broker-Dealers
are entitled to use this Prospectus in connection with the resale of New Notes
by the number of days during the period from and including the date of the
giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the New Notes or to and including the
date on which the Company has given notice that the sale of New Notes may be
resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "--Exchange Agent" on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of
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withdrawal must be guaranteed by an Eligible Institution, except in the case of
Old Notes tendered for the account of an Eligible Institution. If Old Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
"--Procedures for Tendering Old Notes," the notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawal of
Old Notes, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly
withdrawn will not be deemed validly tendered for purposes of the Exchange
Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 10% per annum from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no interest has been paid or
duly provided for on such Old Note, from November 7, 1997 (the date of original
issuance of such Old Notes). Interest on the New Notes will be payable
semiannually on May 1 and November 1 of each year, commencing on the first such
date following the original issuance date of the New Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after November 7, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to accept for exchange,
or to exchange, any Old Notes for any New Notes, and, as described below, may
terminate the Exchange Offer (whether or not any Old Notes have theretofore been
accepted for exchange) or may waive any conditions to or amend the Exchange
Offer, if any of the following conditions have occurred or exists or have not
been satisfied:
(i) any injunction, order or decree shall have been issued by any court or
any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any applicable
interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such
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right and such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order is threatened by the Commission or in effect with
respect to the Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
EXCHANGE AGENT
The First National Bank of Chicago, has been appointed as Exchange Agent for
the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
The First National Bank of Chicago
c/o First Chicago Trust Company of New York
14 Wall Street
8th Floor, Window 2
New York, N.Y. 10005
Attention: Corporate Trust Administrator
Telephone: (212) 240-8801
Facsimile: (212) 240-8938 (Eligible Institutions only)
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in handling or tendering for their
customers.
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and the New Notes are to be issued under the
Indenture dated as of November 7, 1997 ("the Indenture") between the Company,
the Guarantor and The First National Bank of Chicago, as Trustee ("the
Trustee"). The summaries of certain provisions of the Indenture, the Old Notes
and the New Notes set forth below and under "Description of the Old Notes" do
not purport to be complete and are subject to and are qualified in their
entirety by reference to all of the provisions of the Indenture and the forms of
the certificates evidencing the Old Notes and the New Notes, which documents
have been filed or incorporated by reference as exhibits to the Registration
Statement and are incorporated herein by reference. See "Available Information."
Certain capitalized terms used herein are defined in the Indenture. As used in
this "Description of the New Notes," all references to the "Company" shall mean
Metris Companies Inc., excluding, unless the context shall otherwise require,
its subsidiaries.
The Indenture does not limit the aggregate principal amount of debt
securities which may be issued thereunder.
The Old Notes and the New Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, holders of
the Old Notes who do not exchange their Old Notes for New Notes will vote
together with the holders of New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding debt securities of the
relevant series. In determining whether holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Old Notes which remain outstanding
after the Exchange Offer will be aggregated with the New Notes and the holders
of such Old Notes and New Notes will vote together as a single series for all
such purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding Notes shall be deemed to mean, at
any time after the Exchange Offer is consummated, such percentage in aggregate
principal amount of the Old Notes and New Notes then outstanding.
The New Notes and the Old Notes are sometimes referred to as, collectively,
the "Notes" and, individually, a "Note."
The New Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company has
appointed the Trustee to serve as registrar and paying agent under the Indenture
at its offices in the Borough of Manhattan, City of New York. No service charge
will be made for any registration of transfer or exchange of the Notes, except
for any tax or other governmental charge that may be imposed in connection
therewith.
RANKING
The Old Notes are and the New Notes will be senior unsecured obligations of
the Company, and will rank PARI PASSU in right of payment with all existing and
future senior Indebtedness of the Company and senior in right of payment to all
existing and future subordinated Indebtedness of the Company. The obligations of
the Guarantors under the Subsidiary Guarantees will be senior unsecured
obligations of the respective Guarantors. The Old Notes are and the New Notes
will be effectively subordinated to all existing and future secured Indebtedness
of the Company and to all obligations of any Subsidiaries of the Company which
are not Guarantors, and each Guarantor's obligations under its Subsidiary
Guarantee will be effectively subordinated to all existing and future secured
Indebtedness of such Guarantor.
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The Company and certain of its Subsidiaries are parties to the Revolving Credit
Facility and all borrowings under the Revolving Credit Facility are secured by a
first priority Lien on certain assets of the Company and certain of its
Subsidiaries. As of September 30, 1997, after giving PRO FORMA effect to the
issuance of the Old Notes and the application of the net proceeds therefrom, the
aggregate principal amount of the Company's outstanding Indebtedness would have
been approximately $153 million (excluding unused commitments of $247 million
under the Revolving Credit Facility). The Indenture permits additional
borrowings by the Company and its Subsidiaries in the future, subject to certain
limitations, including without limitation, under the Revolving Credit Facility
and other Credit Facilities. See "--Certain Covenants--Limitation on
Indebtedness and Risk Factors--Holding Company Structure; Effective
Subordination of Notes"
MATURITY, INTEREST AND PRINCIPAL OF THE NEW NOTES
The New Notes will be limited to $100.0 million aggregate principal amount
and will mature on November 1, 2004. Cash interest on the New Notes will accrue
at a rate of 10% per annum and will be payable semi-annually in arrears on each
May 1 and November 1, commencing May 1, 1998, to the holders of record of such
New Notes at the close of business on each April 15 and October 15,
respectively, immediately preceding such interest payment date. Cash interest
will accrue from the most recent interest payment date to which interest has
been paid or duly provided for on the Old Note surrendered in exchange for the
New Note or, if no interest has been paid or duly provided for on such Old Note
from May 1, 1998. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after November 1, 2001, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
beginning on November 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- -------------
<S> <C>
2001............................................................................ 107.50%
2002............................................................................ 105.00%
2003............................................................................ 102.50%
</TABLE>
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a PRO RATA
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part. Notice of redemption shall be mailed by first-class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Notes to be redeemed at its registered address. If any Note is to be redeemed in
part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in a
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the paying agent
for the Notes funds in satisfaction of the applicable redemption price pursuant
to the Indenture.
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SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed on a senior unsecured basis (the "Subsidiary Guarantees")
by the Guarantors. As of the Issue Date, Metris Direct, Inc. will be the only
Guarantor. See "--Certain Covenants--Additional Subsidiary Guarantees." The
obligations of each Guarantor under its Subsidiary Guarantee is limited so as
not to constitute a fraudulent conveyance under applicable law.
Under federal or state fraudulent conveyance statutes or other legal
principles, the Subsidiary Guarantees might be subordinated to existing or
future indebtedness of the Guarantors, or voided or found not be enforceable in
accordance with their terms. If a court in a lawsuit on behalf of an unpaid
creditor of a Guarantor or a representative of creditors, such as a trustee in
bankruptcy, were to find that the Guarantor issued its Subsidiary Guarantee with
actual intent to hinder, delay or defraud creditors, or received less that a
reasonably equivalent value of fair consideration for such Subsidiary Guarantee
and at the time of such incurrence or issuance (a) was insolvent, (b) was
rendered insolvent by reason of such incurrence or issuance, (c) was engaged or
about to engage in a business or transaction for which its remaining assets
constituted unreasonably small capital to carry on its business or (d) intended
to incur, or believed that it would incur, debts (including contingent
obligations) beyond its ability pay such debts as they matured, such court might
permit such Subsidiary Guarantee, and prior payments thereon, to be voided by
such creditor or representative and permit such prior payments to be recovered
from the holders of the Notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, a
Guarantor would be considered insolvent if, at the time it issued its Subsidiary
Guarantee either the fair market value (or fair saleable value) of its assets
was less than the amount required to pay its total debts and liabilities
(including contingent liabilities) as they become absolute and matured or it had
incurred debts (including contingent obligations) beyond its ability to repay
such debts as they mature. Among other things, a legal challenge to a Subsidiary
Guarantee on fraudulent conveyance grounds may focus on the benefits, if any,
realized by the Guarantor as a result of the issuance by the Company of the
Notes. To the extent a Subsidiary Guarantee or a Guarantor was voided as a
fraudulent conveyance or held unenforceable for any other reason, the holders of
the Notes would cease to have any claim in respect of such Subsidiary Guarantee
and would be solely creditors of the Company and any other Guarantors, and may
be required to return all amounts received pursuant to such Guarantor's
Subsidiary Guarantee. In such event, the claims of the holders of the Notes
would be subject to the prior payment of all liabilities of the Guarantor. There
can be no assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the holders of the Notes.
The Company believes, and each Guarantor believes, that the Subsidiary
Guarantees are being incurred for proper purposes and in good faith, that the
Guarantors received fair consideration for the issuance of the Subsidiary
Guarantees, that each Guarantor is and will be solvent under the foregoing
standards and that it had, has and will have sufficient capital for carrying on
its business and was, is and will be able to pay its debts as they mature. There
can be no assurance, however, that a court would reach the same conclusion.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless, subject to the provisions of the following paragraph, (i) the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor under its Subsidiary
Guarantee pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction, no Default or Event of Default exists;
(iii) such
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Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Guarantor immediately preceding the transaction; and (iv) immediately after
giving effect to such transaction, the Company would have been able to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in the first paragraph of the covenant described below
under the caption "--Certain Covenants--Limitation on Indebtedness".
Notwithstanding the foregoing, any Wholly-Owned Restricted Subsidiary of the
Company may consolidate with or merge into any Guarantor; PROVIDED that the
Guarantor is the surviving corporation, and any Guarantor may consolidate with
or merge into the Company.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will
automatically be released and relieved of its obligations under its Subsidiary
Guarantee; PROVIDED that the Net Cash Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture. See
"--Certain Covenants--Limitation on Asset Sales."
CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall notify the Holders of the
Notes of such occurrence in the manner prescribed by the Indenture and shall,
within 30 days after the Change of Control Date, make an Offer to Purchase all
Notes then outstanding at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Purchase Date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
If a Change of Control occurs which also constitutes an event of default
under the Revolving Credit Facility, the lenders under the Revolving Credit
Facility would be entitled to exercise the remedies available to a secured
lender under applicable law and pursuant to the terms of the Revolving Credit
Facility. Accordingly, any claims of such lenders with respect to the assets of
the Company will be prior to any claim of the Holders of the Notes with respect
to such assets to the extent of the security interest therein.
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders of Notes seeking to accept the Offer to Purchase. If the
Company fails to repurchase all of the Notes tendered for purchase, such failure
will constitute an Event of Default under the Indenture. See "--Events of
Default--and Remedies."
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed an Event of Default
or an event that, with the passing of time or giving of notice, or both, would
constitute an Event of Default.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
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CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company) or to
the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than (A)
dividends, payments or distributions payable solely in Equity Interests
(other than Disqualified Stock) of the Company and (B) dividends, payments
or distributions payable solely to the Company or its Wholly-Owned
Restricted Subsidiaries);
(ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any
Wholly-Owned Restricted Subsidiary of the Company); or
(iii) make any Restricted Investment;
(all such payments and other actions set forth in clauses (i) through (iii)
above being collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Consolidated Leverage Ratio test
set forth in the first paragraph of the covenant described below under the
caption "--Limitation on Indebtedness;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clause (ii) of the next succeeding paragraph), is less than the sum of
(i) 25% of the aggregate cumulative Consolidated Net Income of the Company
for the period (taken as one accounting period) from and after October 1,
1997 to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company from the issue or sale since the date
of the Indenture of Equity Interests of the Company (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the Company that have
been converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus (iii) to the extent
that any Restricted Investment that was made after the date of the Indenture
is sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of, other Equity Interests of the Company (other than
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Disqualified Stock); PROVIDED that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) (ii) of the preceding paragraph;
(iii) the payment of any dividend by a Restricted Subsidiary of the Company to
the holders of its common Equity Interests on a PRO RATA basis; (iv) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Restricted Subsidiary of the Company held
by any member of the Company's (or any of its Restricted Subsidiaries')
management in connection with compensation or severance arrangements; PROVIDED
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.0 million in any twelve-month
period and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (v) payments of withholding taxes due or
payments of exercise prices in connection with exercises of options for common
stock of the Company by any employee or former employee of the Company (or any
Affiliate of the Company) by the tender of common stock owned by such employee
or the withholding of shares of common stock of the Company in connection with
such option exercise as consideration therefor in connection with compensation
arrangements; (vi) any purchase, redemption or other acquisition or retirement
for a nominal amount of Equity Interests issued pursuant to any shareholder
rights plan of the Company, as the same may be adopted or amended from time to
time; (vii) payment of cash in lieu of fractional shares of common stock that
otherwise would be issuable; and (viii) if no Default or Event of Default shall
have occurred and be continuing, the payment of dividends on the Common Stock
not in excess of $0.02 per share (as adjusted for stock splits, stock dividends,
reclassifications and the like) per fiscal quarter.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greater of (y) the net book value of such Investments at the time
of such designation or (z) the fair market value of such Investments at the time
of such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all non-cash Restricted Payments shall be the fair market
value on the date of the Restricted Payment of the assets or securities proposed
to be transferred or issued by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors of the
Company whose resolution with respect thereto shall be delivered to the Trustee,
such determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than 50 days after the end of
any fiscal quarter (100 days in the case of the last fiscal quarter of the
fiscal year) during which any Restricted Payment is made, the Company shall
deliver to the Trustee an Officers' Certificate stating that all Restricted
Payments made during such fiscal quarter were permitted and setting forth the
basis upon which the calculations required by this covenant were computed,
together with a copy of any opinion or appraisal required by the Indenture.
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR") any
Indebtedness (including Acquired Debt), and the Company and the Guarantors will
not issue any Disqualified Stock, and the Company will not permit any of its
Restricted Subsidiaries (that are not Guarantors) to issue any shares of
preferred stock; PROVIDED, HOWEVER, that the Company and the Guarantors may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock or the Company's
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Restricted Subsidiaries (that are not Guarantors) may issue shares of preferred
stock if the Consolidated Leverage Ratio of the Company, calculated on a pro
forma basis after giving effect to the incurrence of the additional Indebtedness
to be incurred or the Disqualified Stock or preferred stock to be issued and the
application of the proceeds therefrom, would have been less than 2.0 to 1.
Notwithstanding the preceding paragraph, the Company and its Restricted
Subsidiaries may incur the following Indebtedness (collectively, "PERMITTED
DEBT"):
(i) Indebtedness of the Company under the Credit Agreement and
Guarantees thereof by the Guarantors in an aggregate amount not to exceed
$300.0 million at any time outstanding;
(ii) the Indebtedness of the Company and its Restricted Subsidiaries
existing on the Issue Date;
(iii) Indebtedness of any Restricted Subsidiary of the Company
represented by a Subsidiary Guarantee;
(iv) Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance, defease, renew or replace
any Indebtedness (other than intercompany Indebtedness) that was permitted
by the Indenture to be incurred or that was outstanding on the Issue Date;
(v) intercompany Indebtedness between or among the Company and any of
its Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) if the Company or
any Guarantor is the obligor on such Indebtedness to a Restricted Subsidiary
of the Company that is not a Wholly-Owned Restricted Subsidiary of the
Company, such Indebtedness is expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Notes or the Subsidiary
Guarantee, as the case may be, and (ii)(A) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted Subsidiary of the
Company and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Restricted Subsidiary of the
Company shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may
be, that was not permitted by this clause (v);
(vi) the issuance by a Restricted Subsidiary of the Company of preferred
stock to the Company or to any of the Guarantors; PROVIDED, HOWEVER, that
any subsequent event or issuance or transfer of any Capital Stock that
results in the owner of such preferred stock, in the case of a Guarantor,
ceasing to be a Restricted Subsidiary of the Company or any subsequent
transfer of such preferred stock to a Person other than the Company or any
of the Guarantors, shall be deemed to be an issuance of preferred stock by
such Restricted Subsidiary that was not permitted by this clause (vi);
(vii) Hedging Obligations that are incurred in the ordinary course of
business;
(viii) Capital Lease Obligations and/or Purchase Money Indebtedness of
the Company or a Restricted Subsidiary of the Company incurred in the
ordinary course of business not to exceed $30.0 million at any time
outstanding;
(ix) the Guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant; and
(x) additional Indebtedness of the Company and the Guarantors in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (x), not to exceed $10.0 million at any time outstanding.
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Notwithstanding anything in the Indenture to the contrary, consummation of a
Securitization shall not be deemed to be the incurrence of Indebtedness or the
issuance of Disqualified Stock or preferred stock by the Company or a Restricted
Subsidiary of the Company.
The Indenture also provides that the Company will not, and will not permit
any Restricted Subsidiary of the Company to, incur any Indebtedness that is
contractually subordinated to any Indebtedness of the Company or any such
Restricted Subsidiary unless such Indebtedness is also contractually
subordinated to the Notes, or the Subsidiary Guarantee of such Restricted
Subsidiary (as applicable), on substantially identical terms; PROVIDED, HOWEVER,
that no Indebtedness shall be deemed to be contractually subordinated to any
other Indebtedness solely by virtue of being unsecured or not guaranteed by any
Restricted Subsidiary of the Company.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (x) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof.
LIMITATION ON LIENS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind (other than Permitted Liens)
upon any of their property or assets, now owned or hereafter acquired, unless
all payments due under the Indenture and the Notes and, in the case of a
Guarantor, its Subsidiary Guarantee are secured on an equal and ratable basis
(or on a senior basis in the case of subordinated Indebtedness) with the
obligations so secured until such time as such obligations are no longer secured
by a Lien.
LIMITATION ON ASSET SALES. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value of the assets sold or otherwise disposed of and (ii) at
least 85% of such consideration consists of (A) cash or Cash Equivalents, (B)
properties and assets to be used in the business of the Company and its
Restricted Subsidiaries and/or (C) Equity Interests in any Person which thereby
becomes a Wholly-Owned Restricted Subsidiary of the Company. The amount of any
(i) Indebtedness (other than any subordinated Indebtedness) of the Company or
any Restricted Subsidiary of the Company that is actually assumed by the
transferee in such Asset Sale and from which the Company and the Restricted
Subsidiaries of the Company are fully released shall be deemed to be cash for
purposes of determining the percentage of cash consideration received by the
Company or any of its Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or any of its Restricted Subsidiaries from
such transferee that are immediately converted, sold or exchanged (or are
converted, sold or exchanged within thirty days of the related Asset Sale) by
the Company or any of its Restricted Subsidiaries into cash shall be deemed to
be cash, in an amount equal to the net cash proceeds realized upon such
conversion, sale or exchange, for purposes of determining the percentage of cash
consideration received by the Company or any of its Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i) apply
the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof to
repay Specified Senior Indebtedness of the Company or such Restricted Subsidiary
and permanently reduce any related commitment, or (ii) commit in writing to, or,
acquire, construct or improve properties and assets to be used in the business
of the Company and its Restricted Subsidiaries and so apply such Net Cash
Proceeds within 365 days after the receipt thereof.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied within 365 days of such Asset Sale as described in clause (i) or (ii) of
the immediately preceding paragraph (such Net
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Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20
days after such 365th day, make an Offer to Purchase all outstanding Notes up to
a maximum principal amount (expressed as a multiple of $1,000) of Notes equal to
such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the Purchase Date; PROVIDED, HOWEVER, that the Offer to Purchase may be
deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in
excess of $10.0 million, at which time the entire amount of such Unutilized Net
Cash Proceeds, and not just the amount in excess of $10.0 million, shall be
applied as required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased PRO RATA
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not applied to repurchase the Notes for any purpose consistent with the
other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed a Default or an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries, (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) the Indenture,
(b) applicable law, (c) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, PROVIDED that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Indenture to be incurred, (d) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (e) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (f) Permitted Refinancing Indebtedness, PROVIDED that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced, (g) the provisions of any
Securitization that are exclusively applicable to any Securitization Entity, or
(h) in the case of clause (iii) above, restrictions contained in security
agreements securing Indebtedness
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of Guarantors relating to the properties or assets of Guarantors subject to the
Liens created thereby, PROVIDED that such Liens were otherwise permitted to be
incurred under the Indenture.
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Indenture provides that the
Company may not consolidate or merge with or into (whether or not the Company is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another corporation, Person or entity unless
(i) the Company is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Notes and the Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately before and after such transaction, no Default or Event of Default
exists; and (iv) the Company or the entity or Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) would, at the time of such transaction and
after giving pro forma effect thereto, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Leverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Limitation on Indebtedness." Notwithstanding the foregoing, any Wholly-Owned
Restricted Subsidiary of the Company may consolidate with or merge into the
Company; PROVIDED that the Company is the surviving corporation. Notwithstanding
anything in the Indenture to the contrary, consummation of one or more
Securitizations shall not constitute the sale of all or substantially all of the
properties or assets of the Company.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, a resolution of the Board of Directors of the Company that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors of the Company and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; PROVIDED that with respect to any contracts or agreements, such dollar
amounts shall be with respect to annual consideration under such contracts or
agreements. The foregoing provisions shall not apply to (i) any agreement in
effect on the Issue Date and any amendments thereto; PROVIDED that any such
amendment shall be no more disadvantageous to the Holders in any material
respect than the original agreement, (ii) any compensation arrangements entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business and consistent with the past practice of the Company or such
Restricted Subsidiary, (iii) transactions between or among the Company and/or
its Restricted Subsidiaries, (iv) any transaction in connection with a
Securitization and (v) Restricted Payments that are permitted by the provisions
of the Indenture described above under the caption "--Limitation on Restricted
Payments."
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ADDITIONAL SUBSIDIARY GUARANTEES. The Company will cause each Restricted
Subsidiary which Guarantees any Indebtedness of the Company to execute and
deliver to the Trustee a Subsidiary Guarantee pursuant to which such Restricted
Subsidiary will Guarantee the Company's payment obligations under the Notes on a
senior unsecured basis, jointly and severally, with any other Guarantors;
PROVIDED, that the foregoing shall not apply to Subsidiaries that (i) have
properly been designated as Unrestricted Subsidiaries in accordance with the
Indenture for so long as they continue to constitute Unrestricted Subsidiaries
or (ii) qualify as Securitization Entities for so long as they continue to
constitute Securitization Entities.
PAYMENTS FOR CONSENT. Neither the Company nor any of its Subsidiaries will,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS. Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the Trustee (i) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separately from the financial condition and results of operations
of the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request.
LIMITATION ON INVESTMENT COMPANY STATUS. The Indenture provides that the
Company and its Subsidiaries shall not take any action, or otherwise permit to
exist any circumstance, that would require the Company to register as an
"investment company" under the Investment Company Act of 1940, as amended.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
liquidated damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Restricted Subsidiaries to comply with its obligations in
the covenants or other agreements described above under the captions "--Change
of Control," "--Certain Covenants-- Limitation on Asset Sales," "--Limitation on
Indebtedness," or "--Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries;" (iv) failure by the Company or any of its
Restricted Subsidiaries for 30 days after notice from the Trustee or the Holders
of at least 25% in aggregate principal amount of the Notes then outstanding to
comply with any of the other covenants or agreements in the Indenture; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness now exists, or is created after
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the Issue Date, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in a judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or any
Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Significant
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Registration Rights Agreement or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and liquidated damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the
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Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. Dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and liquidated damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company must have delivered to the
Trustee an opinion of counsel to the effect that, assuming no intervening
bankruptcy of the Company and that no Holder is an insider of the Company, after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for
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redemption. Also, the Company is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the repurchase or redemption of the
Notes (other than provisions relating to the covenants described above under the
caption "--Change of Control" or "--Certain Covenants--Limitation on Asset
Sales"), (iii) reduce the rate of or change the time for payment of interest on
any Note, (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes,
(vii) waive a repurchase or redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "--Change of Control" or "--Certain Covenants--Limitation on Asset
Sales") or (viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign. The Company and its subsidiaries maintain deposit accounts and
conduct other banking transactions with the Trustee in the ordinary course of
business.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall
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occur (which shall not be cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly-Owned Restricted Subsidiary of the
Company, in one transaction or a series of related transactions, of (i) any
Equity Interest of any Restricted Subsidiary of the Company; (ii) any material
license, franchise or other authorization of the Company or any Restricted
Subsidiary of the Company; (iii) any assets of the Company or any Restricted
Subsidiary of the Company which constitute substantially all of an operating
unit or line of business of the Company or any Restricted Subsidiary of the
Company; or (iv) any other property or asset of the Company or any Restricted
Subsidiary of the Company outside of the ordinary course of business (including
the receipt of proceeds paid on account of the loss of or damage to any property
or asset and awards of compensation for any asset taken by condemnation, eminent
domain or similar proceedings). For the purposes of this definition, the term
"Asset Sale" shall not include (a) any transaction consummated in compliance
with "--Certain Covenants--Merger, Consolidation or Sale of Assets" above and
the creation of any Lien not prohibited by "--Certain Covenants--Limitation on
Liens" above; PROVIDED, HOWEVER, that any transaction consummated in compliance
with "--Certain Covenants--Merger, Consolidation or Sale of Assets" above
involving a sale, conveyance, assignment, transfer, lease or other disposal of
less than all of the properties or assets of the Company shall be deemed to be
an Asset Sale with respect to the properties or assets of the Company and the
Restricted Subsidiaries of the Company that are not so sold, conveyed, assigned,
transferred, leased or otherwise disposed of in such transaction; (b) sales of
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary of the Company, as the case may be; (c) any transaction
consummated in compliance with "--Certain Covenants--Limitation on Restricted
Payments" above; (d) a pledge, or transfer pursuant to a pledge of assets, which
pledge is a Permitted Lien; and (e) sales of Receivables or interests in
Receivables in connection with Securitizations or otherwise in the ordinary
course of business. In addition, solely for purposes of "--Certain
Covenants--Limitation on Asset Sales" above, any sale, conveyance, transfer,
lease or other disposition of any property or asset, whether in one transaction
or a series of related transactions, involving assets
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with a Fair Market Value not in excess of $1.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"BOARD OF DIRECTORS" means the Board of Directors or other governing body
charged with the ultimate management of any Person, or any duly authorized
committee thereof.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
qualifications specified in clause (c) above; (e) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Services, respectively, and in each case maturing within six
months after the date of acquisition; and (f) money market funds, the portfolios
of which are limited to investments described in clauses (a) through (c) above.
"CHANGE OF CONTROL" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than the Permitted Holders, is or becomes the "beneficial owner"or "beneficial
owners" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of more than 35% of the total voting power
of the then outstanding Voting Stock the Company; but only in the event that the
Permitted Holders "beneficially own", directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the then outstanding Voting Stock
of the Company than such other Person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company; (ii) the Company consolidates
with, or merges with or into, another Person (other than the Company or a
Wholly-Owned Restricted Subsidiary of the Company) or the Company or its
Restricted Subsidiaries sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of the assets of the Company and its
Restricted Subsidiaries (determined on a consolidated basis) to any Person
(other than the Company or a Wholly-Owned Restricted Subsidiary of the Company),
other than any such transaction where immediately after such transaction the
Person or Persons that "beneficially owned" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
immediately prior to such transaction, directly or indirectly, the then
outstanding Voting Stock of the Company "beneficially own" (as so determined),
directly or indirectly, a majority of the total voting power of the then
outstanding Voting Stock of the surviving or
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transferee Person; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; PROVIDED, HOWEVER, that the occurrence of any of the foregoing
events in connection with the Spin Transaction shall not constitute a "Change of
Control".
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person as of any date
of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the total
amount of Indebtedness of any other Person, to the extent that such Indebtedness
has been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus (iii) the aggregate liquidation value of all Disqualified
Stock of such Person and all preferred stock of Restricted Subsidiaries of such
Person (other than, in the case of the Company, preferred stock of a Restricted
Subsidiary of the Company held by the Company or a Guarantor), in each case,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED LEVERAGE RATIO" means, with respect to any Person, as of any
date of determination, the ratio of (i) the Consolidated Indebtedness of such
Person as of such date excluding, however, all Hedging Obligations that
constitute Permitted Debt to (ii) the Consolidated Net Worth of such Person as
of such date.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
(for such period, on a consolidated basis, determined in accordance with GAAP);
PROVIDED that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary of such Person or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Wholly-Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary
of such Person shall be excluded to the extent that the declaration or payment
of dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Restricted Subsidiaries and in
Persons that are not Restricted Subsidiaries, and (z) all unamortized debt
discount and expense and unamortized deferred financing charges as of such date,
all of the foregoing determined in accordance with GAAP.
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"CREDIT AGREEMENT" means the Revolving Credit Facility, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring, in whole or in
part (including, without limitation, increasing the amount of available
borrowings thereunder (PROVIDED that such increase in borrowings is permitted by
the "Limitation on Indebtedness" covenant above), or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder to
the extent permitted by the Indenture), all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other agent, lender or group of lenders and whether in the form
of a revolving credit facility or a term loan facility or any combination
thereof.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, either (A) by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature or (B) is designated by
the Company (in a resolution of the Board of Directors of the Company delivered
to the Trustee) as Disqualified Stock.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date and consistently applied.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTORS" means each of (i) Metris Direct, Inc. and (ii) any other
Restricted Subsidiary of the Company that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective successors
and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate or currency collar agreements and related
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates, currencies and commodities in the
ordinary course of business.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien (except Liens on Receivables and other assets (including
spread accounts relating to a Securitization)
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incurred in connection with a Securitization) on any asset of such Person
(whether or not such indebtedness is assumed by such Person and the value
thereof being the lesser of the amount of such indebtedness so secured and the
fair market value of such asset that has a Lien placed upon it) and, to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person. Notwithstanding the foregoing, the term "Indebtedness"
shall not include (i) obligations pursuant to representations, warranties,
covenants and indemnities or payments to owners of beneficial interests in
Receivables, in each case in connection with a Securitization, (ii) deposit
liabilities of any Restricted Subsidiary of the Company, the deposits of which
are insured by the Federal Deposit Insurance Corporation or any successor
thereto or (iii) guarantees related to the fulfillment of the Company's
obligations to bank card associations in the ordinary course of business. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof, in the case of any Indebtedness that does not require current
payments of interest, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the book value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Limitation on Restricted Payments."
"ISSUE DATE" means the date of original issuance of the Old Notes.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"NET CASH PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets that were
the subject of such Asset Sale, a defeasance of a Securitization and any reserve
for adjustment in respect of the sale price of such asset or assets established
in accordance with GAAP.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant
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to sale and leaseback transactions) or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFER TO PURCHASE" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 60 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall also contain information
concerning the business of the Company and its Subsidiaries which the Company in
good faith believes will enable such Holders to make an informed decision with
respect to the Offer to Purchase (which at a minimum will include (i) the most
recent annual and quarterly financial statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture
pursuant to which the Offer to Purchase is being made; (2) the Expiration Date
and the Purchase Date; (3) the aggregate principal amount of the outstanding
Notes offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a Note pursuant to the Offer to Purchase will be
required to surrender such Note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing); (10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if the Company (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the
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Expiration Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the Holder
tendered, the certificate number of the Note the Holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender; (11) that (a) if
Notes in an aggregate principal amount less than or equal to the Purchase Amount
are duly tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase all such Notes and (b) if Notes in an aggregate principal
amount in excess of the Purchase Amount are tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a PRO RATA basis (with such
adjustments as may be deemed appropriate so that only Notes in denominations of
$1,000 principal amount or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Note so
tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"PERMITTED HOLDER" means FCI and any of its Affiliates.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Wholly-Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly-Owned Restricted Subsidiary of the Company or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly-Owned Restricted Subsidiary of the Company; (d) any Restricted Investment
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with the covenant described above
under the caption "--Certain Covenants--Limitation on Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; (f) Investments by the Company
or any of its Restricted Subsidiaries in the ordinary course of business in
connection with or arising out of Securitizations; (g) Hedging Obligations of
the Company and its Restricted Subsidiaries entered into in the ordinary course
of business; and (h) other Investments by the Company or any of its Restricted
Subsidiaries in any Person (other than an Affiliate of the Company that is not
also a Restricted Subsidiary of the Company) that do not exceed $5.0 million in
the aggregate at any one time outstanding (measured as of the date made and
without giving effect to subsequent changes in value).
"PERMITTED LIENS" means (i) Liens existing on the Issue Date; (ii) Liens to
secure borrowings under the Credit Agreement, PROVIDED that such borrowings were
permitted by the Indenture to be incurred; (iii) Liens on Receivables, related
contract rights, collections on Receivables and the proceeds of all such
property incurred in connection with Securitizations or permitted Guarantees
thereof; (iv) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary of the
Company; PROVIDED that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with the Company or such Restricted
Subsidiary; (v) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; PROVIDED that such
Liens were in existence prior to the contemplation of such acquisition; (vi)
Liens securing Purchase Money Indebtedness permitted to be incurred under the
Indenture and incurred in the ordinary course of business; PROVIDED, HOWEVER,
that any such Lien may not extend to any other property owned by the Company or
any of its Restricted Subsidiaries at the time the Lien is incurred, and the
Indebtedness secured by the Lien may not be incurred more than 180 days after
the latter of the acquisition or completion of construction of the property
subject to the Lien; PROVIDED, FURTHER, that the amount of Indebtedness secured
by such Liens do not exceed the fair market value of
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the property purchased or constructed with the proceeds of such Indebtedness;
(vii) Liens to secure any Permitted Refinancing Indebtedness incurred to
refinance any Indebtedness secured by any Lien referred to in the foregoing
clauses (i) through (vi); PROVIDED, HOWEVER, that such new Lien shall be limited
to all or part of the same property that secured the original Lien and the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the outstanding principal amount or, if greater, committed amount
of the Indebtedness described under clauses (i) through (vi), as the case may
be, at the time the original Lien became a Permitted Lien; (viii) Liens in favor
of the Company or a Guarantor; (ix) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company with respect
to obligations that do not exceed $10.0 million in the aggregate at any one time
outstanding; (x) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (including, without limitation,
lessor Liens on leased assets); (xi) Liens securing Capital Lease Obligations
permitted to be incurred under the Indenture and incurred in the ordinary course
of business; (xii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP in existence at such time shall have been made therefor and
(xiii) certain Liens consisting of restrictions on the use of real property
which do not materially interfere with the property's use.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness or Disqualified
Stock of the Company or any of its Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease, redeem or refund other Indebtedness or Disqualified Stock of the
Company or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); PROVIDED THAT: (i) the principal amount (or accreted value, if
applicable) or liquidation value of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable) or
liquidation value, plus accrued interest or dividends on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased, redeemed or refunded (plus
the amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date or redemption date,
as the case may be, later than the final maturity date or redemption date, as
the case may be, of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased, redeemed or refunded; (iii)
if the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Notes on terms at least
as favorable to the holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness or Disqualified Stock is
incurred or issued, as the case may be, either by the Company or by the
Restricted Subsidiary who is the obligor or issuer, as the case may be, on the
Indebtedness or Disqualified Stock being extended, refinanced, renewed,
replaced, defeased, redeemed or refunded.
"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust, joint venture, or a governmental
agency or political subdivision thereof.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the ordinary course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"RECEIVABLES" means credit card, consumer or commercial loans that are
purchased or originated in the ordinary course of business by the Company or any
Subsidiary of the Company.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
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"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means the Revolving Credit and Letter of Credit
Facility Agreement dated as of September 16, 1996 among the Company, the Lenders
named therein, Nationsbank of North Carolina, N.A., as Co-Agent, Bank of America
Illinois, as an Issuing Bank, First Bank National Association, as an Issuing
Bank, Norwest Bank Minnesota, N.A., as an Issuing Bank, and The Chase Manhattan
Bank, as Administrative Agent and an Issuing Bank, as amended.
"SECURITIZATION" means any transaction or series of transactions that have
been or may be entered into by the Company or any of its Subsidiaries in
connection with or reasonably related to a transaction or series of transactions
in which the Company or any of its Subsidiaries may sell, convey or otherwise
transfer, directly or indirectly, to (i) a Securitization Entity or (ii) any
other Person, or may grant a security interest in, any Receivables or any
interests in such Receivables (whether such Receivables are then existing or
arising in the future) and any assets related thereto including, without
limitation, all security interests in any collateral relating thereto, the
proceeds of such Receivables, and other assets which are customarily sold or in
respect of which security interests are customarily granted in connection with
securitization transactions involving such assets.
"SECURITIZATION ENTITY" means any Person (whether or not a Subsidiary of the
Company) established and maintained exclusively for one or more of the following
purposes: (i) purchasing or otherwise acquiring Receivables (together with any
assets related to such Receivables, including, without limitation, all
collateral securing such Receivables, all contracts and all Guarantees or other
obligations in respect of such Receivables, proceeds of such Receivables and
other assets which are customarily transferred in connection with asset
securitization transactions involving Receivables) in connection with a
Securitization, (ii) selling such Receivables (and related assets) to a special
purpose owner trust or other Person in connection with a Securitization, (iii)
issuing asset-backed securities, or beneficial interests in Receivables, (iv)
serving as a corporate general partner (or managing member of a limited
liability company) of another Securitization Entity, (v) investing in and
holding Investments in Securitization Entities issuing securities backed by
Receivables, or (vi) engaging in activities that are incidental to and
necessary, suitable or convenient for the accomplishment of the purposes
specified above, PROVIDED, HOWEVER, that the obligations of such Securitization
Entity are without recourse to the Company and any Restricted Subsidiary of the
Company other than such Securitization Entity. For purposes of this definition,
"without recourse" shall mean that the Indebtedness of such Securitization
Entity and none of the other obligations (contingent or otherwise) of a
Securitization Entity (i) is guaranteed by the Company or any other Restricted
Subsidiary of the Company, (ii) obligates the Company or any other Restricted
Subsidiary of the Company in any way other than pursuant to representations,
warranties, covenants (including any covenant to deliver Receivables in a
pre-funded Securitization) and indemnities entered into in connection with a
Securitization, or (iii) subjects any property or asset of the Company or any
Restricted Subsidiary of the Company other than such Securitization Entity,
directly or indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to representations, warranties, covenants and indemnities
entered into in connection with a Securitization. For purposes of the foregoing,
a Permitted Investment in a Securitization Entity shall not be deemed recourse.
As of the Issue Date, each of the Metris Master Trust, Metris Receivables, Inc.,
Metris Funding Co. and the Fingerhut Owner Trust and Securitization Entities
formed in connection with any Securitization prior to the Issue Date shall be
deemed to satisfy the requirements of this definition.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date hereof.
"SPECIFIED SENIOR INDEBTEDNESS" means (i) the Indebtedness of any Person,
whether outstanding on the Issue Date or thereafter incurred and (ii) accrued
and unpaid interest (including interest accruing
65
<PAGE>
on or after the filing of any petition in bankruptcy or for reorganization
relating to such Person to the extent post filing interest is allowed in such
proceeding) in respect of (A) Indebtedness of such Person for money borrowed and
(B) Indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, in the case of either clause (i) or (ii), in the instrument creating or
evidencing the same pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes;
PROVIDED, HOWEVER, that Specified Senior Indebtedness shall not include (1) any
obligation of such Person to any Subsidiary of such Person, (2) any liability
for Federal, state, local or other taxes owed or owing by such Person, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (4) any obligations in respect of Capital Stock of such Person or
(5) that portion of any Indebtedness which at the time of incurrence is incurred
in violation of the Indenture.
"SPIN TRANSACTION" means the proposed transaction announced by Fingerhut
Companies, Inc. on October 9, 1997, as such transaction may be effected in the
future.
"STATED MATURITY" means with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution, but only to the extent that such
Subsidiary: (a) has not at the time of designation, and does not thereafter,
create, incur, assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness pursuant to which the lender thereof has
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a certified
copy of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Limitation on Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant
66
<PAGE>
described under the caption "--Certain Covenants--Limitation on Indebtedness,"
the Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the Consolidated Leverage
Ratio test set forth in the first paragraph of the covenant described under the
caption "--Certain Covenants--Limitation on Indebtedness," and (ii) no Default
or Event of Default would be in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the New
Notes, except that (i) the Old Notes have not been registered under the
Securities Act, are subject to certain restrictions on transfer and are entitled
to certain registration rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except under
limited circumstances); and (ii) the New Notes will not provide for any
liquidated damages thereon. In that regard, the Old Notes provide that, in the
event that the Exchange Offer is not consummated on or prior to April 5, 1998,
or a shelf registration statement (the "Shelf Registration Statement") with
respect to the resale of the Old Notes is not declared effective within 120 days
after the required filing date therefor (the "Effectiveness Date"), the Company
will be obligated to pay liquidated damages to each holder of the Old Notes in
an amount equal to $0.192 per week per $1,000 principal amount of the Old Notes
held by such holder commencing on April 6, 1998 or the Effectiveness Date, as
the case may be; provided, however, that if the Company reasonably requests
holders of Old Notes to provide certain information called for by the
Registration Rights Agreement for inclusion in any such Shelf Registration
Statement, then Old Notes owned by holders who do not deliver such information
to the Company as required pursuant to the Registration Rights Agreement will
not be entitled to any such liquidated damages. Upon the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, liquidated damages will cease to accrue. The New Notes are not
entitled to any such liquidated damages. In addition, the Old Notes and the New
Notes will constitute a single series of debt securities under the Indenture.
See "Description of the New Notes--General." Accordingly, holders of Old Notes
should review the information set forth under "Risk Factors--Consequences of a
Failure to Exchange Old Notes" and "Description of the New Notes."
67
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
considerations to holders of the New Notes who are subject to U.S. net income
tax with respect to the New Notes ( "U.S. persons") and who will hold the New
Notes as capital assets. There can be no assurance that the U.S. Internal
Revenue Service (the "IRS") will take a similar view of the purchase, ownership
or disposition of the New Notes. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions now in effect, all of which are subject to change. It does
not include any description of the tax laws of any state, local or foreign
governments or any estate or gift tax considerations that may be applicable to
the New Notes or holders thereof. It does not discuss all aspects of federal
income taxation that may be relevant to a particular investor in light of such
investor's particular investment circumstances or to certain types of investors
subject to special treatment under the federal income tax laws (for example,
dealers in securities or currencies, S corporations, life insurance companies,
tax-exempt organizations, taxpayers subject to the alternative minimum tax and
non-U.S. persons) and also does not discuss New Notes held as a hedge against
currency risks or as part of a straddle with other investments or as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") comprised of a New Note and one or more other investments, or
situations in which the functional currency of the holders is not the U.S.
dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer should
consult their own tax advisors with respect to their particular circumstances
and with respect to the effects of state, local or foreign tax laws to which
they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes should not be a taxable event to
holders for federal income tax purposes. The exchange of Old Notes for New Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the New Notes should not be considered to
differ materially in kind or extent from the Old Notes and because the exchange
will occur by operation of the terms of the Old Notes. If, however, the exchange
of the Old Notes for the New Notes were treated as an exchange for federal
income tax purposes, such exchange should constitute a recapitalization for
federal income tax purposes. Accordingly, the New Notes should have the same
issue price as the Old Notes, and a holder should have the same adjusted basis
and holding period in the New Notes as the holder had in the Old Notes
immediately before the exchange.
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report interest earned on the New
Note as ordinary interest income for federal income tax purposes in accordance
with the holder's method of tax accounting.
DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note generally will be the holder's purchase
price for the Old Note. Upon the sale, exchange, redemption, retirement or other
disposition of a New Note, a holder will recognize gain or loss equal to the
difference (if any) between the amount realized and the holder's tax basis in
the New Note. Such gain or loss will be short-term, mid-term or long-term
capital gain or loss depending upon whether the New Note has been held for less
than one year, more than one year or more than eighteen months (with certain
exceptions to the characterization as capital gain if the New Note was acquired
at a market discount).
68
<PAGE>
BACKUP WITHHOLDING
A holder of a New Note may be subject to backup withholding at the rate of
31% with respect to interest paid on the New Note and proceeds from the sale,
exchange, redemption or retirement of the New Note, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates that fact or (b) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A holder
of a New Note who does not provide the Company with the holder's correct
taxpayer identification number may be subject to penalties imposed by the IRS.
A holder of a New Note who is not a U.S. person will generally be exempt
from backup withholding and information reporting requirements, but may be
required to comply with certification and identification procedures in order to
obtain an exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the
holder's federal income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the Expiration Date, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1998, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will send
additional copies of this Prospectus and any amendment or Supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. The Company has agreed to pay all expenses incident to the Exchange
Offer (including the expenses of one counsel for the holders of the Notes) other
than commissions or concessions of any broker-dealers and will indemnify the
holders of the Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
69
<PAGE>
VALIDITY OF NEW NOTES
The validity of the New Notes being issued in the Exchange Offer will be
passed upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and December 31, 1995 and for each of the years in the three-year period ended
December 31, 1996 have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of September 30, 1997, and December 31, 1996 and 1995....................... F-3
Consolidated Statements of Income for the Nine Months Ended September 30, 1997 and 1996, and the Years
Ended December 31, 1996, 1995 and 1994.................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended September 30, 1997 and
the Years Ended December 31, 1996, 1995 and 1994.......................................................... F-5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996, and the Years
ended December 31, 1996, 1995 and 1994.................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Metris Companies Inc.
We have audited the accompanying consolidated balance sheet of Metris
Companies Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metris
Companies Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 23, 1997, except as to notes 6 and 16 which are as of January 5, 1998
F-2
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
SEPTEMBER 30, -------------- --------------
1997
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks.......................................... $ 11,095 $ 8,902 $ 4,185
Federal funds sold............................................... 38,286 19,001 29,144
Short-term investments........................................... 84 4,179 1,414
-------------- -------------- --------------
Cash and cash equivalents...................................... 49,465 32,082 34,743
-------------- -------------- --------------
Credit card loans:
Loans held for securitization.................................. 14,696 14,164 15,337
Retained interests in loans securitized........................ 344,821 201,165 79,727
Less: Allowance for loan losses.............................. 23,847 12,829 3,679
-------------- -------------- --------------
Net credit card loans.......................................... 335,670 202,500 91,385
-------------- -------------- --------------
Premises and equipment, net...................................... 10,678 5,163 1,476
Accrued interest and fees receivable............................. 3,745 2,942 2,223
Other receivables due from credit card securitizations, net...... 31,597
Prepaid expenses and deferred charges............................ 15,426 4,826 4,517
Deferred income taxes............................................ 62,797 31,528 4,306
Customer base intangible......................................... 39,831 888
Other assets..................................................... 8,053 6,687 4,181
-------------- -------------- --------------
TOTAL ASSETS................................................. $ 525,665 $ 286,616 $ 174,428
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES:
Interest-bearing deposit from affiliate.......................... $ $ 1,000 $ 1,000
Short-term borrowings............................................ 153,000 54,163 63,482
Accounts payable................................................. 27,067 15,583 21,334
Other payables due to credit card securitizations, net........... 107,102 36,619
Current income taxes payable to FCI.............................. 7,180 1,460 5,178
Deferred income.................................................. 46,930 23,183 10,087
Accrued expenses and other liabilities........................... 18,220 15,890 2,029
-------------- -------------- --------------
TOTAL LIABILITIES.............................................. 359,499 147,898 103,110
-------------- -------------- --------------
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, 19,225,000 shares issued and outstanding........... 192 192
Paid-in/contributed capital...................................... 107,059 107,220 60,028
Retained earnings................................................ 58,915 31,306 11,290
-------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY..................................... 166,166 138,718 71,318
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................... $ 525,665 $ 286,616 $ 174,428
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------
1997 1996 1996 1995 1994
----------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Credit card loans....................................... $ 42,645 $ 19,583 $ 29,028 $ 7,054 $
Federal funds sold...................................... 1,270 644 867 487
Other................................................... 568 120 299 75 487
----------- --------- ----------- --------- ---------
Total interest income................................. 44,483 20,347 30,194 7,616 487
----------- --------- ----------- --------- ---------
INTEREST EXPENSE:
Deposit................................................. 7 36 48 36
Short-term borrowings................................... 5,923 2,787 4,058 1,181
----------- --------- ----------- --------- ---------
Total interest expense................................ 5,930 2,823 4,106 1,217
----------- --------- ----------- --------- ---------
NET INTEREST INCOME 38,553 17,524 26,088 6,399 487
Provision for loan losses............................... 28,589 10,556 18,477 4,393
----------- --------- ----------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..... 9,964 6,968 7,611 2,006 487
----------- --------- ----------- --------- ---------
OTHER OPERATING INCOME:
Net extended service plan revenues...................... 3,249 13,789 20,420 17,779 12,244
Net securitization and credit card servicing income..... 59,533 33,726 49,921 16,003
Credit card fees, interchange and other credit card
income................................................ 28,324 17,262 26,028 10,639
Fee-based product revenues.............................. 39,082 20,549 29,853 6,662 1,994
----------- --------- ----------- --------- ---------
130,188 85,326 126,222 51,083 14,238
----------- --------- ----------- --------- ---------
OTHER OPERATING EXPENSE:
Credit card account and other product solicitation and
marketing expenses.................................... 22,419 20,898 29,297 23,089 3,739
Employee compensation................................... 24,455 14,885 23,068 2,466 442
Data processing services and communications............. 12,893 8,632 12,757 3,090 109
Third-party servicing expense........................... 7,972 6,700 9,207 5,300 473
Warranty debt waiver underwriting and claims servicing
expense............................................... 4,077 6,842 10,024 6,552 4,109
Credit card fraud losses................................ 2,700 1,723 2,276 775
Other................................................... 20,117 8,718 14,658 4,368 2,350
----------- --------- ----------- --------- ---------
94,633 68,398 101,287 45,640 11,222
----------- --------- ----------- --------- ---------
INCOME BEFORE INCOME TAXES.............................. 45,519 23,896 32,546 7,449 3,503
Income taxes............................................ 17,525 9,200 12,530 2,868 1,305
----------- --------- ----------- --------- ---------
NET INCOME.............................................. $ 27,994 $ 14,696 $ 20,016 $ 4,581 2,198
----------- --------- ----------- --------- ---------
----------- --------- ----------- --------- ---------
EARNINGS PER SHARE:
Primary................................................. $ 1.38 $ .89 $ 1.17 $ .28 $ .14
Fully diluted........................................... $ 1.38 $ .89 $ 1.16 $ .28 $ .14
Weighted average common and common equivalent
shares--fully diluted................................. 20,323 16,514 17,242 16,439 16,270
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
PAID-IN/ STOCKHOLDERS'/
COMMON CONTRIBUTED RETAINED DIVISION
STOCK CAPITAL EARNINGS EQUITY
----------- ------------ --------- --------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1993................................... $ $ 28 $ 4,511 $ 4,539
Net income................................................ 2,198 2,198
----- ------------ --------- --------------
BALANCE, DECEMBER 31, 1994.................................. $ $ 28 $ 6,709 $ 6,737
Net Income................................................ 4,581 4,581
Contributions from FCI.................................... 60,000 60,000
----- ------------ --------- --------------
BALANCE, DECEMBER 31, 1995.................................. $ $ 60,028 $ 11,290 $ 71,318
Net income................................................ 20,016 20,016
Company reorganization.................................... 160 (160)
Issuance of Common Stock.................................. 32 47,352 47,384
----- ------------ --------- --------------
BALANCE, DECEMBER 31, 1996.................................. $ 192 $ 107,220 $ 31,306 $ 138,718
Net income (unaudited).................................... 27,994 27,994
Cash dividends--$.01 per share/other (unaudited).......... (161) (385) (546)
----- ------------ --------- --------------
BALANCE, SEPTEMBER 30, 1997 (unaudited)..................... $ 192 $ 107,059 $ 58,915 $ 166,166
----- ------------ --------- --------------
----- ------------ --------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ ---------------------------------------
1997 1996 1996 1995 1994
------------ ---------- -------------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................. $ 27,994 $ 14,696 $ 20,016 $ 4,581 $ 2,198
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses............................ 28,589 10,556 18,477 4,393
Depreciation and amortization........................ 8,572 5,260 7,329 2,808 26
(Gain)/net amortization of gain on securitization of
credit card loans.................................. (1,927) 2,803 6,194 (7,267)
Changes in operating assets and liabilities:
Accrued interest and fees receivable............... (803) 523 (719) (2,223)
Prepaid expenses and deferred charges.............. (15,966) (3,686) (6,045) (6,696) 176
Deferred income taxes.............................. (31,269) (14,886) (27,222) (4,108) (27)
Accounts payable and accrued expenses.............. 13,813 1,615 8,110 20,374 1,198
Other payables/receivables due to/from credit card
securitizations, net............................. 71,928 53,967 61,542 (24,572)
Current income taxes payable to FCI................ 5,720 (2,887) (3,718) 5,051 (86)
Deferred income.................................... 23,747 4,970 13,096 10,084 (69)
Other.............................................. (5,647) (2,531) (4,084) (4,431) (4)
------------ ---------- -------------- ------------ ---------
Net cash provided by (used in) operating activities.... 124,751 70,400 92,976 (2,006) 3,412
------------ ---------- -------------- ------------ ---------
INVESTING ACTIVITIES:
Proceeds from sales of loans........................... 923,750 674,055 952,055 448,555
Net loans originated or collected...................... (755,512) (738,764) (1,081,644) (528,864)
Credit card portfolio acquisition...................... (366,587) (15,469)
Net decrease (increase) in loans to FCI................ 9,375 (3,215)
Additions to premises and equipment.................... (6,470) (2,669) (4,113) (1,353) (239)
------------ ---------- -------------- ------------ ---------
Net cash used in investing activities.................. (204,819) (67,378) (133,702) (87,756) (3,454)
------------ ---------- -------------- ------------ ---------
FINANCING ACTIVITIES:
(Decrease) increase in interest-bearing deposit........ (1,000) 1,000
Net (decrease) increase in short-term borrowings....... 98,836 (10,097) (9,319) 63,482
Net proceeds from issuance of common stock............. 47,384
Cash dividends paid.................................... (385)
Capital contributions from FCI......................... 60,000
------------ ---------- -------------- ------------ ---------
Net cash provided by (used in) financing activities.... 97,451 (10,097) 38,065 124,482
------------ ---------- -------------- ------------ ---------
Net increase (decrease) in cash and cash equivalents... 17,383 (7,075) (2,661) 34,720 (42)
Cash and cash equivalents at beginning of period....... 32,082 34,743 34,743 23 65
------------ ---------- -------------- ------------ ---------
Cash and cash equivalents at end of period............. $ 49,465 $ 27,668 $ 32,082 $ 34,743 $ 23
------------ ---------- -------------- ------------ ---------
------------ ---------- -------------- ------------ ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Metris
Companies Inc. ("MCI") and its subsidiaries (collectively, the "Company"). The
Company is an information-based direct marketer of consumer credit products,
extended service plans, and other fee-based products and services to
moderate-income consumers. The Company's business is conducted through Metris
Direct, Inc., Direct Merchants Credit Card Bank, National Association ("Direct
Merchants Bank") and Metris Receivables, Inc. ("MRI"), each a wholly-owned
direct or indirect subsidiary of MCI.
Prior to September 1996, MCI operated as a division of Fingerhut Companies,
Inc. ("FCI"). During September 1996, FCI reorganized the business through the
formation of MCI. The stock of Metris Direct, Inc., Direct Merchants Bank,
DMCCB, Inc., and MRI, in addition to the assets, liabilities and equity of
certain portions of the retail extended service plan business, was contributed
to the Company from FCI and its subsidiaries. In October 1996, the Company
completed an initial public offering of its common stock (see Note 7).
In early 1995, the Company's need for cash to fund credit card loans and for
other general business purposes exceeded the cash generated by its other
businesses. Consequently, the Company borrowed funds or obtained capital from
FCI to fund its ongoing operation from early 1995 to late 1996. The consolidated
financial statements include an allocation of FCI's interest expense for the
Company's net borrowings from FCI. The consolidated financial statements also
reflect a $60 million allocation of capital from FCI to the Company during 1995.
This capital contribution was made in installments at the beginning of each
month throughout 1995, in order to maintain the Company's equity at a level
sufficient to support the growth in managed assets experienced by the Company
during 1995 (generally at approximately 10% of total managed assets at the end
of each month).
The consolidated financial statements also include an allocation of expenses
for certain data processing and information systems, audit, accounting,
treasury, legal, human resources, customer service and other administrative
support historically provided by FCI and its subsidiaries to the Company. Such
expenses were based on the actual use of such services or were based on other
allocation methods that, in the opinion of management, are reasonable. During
1996, FCI and the Company entered into an administrative services agreement that
covers such expense allocations and the provision of future services using
similar rates and allocation methods for various terms, the latest of which
expires at the end of 1998. The consolidated financial statements also reflect
the retroactive effects of intercompany agreements entered into during 1996,
including co-brand credit card, database access, data sharing and extended
service plan agreements with Fingerhut, and a tax sharing agreement with FCI.
These agreements have terms ranging up to seven years.
All significant intercompany balances and transactions have been eliminated
in consolidation. Certain prior year amounts have been reclassified to conform
with the current year's presentation.
COMPARABILITY OF FINANCIAL STATEMENTS
The Company's consumer credit products business and a substantial portion of
its fee-based products and services business began operations in February 1995
with the opening of Direct Merchants Bank. Therefore, the financial statements
prior to 1995 are not necessarily comparable to the financial statements for
periods ending in 1995 and thereafter.
F-7
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements and related
unaudited financial information in the notes have been prepared in accordance
with generally accepted accounting principles and the rules and regulations of
the Securities and Exchange Commission for interim financial statements. Such
interim financial statements reflect all adjustments, consisting of normal
recurring accruals, which in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company, and the results of
its operations and its cash flows for the interim periods. These consolidated
financial statements should be read in conjunction with the financial statements
and the notes thereto contained in the Company's 1996 annual report to
shareholders and incorporated by reference in the Company's annual report on
Form 10-K. The nature of the Company's business is such that the results of any
interim period may not be indicative of the results to be expected for the
entire year.
PERVASIVENESS OF ESTIMATES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements as well as the reported amount of revenues
and expenses during the reporting periods. Actual results could differ from
these estimates.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting and reporting
policies used in preparing the consolidated financial statements.
FEDERAL FUNDS SOLD
Federal funds sold are short-term loans made to banks through the Federal
Reserve System. It is the Company's policy to make such loans only to banks that
are considered to be in compliance with their regulatory capital requirements.
CREDIT CARD LOANS HELD FOR SECURITIZATION
Credit card loans held for securitization are loans the Company intends to
securitize, generally no later than three months from origination and are
recorded at the lower of aggregate cost or market value.
SECURITIZATION, RETAINED INTERESTS IN LOANS SECURITIZED AND SECURITIZATION
INCOME
The Company securitizes and sells a portion of its credit card loans to both
public and private investors through the Metris Master Trust (the "Trust") and a
third party multi-seller conduit (the "Conduit"). The Company retains
participating interests in the credit card loans (under "Retained interests in
loans securitized") on the consolidated balance sheets. Although the Company
continues to service the underlying credit card accounts and maintains the
customer relationships, these transactions are treated as sales for financial
reporting purposes and the associated loans are not reflected on the
consolidated balance sheets.
F-8
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Beginning in 1997, the sales of these loans have been recorded in accordance
with Statement of Financial Acounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
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 adoption of SFAS 125 did not have a material effect on
the Company's financial statements.
Prior to January 1, 1997, The sales of these loans were recorded in
accordance with SFAS No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse". Upon sale, the loans were removed from the balance
sheet, and a gain on sale was recognized for the difference between the carrying
value of the loans and the adjusted sales proceeds. The adjusted sales proceeds
are based on a present value estimate of future cash flows to be received over
the life of the loans, net of certain funding and servicing costs. The resulting
gain was further reduced for estimated loan losses over the life of the related
loans under the limited recourse provisions.
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 income statement. For securitized and sold credit
card loans, amounts that otherwise would have been recorded as interest income,
interest expense, fee income and provision for loan losses are instead reported
in other operating income as "Net securitization and credit card servicing
income." The Company has receivables from and payables to the Trust and Conduit
as a result of securitizations, including amounts deposited in an investor
reserve account held by the trustee for the benefit of the Trust's
certificateholders, the excess servicing asset, which represents the net gain
recorded at any point in time for loans sold under the asset securitizations,
net of recourse reserves for securitized loans and normal and excess servicing
fee receivables.
In May 1997, the Metris Master Trust issued Series 1997-1 certificates to
third parties with a principal amount of $794.8 million, generating proceeds of
$792.2 million of which $667.7 million was used to reduce the Class A Variable
Funding Certificates issued under Series 1995-1. The Series 1997-1 certificates
are scheduled to begin accumulating principal collections in March 2001, however
the accumulation period could potentially begin at a later date. The expected
final payment date of these certificates is in April 2002.
ALLOWANCE FOR LOAN LOSSES
Provisions for loan losses are made in amounts necessary to maintain the
allowance at a level estimated to be sufficient to absorb probable future losses
of principal and earned interest, net of recoveries, inherent in the existing
on-balance-sheet loan portfolio. In evaluating the adequacy of the allowance for
loan losses, management considers several factors, including: historical
charge-off and recovery activity by age (vintage) of each loan portfolio (noting
any particular trends over recent periods); recent delinquency and collection
trends by vintage; current economic conditions and the impact such conditions
might have on borrowers' ability to repay; the risk characteristics of the
portfolios; and other factors. Significant changes in these factors could affect
the adequacy of the allowance
F-9
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for loan losses in the near term. Credit card accounts are generally charged off
at the end of the month during which the loan becomes contractually 180 days
past due, with the exception of bankrupt accounts, which are charged off
immediately upon formal notification of bankruptcy, and accounts of deceased
cardholders without a surviving, contractually liable individual, or an estate
large enough to pay the debt in full, which are also charged off immediately
upon notification.
DEBT WAIVER PRODUCTS
Direct Merchants Bank offers various debt waiver products to its credit card
customers for which it retains the claims risk. Revenue for such products is
recognized ratably over the coverage period, generally one month, and reserves
are provided for pending claims based on Direct Merchants Bank's historical
experience with settlement of such claims. Revenues recorded for debt waiver
products are included in the consolidated statements of income under "Fee-based
product revenues" and were $33.5 million and $17.0 million for the nine months
ended September 30, 1997 and 1996, respectively, and $25.5 million, $4.8
million, and $0 for the years ended December 31, 1996, 1995 and 1994,
respectively. Unearned revenues and reserves for pending claims are recorded in
the consolidated balance sheets in "Accrued Expenses and Other Liabilities" and
amounted to $3.4 million, $2.5 million and $0.7 million as of September 30,
1997, December 31, 1996 and 1995, respectively.
PREMISES AND EQUIPMENT
Premises, furniture and equipment, and computer hardware and software are
stated at cost and depreciated on a straight-line basis over their estimated
economic useful lives (three to ten years for furniture and equipment, three to
five years for computer hardware, up to five years for software; and over the
shorter of the estimated useful life or the term of the lease for leasehold
improvements). The Company capitalizes software developed for internal use that
represents major enhancements or replacements of operating and management
information systems. Amortization of such capitalized software begins when the
systems are fully developed and ready for implementation. Repairs and
maintenance are charged to expense as incurred.
INTEREST INCOME ON CREDIT CARD LOANS
Interest income on credit card loans is accrued and earned based on the
principal amount of the loans outstanding using the effective-yield method.
Accrued interest which has been billed to the customer but not yet received is
classified on the balance sheet with the related credit card loans. Accrued
interest which has not yet been billed to the customer is estimated and
classified on the balance sheet separate from the loan balance. Interest income
is generally recognized until a loan is charged off. At that time, the accrued
interest portion of the charged off balance is deducted from current period
interest income.
EXTENDED SERVICE PLANS
The Company coordinates the marketing activities for Fingerhut's sales of
extended service plans. Revenues for extended service plans sold, and related
provisions for service contract returns, are recorded at the time of Fingerhut's
shipment to the customer of the related merchandise. The provision
F-10
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for service contract returns charged against revenues for the nine months ended
September 30, 1997 and 1996 and for the years ended December 31, 1996, 1995 and
1994 amounted to $3.1 million, $2.8 million, $4.5 million, $3.6 million and $2.6
million, respectively. Additionally, the Company reimburses Fingerhut for the
cost of its marketing media and other services utilized in the sales of service
plans, based on contracts sold and on media utilization costs as agreed to by
the Company and Fingerhut. These media cost reimbursements were $2.6 million,
$3.8 million, $4.8 million, $4.2 million, and $2.8 million for the nine months
ended September 30, 1997 and 1996 and for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company began performing administrative services and retained the claims
risk for all extended service plans sold on or after January 1, 1997. As a
result, extended service plan revenues and the related expenses have been
deferred and will be recognized over the life of the related extended service
plan contracts. Prior to January 1, 1997 the Company contracted with a
third-party underwriter and claims administrator to service and absorb the risk
of loss for most claims. These claims servicing contract costs were expensed as
the service contracts were sold, net of the related cost of anticipated service
contract returns. In addition, the revenues related to these contract sales were
recognized immediately.
CREDIT CARD FEES AND ORIGINATION COSTS
Credit card fees include annual membership, late payment, over-credit limit,
returned check, and cash advance transaction fees. These fees are assessed
according to the terms of the related cardholder agreements.
The Company defers direct credit card origination costs associated with
successful credit card solicitations that it incurs in transactions with
independent third parties, and certain other costs that it incurs in connection
with loan underwriting and the preparation and processing of loan documents.
These deferred credit card origination costs are netted against the related
credit card annual fee, if any, and amortized on a straight-line basis over the
cardholder's privilege period, generally 12 months. Net deferred fees were $15.7
million, $14.3 million and $6.0 million as of September 30, 1997, December 31,
1996 and 1995, respectively.
SOLICITATION EXPENSES
Credit card account and other product solicitation costs, including
printing, credit bureaus, list processing costs, telemarketing and postage, are
generally expensed as incurred over the two to three month period during which
the related responses to such solicitation are received.
CREDIT CARD FRAUD LOSSES
The Company experiences credit card fraud losses from the unauthorized use
of credit cards. These fraudulent transactions are expensed when identified,
through the establishment of a reserve for the full amount of the transactions.
These amounts are charged off after 90 days, after all attempts to recover the
amounts from such transactions, including chargebacks to merchants and claims
against cardholders, are exhausted.
F-11
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE RISK MANAGEMENT CONTRACTS
The nature and composition of the Company's assets and liabilities and
off-balance-sheet items expose the Company to interest rate risk. The Company
enters into a variety of interest rate risk management contracts such as
interest rate swap and cap agreements in the management of its interest rate
exposure. These interest rate risk management contracts are designated, and
effective, as synthetic alterations of specific assets or liabilities (or groups
of assets or liabilities) and off-balance-sheet items. The monthly interest rate
differential to be paid or received on these contracts is accrued and included
in "Net securitization and credit card servicing income" on the consolidated
statements of income. Premiums paid for such contracts and the related interest
payable or receivable under such contracts are classified under "Other
payables/receivables due to/from credit card securitization, net," on the
consolidated balance sheets. Premiums paid for interest rate contracts are
recorded at cost and amortized on a straight-line basis over the life of the
contract.
INCOME TAXES
The Company is included in the consolidated federal income tax return and
certain state income tax returns of FCI. Based on a tax sharing agreement
between the Company and FCI, the provisions for federal and state income taxes
are computed based only on the Company's financial results as if the Company
filed its own federal and state income tax returns. Deferred taxes are
determined based on the temporary differences between the financial statement
and tax bases of assets and liabilities that will result in future taxable or
deductible amounts using enacted tax rates that are expected to apply for the
year in which the differences are expected to reverse.
STATEMENTS OF CASH FLOWS
The Company prepares its consolidated statements of cash flows using the
indirect method, which requires a reconciliation of net income to net cash from
operating activities. In addition, the Company nets certain cash receipts and
cash payments from credit card loans made to customers, including principal
collections on those loans. For purposes of the consolidated statements of cash
flows, cash and cash equivalents include cash and due from banks, federal funds
sold, short-term investments, (mainly money market funds) and all other highly
liquid investments with original maturities of three months or less.
Cash paid for interest during the nine months ended September 30, 1997 and
1996 and the years ended December 31, 1996, 1995 and 1994 was $5.8 million, $2.8
million, $4.1 million, $1.2 million, and $0 respectively. Cash paid for income
taxes for the same periods was $43.1 million, $31.0 million, $41.6 million, $2.0
million , and $1.6 million, respectively.
STOCK-BASED EMPLOYEE COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-
F-12
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock (see Note 8).
EARNINGS PER SHARE
Earnings per share is computed using net income applicable to common stock
and the weighted average number of common and common equivalent shares
outstanding, after giving retroactive effect to the shares outstanding as if the
Company's reorganization (See Note 1) had occurred at the beginning of the first
period shown. The common equivalent shares outstanding were calculated using the
treasury stock method, using the initial public offering price for the period
prior to the initial public offering. In addition, common equivalent shares
outstanding were calculated assuming that certain options were converted into
shares of the Company's common stock at the beginning of the first period shown.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per
Share." This Statement is effective for financial statements issued for periods
ending after December 15, 1997 and supersedes APB Opinion No. 15, "Earnings Per
Share." The Statement replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement and requires companies to
restate prior-period EPS for all periods in which an income statement is
presented. Under FAS 128, basic and diluted earnings per share for the nine
months ended September 30 were:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Income available to common stockholders................................ $ 27,994 $ 14,696
--------- ---------
--------- ---------
Weighted average common shares outstanding............................. 19,225 15,967
Adjustments for dilutive securities:
Assumed exercise of outstanding stock options..........................
Diluted common shares.................................................. 999 519
--------- ---------
20,224 16,486
--------- ---------
--------- ---------
Earnings per share:
Basic.................................................................. $ 1.46 $ 0.92
Diluted................................................................ 1.38 0.89
</TABLE>
CUSTOMER BASE INTANGIBLE
The customer base intangible represents the excess of amounts paid for
portfolio acquisitions over the related credit card loan balances net of
reserves and discounts. The intangible assets are amortized
F-13
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
over the estimated periods of benefit, generally 5 to 7 years, in proportion to
the expected benefits to be recognized.
INTEREST RATE RISK MANAGEMENT CONTRACTS
The Company enters into interest rate cap and swap agreements to hedge its
economic exposure to fluctuating interest rates associated with both the
floating rate and fixed rate certificates issued by the Metris Master Trust. If
a derivative financial instrument or the instrument it is hedging is sold or
terminated, the Company will recognize a gain or loss resulting from the
transaction in the period the derivative is sold or terminated. The Company has
not sold or terminated any derivative financial instruments.
NOTE 3--ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------
1997 1996 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of year.................... $ 12,829 $ 3,679 $ 3,679 $
Allowance related to assets acquired, net....... 2,815
Provision for loan losses....................... 28,589 10,556 18,477 4,393
--------- --------- --------- ---------
Loans charged off............................... 20,834 5,816 9,514 720
Recoveries...................................... 448 121 187 6
--------- --------- --------- ---------
Net loan charge-offs............................ 20,386 5,695 9,327 714
--------- --------- --------- ---------
Balance at end of year.......................... $ 23,847 $ 8,540 $ 12,829 $ 3,679
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE 4--PREMISES AND EQUIPMENT
The carrying value of premises and equipment is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- --------------------
1997 1996 1995
-------------- --------- ---------
<S> <C> <C> <C>
Furniture and equipment.................................. $ 5,254 $ 1,013 $ 300
Computer equipment....................................... 480 1,339 1,110
Computer software in development......................... 1,365 1,445 110
Construction in progress................................. 4,377 1,710 48
Leasehold improvements................................... 744 248 74
-------------- --------- ---------
Total.................................................... 12,220 $ 5,755 $ 1,642
Less: Accumulated depreciation and amortization.......... 1,542 592 166
-------------- --------- ---------
Balance at end of year................................... $ 10,678 $ 5,163 $ 1,476
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
F-14
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 4--PREMISES AND EQUIPMENT (CONTINUED)
Depreciation and amortization expense for the nine months ended September
30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994 was $950
and $249 and $426, $127, and $26, respectively.
NOTE 5--SHORT TERM BORROWINGS
On September 16, 1996, the Company executed agreements for the following
credit facilities: (1) a $300 million, five-year revolving credit facility for
the Company (the "Revolving Credit Facility"), guaranteed by FCI; and (2) an
amendment to Series 1995-1 under the Metris Master Trust to (a) increase the
Class A Variable Funding Certificate to support a $400 million increase to $1.2
billion (of which the Company may use up to $800 million) of the Fingerhut Owner
Trust Commercial Paper Program in which the Company participates; and (b) issue
$112.6 million of additional asset-backed certificates to support the
aforementioned increase in the Commercial Paper Program.
The Company borrows under the Revolving Credit Facility and from FCI to fund
on-balance sheet loans and for other general business purposes. At September 30,
1997 and December 31, 1996, the Company had outstanding borrowings of $153
million and $50 million, respectively, under the Revolving Credit Facility and
outstanding borrowings from FCI of $4.2 million and $63.5 million at December
31, 1996 and 1995, respectively. The weighted average interest rates on the
Revolving Credit Facility borrowings at September 30, 1997 and December 31, 1996
were 8.5% and 5.9%, respectively. The weighted average interest rates on the
borrowings from FCI were 7.1% at December 31, 1996 and 1995.
The Revolving Credit Facility is guaranteed by FCI and is further supported
by the pledge of the stock of certain subsidiaries of the Company and certain
accounts receivable and interests held therein by the Company. The Revolving
Credit Facility also contains certain financial covenants standard for revolving
credit facilities of this type including minimum net worth, minimum equity to
managed assets ratio, maximum leverage and a limitation on indebtedness. In
addition, the FCI guarantee includes certain covenants including interest
coverage, leverage and minimum net worth for FCI. At September 30, 1997 and
December 31, 1996, the Company and FCI were in compliance with these covenants.
NOTE 6--PORTFOLIO ACQUISITIONS
In September 1997, the Company acquired a $317 million credit card portfolio
from Key Bank USA, National Association. These credit card receivables were
securitized and sold to investors through a third party multi-seller conduit.
The Company retains an interest in the receivables which is financed by
borrowings under the Revolving Credit Facility.
In October 1997, the Company acquired a $405 million credit card portfolio
from Mercantile Bank National Association. This portfolio was also securitized
and sold through the same third party multi-seller conduit. The Company retains
an interest in the receivables which is financed by borrowings under the
Revolving Credit Facility.
NOTE 7--INITIAL PUBLIC OFFERING
In October, 1996, the Company completed an initial public offering of
3,258,333 shares of its common stock at $16 a share. The transaction reduced
FCI's ownership interest in the Company to
F-15
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 7--INITIAL PUBLIC OFFERING (CONTINUED)
approximately 83%. The Company realized net cash proceeds of approximately $47.4
million from the sale of such shares after underwriting discounts, commissions
and expenses of the offering.
NOTE 8--STOCK OPTIONS
In connection with the initial public offering of the Company (see Note 7),
the Company adopted the Metris Companies Inc. Long-Term Incentive and Stock
Option Plan (the "Stock Option Plan"), which permits a variety of stock-based
grants and awards and gives the Company flexibility in tailoring its long-term
compensation programs. It provides that up to 1,860,000 shares of common stock,
subject to adjustment in certain circumstances, are available for awards of
stock options or other stock-based awards. At December 31, 1996, 461,300 shares
were available for grant.
The Compensation Committee has the authority to determine the exercise
prices, vesting dates or conditions, expiration dates and other material
conditions upon which options or awards may be exercised, except that the option
price for Incentive Stock Options ("ISOs") may not be less than 100% of the fair
market value of the Common Stock on the date of grant (and not less than 110% of
the fair market value in the case of an ISO granted to any employee owning more
than 10% of the Common Stock) and the terms of nonqualified stock options may
not exceed 15 years from the date of grant (not more than 10 years for ISOs and
five years for ISOs granted to any employee owning more than 10% of the Common
Stock). Full or part-time employees, consultants or independent contractors to
the Company are eligible to receive nonqualified options and awards (only full
or part-time employees in the case of ISOs).
Effective March 1994, FCI granted the Company's Chief Executive Officer
("CEO") a tandem option (the "Tandem Option") for either (a) 55,000 shares of
FCI's common stock at an exercise price of $15 per share or (b) a 3.3% equity
interest in the portion of the Company that exceeds two times the estimated fair
value of the Company in March 1994. The exercise of either option terminates the
other. In connection with the initial public offering, the 3.3% equity interest
was converted into options for 656,075 shares of the Company's common stock with
an exercise price of $2.76 per share, which vests over five years from the
effective date. Compensation expense of $7.8 million related to these options
was recorded for the year ended December 31, 1996
In addition, at the time of the initial public offering the Company granted
options to purchase an aggregate of 742,625 shares of common stock to officers
and employees of the Company and Fingerhut, and others. Of these, 646,500
options were granted at an exercise price of $16 and the balance were granted at
a below-market exercise price per share, for which expense of $1.2 million was
recorded for the year ended December 31, 1996. All options granted to current
officers and employees of the Company and Fingerhut were at the initial offering
price.
The Company also adopted the Metris Companies Inc. Non-Employee Director
Stock Option Plan (the "Director Plan"). It provides that up to 20,000 shares of
common stock, subject to adjustments in certain circumstances, are available for
awards of stock options. Of these, 10,000 options were granted at an exercise
price of $16. At December 31, 1996, 10,000 shares were available for grant.
F-16
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 8--STOCK OPTIONS (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." Accordingly, the Company continues to account for stock-based
compensation under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Under the guidelines of Opinion 25,
compensation cost for stock-based employee compensation plans is recognized
based on the difference, if any, between the quoted market price of the stock on
the date of grant and the amount an employee must pay to acquire the stock. Had
compensation cost for these plans been determined based on the fair value
methodology prescribed by SFAS 123, the Company's net earnings and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Net earnings--as reported............................................... $ 20,016 $ 4,581
Net earnings--pro forma................................................. $ 19,837 $ 4,581
Earnings per share--as reported......................................... $ 1.16 $ .28
Earnings per share--pro forma........................................... $ 1.15 $ .28
</TABLE>
The above pro forma amounts may not be representative of the effects on
reported net earnings for future years. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model. The
following weighted-average assumptions were used for grants in 1996: dividend
yield of 0.17%; expected volatility of 25.1%; risk-free interest rate of 6.48%
for the Stock Option Plan and the Director Plan and 6.53% for the Tandem Option
Plan; and expected lives of 6.5 years for the Stock Option Plan and 7 years for
the Tandem Option Plan. There were no options granted in 1995.
Information regarding the Company's stock option plans for 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994
------------------------ ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year........... 656,075 $ 2.76 656,075 $ 2.76
Options exercised................................
Options granted.................................. 752,625 14.31 656,075 $ 2.76
Options canceled/forfeited.......................
----------- --------- ---------
Options outstanding, end of year................. 1,408,700 8.93 656,075 2.76 656,075 2.76
----------- --------- ---------
----------- --------- ---------
Weighted-average fair value of options, granted
during the year................................ 5.87
Weighted-average exercise price of options,
exercisable at end of year..................... 2.76 2.76 2.76
</TABLE>
F-17
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 8--STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------------------
NUMBER WEIGHTED- AVERAGE NUMBER
OUTSTANDING REMAINING WEIGHTED- AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE PRICE AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 EXERCISE PRICE
- -------------------------- ------------ ------------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 2.76.................... 752,200 7.04 $ 2.76 376,100 $ 2.76
16.00.................... 656,500 9.83 16.00
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS
Certain employees of the Company are participants in a non-contributory,
defined benefit plan of FCI that covers substantially all employees of FCI. This
plan has a vesting period of five years and provides monthly retirement benefits
based on years of service and level of compensation. FCI's funding policy is to
make annual contributions equal to, or exceeding, the minimum required by the
Employee Retirement Income Security Act of 1974, and plan assets were primarily
invested in an equity fund at December 31, 1996 and 1995. Due to the small
number of the Company's employees with a significant number of years of service,
the actuarial present value of benefit obligations and the plan assets to be
allocated to the Company were immaterial at December 31, 1996 and 1995. Pension
expense allocated to the Company for the years ended December 31, 1996, 1995 and
1994 was $44, $28 and $7, respectively.
Certain employees of the Company are also participants in a defined
contribution plan of FCI. Employer contributions to the plan are discretionary
and are generally determined by the Board of Directors of each of the individual
companies that participate in such plans, but are not to exceed 15% of each
individual's compensation. The cost allocated to the Company for this plan for
the years ended December 31, 1996, 1995 and 1994 was $149, $175 and $30,
respectively.
Employees of Direct Merchants Bank participate in a defined contribution
plan maintained by Direct Merchants Bank that covers substantially all of its
employees. The plan is limited to 401(k) provisions with a partial employer
match. The cost to the Company for this plan for the years ended December 31,
1996, 1995 and 1994 was $6, $9 and $4, respectively.
Effective January 1, 1997, substantially all employees of the Company are
eligible to participate in a defined contribution plan maintained by the
Company.
F-18
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 10--INCOME TAXES
The components of the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Current:
Federal................................................... $ 38,914 $ 6,238 $ 1,274
State..................................................... 4,035 921 126
Deferred.................................................... (30,419) (4,291) (95)
---------- --------- ---------
$ 12,530 $ 2,868 $ 1,305
---------- --------- ---------
---------- --------- ---------
</TABLE>
A reconciliation of the Company's effective income tax rate compared to the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit............................. 3.2% 3.2% 2.2%
Other, net............................................................. 0.3% 0.3% 0.1%
--- --- ---
Effective income tax rate.............................................. 38.5% 38.5% 37.3%
--- --- ---
</TABLE>
The "other net" tax rate in 1996, 1995 and 1994 was composed of
miscellaneous items, none of which was individually significant.
F-19
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 10--INCOME TAXES (CONTINUED)
The Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred income tax assets resulting from future deductible temporary
differences:
Allowance for loan losses and recourse reserves....................... $ 29,910 $ 8,455
Deferred revenues..................................................... 1,568 243
Other product reserves.................................................. 1,482 518
Other................................................................. 1,265 470
--------- ---------
$ 34,225 $ 9,686
--------- ---------
--------- ---------
Deferred income tax liabilities resulting from future taxable temporary
differences:
Net gain on securitization of credit card loans....................... $ 386 $ 2,694
Deferred solicitation and origination costs........................... 1,692 1,594
Accrued interest on credit card loans................................. 578 1,061
Other................................................................. 41 31
--------- ---------
$ 2,697 $ 5,380
--------- ---------
--------- ---------
</TABLE>
Management believes, based on the Company's history of operating earnings,
expectations for operating earnings in the future, and the expected reversals of
taxable temporary differences, earnings will be sufficient to fully utilize the
deferred tax assets.
NOTE 11--RELATED PARTY TRANSACTIONS
FCI and its various subsidiaries have historically provided significant
financial and operational support to the Company. Direct expenses incurred by
FCI and/or its subsidiaries for the Company, and other expenses, have been
allocated to the Company using various methods (headcount, actual or estimated
usage, etc.). Since the Company has not historically operated as a separate
stand-alone entity for all periods presented, these allocations do not
necessarily represent the expenses and costs that would have been incurred
directly by the Company had it operated on a stand-alone basis. However,
management believes such allocations reasonably approximate market rates for the
services performed. The direct and allocated expenses represent charges for
services such as data processing and information systems, audit, certain
accounting and other similar functions, treasury, legal, human resources,
certain customer service and marketing analysis functions, certain executive
time, and space and property usage allocations. In addition, the Company has
historically managed the sales of credit insurance products for Fingerhut. In
accordance therewith, the Company has allocated back to Fingerhut certain direct
and other expenses using methods similar to those mentioned above. The
historical expenses and cost allocations have been agreed to by the management
of both FCI and the Company, the terms of which are summarized in an ongoing
Administrative Services Agreement between FCI and the Company. This agreement
provides for similar future services using similar rates and cost allocation
methods for various terms, the latest of which expires on December 31, 1998.
F-20
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 11--RELATED PARTY TRANSACTIONS (CONTINUED)
The financial statements also include an allocation of FCI interest expense
for the net borrowings of the Company from FCI, or a net interest credit for the
net cash flows of the Company loaned to FCI in
certain periods. These allocations of interest expense or income for each of the
periods presented were based on the net loans made or borrowings received
between the Company and FCI, plus or minus the effects of intercompany balances
outstanding during such periods. The interest rate used to calculate such
expense or credit during such periods was based on the average short-term
borrowing rates of FCI during the periods presented (see Note 6).
The Company and Fingerhut have also entered into several other agreements
that detail further business arrangements between the companies. The retroactive
effects of these additional intercompany agreements and business arrangements
have been reflected in the consolidated financial statements of the Company. The
agreements entered into include a Co-Brand Credit Card Agreement and a Data
Sharing Agreement, which provides for payment for every Fingerhut co-branded
credit card account booked, as defined, and a payment based on card usage from
such accounts. The parties have also entered into a Database Access Agreement,
which provides the Company with the exclusive right to access and market
financial services products, as defined, to Fingerhut customers, in exchange for
an escalating non-refundable license fee, payable annually, ranging from $0.5
million to $2.0 million, based on the year within the term of the agreement
($1.0 million was paid in January 1997). The agreement also calls for a
solicitation fee per product mailed to a Fingerhut customer, and a suppress file
fee for each consumer name obtained from a third party and matched to the
Fingerhut suppress file before its solicitation.
The Company and Fingerhut have also entered into an Extended Service Plan
Agreement, which provides the company with the exclusive right to provide and
coordinate the marketing of extended service plans to the customers of
Fingerhut. Revenues are received from Fingerhut from such sales, and the Company
reimburses Fingerhut and/or its subsidiaries for certain marketing costs.
Additionally, the Company and FCI have entered into a tax sharing agreement (see
Note 2).
Finally, the Company and FCI entered into a registration rights agreement
under which FCI has the right to require the Company to register under the
Securities Act of 1933, as amended, or to qualify for sale, any securities of
the Company that FCI owns, and the Company will be required to use reasonable
efforts to cause such registration to occur, subject to certain limitations and
conditions. The Company will bear the entire cost of the first three demand
registrations attributable to FCI, and FCI will bear one-half of the costs of
any subsequent demand registrations. These costs include legal fees and expenses
of counsel for the Company, registration fees, printing expenses and other
related costs. FCI, however, will be required to pay any underwriting discounts
and commissions associated with the sale of its securities and the fees and
expenses of its own counsel.
In the ordinary course of business, executive officers of the Company or FCI
may have credit card loans issued by the Company. Pursuant to the Company's
policy, such loans are issued on the same terms as those prevailing at the time
for comparable loans with unrelated persons and do not involve more than the
normal risk of collectibility.
F-21
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 11--RELATED PARTY TRANSACTIONS (CONTINUED)
The following table summarizes the amounts of these direct expense charges
and cost allocations (including net interest income or expense), and the costs
to the Company of the intercompany agreements mentioned above, for each of the
years reflected in the financial statements of the Company:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income......................................... $ $ $ $ $ 487
Net extended service plan revenues...................... 3,249 13,789 20,420 17,779 12,244
Expenses:
Interest expense........................................ 2,496 3,178 1,181
Credit card account and other product solicitation and
marketing expenses.................................... 6,269 6,854 9,335 8,204 3,476
Data processing services and communications............. 1,327 910 1,324 320 7
Third party customer service and collections expenses... 500 473
Other affiliate cost allocations........................ 938 702 950 1,680 1,688
</TABLE>
NOTE 12--COMMITMENTS AND CONTINGENCIES
Commitments to extend credit to consumers represent the unused credit limits
on open credit card accounts. These commitments amounted to $1.8 billion, $1.2
billion and $709.5 million as of September 30, 1997, December 31, 1996 and 1995,
respectively. While these amounts represent the total lines of credit available
to the Company's customers, the Company has not experienced and does not
anticipate all of its customers will exercise their entire available line at any
given point in time. The Company also has the right to increase, reduce, cancel,
alter or amend the terms of these available lines of credit at any time.
The Company leases certain office facilities and equipment under various
cancelable and non-cancelable operating lease agreements that provide for the
payment of a proportionate share of property taxes, insurance and other
maintenance expenses. These leases also may include scheduled rent increases and
renewal options. In addition, certain of these obligations have been guaranteed
by FCI. Rental expense for such operating leases for the nine months ended
September 30, 1997 and 1996 and the years ended December 31, 1996, 1995 and 1994
was $3.0 million and $1.1 million, and $1.1 million, $0.2 million and $0.1
million, respectively.
F-22
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease commitments at December 31, 1996 under cancelable and
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997................................................................................ $ 3,181
1998................................................................................ 2,994
1999................................................................................ 1,675
2000................................................................................ 1,296
2001................................................................................ 195
Thereafter.......................................................................... 16
---------
Total minimum lease payments...................................................... $ 9,357
---------
---------
</TABLE>
NOTE 13--CAPITAL REQUIREMENTS AND DIVIDEND AND LOAN RESTRICTIONS
In the normal course of business, the Company enters into agreements, or is
subject to regulatory requirements, that result in cash, debt and dividend or
other capital restrictions.
The Federal Reserve Act imposes various legal limitations on the extent to
which banks that are members of the Federal Reserve System can finance or
otherwise supply funds to certain of their affiliates. In particular, Direct
Merchants Bank is subject to certain restrictions on any extensions of credit to
or other covered transactions, such as certain purchases of assets, with the
Company or its affiliates. Such restrictions prevent Direct Merchants Bank from
lending to the Company and its affiliates with certain limited exceptions.
Additionally, Direct Merchants Bank is limited in its ability to declare
dividends to the Company in accordance with the national bank dividend policy.
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of the Currency and the Federal Reserve
Board, and monitored by the Federal Deposit Insurance Corporation and the Office
of the Comptroller of the Currency. These regulators consider a range of factors
when determining capital adequacy, such as the organization's size, quality,
liquidity and internal controls. At September 30, 1997, December 31, 1996 and
1995, Direct Merchants Bank's Tier 1 risk-based capital ratio, risk-based total
capital ratio and Tier 1 leverage ratio exceeded the minimum required capital
levels, and Direct Merchants Bank was considered a "well capitalized" depository
institution under regulations of the Office of the Comptroller of the Currency.
NOTE 14--CONCENTRATIONS OF CREDIT RISK
A concentration of credit risk is defined as significant credit exposure
with an individual or group engaged in similar activities or affected similarly
by economic conditions. The Company is active in originating credit card loans
throughout the United States, and no individual or group had a significant
F-23
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 14--CONCENTRATIONS OF CREDIT RISK (CONTINUED)
concentration of credit risk at September 30, 1997 or December 31, 1996. The
following table details the geographic distribution of the Company's retained,
sold and managed credit card loans:
<TABLE>
<CAPTION>
RETAINED SOLD MANAGED
----------- ------------- -------------
<S> <C> <C> <C>
September 30, 1997
- ---------------------------------------------------
California......................................... $ 49,362 $ 319,134 $ 368,496
Florida............................................ 30,358 196,279 226,637
Texas.............................................. 25,964 167,870 193,834
New York........................................... 24,252 156,798 181,050
Ohio............................................... 15,263 98,680 113,943
Illinois........................................... 13,549 87,602 101,151
Pennsylvania....................................... 13,285 85,896 99,181
All Others......................................... 187,484 1,212,101 1,399,585
----------- ------------- -------------
Total............................................ $ 359,517 $ 2,324,360 $ 2,683,877
----------- ------------- -------------
----------- ------------- -------------
December 31, 1996
- ---------------------------------------------------
California......................................... $ 27,053 $ 175,892 $ 202,945
Florida............................................ 17,505 113,819 131,324
New York........................................... 17,034 110,754 127,788
Texas.............................................. 16,480 107,151 123,631
Ohio............................................... 9,409 61,179 70,588
Pennsylvania....................................... 8,654 56,267 64,921
Illinois........................................... 7,989 51,940 59,929
All others......................................... 111,205 723,609 834,814
----------- ------------- -------------
Total.......................................... $ 215,329 $ 1,400,611 $ 1,615,940
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
The Company targets its consumer credit products to moderate income
consumers. Primary risks associated with lending to this market are that they
may be more sensitive to future economic downturns, which may make them more
likely to default on their obligations.
At September 30, 1997, December 31, 1996 and December 31, 1995, all federal
funds sold were made to one bank, which represents a concentration of credit
risk to the Company. The Company is able to monitor and mitigate this risk since
all federal funds are sold on a daily origination and repayment basis and
therefore may be recalled quickly should the credit risk of the counterparty
bank increase above certain limits set by the Company.
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value of its financial instruments in
accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments". Financial instruments
include both assets and liabilities, whether or not recognized in the Company's
consolidated balance sheets, for which it is practicable to estimate fair value.
Additionally, certain
F-24
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
intangible assets recorded on the consolidated balance sheets, such as purchased
credit card relationships, and other intangible assets not recorded on the
consolidated balance sheets (such as the value of the credit card relationships
for originated loans and the franchise values of the Company's various lines of
business) are not considered financial instruments and, accordingly, are not
valued for purposes of this disclosure. The Company believes that there is
substantial value associated with these assets based on current market
conditions, including the purchase and sale of such assets. Accordingly, the
aggregate estimated fair value amounts presented do not represent the entire
underlying value of the Company.
Quoted market prices generally are not available for all of the Company's
financial instruments. Accordingly, in cases where quoted market prices are not
available, fair values were estimated using present value and other valuation
techniques that are significantly affected by the assumptions used, including
the discount rate and estimated future cash flows. Such assumptions are based on
historical experience and assessment regarding the ultimate collectibility of
assets and related interest, and estimates of product lives and repricing
characteristics used in the Company's asset/liability management process. These
assumptions involve uncertainties and matters of judgment, and therefore, cannot
be determined with precision. Thus, changes in these assumptions could
significantly affect the fair-value estimates.
A description of the methods and assumptions used to estimate the fair value
of each class of the Company's financial instruments is as follows:
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST AND FEES RECEIVABLE
The carrying amounts approximate fair value due to the short-term nature of
these instruments.
CREDIT CARD LOANS, NET OF ALLOWANCE FOR LOAN LOSSES
Currently, credit card loans are originated with variable rates of interest
that adjust with changing market interest rates. Thus, carrying value
approximates fair value. However, this valuation does not include the value that
relates to estimated cash flows generated from new loans from existing customers
over the life of the cardholder relationship. Accordingly, the aggregate fair
value of the credit card loans does not represent the underlying value of the
established cardholder relationships.
OTHER PAYABLES/RECEIVABLES DUE TO/FROM CREDIT CARD SECURITIZATIONS, NET
The fair value of the excess servicing rights component of other
payables/receivables due to/from credit card securitizations, net, is estimated
by discounting the future cash flows at rates which management believes to be
consistent with those that would be used by an independent third party. However,
because there is no active market for these financial instruments, the fair
values presented may not be indicative of the value negotiated in an actual
sale. The future cash flows used to estimate the fair values of these financial
instruments are adjusted periodically for prepayments on loans sold, net of
anticipated charge-offs over the life of the loans under the recourse
provisions, and allow for the value of normal servicing fees. For the other
components of other payables/receivables due to/from credit card
securitizations, net, the carrying amount is a reasonable estimate of the fair
value.
F-25
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST-BEARING DEPOSIT AND SHORT-TERM BORROWINGS
Interest-bearing deposit and short-term borrowings are made with variable
rates of interest that adjust with changing market interest rates. Thus,
carrying value approximates fair value.
INTEREST RATE CAP AND SWAP AGREEMENTS
The fair values of interest rate cap and swap agreements were obtained from
dealer quoted prices. These values generally represent the estimated amounts the
Company would receive or pay to terminate the agreements at the reporting dates,
taking into consideration current interest rates and the current
creditworthiness of the counterparties.
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------------------- ------------------------------------------------
1997 1996 1995
-------------------------- ------------------------ ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents......... $ 49,465 $ 49,465 $ 32,082 $ 32,082 $ 34,743 $ 34,743
Credit card loans, net............ 335,670 335,670 202,500 202,500 91,385 91,385
Other payables/receivables due
(to)/from credit card
securitizations, net............ (107,102) (107,102) (36,619) (36,619) 31,597 31,597
Interest-bearing deposit.......... 1,000 1,000 1,000 1,000
Short term borrowings............. 153,000 153,000 54,163 54,163 63,482 63,482
Interest rate swap agreements in a
net receivable position......... 14,683 2,657
Interest rate cap agreements...... 3,660 400 4,143 1,989 3,008 1,488
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Company has entered into interest rate cap and swap agreements to hedge
its economic exposure to fluctuating interest rates associated with the floating
and fixed rate certificates issued by the Metris Master Trust. Particularly, in
connection with the issuance of the $512.6 million Metris Master Trust Series
1995-1 certificates in May 1995, the Company entered into an eight-year
agreement capping the certificate interest rate at 11.2%. Also, in connection
with the issuance of additional Series 1995-1 certificates related to the
September 1996 amendment of Series 1995-1, the Company entered into additional
six-and two-thirds-year agreements capping the certificates' interest rate at
11.2%. Additionally, the Company entered into two interest rate swap agreements
in April 1996, to synthetically alter the fixed rate of the Metris Master Trust
Series 1996-1 certificates to a floating rate to manage interest rate
sensitivity and better match this rate to the variable interest rate of the
Company's loans that are sold and serviced with limited recourse. Total notional
amounts of these swap transactions amounted to $605.5 million, and exchanged an
obligation to pay a weighted-average fixed rate of 6.26% for a one-month
floating rate based on the prevailing monthly LIBOR rate. This weighted-average
floating rate for
F-26
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
the series 1996-1 certificates was 5.64% at December 31, 1996. The obligations
of the Company and the counterparties under these swap agreements are settled on
a monthly basis.
Interest rate risk management contracts are generally expressed in notional
principal or contract amounts that are much larger than the amounts potentially
at risk for nonpayment by counterparties. Therefore, in the event of
nonperformance by the counterparties, the Company's credit exposure is limited
to the uncollected interest and contract market value related to the contracts
that have become favorable to the Company. Although the Company does not require
collateral from counterparties on its existing agreements, the Company does
control the credit risk of such contracts through established credit approvals,
risk control limits, and the ongoing monitoring of the credit ratings of
counterparties. The Company currently has no reason to anticipate nonperformance
by the counterparties.
NOTE 16--SUBSEQUENT EVENTS
On October 29, 1997, the Company declared a cash dividend in the amount of
$.01 per share, aggregating approximately $.2 million, payable on November 26,
1997, to shareholders of record as of the close of business on November 12,
1997.
In November 1997, the Metris Master Trust issued Series 1997-2 certificates
to third parties with a principal amount of $645.5 million, generating proceeds
of $652.0 million of which $477.9 million was used to reduce the Class A
Variable Funding Certificates issued under Series 1995-1. The Series 1997-2
certificates are scheduled to begin accumulating principal collections in
October 2001, however, the accumulation period could potentially begin at a
later date. The expected final payment date of these certificates is in November
2002.
On November 7, 1997, the Company privately issued and sold $100 million of
its 10% Senior Notes due 2004 (the "Senior Notes") pursuant to an exemption
under the Securities Act of 1933, as amended. The net proceeds of $97 million
were used to pay down borrowings under the Revolving Credit Facility.
The Senior Notes are guaranteed on a senior basis, jointly and severally, by
Metris Direct, Inc. Metris Direct, Inc. has various subsidiaries which have not
guaranteed the Notes. The following suplemental consolidating financial
statements are presented for the purpose of complying with the reporting
requirements of the parent company and the subsidiaries which are guarantors
under the Senior Notes. Supplemental consolidating financial statements as of
and for the year ended December 31, 1994, have not been included as there were
no non-guaranteeing subsidiaries at such time.
F-27
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks................... $ 432 $ 647 $ 10,016 $ $ 11,095
Federal funds sold........................ 38,286 38,286
Short-term investments.................... 3 81 84
----------- ------------ ------------ ------------ -------------
Cash and cash equivalents................. 435 647 48,383 49,465
Credit card loans:
Loans held for securitization............. 3,367 11,329 14,696
Retained interests in loans securitized... 344,821 344,821
Less:Allowance for loan losses............ 31 23,816 23,847
----------- ------------ ------------ ------------ -------------
Net credit card loans..................... 3,336 332,334 335,670
----------- ------------ ------------ ------------ -------------
Premises and equipment, net............... 9,930 748 10,678
Accrued interest and fees receivable...... 5 3,740 3,745
Prepaid expenses and deferred charges..... 240 8,517 6,669 15,426
Deferred income taxes..................... 181 10,273 52,343 62,797
Customer base intangible.................. 1,659 38,172 39,831
Other assets.............................. 1,003 3,021 4,029 8,053
Investment in Subsidaries................. 228,353 242,014 (470,367)
----------- ------------ ------------ ------------ -------------
Total Assets.............................. $ 235,212 $ 274,402 $ 486,418 $ (470,367) $ 525,665
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
LIABILITIES:
Interest-bearing deposit from affiliate... $ (1,000) $ $ 1,000 $ $
Short-term borrowings..................... 153,000 153,000
Accounts payable.......................... (960) 10,134 17,893 27,067
Other payables due to credit card
securitizations, net.................... 186 106,916 107,102
Current income taxes payable to
(receivable) from FCI................... (82,205) (3,642) 93,027 7,180
Deferred income........................... 25 25,878 21,027 46,930
Accrued expenses and other liabilities.... 14,410 3,810 18,220
----------- ------------ ------------ ------------ -------------
Total liabilities......................... 69,046 46,780 243,673 359,499
----------- ------------ ------------ ------------ -------------
STOCKHOLDERS' EQUITY:
Common Stock.............................. 192 1,000 1,000 (2,000) 192
Paid-in capital........................... 107,059 169,488 169,461 (338,949) 107,059
Retained earnings......................... 58,915 57,134 72,284 (129,418) 58,915
----------- ------------ ------------ ------------ -------------
Total stockholders' equity................ 166,166 227,622 242,745 (470,367) 166,166
----------- ------------ ------------ ------------ -------------
Total liabilities and stockholders'
equity.................................. $ 235,212 $ 274,402 $ 486,418 $ (470,367) $ 525,665
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
</TABLE>
F-28
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16----SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks....................... $ 215 $ 83 $ 8,604 $ $ 8,902
Federal funds sold............................ 19,001 19,001
Short-term investments........................ 4,160 19 4,179
----------- ------------ ------------ ------------ -------------
Cash and cash equivalents..................... 4,375 83 27,624 32,082
Credit card loans:
Loans held for securitization................. 14,164 14,164
Retained interests in loans securitized....... 14,022 187,143 201,165
Less: Allowance for loan losses............... 111 12,718 12,829
----------- ------------ ------------ ------------ -------------
Net credit card loans......................... 13,911 188,589 202,500
----------- ------------ ------------ ------------ -------------
Premises and equipment, net................... 4,933 230 5,163
Accrued interest and fees receivable.......... 26 2,916 2,942
Prepaid expenses and deferred charges......... 30 620 4,176 4,826
Deferred income taxes......................... 290 569 30,669 31,528
Customer base intangible...................... 888 888
Other assets.................................. 1,187 275 5,225 6,687
Investment in Subsidaries..................... 128,125 131,730 (259,855)
----------- ------------ ------------ ------------ -------------
Total Assets.................................. $ 147,944 $ 138,210 $ 260,317 $ (259,855) $ 286,616
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
LIABILITIES:
Interest-bearing deposit from affiliate....... $ $ $ 1,000 $ $ 1,000
Short-term borrowings/Intercompany balances... 50,172 (2,186) 6,177 54,163
Accounts payable.............................. (383) 4,487 11,479 15,583
Other payables due to credit card
securitizations, net........................ 559 36,060 36,619
Current income taxes payable to/(receivable)
from FCI.................................... (41,277) (6,946) 49,683 1,460
Deferred income............................... 153 2,060 20,970 23,183
Accrued expenses and other liabilities........ 2 13,232 2,656 15,890
----------- ------------ ------------ ------------ -------------
Total liabilities............................. 9,226 10,647 128,025 -- 147,898
----------- ------------ ------------ ------------ -------------
STOCKHOLDERS' EQUITY:
Common Stock.................................. 192 1,000 1,000 (2,000) 192
Paid-in capital............................... 107,220 82,028 82,002 (164,030) 107,220
Retained earnings............................. 31,306 44,535 49,290 (93,825) 31,306
----------- ------------ ------------ ------------ -------------
Total stockholders' equity.................... 138,718 127,563 132,292 (259,855) 138,718
----------- ------------ ------------ ------------ -------------
Total liabilities and stockholders' equity.... $ 147,944 $ 138,210 $ 260,317 $ (259,855) $ 286,616
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
</TABLE>
F-29
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16----SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks....................... $ $ $ 4,185 $ $ 4,185
Federal funds sold............................ 29,144 29,144
Short-term investments........................ 1,414 1,414
----------- ------------ ------------ ------------ -------------
Cash and cash equivalents..................... 34,743 34,743
Credit card loans:
Loans held for securitization................. 15,337 15,337
Retained interests in loans securitized....... 79,727 79,727
Less: Allowance for loan losses............... 3,679 3,679
----------- ------------ ------------ ------------ -------------
Net credit card loans......................... 91,385 91,385
----------- ------------ ------------ ------------ -------------
Premises and equipment, net................... 1,455 21 1,476
Accrued interest and fees receivable.......... 2,223 2,223
Other receivables due from credit card
securitizations, net........................ 31,597 31,597
Prepaid expenses and deferred charges......... 99 55 4,363 4,517
Deferred income taxes......................... 414 3,892 4,306
Customer base intangible...................... 1,205 1,205
Other assets.................................. 73 2,903 2,976
Investment in Subsidaries..................... 64,068 56,505 (120,573)
----------- ------------ ------------ ------------ -------------
Total Assets.................................. $ 64,167 $ 58,502 $ 172,332 $ (120,573) $ 174,428
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
LIABILITIES:
Interest-bearing deposit from affiliate....... $ $ $ 1,000 $ $ 1,000
Short-term borrowings/Intercompany balances... $ (11,442) 74,924 63,482
Accounts payable.............................. 4,022 17,312 21,334
Current income taxes payable to/(receivable)
from FCI.................................... (7,151) 688 11,641 5,178
Deferred income............................... 295 9,792 10,087
Accrued expenses and other liabilities........ 1,248 781 2,029
----------- ------------ ------------ ------------ -------------
Total liabilities............................. (7,151) (5,189) 115,450 103,110
----------- ------------ ------------ ------------ -------------
STOCKHOLDERS'/DIVISION EQUITY:
Common Stock.................................. 1,000 1,000 (2,000)
Paid-in capital............................... 60,028 43,503 43,475 (86,978) 60,028
Retained earnings............................. 11,290 19,188 12,407 (31,595) 11,290
----------- ------------ ------------ ------------ -------------
Total stockholders'/division equity........... 71,318 63,691 56,882 (120,573) 71,318
----------- ------------ ------------ ------------ -------------
Total liabilities and stockholders'/division
equity...................................... $ 64,167 $ 58,502 $ 172,332 $ (120,573) $ 174,428
----------- ------------ ------------ ------------ -------------
----------- ------------ ------------ ------------ -------------
</TABLE>
F-30
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Credit card loans...................................... $ 1,054 $ $ 41,591 $ 42,645
Federal funds sold..................................... 1,270 1,270
Other.................................................. 154 2 412 568
----------- ------------ ------------ -------------
Total interest income.................................. 1,208 2 43,273 44,483
INTEREST EXPENSE
Deposit................................................ 7 7
Short-term borrowing................................... 7,466 355 (1,898) 5,923
----------- ------------ ------------ -------------
Total interest expense/(income).................... 7,466 355 (1,891) 5,930
----------- ------------ ------------ -------------
NET INTEREST INCOME/(EXPENSE).......................... (6,258) (353) 45,164 38,553
Provision for possible loan losses..................... 307 28,282 28,589
----------- ------------ ------------ -------------
Net interest income/(expense) after provision.......... (6,565) (353) 16,882 9,964
OTHER OPERATING INCOME
Net extended warranty revenues......................... 3,249 3,249
Net securitization and credit card servicing income.... 10,726 48,807 59,533
Credit card fees, interchange and other credit card
income............................................... 346 (21) 27,999 28,324
Fee-based product revenues............................. (137) 39,219 39,082
----------- ------------ ------------ -------------
TOTAL OTHER OPERATING INCOME....................... 11,072 3,091 116,025 130,188
OTHER OPERATING EXPENSE
Credit card account and other product solicitation and
marketing expenses................................... (978) 23,397 22,419
Employee compensation.................................. 22,617 1,838 24,455
Data processing services and communications............ 2,030 10,863 12,893
Third party servicing expenses......................... 33 (14,087) 22,026 7,972
Warranty and debt waiver underwriting and claims
servicing............................................ 203 3,874 4,077
Credit card fraud losses............................... 64 2,636 2,700
Other.................................................. 184 9,578 10,355 20,117
----------- ------------ ------------ -------------
TOTAL OTHER OPERATING EXPENSE...................... 281 19,363 74,989 94,633
----------- ------------ ------------ -------------
INCOME/(LOSS) BEFORE INCOME TAXES...................... 4,226 (16,625) 57,918 45,519
Income taxes........................................... 1,627 (6,400) 22,298 17,525
----------- ------------ ------------ -------------
NET INCOME/(LOSS)...................................... $ 2,599 $ (10,225) $ 35,620 $ 27,994
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
</TABLE>
F-31
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Credit card loans...................................... $ 38 $ $ 19,545 $ 19,583
Federal funds sold..................................... 644 644
Other.................................................. 120 120
----------- ------------ ------------ -------------
Total interest income.............................. 38 20,309 20,347
INTEREST EXPENSE:
Deposit................................................ 36 36
Short-term borrowing................................... 5,093 (2,391) 85 2,787
----------- ------------ ------------ -------------
Total interest expense/(income).................... 5,093 (2,391) 121 2,823
----------- ------------ ------------ -------------
NET INTEREST INCOME/(EXPENSE).......................... (5,055) 2,391 20,188 17,524
Provision for possible loan losses..................... 20 10,536 10,556
----------- ------------ ------------ -------------
Net interest income/(expense) after provision.......... (5,075) 2,391 9,652 6,968
OTHER OPERATING INCOME:
Net extended warranty revenues......................... 13,789 13,789
Net securitization and credit card servicing income.... 1,976 31,750 33,726
Credit card fees, interchange and other credit card
income............................................... 13 96 17,153 17,262
Fee-based product revenues............................. 1,342 19,207 20,549
----------- ------------ ------------ -------------
TOTAL OTHER OPERATING INCOME....................... 1,989 15,227 68,110 85,326
OTHER OPERATING EXPENSE:
Credit card account and other product solicitation and
marketing expenses................................... 5,805 7,105 7,988 20,898
Employee compensation.................................. 13,811 1,074 14,885
Data processing services and communications............ 8,632 8,632
Third party servicing expenses......................... (2,313) 9,013 6,700
Warranty and debt waiver underwriting and claims
servicing............................................ 4,395 2,447 6,842
Credit card fraud losses............................... 3 1,720 1,723
Other.................................................. 5,985 2,733 8,718
----------- ------------ ------------ -------------
TOTAL OTHER OPERATING EXPENSE...................... 5,808 28,983 33,607 68,398
----------- ------------ ------------ -------------
INCOME/(LOSS) BEFORE INCOME TAXES...................... (8,894) (11,365) 44,155 23,896
Income taxes........................................... (3,424) (4,376) 17,000 9,200
----------- ------------ ------------ -------------
NET INCOME/(LOSS)...................................... $ (5,470) $ (6,989) $ 27,155 $ 14,696
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
</TABLE>
F-32
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Credit card loans...................................... $ 199 $ $ 28,829 $ 29,028
Federal funds sold..................................... 867 867
Other.................................................. 105 194 299
----------- ------------ ------------ -------------
Total interest income.............................. 304 29,890 30,194
INTEREST EXPENSE
Deposit................................................ 48 48
Short-term borrowing................................... 7,272 (2,494) (720) 4,058
----------- ------------ ------------ -------------
Total interest expense/(income).................... 7,272 (2,494) (672) 4,106
----------- ------------ ------------ -------------
NET INTEREST INCOME/(EXPENSE).......................... (6,968) 2,494 30,562 26,088
Provision for possible loan losses..................... 83 18,394 18,477
----------- ------------ ------------ -------------
Net interest income/(expense) after provision.......... (7,051) 2,494 12,168 7,611
OTHER OPERATING INCOME
Net extended warranty revenues......................... 20,420 20,420
Net securitization and credit card servicing income.... 3,859 46,062 49,921
Credit card fees, interchange and other credit card
income............................................... 49 107 25,872 26,028
Fee-based product revenues............................. 1,580 28,273 29,853
----------- ------------ ------------ -------------
TOTAL OTHER OPERATING INCOME....................... 3,908 22,107 100,207 126,222
OTHER OPERATING EXPENSE
Credit card account and other product solicitation and
marketing expenses................................... 5,805 9,563 13,929 29,297
Employee compensation.................................. 22,076 992 23,068
Data processing services and communications............ 1,600 11,157 12,757
Third party servicing expenses......................... 3 (6,757) 15,961 9,207
Warranty and debt waiver underwriting and claims
servicing............................................ 6,463 3,561 10,024
Credit card fraud losses............................... 10 2,266 2,276
Other.................................................. 1 10,116 4,541 14,658
----------- ------------ ------------ -------------
TOTAL OTHER OPERATING EXPENSE...................... 5,819 43,061 52,407 101,287
----------- ------------ ------------ -------------
INCOME/(LOSS) BEFORE INCOME TAXES...................... (8,962) (18,460) 59,968 32,546
Income taxes........................................... (3,450) (7,107) 23,087 12,530
----------- ------------ ------------ -------------
NET INCOME/(LOSS)...................................... $ (5,512) $ (11,353) $ 36,881 $ 20,016
----------- ------------ ------------ -------------
----------- ------------ ------------ -------------
</TABLE>
F-33
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Credit card loans...................................... $ $ $ 7,054 $ 7,054
Federal funds sold..................................... 487 487
Other.................................................. 75 75
----------- ------------- ------------- -------------
Total interest income.............................. 7,616 7,616
INTEREST EXPENSE:
Deposit................................................ 36 36
Short-term borrowing................................... 2,145 (919) (45) 1,181
----------- ------------- ------------- -------------
Total interest expense/(income).................... 2,145 (919) (9) 1,217
----------- ------------- ------------- -------------
NET INTEREST INCOME/(EXPENSE).......................... (2,145) 919 7,625 6,399
Provision for possible loan losses..................... 4,393 4,393
----------- ------------- ------------- -------------
Net interest income/(expense) after provision.......... (2,145) 919 3,232 2,006
OTHER OPERATING INCOME:
Net extended warranty revenues......................... 17,779 17,779
Net securitization and credit card servicing income.... 16,003 16,003
Credit card fees, interchange and other credit card
income............................................... 30 10,609 10,639
Fee-based product revenues............................. 1,817 4,845 6,662
----------- ------------- ------------- -------------
TOTAL OTHER OPERATING INCOME....................... 19,626 31,457 51,083
OTHER OPERATING EXPENSE:
Credit card account and other product solicitation and
marketing expenses................................... 11,244 8,289 3,556 23,089
Employee compensation.................................. 1,905 561 2,466
Data processing services and communications............ 34 3056 3,090
Third party servicing expenses......................... 500 4,800 5,300
Warranty and debt waiver underwriting and claims
servicing............................................ 5,854 698 6,552
Credit card fraud losses............................... 775 775
Other.................................................. 3,233 1,135 4,368
----------- ------------- ------------- -------------
TOTAL OTHER OPERATING EXPENSE...................... 11,244 19,815 14,581 45,640
----------- ------------- ------------- -------------
INCOME/(LOSS) BEFORE INCOME TAXES...................... (13,389) 730 20,108 7,449
Income taxes........................................... (5,155) 281 7,742 2,868
----------- ------------- ------------- -------------
NET INCOME/(LOSS)...................................... $ (8,234) $ 449 $ 12,366 $ 4,581
----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
F-34
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
1997 INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.......... $ (40,820) $ 2,447 $ 163,124 $ 124,751
----------- ------------- ------------ -------------
INVESTING ACTIVITIES
Proceeds from sales of loans................................. 923,750 923,750
Net loans originated or collected............................ 10,269 (765,781) (755,512)
Credit card portfolio acquisition............................ (366,587) (366,587)
Additions to premises and equipment.......................... (5,920) (550) (6,470)
----------- ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.......... 10,269 (5,920) (209,168) (204,819)
----------- ------------- ------------ -------------
FINANCING ACTIVITIES
Decrease in interest-bearing deposit......................... (1,000) (1,000)
Net (decrease) increase in short-term borrowings............. 102,828 4,037 (8,029) 98,836
Cash dividends paid.......................................... 12,242 (12,627) (385)
Capital contributions........................................ (87,459) 87,459 0
----------- ------------- ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................... 26,611 4,037 66,803 97,451
----------- ------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents......... (3,940) 564 20,759 17,383
Cash and cash equivalents at beginning of period............. 4,375 83 27,624 32,082
----------- ------------- ------------ -------------
Cash and cash equivalents at end of period................... $ 435 $ 647 $ 48,383 $ 49,465
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
1996 INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... $ (41,106) $ (1,492) $ 112,998 $ 70,400
----------- ------------- ------------ -------------
INVESTING ACTIVITIES
Proceeds from sales of loans............................ 674,055 674,055
Net loans originated or collected....................... (449) (738,315) (738,764)
Additions to premises and equipment..................... (2,613) (56) (2,669)
----------- ------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES................... (449) (2,613) (64,316) (67,378)
----------- ------------- ------------ -------------
FINANCING ACTIVITIES
Net (decrease)/increase in short-term borrowings........ 36,776 4,373 (51,246) (10,097)
Capital contributions................................... 4,782 (4,782)
----------- ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... 41,558 4,373 (56,028) (10,097)
----------- ------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents.... 3 268 (7,346) (7,075)
Cash and cash equivalents at beginning of period........ 34,743 34,743
----------- ------------- ------------ -------------
Cash and cash equivalents at end of period.............. $ 3 $ 268 $ 27,397 $ 27,668
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
</TABLE>
F-35
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997, AND 1996, IS
UNAUDITED)
NOTE 16--SUBSEQUENT EVENTS (CONTINUED)
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
1996 INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... $ (40,660) $ (5,275) $ 138,911 $ 92,976
----------- ------------- ------------ -------------
INVESTING ACTIVITIES
Proceeds from sales of loans............................ 952,055 952,055
Net loans originated or collected....................... (13,994) (1,067,650 (1,081,644)
Additions to premises and equipment..................... (3,898) (215) (4,113)
----------- ------------- ------------ -------------
NET CASH (USED IN) INVESTING ACTIVITIES................. (13,994) (3,898) (115,810) (133,702)
----------- ------------- ------------ -------------
FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings........ 50,172 9,256 (68,747) (9,319)
Net proceeds from issuance of common stock.............. 47,384 47,384
Capital contributions................................... (38,527) 38,527
----------- ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... 59,029 9,256 (30,220) 38,065
----------- ------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents.... 4,375 83 (7,119) (2,661)
Cash and cash equivalents at beginning of period........ 34,743 34,743
----------- ------------- ------------ -------------
Cash and cash equivalents at end of period.............. $ 4,375 $ 83 $ 27,624 $ 32,082
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
METRIS NON-
COMPANIES GUARANTOR GUARANTOR
1995 INC. SUBSIDARIES SUBSIDARIES CONSOLIDATED
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... $ (15,525) $ 3,393 $ 10,126 $ (2,006)
----------- ------------- ------------ -------------
INVESTING ACTIVITIES
Proceeds from sales of loans........................... 448,555 448,555
Net loans originated or collected...................... (528,864) (528,864)
Credit card portfolio acquisition...................... (15,469) (15,469)
Net decrease (increase) in loans to FCI................ 9,375 9,375
Additions to premises and equipment.................... (1,326) (27) (1,353)
----------- ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.... 8,049 (95,805) (87,756)
----------- ------------- ------------ -------------
FINANCING ACTIVITIES
Increase in interest-bearing deposit................... 1,000 1,000
Net (decrease)/increase in short-term borrowings....... (11,442) 74,924 63,482
Capital contributions.................................. 15,525 44,475 60,000
----------- ------------- ------------ -------------
Net cash provided by financing activities.............. 15,525 (11,442) 120,399 124,482
----------- ------------- ------------ -------------
Net increase in cash and cash equivalents.............. 34,720 34,720
Cash and cash equivalents at beginning of period....... 23 23
----------- ------------- ------------ -------------
Cash and cash equivalents at end of period............. $ $ $ 34,743 $ 34,743
----------- ------------- ------------ -------------
----------- ------------- ------------ -------------
</TABLE>
F-36
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
METRIS COMPANIES INC.
Section 145 of the General Corporation Law of the State of Delaware provides
that under certain circumstances a corporation may indemnify any person who or
is a party or is threatened to be made a party any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at its request in such
capacity in another corporation or business association, against expenses
(including attorney's fees), judgments, fines and amounts paid insettlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
The Certificate and By Laws of the registrant provide that (a) the Company
shall indemnify to the full extent permitted by law any person made, or
threatened to be made, a party to any action, suitor proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that he is or
was a director, fficer or employee of the Company serving at its request as a
director, officer, employee, trustee or agent of another enterprise and (b) the
Company shall pay the expenses, including attorney's fees, incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding, in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount by the Company. The Certificate of
Incorporation also provides that, to the extent permitted by law, the directors
of the Company shall have no liability to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director.
Officers and directors of the Company are insured under a standard officers'
and directors' liability insurance policy maintained by Fingerhut Companies,
Inc.
METRIS DIRECT, INC.
Section 521 of the Minnesota Business Corporation Act (the "MBCA") (Minn.
Stat. Section 302A.521) generally provides that unless its articles or bylaws
provide otherwise, a corporation shall indemnify officers and directors made or
threatened to be made a party to a proceeding by reason of any such person's
present or former capacity as a director or officer against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding, if, with respect to the acts or omissions of the
person complained of in the proceeding, the person: (1) has not been indemnified
by another party for the same amounts; (2) acted in good faith; (3) received no
improper personal benefit and the procedures for director conflicts of interest,
if applicable, have been satisfied; (4) in the case of a criminal proceeding,
had no reasonable cause to believe the conduct was unlawful; and (5) reasonably
believed that the conduct was in the best interests of the corporation.
The MBCA provides that unless a corporation's articles of incorporation or
bylaws provide otherwise, if a person is made or threatened to be made a party
to a proceeding, the person is entitled, upon written request to the
corporation, to advance payment or reimbursement by the corporation of
reasonable expenses (a) upon receipt by the corporation of a written affirmation
by the person of a good faith belief that the criteria for indemnification have
been satisfied and a written undertaking by the person to repay all amounts so
paid or reimbursed by the corporation, if it is ultimately determined that the
criteria
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
for indemnification have not been satisfied, and (b) after a determination that
the facts then known to those making the determination would not preclude
indemnification.
The MBCA also permits a corporation to purchase and maintain insurance on
behalf of a person in that person's official capacity against any liability
asserted against and incurred by the person in or arising from that capacity,
whether or not the corporation would have been required to indemnify the person
against the liability.
The Bylaws of Metris Direct, Inc. provide for indemnification of its
officers and directors to the fullest extent permitted under the MBCA.
Officers and Directors of the Metris Direct, Inc. are insured under a
standard officers' and directors liability insurance policy maintained by
Fingerhut Companies, Inc.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
4.1 Indenture dated as of November 7, 1997 between the Company, the
Guarantor and The First National Bank of Chicago, as trustee.
4.2 Exchange and Registration Rights Agreement, dated as of November 7, 1997
between the Company, the Guarantor and Chase Securities Inc., Bear,
Stearns & Co. Inc., and NationsBanc Montgomery Securities, Inc.
4.3 Form of Security for 10% Senior Notes Due 2004 originally issued by the
Company on November 7, 1997 (included in Exhibit 4.1).
4.4 Form of Security for 10% Senior Notes Due 2004 to be issued by the
Company and registered under the Securities Act of 1933 (included in
Exhibit 4.1).
4.5 Form of Guarantee for 10% Senior Notes Due 2004 originally issued by
Metris Direct, Inc. (included in Exhibit 4.3).
4.6 Form of Guarantee for 10% Senior Notes Due 2004 to be issued by Metris
Direct, Inc. and registered under the Securities Act of 1933 (included
in Exhibit 4.4).
5 Opinion and consent of Dorsey & Whitney LLP.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5).
24.1 Powers of Attorney of the Company.
24.2 Powers of Attorney of the Guarantor.
25 Statement of Eligibility under the Trust Indenture Act of 1939 on Form
T-1 of The First National Bank of Chicago.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
II-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of each
registrant pursuant to the foregoing provisions, or otherwise, each registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by each registrant of expenses incurred
or paid by a director, officer or controlling person of each registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each registrant will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Each of the undersigned registrants hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Each of the undersigned registrants hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the subject of and
included in the registration statement when it became effective.
Each of the undersigned registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of a
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minnetonka, State of
Minnesota, on December 31, 1997.
<TABLE>
<S> <C> <C>
METRIS COMPANIES INC.
By: /s/ RONALD N. ZEBECK
-----------------------------------------
Ronald N. Zebeck
(PRESIDENT AND CHIEF EXECUTIVE OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dated indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ RONALD N. ZEBECK Office and Director
- ------------------------------ (Principal Executive December 31, 1997
Ronald N. Zebeck Officer)
Senior Vice President,
/s/ ROBERT W. OBERRENDER Chief Financial Officer
- ------------------------------ (Principal Financial December 31, 1997
Robert W. Oberrender Officer)
Director of Finance,
/s/ JEAN C. BENSON Corporate Controller
- ------------------------------ (Principal Accounting December 31, 1997
Jean C. Benson Officer)
/s/ THEODORE DEIKEL*
- ------------------------------ Chairman of the Board of December 31, 1997
Theodore Deikel Directors
/s/ DUDLEY C. MECUM*
- ------------------------------ Director December 31, 1997
Dudley C. Mecum
/s/ MICHAEL P. SHERMAN*
- ------------------------------ Director December 31, 1997
Michael P. Sherman
/s/ FRANK D. TRESTMAN*
- ------------------------------ Director December 31, 1997
Frank D. Trestman
/s/ DEREK V. SMITH*
- ------------------------------ Director December 31, 1997
Derek V. Smith
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ LEE R. ANDERSON*
- ------------------------------ Director December 31, 1997
Lee R. Anderson
</TABLE>
*By: /s/ RONALD N. ZEBECK
-------------------------
Ronald N. Zebeck
Attorney-in-fact
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authourizied, in the City of St. Louis Park, State
of Minnesota, on December 31, 1997.
<TABLE>
<S> <C> <C>
METRIS DIRECT, INC.
By: /s/ RONALD N. ZEBECK
-----------------------------------------
Ronald N. Zebeck
(PRESIDENT)
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ RONALD N. ZEBECK President and Director
- ------------------------------ (Principal Executive December 31, 1997
Ronald N. Zebeck Officer)
Senior Vice President,
/s/ ROBERT W. OBERRENDER Chief Financial Officer
- ------------------------------ and Director (Principal December 31, 1997
Robert W. Oberrender Financial Officer)
/s/ JEAN C. BENSON
- ------------------------------ Controller (Principal December 31, 1997
Jean C. Benson Accounting Officer)
/s/ MICHAEL P. SHERMAN*
- ------------------------------ Director December 31, 1997
Michael P. Sherman
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ RONALD N. ZEBECK
-------------------------
Ronald N. Zebeck
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
4.1 Indenture dated as of November 7, 1997 between the Company, the Guarantor and The First
National Bank of Chicago, as trustee.
4.2 Exchange and Registration Rights Agreement, dated as of November 7, 1997 between the Company,
the Guarantor and Chase Securities Inc., Bear, Stearns & Co. Inc., and NationsBanc Montgomery
Securities, Inc.
4.3 Form of Security for 10% Senior Notes Due 2004 originally issued by the Company on November 7,
1997 (included in Exhibit 4.1).
4.4 Form of Security for 10% Senior Notes Due 2004 to be issued by the Company and registered under
the Securities Act of 1933 (included in Exhibit 4.1).
4.5 Form of Guarantee for 10% Senior Notes Due 2004 originally issued by Metris Direct, Inc.
(included in Exhibit 4.3).
4.6 Form of Guarantee for 10% Senior Notes Due 2004 to be issued by Metris Direct, Inc. and
registered under the Securities Act of 1933 (included in Exhibit 4.4).
5 Opinion and consent of Dorsey & Whitney LLP.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5).
24.1 Powers of Attorney of the Company.
24.2 Powers of Attorney of the Guarantor.
25 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of The First
National Bank of Chicago.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INDENTURE
DATED AS OF NOVEMBER 7, 1997
AMONG
METRIS COMPANIES INC., AS ISSUER,
THE GUARANTORS NAMED HEREIN
AND
THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE
__________________
$100,000,000
10% SENIOR NOTES DUE 2004, SERIES A
10% SENIOR NOTES DUE 2004, SERIES B
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ---------
<S> <C>
Sections 310(a)(1)............................................ 7.10
(a)(2)............................................ 7.10
(a)(3)............................................ N.A.
(a)(4)............................................ N.A.
(a)(5)............................................ 7.08, 7.10.
(b)............................................... 7.08; 7.10; 11.02
(c)............................................... N.A.
Sections 311(a)............................................... 7.11
(b)............................................... 7.11
(c)............................................... N.A.
Sections 312(a)............................................... 2.05
(b)............................................... 11.03
(c)............................................... 11.03
Sections 313(a)............................................... 7.06
(b)(1)............................................ N.A.
(b)(2)............................................ 7.06
(c)............................................... 7.06; 11.02
(d)............................................... 7.06
Section 314(a)............................................... 4.09; 4.11; 11.02
(b)............................................... N.A.
(c)(1)............................................ 11.04
(c)(2)............................................ 11.04
(c)(3)............................................ N.A.
(d)............................................... N.A.
(e)............................................... 11.05
(f)............................................... N.A.
Sections 315(a)............................................... 7.01(b)
(b)............................................... 7.05; 11.02
(c)............................................... 7.01(a)
(d)............................................... 7.01(c)
(e)............................................... 6.11
Sections 316(a)(last sentence)................................ 2.09
(a)(1)(A)......................................... 6.05
(a)(1)(B)......................................... 6.04
(a)(2)............................................ N.A.
(b)............................................... 6.07
(c)............................................... 9.04
Sections 317(a)(1)............................................ 6.08
(a)(2)............................................ 6.09
(b)............................................... 2.04
Sections 318(a)............................................... 11.01
</TABLE>
- ----------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.................................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act............ 16
SECTION 1.03. Rules of Construction........................................ 16
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.............................................. 17
SECTION 2.02. Execution and Authentication................................. 17
SECTION 2.03. Registrar and Paying Agent................................... 18
SECTION 2.04. Paying Agent To Hold Assets in Trust......................... 19
SECTION 2.05. Holder Lists................................................. 19
SECTION 2.06. Transfer and Exchange........................................ 19
SECTION 2.07. Replacement Securities....................................... 20
SECTION 2.08. Outstanding Securities....................................... 20
SECTION 2.09. Treasury Securities.......................................... 20
SECTION 2.10. Temporary Securities......................................... 21
SECTION 2.11. Cancellation................................................. 21
SECTION 2.12. Defaulted Interest........................................... 21
SECTION 2.13. CUSIP Number................................................. 21
SECTION 2.14. Deposit of Moneys............................................ 22
SECTION 2.15. Book-Entry Provisions for Global Securities.................. 22
SECTION 2.16. Registration of Transfers and Exchanges...................... 23
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee........................................... 26
SECTION 3.02. Selection of Securities To Be Redeemed....................... 27
SECTION 3.03. Notice of Redemption......................................... 27
SECTION 3.04. Effect of Notice of Redemption............................... 28
SECTION 3.05. Deposit of Redemption Price.................................. 28
SECTION 3.06. Securities Redeemed in Part.................................. 28
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities........................................ 28
-i-
<PAGE>
PAGE
----
SECTION 4.02. Maintenance of Office or Agency.............................. 29
SECTION 4.03. Limitation on Transactions with Affiliates................... 29
SECTION 4.04. Limitation on Indebtedness................................... 29
SECTION 4.05. Payments for Consents........................................ 31
SECTION 4.06. Limitation on Investment Company Status...................... 31
SECTION 4.07. Limitation on Asset Sales.................................... 31
SECTION 4.08. Limitation on Restricted Payments............................ 33
SECTION 4.09. Notice of Defaults........................................... 35
SECTION 4.10. Limitation on Liens.......................................... 35
SECTION 4.11. Reports...................................................... 35
SECTION 4.12. Limitations on Dividend and Other Payment Restrictions
Affecting Subsidiaries...................................... 35
SECTION 4.13. Additional Subsidiary Guarantees............................. 36
SECTION 4.14. Offer to Purchase upon Change of Control..................... 36
SECTION 4.15. Compliance Certificate....................................... 37
SECTION 4.16. Corporate Existence.......................................... 37
ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. Mergers, Sale of Assets, etc................................. 38
SECTION 5.02. Successor Corporation Substituted............................ 39
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default............................................ 39
SECTION 6.02. Acceleration................................................. 40
SECTION 6.03. Other Remedies............................................... 41
SECTION 6.04. Waiver of Past Default....................................... 41
SECTION 6.05. Control by Majority.......................................... 41
SECTION 6.06. Limitation on Suits.......................................... 42
SECTION 6.07. Rights of Holders To Receive Payment......................... 42
SECTION 6.08. Collection Suit by Trustee................................... 42
SECTION 6.09. Trustee May File Proofs of Claim............................. 42
SECTION 6.10. Priorities................................................... 43
SECTION 6.11. Undertaking for Costs........................................ 43
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee............................................ 44
SECTION 7.02. Rights of Trustee............................................ 45
SECTION 7.03. Individual Rights of Trustee................................. 46
SECTION 7.04. Trustee's Disclaimer......................................... 46
SECTION 7.05. Notice of Defaults........................................... 46
SECTION 7.06. Reports by Trustee to Holders................................ 46
-ii-
<PAGE>
PAGE
----
SECTION 7.07. Compensation and Indemnity................................... 47
SECTION 7.08. Replacement of Trustee....................................... 48
SECTION 7.09. Successor Trustee by Merger, etc............................. 48
SECTION 7.10. Eligibility; Disqualification................................ 49
SECTION 7.11. Preferential Collection of Claims Against Company............ 49
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Termination of the Company's Obligations..................... 49
SECTION 8.02. Legal Defeasance and Covenant Defeasance..................... 50
SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance........ 50
SECTION 8.04. Application of Trust Money; Trustee Acknowledgment and
Indemnity................................................... 52
SECTION 8.05. Repayment to Company......................................... 52
SECTION 8.06. Reinstatement................................................ 52
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders................................... 53
SECTION 9.02. With Consent of Holders...................................... 53
SECTION 9.03. Compliance with Trust Indenture Act.......................... 54
SECTION 9.04. Record Date for Consents and Effect of Consents.............. 55
SECTION 9.05. Notation on or Exchange of Securities........................ 55
SECTION 9.06. Trustee To Sign Amendments, etc.............................. 55
ARTICLE TEN
GUARANTEE
SECTION 10.01. Unconditional Guarantee..................................... 55
SECTION 10.02. Severability................................................ 56
SECTION 10.03. Release of a Guarantor...................................... 56
SECTION 10.04. Limitation of Guarantor's Liability......................... 57
SECTION 10.05. Contribution................................................ 57
SECTION 10.06. Execution of Security Guarantee............................. 57
SECTION 10.07. Subordination of Subrogation and Other Rights............... 57
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls................................ 58
SECTION 11.02. Notices..................................................... 58
SECTION 11.03. Communications by Holders with Other Holders................ 59
SECTION 11.04. Certificate and Opinion as to Conditions Precedent.......... 59
SECTION 11.05. Statements Required in Certificate.......................... 60
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar................... 60
-iii-
<PAGE>
PAGE
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SECTION 11.07. Governing Law............................................... 60
SECTION 11.08. No Recourse Against Others.................................. 60
SECTION 11.09. Successors.................................................. 60
SECTION 11.10. Counterpart Originals....................................... 60
SECTION 11.11. Severability................................................ 61
SECTION 11.12. No Adverse Interpretation of Other Agreements............... 61
SECTION 11.13. Legal Holidays.............................................. 61
SIGNATURES................................................................. S-1
EXHIBIT A Form of Series A Security........................................ A-1
EXHIBIT B Form of Series B Security........................................ B-1
EXHIBIT C Form of Legend for Global Securities............................. C-1
EXHIBIT D Form of Transfer Certificate..................................... D-1
EXHIBIT E Form of Transfer Certificate for Institutional Accredited
Investors....................................................... D-1
EXHIBIT F Form of Transfer Certificate for Regulation S Transfers.......... F-1
</TABLE>
- -----------------
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a
part of the Indenture.
-iv-
<PAGE>
INDENTURE dated as of November 7, 1997, among METRIS COMPANIES INC,
a Delaware corporation (the "COMPANY"), the GUARANTORS named herein and THE
FIRST NATIONAL BANK OF CHICAGO, as trustee (the "TRUSTEE").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Restricted Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"AFFILIATE TRANSACTION" has the meaning provided in Section 4.03.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"ASSET SALE" means any direct or indirect sale, conveyance,
transfer, lease (that has the effect of a disposition) or other disposition
(including, without limitation, any merger, consolidation or sale-leaseback
transaction) to any Person other than the Company or a Wholly-Owned
Restricted Subsidiary of the Company, in one transaction or a series of
related transactions, of (i) any Equity Interest of any Restricted Subsidiary
of the Company; (ii) any material license, franchise or other authorization
of the Company or any Restricted Subsidiary of the Company; (iii) any assets
of the Company or any Restricted Subsidiary of the Company which constitute
substantially all of an operating unit or line of business of the Company or
any Restricted Subsidiary of the Company; or (iv) any other property or asset
of the Company or any Restricted Subsidiary of the Company outside of the
ordinary course of business (including the receipt of proceeds paid on
account of the loss of or damage to any property or asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceedings). For the purposes of this definition, the term "Asset Sale"
shall not include (a) any transaction consummated in compliance with Section
5.01 and the creation of any Lien not prohibited by Section 4.10; PROVIDED,
HOWEVER, that any transaction consummated in compliance with Section 5.01
involving a sale, conveyance, assignment, transfer, lease or other disposal
of less than all of the properties or assets of the Company shall be deemed
to be an Asset Sale with respect to the properties or assets of the Company
and the Restricted Subsidiaries of the Company that are not so sold,
conveyed, assigned, transferred,
<PAGE>
-2-
leased or otherwise disposed of in such transaction; (b) sales of property or
equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary of the Company, as the case may be; (c) any transaction
consummated in compliance with Section 4.08; (d) a pledge, or transfer
pursuant to a pledge of assets, which pledge is a Permitted Lien; and (e)
sales of Receivables or interests in Receivables in connection with
Securitizations or otherwise in the ordinary course of business. In addition,
solely for purposes of Section 4.07, any sale, conveyance, transfer, lease or
other disposition of any property or asset, whether in one transaction or a
series of related transactions, involving assets with a Fair Market Value not
in excess of $1.0 million in any fiscal year shall be deemed not to be an
Asset Sale.
"BANKRUPTCY LAW" has the meaning provided in Section 6.01.
"BOARD OF DIRECTORS" means the Board of Directors or other
governing body charged with the ultimate management of any Person, or any
duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person or a duly
authorized committee of such Board of Directors.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York, New York or Chicago, Illinois
are not required to be open.
"CAPITAL LEASE OBLIGATION" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued
or directly and fully guaranteed or insured by the U.S. government or any
agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition; (c) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million; (d) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (b) and (c) above entered into with any
financial institution meeting the qualifications specified in clause (c)
above; (e) commercial paper rated P-1, A-1 or the equivalent thereof by
Moody's Investors Service, Inc. or Standard & Poor's Ratings Services,
respectively, and in each case maturing within six months after the date of
acquisition; and (f) money market funds, the portfolios of which are limited
to investments described in clauses (a) through (c) above.
"CHANGE OF CONTROL" means the occurrence of any of the following
events (whether or not approved by the Board of Directors of the Company):
(i) any Person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1)
under the Exchange Act), other than the Permitted Holders, is or becomes the
"beneficial owner" or "beneficial owners" (as defined in Rule 13d-3 and 13d-5
<PAGE>
-3-
under the Exchange Act, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 35% of the total voting power of the then
outstanding Voting Stock the Company; but only in the event that the
Permitted Holders "beneficially own", directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the then
outstanding Voting Stock of the Company than such other Person and do not
have the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company;
(ii) the Company consolidates with, or merges with or into, another Person
(other than the Company or a Wholly-Owned Restricted Subsidiary of the
Company) or the Company or its Restricted Subsidiaries sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of the
assets of the Company and its Restricted Subsidiaries (determined on a
consolidated basis) to any Person (other than the Company or a Wholly-Owned
Restricted Subsidiary of the Company), other than any such transaction where
immediately after such transaction the Person or Persons that "beneficially
owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), immediately prior
to such transaction, directly or indirectly, the then outstanding Voting
Stock of the Company "beneficially own" (as so determined), directly or
indirectly, a majority of the total voting power of the then outstanding
Voting Stock of the surviving or transferee Person; or (iii) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the shareholders of the Company was approved by a vote of a
majority of the directors of the Company then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; PROVIDED,
HOWEVER, that the occurrence of any of the foregoing events in connection
with the Spin Transaction shall not constitute a "Change of Control".
"CHANGE OF CONTROL DATE" has the meaning provided in Section 4.14.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company"
shall mean such successor.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or
order signed in the name of the Company by its Chairman of the Board, its
Vice Chairman of the Board, its President, a Vice President or its Treasurer,
and by its Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"CONSOLIDATED INDEBTEDNESS" means, with respect to any Person as of
any date of determination, the sum, without duplication, of (i) the total
amount of Indebtedness of such Person and its Restricted Subsidiaries, plus
(ii) the total amount of Indebtedness of any other Person, to the extent that
such Indebtedness has been Guaranteed by the referent Person or one or more
of its Restricted Subsidiaries, plus (iii) the aggregate liquidation value of
all Disqualified Stock of such Person and all preferred stock of Restricted
Subsidiaries of such Person (other than, in the case of the Company,
preferred stock of a Restricted Subsidiary of the Company held by the Company
or a Guarantor), in each case, determined on a consolidated basis in
accordance with GAAP.
<PAGE>
-4-
"CONSOLIDATED LEVERAGE RATIO" means, with respect to any Person, as
of any date of determination, the ratio of (i) the Consolidated Indebtedness
of such Person as of such date excluding, however, all Hedging Obligations
that constitute Permitted Debt to (ii) the Consolidated Net Worth of such
Person as of such date.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries (for such period, on a consolidated basis, determined in
accordance with GAAP); PROVIDED that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary of such Person or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly-Owned Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary of such Person shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of
any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii)
the respective amounts reported on such Person's balance sheet as of such
date with respect to any series of preferred stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless
such dividends may be declared and paid only out of net earnings in respect
of the year of such declaration and payment, but only to the extent of any
cash received by such Person upon issuance of such preferred stock, less (x)
all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within 12 months after the acquisition of such business) subsequent to
the Issue Date in the book value of any asset owned by such Person or a
consolidated Restricted Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Restricted Subsidiaries and in Persons that are
not Restricted Subsidiaries, and (z) all unamortized debt discount and
expense and unamortized deferred financing charges as of such date, all of
the foregoing determined in accordance with GAAP.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" means 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 original execution of this
Indenture is located at One First National Plaza, Suite 0126, Chicago, IL
60670, Attention: Corporate Trust Administration, except that, with respect
to presentation of the Securities for payment or registration of transfers or
exchanges and the location of the register, such term means the office or
agency of the Trustee at which at any particular time its corporate agency
business shall be conducted, which at the date of original execution of this
Indenture is located at c/o First Chicago Trust Company of New York, 14 Wall
Street-8th Floor-Window 2, New York, New York 10005.
"CREDIT AGREEMENT" means the Revolving Credit Facility, together
with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring,
in whole or in part (including, without limitation, increasing the amount of
available borrowings thereunder (PROVIDED that such increase in borrowings is
permitted by Section 4.04), or
<PAGE>
-5-
adding Restricted Subsidiaries of the Company as additional borrowers or
guarantors thereunder to the extent permitted by this Indenture), all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders and whether in the form of a revolving credit facility or a
term loan facility or any combination thereof.
"CUSTODIAN" has the meaning provided in Section 6.01.
"DEFAULT" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"DEPOSITORY" means, with respect to the Securities issued in the
form of one or more Global Securities, The Depository Trust Company or
another Person designated as Depository by the Company, which must be a
clearing agency registered under the Exchange Act.
"DISQUALIFIED STOCK" means any Capital Stock that, either (A) by
its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the Holder thereof, in whole or in
part, on or prior to the date that is 91 days after the date on which the
Securities mature or (B) is designated by the Company (in a Board Resolution
of the Company delivered to the Trustee) as Disqualified Stock.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"EVENT OF DEFAULT" has the meaning provided in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"EXCHANGE SECURITIES" means the 10% Senior Notes due 2004, Series
B, to be issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement.
"EXPIRATION DATE" has the meaning set forth in the definition of
"OFFER TO PURCHASE."
"FAIR MARKET VALUE" means, with respect to any asset, the price
(after taking into account any liabilities relating to such assets) which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of which is
under any compulsion to complete the transaction; PROVIDED, HOWEVER, that the
Fair Market Value of any such asset or assets shall be determined
conclusively by the Board of Directors of the Company acting in good faith,
and shall be evidenced by Board Resolutions of the Company delivered to the
Trustee.
"FINAL MATURITY DATE" means November 1, 2004.
"FUNDING GUARANTOR" has the meaning provided in Section 10.05.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by
<PAGE>
-6-
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect on the Issue Date and consistently
applied.
"GLOBAL SECURITIES" means one or more 144A Global Securities,
Regulation S Global Securities or IAI Global Securities.
"GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part
of any Indebtedness.
"GUARANTORS" means each of (i) Metris Direct, Inc. and (ii) any
other Restricted Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of this Indenture, and their
respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate or currency swap
agreements, interest rate cap agreements and interest rate or currency collar
agreements and related agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in interest rates,
currencies and commodities in the ordinary course of business.
"HOLDERS" means the registered holders of the Securities.
"IAI GLOBAL SECURITY" means a permanent global security in
registered form representing the aggregate principal amount of Securities
transferred after the Issue Date to Institutional Accredited Investors.
"INCUR" has the meaning set forth in Section 4.04.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP, as well
as all indebtedness of others secured by a Lien (except Liens on Receivables
and other assets (including spread accounts relating to a Securitization)
incurred in connection with a Securitization) on any asset of such Person
(whether or not such indebtedness is assumed by such Person and the value
thereof being the lesser of the amount of such indebtedness so secured and
the Fair Market Value of such asset that has a Lien placed upon it) and, to
the extent not otherwise included, the Guarantee by such Person of any
indebtedness of any other Person. Notwithstanding the foregoing, the term
"Indebtedness" shall not include (i) obligations pursuant to representations,
warranties, covenants and indemnities or payments to owners of beneficial
interests in Receivables, in each case in connection with a Securitization,
(ii) deposit liabilities of any Restricted Subsidiary of the Company, the
deposits of which are insured by the Federal Deposit Insurance Corporation or
any successor thereto or (iii) guarantees related to the fulfillment of the
Company's obligations to bank card associations in the ordinary course of
business. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
<PAGE>
-7-
"INDENTURE" means this Indenture, as amended or supplemented from
time to time.
"INITIAL PURCHASERS" means Chase Securities Inc., Bear, Stearns &
Co. Inc. and NationsBanc Montgomery Securities, Inc..
"INITIAL SECURITIES" means the 10% Senior Notes due 2004, Series A,
of the Company.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"INTEREST" means, with respect to the Securities, the sum of any
cash interest and any Liquidated Damages (as defined in the Registration
Rights Agreement) on the Securities.
"INTEREST PAYMENT DATE" means each semiannual interest payment date
on May 1 and November 1 of each year, commencing on May 1, 1998.
"INTEREST RECORD DATE" for the interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the
April 15 or October 15 (whether or not a Business Day), as the case may be,
immediately preceding such Interest Payment Date.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the book value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of Section 4.08.
"ISSUE DATE" means November 7, 1997.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"NET CASH PROCEEDS" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets
that
<PAGE>
-8-
were the subject of such Asset Sale, a defeasance of a Securitization and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"NET INCOME" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i)
any gain (but not loss), together with any related provision for taxes on
such gain (but not loss), realized in connection with (a) any Asset Sale
(including, without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities by such Person or any
of its Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"OBLIGATIONS" means any principal, interest (including, without
limitation, post-petition interest), penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness.
"OFFER" has the meaning set forth in the definition of "OFFER TO
PURCHASE."
"OFFER TO PURCHASE" means a written offer (the "OFFER") sent by or
on behalf of the Company by first-class mail, postage prepaid, to each Holder
at his address appearing in the register for the Securities on the date of
the Offer offering to purchase up to the principal amount of Securities
specified in such Offer at the purchase price specified in such Offer (as
determined pursuant to this Indenture). Unless otherwise required by
applicable law, the Offer shall specify an expiration date (the "EXPIRATION
DATE") of the Offer to Purchase, which shall be not less than 20 Business
Days nor more than 60 days after the date of such Offer, and a settlement
date (the "PURCHASE DATE") for purchase of Securities to occur no later than
five Business Days after the Expiration Date. The Company shall notify the
Trustee at least 15 Business Days (or such shorter period as is acceptable to
the Trustee) prior to the mailing of the Offer of the Company's obligation to
make an Offer to Purchase, and the Offer shall be mailed by the Company or,
at the Company's request, by the Trustee in the name and at the expense of
the Company. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall also contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such Holders to make an
informed decision with respect to the Offer to Purchase (which at a minimum
will include (i) the most recent annual and quarterly financial statements
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in the documents required to be filed with the
Trustee pursuant to this Indenture (which requirements may be satisfied by
delivery of such documents together with the Offer), (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
description of the events requiring the Company to make the Offer to
Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable
law to be included therein). The Offer shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to
the Offer to Purchase. The Offer shall also state: (1) the Section of this
Indenture pursuant to which the Offer to Purchase is being made; (2) the
Expiration Date and the Purchase Date; (3) the aggregate principal amount of
the outstanding Securities offered to be purchased by the Company pursuant to
the Offer to Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to this Section of this Indenture
requiring the Offer to Purchase) (the "PURCHASE AMOUNT"); (4) the purchase
price to be paid by the Company for each $1,000 aggregate principal amount of
Securities accepted for payment (as specified pursuant to this Indenture)
(the "PURCHASE PRICE"); (5) that the Holder may tender all or any portion of
the Securities registered in the
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name of such Holder and that any portion of a Security tendered must be
tendered in an integral multiple of $1,000 principal amount; (6) the place or
places where Securities are to be surrendered for tender pursuant to the
Offer to Purchase; (7) that interest on any Security not tendered or tendered
but not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue; (8) that on the Purchase Date the Purchase Price will
become due and payable upon each Security being accepted for payment pursuant
to the Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date; (9) that each Holder electing to tender all or
any portion of a Security pursuant to the Offer to Purchase will be required
to surrender such Security at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Security being,
if the Company or the Trustee so requires, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing); (10) that each Holder will be entitled to withdraw
all or any portion of any Securities tendered by such Holder if the Company
(or its Paying Agent) receives, not later than the close of business on the
fifth Business Day next preceding the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of the Security such Holder tendered, the certificate number
of the Security such Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender; (11) that (a) if Securities in an
aggregate principal amount less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase all such Securities and (b) if Securities in an aggregate
principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase
Securities having an aggregate principal amount equal to the Purchase Amount
on a PRO RATA basis (with such adjustments as may be deemed appropriate so
that only Securities in denominations of $1,000 principal amount or integral
multiples thereof shall be purchased); and (12) that in the case of any
Holder whose Security is purchased only in part, the Company shall execute
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, in an aggregate principal amount
equal to and in exchange for the unpurchased portion of the Security so
tendered. An Offer to Purchase shall be governed by and effected in
accordance with the provisions above pertaining to any Offer.
"OFFICER" means, with respect to the Company or any Guarantor, the
Chairman, any Vice Chairman, the President, any Vice President, the Chief
Financial Officer, the Treasurer or the Secretary of the Company or such
Guarantor, as the case may be.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers
or by an Officer and an Assistant Treasurer or Assistant Secretary of the
Company complying with Sections 11.04 and 11.05.
"144A GLOBAL SECURITY" means a permanent global security in
registered form representing the aggregate principal amount of Initial
Securities sold in reliance on Rule 144A.
"OPINION OF COUNSEL" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee. The counsel may be an employee of
or counsel to the Company or the Trustee.
"PARTICIPANTS" has the meaning provided in Section 2.15.
"PAYING AGENT" has the meaning provided in Section 2.03.
"PERMITTED HOLDER" means Fingerhut Companies, Inc. and any of its
Affiliates.
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"PERMITTED INVESTMENTS" means (a) any Investment in the Company or
in a Wholly-Owned Restricted Subsidiary of the Company; (b) any Investment in
Cash Equivalents; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly-Owned Restricted Subsidiary of the Company or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Wholly-Owned Restricted Subsidiary of the Company; (d)
any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.07; (e) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) Investments by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in connection with or arising out of
Securitizations; (g) Hedging Obligations of the Company and its Restricted
Subsidiaries entered into in the ordinary course of business; and (h) other
Investments by the Company or any of its Restricted Subsidiaries in any
Person (other than an Affiliate of the Company that is not also a Restricted
Subsidiary of the Company) that do not exceed $5.0 million in the aggregate
at any one time outstanding (measured as of the date made and without giving
effect to subsequent changes in value).
"PERMITTED LIENS" means (i) Liens existing on the Issue Date; (ii)
Liens to secure borrowings under the Credit Agreement, PROVIDED that such
borrowings were permitted by this Indenture to be incurred; (iii) Liens on
Receivables, related contract rights, collections on Receivables and the
proceeds of all such property incurred in connection with Securitizations or
permitted Guarantees thereof; (iv) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; PROVIDED that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company or such Restricted Subsidiary; (v) Liens on
property existing at the time of acquisition thereof by the Company or any
Restricted Subsidiary of the Company; PROVIDED that such Liens were in
existence prior to the contemplation of such acquisition; (vi) Liens securing
Purchase Money Indebtedness permitted to be incurred under this Indenture and
incurred in the ordinary course of business; PROVIDED, HOWEVER, that any such
Lien may not extend to any other property owned by the Company or any of its
Restricted Subsidiaries at the time the Lien is incurred, and the
Indebtedness secured by the Lien may not be incurred more than 180 days after
the latter of the acquisition or completion of construction of the property
subject to the Lien; PROVIDED, FURTHER, that the amount of Indebtedness
secured by such Liens do not exceed the Fair Market Value of the property
purchased or constructed with the proceeds of such Indebtedness; (vii) Liens
to secure any Permitted Refinancing Indebtedness incurred to refinance any
Indebtedness secured by any Lien referred to in the foregoing clauses (i)
through (vi); PROVIDED, HOWEVER, that such new Lien shall be limited to all
or part of the same property that secured the original Lien and the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the outstanding principal amount or, if greater, committed
amount of the Indebtedness described under clauses (i) through (vi), as the
case may be, at the time the original Lien became a Permitted Lien; (viii)
Liens in favor of the Company or a Guarantor; (ix) Liens incurred in the
ordinary course of business of the Company or any Restricted Subsidiary of
the Company with respect to obligations that do not exceed $10.0 million in
the aggregate at any one time outstanding; (x) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course
of business (including, without limitation, lessor Liens on leased assets);
(xi) Liens securing Capital Lease Obligations permitted to be incurred under
this Indenture and incurred in the ordinary course of business; (xii) Liens
for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; PROVIDED that any
reserve or other appropriate provision as shall be required in conformity
with GAAP in existence at such time shall have been made therefor and (xiii)
certain Liens consisting of restrictions on the use of real property which do
not materially interfere with the property's use.
<PAGE>
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"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness or
Disqualified Stock of the Company or any of its Restricted Subsidiaries
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease, redeem or refund other Indebtedness or
Disqualified Stock of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); PROVIDED THAT: (i) the principal
amount (or accreted value, if applicable) or liquidation value of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable) or liquidation value, plus accrued
interest or dividends on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased, redeemed or refunded (plus the amount of reasonable
expenses incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date or redemption date, as the case may
be, later than the final maturity date or redemption date, as the case may
be, of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased, redeemed or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Securities, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Securities on terms at least as favorable to the holders of Securities as
those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness or Disqualified Stock is incurred or issued, as the case may be,
either by the Company or by the Restricted Subsidiary who is the obligor or
issuer, as the case may be, on the Indebtedness or Disqualified Stock being
extended, refinanced, renewed, replaced, defeased, redeemed or refunded.
"PERSON" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust, joint venture, or a
governmental agency or political subdivision thereof.
"PHYSICAL SECURITIES" means one or more certificated Securities in
registered form.
"PRIVATE EXCHANGE SECURITIES" has the meaning provided in the
Registration Rights Agreement.
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth on
the Initial Securities in the form set forth on Exhibit A hereto.
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of
November 4, 1997 by and among the Company, the Guarantors and the Initial
Purchasers.
"PURCHASE AMOUNT" has the meaning set forth in the definition of
"OFFER TO PURCHASE."
"PURCHASE DATE" has the meaning set forth in the definition of
"OFFER TO PURCHASE."
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and
its Restricted Subsidiaries incurred in the ordinary course of business for
the purpose of financing all or any part of the purchase price, or the cost
of installation, construction or improvement, of property or equipment.
"PURCHASE PRICE" has the meaning set forth in the definition of
"OFFER TO PURCHASE."
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" means a "qualified
institutional buyer" as that term is defined in Rule 144A under the
Securities Act.
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"RECEIVABLES" means credit card, consumer or commercial loans that
are purchased or originated in the ordinary course of business by the Company
or any Subsidiary of the Company.
"REDEMPTION DATE," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"REDEMPTION PRICE," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this
Indenture as set forth in the form of Security annexed hereto as Exhibit A.
"REGISTRAR" has the meaning provided in Section 2.03.
"REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration
Rights Agreement dated as of the Issue Date by and among the Company, the
Guarantors and the Initial Purchasers.
"REGISTRATION" means a registered exchange offer for the Securities
by the Company or other registration of the Securities under the Securities
Act pursuant to and in accordance with the terms of the Registration Rights
Agreement.
"REGULATION S" means Regulation S under the Securities Act.
"REGULATION S GLOBAL SECURITY" means a permanent global security in
registered form representing the aggregate principal amount of Securities
sold in reliance on Regulation S under the Securities Act.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED PAYMENT" has the meaning provided in Section 4.08.
"RESTRICTED SECURITY" has the meaning set forth in Rule 144(a)(3)
under the Securities Act; PROVIDED, HOWEVER, that the Trustee shall be
entitled to request and conclusively rely upon an Opinion of Counsel with
respect to whether any Security is a Restricted Security.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
REVOLVING CREDIT FACILITY" means the Revolving Credit and Letter of
Credit Facility Agreement dated as of September 16, 1996 among the Company,
the Lenders named therein, Nationsbank of North Carolina, N.A., as Co-Agent,
Bank of America Illinois, as an Issuing Bank, First Bank National
Association, as an Issuing Bank, Norwest Bank Minnesota, N.A., as an Issuing
Bank, and The Chase Manhattan Bank, as Administrative Agent and an Issuing
Bank, as amended.
"RULE 144A" means Rule 144A under the Securities Act.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES" means, collectively, the Initial Securities, the
Private Exchange Securities and the Unrestricted Securities treated as a
single class of securities, as amended or supplemented from time to time in
accordance with the terms of this Indenture.
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"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"SECURITY GUARANTEE" means the Form of Security Guarantee of each
Guarantor to be endorsed on each of the Securities in the form of EXHIBIT A
(in the case of an Initial Security) or Exhibit B (in the case of an Exchange
Security) hereto.
"SECURITIZATION" means any transaction or series of transactions
that have been or may be entered into by the Company or any of its
Subsidiaries in connection with or reasonably related to a transaction or
series of transactions in which the Company or any of its Subsidiaries may
sell, convey or otherwise transfer, directly or indirectly, to (i) a
Securitization Entity or (ii) any other Person, or may grant a security
interest in, any Receivables or any interests in such Receivables (whether
such Receivables are then existing or arising in the future) and any assets
related thereto including, without limitation, all security interests in any
collateral relating thereto, the proceeds of such Receivables, and other
assets which are customarily sold or in respect of which security interests
are customarily granted in connection with securitization transactions
involving such assets.
"SECURITIZATION ENTITY" means any Person (whether or not a
Subsidiary of the Company) established and maintained exclusively for one or
more of the following purposes: (i) purchasing or otherwise acquiring
Receivables (together with any assets related to such Receivables, including,
without limitation, all collateral securing such Receivables, all contracts
and all Guarantees or other obligations in respect of such Receivables,
proceeds of such Receivables and other assets which are customarily
transferred in connection with asset securitization transactions involving
Receivables) in connection with a Securitization, (ii) selling such
Receivables (and related assets) to a special purpose owner trust or other
Person in connection with a Securitization, (iii) issuing asset-backed
securities, or beneficial interests in Receivables, (iv) serving as a
corporate general partner (or managing member of a limited liability company)
of another Securitization Entity, (v) investing in and holding Investments in
Securitization Entities issuing securities backed by Receivables, or (vi)
engaging in activities that are incidental to and necessary, suitable or
convenient for the accomplishment of the purposes specified above, PROVIDED,
HOWEVER, that the obligations of such Securitization Entity are without
recourse to the Company and any Restricted Subsidiary of the Company other
than such Securitization Entity. For purposes of this definition, "without
recourse" shall mean that the Indebtedness of such Securitization Entity and
none of the other obligations (contingent or otherwise) of a Securitization
Entity (i) is guaranteed by the Company or any other Restricted Subsidiary of
the Company, (ii) obligates the Company or any other Restricted Subsidiary of
the Company in any way other than pursuant to representations, warranties,
covenants (including any covenant to deliver Receivables in a pre-funded
Securitization) and indemnities entered into in connection with a
Securitization, or (iii) subjects any property or asset of the Company or any
Restricted Subsidiary of the Company other than such Securitization Entity,
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to representations, warranties, covenants and
indemnities entered into in connection with a Securitization. For purposes of
the foregoing, a Permitted Investment in a Securitization Entity shall not be
deemed recourse. As of the Issue Date, each of the Metris Master Trust,
Metris Receivables, Inc., Metris Funding Co. and the Fingerhut Owner Trust
and Securitization Entities formed in connection with any Securitization
prior to the Issue Date shall be deemed to satisfy the requirements of this
definition.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary of the
Company that would be a "significant subsidiary" as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as
such Regulation is in effect on the date hereof.
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"SPECIFIED SENIOR INDEBTEDNESS" means (i) the Indebtedness of any
Person, whether outstanding on the Issue Date or thereafter incurred, and
(ii) accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to such
Person to the extent post filing interest is allowed in such proceeding) in
respect of (A) Indebtedness of such Person for money borrowed and (B)
Indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, in the case of either clause (i) or (ii), in the instrument creating
or evidencing the same pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Securities; PROVIDED, HOWEVER, that Specified Senior Indebtedness shall not
include (1) any obligation of such Person to any Subsidiary of such Person,
(2) any liability for Federal, state, local or other taxes owed or owing by
such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (4) any obligations in respect of
Capital Stock of such Person or (5) that portion of any Indebtedness which at
the time of incurrence is incurred in violation of this Indenture.
"SPIN TRANSACTION" means the proposed transaction announced by
Fingerhut Companies, Inc. on October 9, 1997, as such transaction may be
effected in the future.
"STATED MATURITY" means with respect to any installment of interest
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof).
"SUBSIDIARY GUARANTEES" means the guarantee of the Securities by
the Guarantors under Article Ten.
"SURVIVING PERSON" means the Person formed by or surviving a
transaction permitted by Section 5.01 or the Person to which a sale,
assignment, transfer, lease, or conveyance or other disposition is made in a
transaction permitted by Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb), as amended, as in effect on the date of this
Indenture (except as provided in Section 9.03) until such time as this
Indenture is qualified under the TIA, and thereafter as in effect on the date
on which this Indenture is qualified under the TIA.
"TRUST OFFICER" means any officer within the corporate trust
department (or any successor group of the Trustee) including any vice
president, assistant vice president, assistant secretary or any other officer
or assistant officer of the Trustee customarily performing functions similar
to those performed by the persons who at that time shall be such officers,
and also means, with respect to a particular corporate trust
<PAGE>
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matter, any other officer to whom such trust matter is referred because of
his knowledge of and familiarity with the particular subject.
"TRUSTEE" means the party named as such in the first paragraph of
this Indenture until a successor replaces it in accordance with the
provisions of this Indenture and thereafter means such successor.
"UNITED STATES GOVERNMENT OBLIGATIONS" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"UNRESTRICTED SECURITIES" means one or more Securities that do not
and are not required to bear the Private Placement Legend in the form set
forth in EXHIBIT A hereto, including, without limitation, the Exchange
Securities and any Securities registered under the Securities Act pursuant to
and in accordance with the Registration Rights Agreement.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company
that is designated by the Board of Directors of the Company as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the
extent that such Subsidiary: (a) has not at the time of designation, and does
not thereafter, create, incur, assume, guarantee or otherwise become directly
or indirectly liable with respect to any Indebtedness pursuant to which the
lender thereof has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither
the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
otherwise directly or indirectly provided credit support for any Indebtedness
of the Company or any of its Restricted Subsidiaries. Any such designation by
the Board of Directors of the Company shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by
Section 4.08. If, at any time, any Unrestricted Subsidiary would fail to meet
the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under Section
4.04, the Company shall be in default under Section 4.04). The Board of
Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the Consolidated Leverage Ratio test set
forth in the first paragraph of Section 4.04, and (ii) no Default or Event of
Default would be in existence following such designation.
"UNUTILIZED NET CASH PROCEEDS" has the meaning provided in Section
4.07.
"VOTING STOCK" of any Person as of any date means the Capital Stock
of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of
<PAGE>
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each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the then outstanding principal amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" of any Person means a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such Person or by one or more Wholly-Owned
Restricted Subsidiaries of such Person.
SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"COMMISSION" means the SEC.
"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITY HOLDER" means a Holder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee.
"OBLIGOR" means the Company or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles in effect
from time to time, and any other reference in this Indenture to "generally
accepted accounting principles" refers to GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
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(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Initial Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of EXHIBIT A
hereto, which is hereby incorporated in and expressly made a part of this
Indenture. The Exchange Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of EXHIBIT B
hereto, which is hereby incorporated in and expressly made a part of this
Indenture. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. The Company shall approve the
form of the Securities and any notation, legend or endorsement on them. Each
Security shall be dated the date of its issuance and shall show the date of
its authentication. Each Security shall have an executed Subsidiary
Guarantee from each of the Guarantors endorsed thereon substantially in the
form set forth in EXHIBITS A and B hereto.
The terms and provisions contained in the Securities annexed hereto
as EXHIBITS A and B shall constitute, and are hereby expressly made, a part
of this Indenture and, to the extent applicable, the Company, the Guarantors
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A and Securities
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Global Securities, substantially in the form set forth in
EXHIBIT A hereto, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in EXHIBIT C hereto.
The aggregate principal amount of the Global Securities may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depository, as hereinafter provided.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one Officer
(each of whom shall, in each case, have been duly authorized by all requisite
corporate actions) of the Company or a Guarantor, as the case may be, shall
attest to, the Securities for the Company, and the Subsidiary Guarantees for
the Guarantors, by manual or facsimile signature.
If an Officer whose signature is on a Security or a Subsidiary
Guarantee, as the case may be, was an Officer at the time of such execution
but no longer holds that office at the time the Trustee authenticates the
Security or Subsidiary Guarantee, as the case may be, the Security or
Subsidiary Guarantee, as the case may be, shall be valid nevertheless.
<PAGE>
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A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate (i) Initial Securities for original
issue in an aggregate principal amount not to exceed $100,000,000, (ii)
Private Exchange Securities from time to time only in exchange for a like
principal amount of Initial Securities and (iii) Unrestricted Securities from
time to time only in exchange for (A) a like principal amount of Initial
Securities or (B) a like principal amount of Private Exchange Securities, in
each case upon a written order of the Company in the form of an Officers'
Certificate. Each such written order shall specify the amount of Securities
to be authenticated and the date on which the Securities are to be
authenticated, whether the Securities are to be Initial Securities, Private
Exchange Securities or Unrestricted Securities and whether the Securities are
to be issued as Physical Securities or Global Securities and such other
information as the Trustee may reasonably request. The aggregate principal
amount of Securities outstanding at any time may not exceed $100,000,000,
except as provided in Sections 2.07 and 2.08.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise
provided in the appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such agent. An
authenticating agent shall have the same rights as an Agent to deal with the
Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency, which may be in the
Borough of Manhattan, The City of New York, where (a) Securities may be
presented or surrendered for registration of transfer or for exchange (the
"REGISTRAR"), (b) Securities may be presented or surrendered for payment (the
"PAYING AGENT") and (c) notices and demands in respect of the Securities and
this Indenture may be served. The Registrar shall keep a register of the
Securities and of their transfer and exchange. The Company, upon notice to
the Trustee, may appoint one or more co-Registrars and one or more additional
Paying Agents. The term "PAYING AGENT" includes any additional Paying Agent.
Except as provided herein, the Company may act as Paying Agent, Registrar or
co-Registrar.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of
the name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed.
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SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Securities, and shall notify the
Trustee of any Default by the Company in making any such payment. The
Company at any time may require a Paying Agent to distribute all assets held
by it to the Trustee and account for any assets disbursed and the Trustee may
at any time during the continuance of any payment Default, upon written
request to a Paying Agent, require such Paying Agent to distribute all assets
held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by
the Company to the Paying Agent (if other than the Company), the Paying Agent
shall have no further liability for such assets. If the Company or any of
their Affiliates acts as Paying Agent, it shall, on or before each due date
of the principal of or interest on the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Holders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee before each Interest Record Date and at such other times as
the Trustee may request in writing a list as of such date and in such form as
the Trustee may reasonably require of the names and addresses of Holders,
which list may be conclusively relied upon by the Trustee.
SECTION 2.06. TRANSFER AND EXCHANGE.
Subject to the provisions of Sections 2.15 and 2.16, when
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer of such Securities or to exchange such Securities for
an equal principal amount of Securities of other authorized denominations of
the same series, the Registrar or co-Registrar shall register the transfer or
make the exchange as requested if its requirements for such transaction are
met; PROVIDED, HOWEVER, that the Securities surrendered for transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing. To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Securities at
the Registrar's or co-Registrar's written request. No service charge shall
be made for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or other governmental charge payable upon exchanges or
transfers pursuant to Section 2.02, 2.10, 3.06, 4.07, 4.14, or 9.05). The
Registrar or co-Registrar shall not be required to register the transfer or
exchange of any Security (i) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Securities
and ending at the close of business on the day of such mailing and (ii)
selected for redemption in whole or in part pursuant to Article Three hereof,
except the unredeemed portion of any Security being redeemed in part.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and none of the
Company, the Trustee or any such Agent shall be affected by notice to the
contrary. Any consent, waiver or actions of a
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Holder shall be binding upon any subsequent Holders of such Security or a
Security received upon transfer. Any Holder of a beneficial interest in a
Global Security shall, by acceptance of such beneficial interest in a Global
Security, agree that transfers of beneficial interests in such Global
Security may be effected only through a book-entry system maintained by the
Depository (or its agent), and that ownership of a beneficial interest in a
Global Security shall be required to be reflected in a book entry.
SECTION 2.07. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate
a replacement Security if the Trustee's requirements for replacement of
Securities are met. Unless waived by the Company, such Holder must provide
an indemnity bond or other indemnity, sufficient in the judgment of the
Company and the Trustee, to protect the Company, the Trustee and any Agent
from any loss which any of them may suffer if a Security is replaced. The
Company may charge such Holder for their reasonable out-of-pocket expenses in
replacing a Security, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those
delivered to it for cancellation and those described in this Section 2.08 as
not outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any Affiliates of the Company holds the
Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced
Security is held by a BONA FIDE purchaser. A mutilated Security ceases to be
outstanding upon surrender of such Security and replacement thereof pursuant
to Section 2.07.
If on a Redemption Date, Purchase Date or the Final Maturity Date
the Paying Agent holds money sufficient to pay all of the principal and
interest due on the Securities payable on that date, and is not prohibited
from paying such money to the Holders pursuant to the terms of this
Indenture, then on and after that date such Securities cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Guarantors or any of their respective Affiliates
shall be disregarded, except that, for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, waiver or
consent, only Securities that a Trust Officer of the Trustee actually knows
are so owned shall be disregarded.
The Company shall notify the Trustee, in writing, when the Company,
any Guarantor, or any of their respective Affiliates repurchases or otherwise
acquires Securities, of the aggregate principal amount of such Securities so
repurchased or otherwise acquired.
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SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate upon receipt of a written order of the
Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel, and at the written direction of the Company,
dispose of and deliver evidence of such disposal of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.07, the
Company may not issue new Securities to replace Securities that they have paid
or delivered to the Trustee for cancellation. If the Company shall acquire any
of the Securities, such acquisition shall not operate as a redemption or
satisfaction of the Indebtedness represented by such Securities unless and
until the same are surrendered to the Trustee for cancellation pursuant to this
Section 2.11.
SECTION 2.12. DEFAULTED INTEREST.
The Company shall pay interest on overdue principal from time to time
on demand at the rate of interest then borne by the Securities. The Company
shall, to the extent lawful, pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the rate of interest then borne by the Securities.
If the Company default in a payment of interest on the Securities,
they shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day preceding
the date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before the subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subsequent special
record date, the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to
the expiration of the 30-day period set forth in Section 6.01(b) shall be paid
to Holders as of the Interest Record Date for the Interest Payment Date for
which interest has not been paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Securities will use a "CUSIP" number and
the Trustee shall use the CUSIP number in notices of redemption or exchange as
a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
num-
<PAGE>
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ber printed in the notice or on the Securities, and that reliance may be
placed only on the other identification numbers printed on the Securities.
The Company shall promptly notify the Trustee of any changes in CUSIP numbers
known to it.
SECTION 2.14. DEPOSIT OF MONEYS.
Prior to 1:00 p.m. New York City time on each Interest Payment Date,
Redemption Date, Purchase Date and the Final Maturity Date, the Company shall
deposit with the Paying Agent in immediately available funds money sufficient
to make cash payments, if any, due on such Interest Payment Date, Redemption
Date, Purchase Date or Final Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date, Redemption Date, Purchase Date or Final Maturity Date,
as the case may be.
SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set
forth in EXHIBIT C.
Members of, or participants in, the Depository ("PARTICIPANTS") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise
of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16; PROVIDED,
HOWEVER, that Physical Securities shall be transferred to all beneficial owners
in exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not appointed
by the Company within 90 days of such notice or (ii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depository to issue Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and deliver, to each beneficial
owner identified by the Depository in exchange for its beneficial interest in
the Global Securities, an equal aggregate principal amount of Physical
Securities of authorized denominations.
(d) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to
paragraph (c) of this Section 2.15 shall, except as otherwise provided by
Section 2.16, bear the Private Placement Legend.
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(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may
hold interests through Participants, to take any action which a Holder is
entitled to take under this Indenture or the Securities and the Trustee is
entitled to rely upon any electronic instructions from beneficial owners to the
Holder of any Global Security.
SECTION 2.16. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF PHYSICAL SECURITIES. When Physical
Securities are presented to the Registrar or co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
(ii) to exchange such Physical Securities for an equal
principal amount of Physical Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the
exchange as requested if the requirements under this Indenture as set forth
in this Section 2.16 for such transactions are met; PROVIDED, HOWEVER, that
the Physical Securities presented or surrendered for registration of transfer
or exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical
Securities shall be accompanied, in the sole discretion of the Company, by
the following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar
or co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (substantially in the form of EXHIBIT D hereto); or
(B) if such Physical Security is being transferred to a QIB in
accordance with Rule 144A, a certification to that effect
(substantially in the form of EXHIBIT D hereto); or
(C) if such Physical Security is being transferred to an Institutional
Accredited Investor, delivery of a certification to that effect
(substantially in the form of EXHIBIT D hereto) and a transferee
letter of representation (substantially in the form of EXHIBIT E
hereto) and, at the option of the Company, an Opinion of Counsel
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the Securities Act; or
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of EXHIBIT D hereto) and a transferor
certificate for Regulation S transfers substantially in the form
of EXHIBIT F hereto and an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of
<PAGE>
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EXHIBIT D hereto) and, at the option of the Company, an Opinion
of Counsel reasonably satisfactory to the Company to the effect
that such transfer is in compliance with the Securities Act; or
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of EXHIBIT D hereto) and, at the option of the Company,
an Opinion of Counsel reasonably acceptable to the Company to
the effect that such transfer is in compliance with the Securities
Act.
(b) RESTRICTIONS ON TRANSFER OF A PHYSICAL SECURITY FOR A BENEFICIAL
INTEREST IN A GLOBAL SECURITY. A Physical Security the offer and sale of which
has not been registered under the Securities Act may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Registrar or co-Registrar of
a Physical Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Registrar or co-Registrar, together with:
(A) certification, substantially in the form of EXHIBIT D hereto,
that such Physical Security is being transferred (I) to a QIB,
(II) to an Accredited Investor or (III) in an offshore
transaction in reliance on Regulation S and, with respect to (II)
or (III), at the option of the Company, an Opinion of Counsel
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the Securities Act; and
(B) written instructions directing the Registrar or co-Registrar to
make, or to direct the Depository to make, an endorsement on the
applicable Global Security to reflect an increase in the aggregate
amount of the Securities represented by the Global Security,
then the Registrar or co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in accordance with the standing
instructions and procedures existing between the Depository and the Registrar
or co-Registrar, the principal amount of Securities represented by the
applicable Global Security to be increased accordingly. If no 144A Global
Security, IAI Global Security or Regulation S Global Security, as the case may
be, is then outstanding, the Company shall, unless either of the events in the
proviso to Section 2.15(b) have occurred and are continuing, issue and the
Trustee shall, upon written instructions from the Company in accordance with
Section 2.02, authenticate such a Global Security in the appropriate principal
amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written
instructions, or such other instruction as is customary for the Depository,
from the Depository or its nominee, requesting the registration of transfer of
an interest in a 144A Global Security, an IAI Global Security or a Regulation S
Global Security, as the case may be, to another type of Global Security,
together with the applicable Global Securities (or, if the applicable type of
Global Security required to represent the interest as requested to be obtained
is not then outstanding, only the Global Security representing the interest
being transferred), the Registrar or Co-Registrar shall reflect on its books
and records (and the applicable Global Security) the applicable increase and
decrease of the principal
<PAGE>
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amount of Securities represented by such types of Global Securities, giving
effect to such transfer. If the applicable type of Global Security required
to represent the interest as requested to be obtained is not outstanding at
the time of such request, the Company shall issue and the Trustee shall, upon
written instructions from the Company in accordance with Section 2.02,
authenticate a new Global Security of such type in principal amount equal to
the principal amount of the interest requested to be transferred.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR A
PHYSICAL SECURITY.
(i) If the Depository is at any time unwilling or unable to continue
as a depositary for the Global Securities and a successor depositary is not
appointed by the Company within 90 days or if the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in definitive form, Physical Securities will be issued in exchange for the
Global Securities. Upon receipt by the Registrar or co-Registrar of written
instructions, or such other form of instructions as is customary for the
Depository, from the Depository or its nominee on behalf of any Person having a
beneficial interest in a Global Security and upon receipt by the Trustee of a
written order or such other form of instructions as is customary for the
Depository or the Person designated by the Depository as having such a
beneficial interest containing registration instructions and, in the case of
any such transfer or exchange of a beneficial interest in Securities the offer
and sale of which have not been registered under the Securities Act, the
following additional information and documents:
(A) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of EXHIBIT D hereto) and,
at the option of the Company, an Opinion of Counsel reasonably
satisfactory to the Company to the effect that such transfer is
in compliance with the Securities Act; or
(B) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of EXHIBIT D hereto) and, at the option of the Company,
an Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with the Securities
Act,
then the Registrar or co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository and
the Registrar or co-Registrar, the aggregate principal amount of the
applicable Global Security to be reduced and, following such reduction,
the Company will execute and, upon receipt of an authentication order in
the form of an Officers' Certificate in accordance with Section 2.02, the
Trustee will authenticate and deliver to the transferee a Physical
Security in the appropriate principal amount.
(ii) Securities issued in exchange for a beneficial interest in a
Global Security pursuant to this Section 2.16(d) shall be registered in such
names and in such authorized denominations as the Depository, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Registrar or co-Registrar in writing. The Registrar or co-
Registrar shall deliver such Physical Securities to the Persons in whose names
such Physical Securities are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SECURITIES.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the
<PAGE>
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Depository or by the Depository or any such nominee to a successor Depository
or a nominee of such successor Depository.
(f) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the transfer, exchange or replacement of Securities
bearing the Private Placement Legend, the Registrar or co-Registrar shall
deliver only Securities that bear the Private Placement Legend unless, and the
Trustee is hereby authorized to deliver Securities without the Private
Placement Legend if, (i) there is delivered to the Trustee an Opinion of
Counsel reasonably satisfactory to the Company and the Trustee to the effect
that neither such legend nor the related restrictions on transfer are required
in order to maintain compliance with the provisions of the Securities Act;(ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act (including pursuant to a Registration); or (iii) the
date of such transfer, exchange or replacement is two years after the later of
(x) the Issue Date and (y) the last date that the Company or any affiliate (as
defined in Rule 144 under the Securities Act) of the Company was the owner of
such Securities (or any predecessor thereto).
(g) GENERAL. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Participants or
beneficial owners of interest in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and when expressly required by the terms
of, this Indenture, and to examine the same to determine substantial compliance
as to form with the express requirements hereof.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company wants to redeem Securities pursuant to paragraph 5 of
the Securities at the applicable redemption price set forth thereon, it shall
notify the Trustee in writing of the Redemption Date and the principal amount
of Securities to be redeemed. The Company shall give such notice to the
Trustee at least 45 days before the Redemption Date (unless a shorter notice
shall be agreed to by the Trustee in writing), together with an Officers'
Certificate stating that such redemption will comply with the conditions
contained herein.
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SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed pursuant to
paragraph 5 of the Securities, the Trustee shall select the Securities to be
redeemed in compliance with the requirements of the national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a PRO RATA basis, by lot
or in such other manner as the Trustee shall deem fair and appropriate.
Selection of the Securities to be redeemed pursuant to paragraph 6 of the
Securities shall be made by the Trustee only on a PRO RATA basis or on as
nearly a PRO RATA basis as is practicable (subject to the procedures of the
Depository) based on the aggregate principal amount of Securities held by each
Holder. The Trustee shall make the selection from the Securities then
outstanding, subject to redemption and not previously called for redemption.
The Trustee may select for redemption pursuant to paragraph 5 or 6 of
the Securities portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities and
portions of them the Trustee so selects shall be in amounts of $1,000 principal
amount or integral multiples thereof. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address;
PROVIDED, HOWEVER, that notice of a redemption pursuant to paragraph 6 of the
Securities shall be mailed to each Holder whose Securities are to be redeemed
no later than 60 days after the date of the Closing of the relevant Public
Equity Offering of the Company.
Each notice of redemption shall identify the Securities to be
redeemed (including the CUSIP number thereon) and shall state:
(1) the Redemption Date;
(2) the redemption price;
(3) the name and address of the Paying Agent to which the Securities are
to be surrendered for redemption;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the redemption payment,
interest on Securities called for redemption ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders is to receive
payment of the redemption price upon surrender to the Paying Agent; and
(6) in the case of any redemption pursuant to paragraph 5 or 6 of the
Securities, if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the Redemption
Date, upon surrender of such Security, a new Security or Securities in
principal amount equal to the unredeemed portion thereof will be issued.
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At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once a notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at
the redemption price, plus accrued interest thereon, if any, to the Redemption
Date, but interest installments whose maturity is on or prior to such
Redemption Date shall be payable to the Holders of record at the close of
business on the relevant Interest Record Date.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
At least one Business Day before the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company is its own Paying Agent,
it shall, on or before the Redemption Date, segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest, if any, on all
Securities to be redeemed on that date other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation.
If any Security surrendered for redemption in the manner provided in
the Securities shall not be so paid on the Redemption Date due to the failure
of the Company to deposit with the Paying Agent money sufficient to pay the
redemption price thereof, the principal and accrued and unpaid interest, if
any, thereon shall, until paid or duly provided for, bear interest as provided
in Sections 2.12 and 4.01 with respect to any payment default.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Trustee
shall authenticate for the Holder a new Security equal in principal amount to
the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the Securities
in the manner provided in the Securities and the Registration Rights Agreement.
An installment of principal or interest shall be considered paid on the date
due if the Trustee or Paying Agent (other than the Company or any Affiliates of
the Company) holds on that date money designated for and sufficient to pay the
installment in full and is not prohibited from paying such money to the Holders
of the Securities pursuant to the terms of this Indenture.
The Company shall pay cash interest on overdue principal at the same
rate per annum borne by the Securities. The Company shall pay cash interest on
overdue installments of interest at the same rate per annum borne by the
Securities, to the extent lawful, as provided in Section 2.12.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of any office or agency required by
Section 2.03. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 11.02.
SECTION 4.03. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or Guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a Board Resolution of the Company that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors of the Company and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing; PROVIDED that with
respect to any contracts or agreements, such dollar amounts shall be with
respect to annual consideration under such contracts or agreements. The
foregoing provisions shall not apply to (i) any agreement in effect on the
Issue Date and any amendments thereto; PROVIDED that any such amendment shall
be no more disadvantageous to the Holders in any material respect than the
original agreement, (ii) any compensation arrangements entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such
Restricted Subsidiary, (iii) transactions between or among the Company and/or
its Restricted Subsidiaries, (iv) any transaction in connection with a
Securitization and (v) Restricted Payments that are permitted by Section 4.08.
SECTION 4.04. LIMITATION ON INDEBTEDNESS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "INCUR") any Indebtedness (including
Acquired Debt), and the Company and the Guarantors will not issue any
Disqualified Stock, and the Company will not permit any of its Restricted
Subsidiaries (that are not Guarantors) to issue any shares of preferred stock;
PROVIDED, HOWEVER, that the Company and the Guarantors may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock or the
Company's Restricted Subsidiaries (that are not Guarantors) may issue shares of
preferred stock if the Consolidated Leverage Ratio of the Company, calculated
on a pro forma basis after giving effect to the incurrence of the additional
Indebtedness to be incurred or the Disqualified Stock or preferred stock to be
issued and the application of the proceeds therefrom, would have been less than
2.0 to 1.
Notwithstanding the preceding paragraph, the Company and its
Restricted Subsidiaries may incur the following Indebtedness (collectively,
"PERMITTED DEBT"):
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(i) Indebtedness of the Company under the Credit Agreement
and Guarantees thereof by the Guarantors in an aggregate amount not to exceed
$300.0 million at any time outstanding;
(ii) the Indebtedness of the Company and its Restricted
Subsidiaries existing on the Issue Date;
(iii) Indebtedness of any Restricted Subsidiary of the
Company represented by a Subsidiary Guarantee;
(iv) Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance, defease, renew or
replace, any Indebtedness (other than intercompany Indebtedness) that was
permitted to be incurred under this Section 4.04 or that was outstanding on
the Issue Date;
(v) intercompany Indebtedness between or among the Company
and any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that (i) if the
Company or any Guarantor is the obligor on such Indebtedness to a Restricted
Subsidiary of the Company that is not a Wholly-Owned Restricted Subsidiary of
the Company, such Indebtedness is expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the Securities or the
Subsidiary Guarantee, as the case may be, and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Restricted Subsidiary of the
Company and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Restricted Subsidiary of the
Company shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may
be, that was not permitted by this clause (v);
(vi) the issuance by a Restricted Subsidiary of the Company
of preferred stock to the Company or to any of the Guarantors; PROVIDED,
HOWEVER, that any subsequent event or issuance or transfer of any Capital
Stock that results in the owner of such preferred stock, in the case of a
Guarantor, ceasing to be a Restricted Subsidiary of the Company or any
subsequent transfer of such preferred stock to a Person other than the
Company or any of the Guarantors shall be deemed to be an issuance of
preferred stock by such Restricted Subsidiary that was not permitted by this
clause (vi);
(vii) Hedging Obligations that are incurred in the ordinary
course of business;
(viii) Capital Lease Obligations and/or Purchase Money
Indebtedness of the Company or a Restricted Subsidiary of the Company
incurred in the ordinary course of business not to exceed $30.0 million at
any time outstanding;
(ix) the Guarantee by the Company or any of the Guarantors
of Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this Section 4.04; and
(x) additional Indebtedness of the Company and the
Guarantors in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (x), not to exceed $10.0 million at any time
outstanding.
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Notwithstanding anything in this Indenture to the contrary,
consummation of a Securitization shall not be deemed to be the incurrence of
Indebtedness or the issuance of Disqualified Stock or preferred stock by the
Company or a Restricted Subsidiary of the Company.
The Company will not, and will not permit any Restricted Subsidiary
of the Company to, incur any Indebtedness that is contractually subordinated to
any Indebtedness of the Company or any such Restricted Subsidiary unless such
Indebtedness is also contractually subordinated to the Securities, or the
Subsidiary Guarantee of such Restricted Subsidiary (as applicable), on
substantially identical terms; PROVIDED, HOWEVER, that no Indebtedness shall be
deemed to be contractually subordinated to any other Indebtedness solely by
virtue of being unsecured or not guaranteed by any Restricted Subsidiary of the
Company.
For purposes of determining compliance with this Section 4.04, in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) above or is
entitled to be incurred pursuant to the first paragraph of this Section 4.04,
the Company shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this Section 4.04 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof.
SECTION 4.05. PAYMENTS FOR CONSENTS.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Securities for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Securities unless such consideration is
offered to be paid or is paid to all Holders of the Securities that consent,
waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
SECTION 4.06. LIMITATION ON INVESTMENT COMPANY STATUS.
The Company and its Subsidiaries shall not take any action, or
otherwise permit to exist any circumstance, that would require the Company to
register as an "investment company" under the Investment Company Act of 1940,
as amended.
SECTION 4.07. LIMITATION ON ASSET SALES.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, make any Asset Sale, unless
(i) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of and (ii) at least 85% of such
consideration consists of (A) cash or Cash Equivalents, (B) properties and
assets to be used in the business of the Company and its Restricted
Subsidiaries and/or (C) Equity Interests in any Person which thereby becomes a
Wholly-Owned Restricted Subsidiary of the Company. The amount of any
(i) Indebtedness (other than any subordinated Indebtedness) of the Company or
any Restricted Subsidiary of the Company that is actually assumed by the
transferee in such Asset Sale and from which the Company and the Restricted
Subsidiaries of the Company are fully released shall be deemed to be cash for
purposes of determining the percentage of cash consideration received by the
Company or any of its Restricted Subsidiaries and (ii) notes or other similar
obligations received by the Company or any of its Restricted Subsidiaries from
such transferee that are immediately converted, sold or exchanged (or are
converted, sold or exchanged within thirty days of the related Asset Sale) by
the Company or any of its Restricted
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Subsidiaries into cash shall be deemed to be cash, in an amount equal to the
net cash proceeds realized upon such conversion, sale or exchange, for
purposes of determining the percentage of cash consideration received by the
Company or any of its Restricted Subsidiaries.
In the event of the transfer of substantially all (but not all) of
the property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Article Five and as a
result thereof the Company is no longer an obligor on the Securities, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this Section 4.07, and shall comply with the provisions of this Section 4.07
with respect to such deemed sale as if it were an Asset Sale. In addition, the
Fair Market Value of such properties and assets of the Company or its
Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this Section 4.07.
The Company or such Restricted Subsidiary, as the case may be, may
(i) apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt
thereof to repay Specified Senior Indebtedness of the Company or such
Restricted Subsidiary and permanently reduce any related commitment, or
(ii) commit in writing to acquire, construct or improve, or acquire, construct
or improve, properties and assets to be used in the business of the Company and
its Restricted Subsidiaries and so apply such Net Cash Proceeds within 365 days
after the receipt thereof.
To the extent all or part of the Net Cash Proceeds of any Asset Sale
are not applied within 365 days of such Asset Sale as described in clause
(i) or (ii) of the immediately preceding paragraph (such Net Cash Proceeds, the
"UNUTILIZED NET CASH PROCEEDS"), the Company shall, within 20 days after such
365th day, make an Offer to Purchase all outstanding Securities up to a maximum
principal amount (expressed as a multiple of $1,000) of Securities equal to
such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the Purchase Date; PROVIDED, HOWEVER, that the Offer to Purchase may be
deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in
excess of $10.0 million, at which time the entire amount of such Unutilized Net
Cash Proceeds, and not just the amount in excess of $10.0 million, shall be
applied as required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this
Section 4.07, among the Securities, to the extent the aggregate principal
amount of Securities tendered pursuant to such Offer to Purchase exceeds the
Unutilized Net Cash Proceeds to be applied to the repurchase thereof, such
Securities shall be purchased PRO RATA based on the aggregate principal amount
of such Securities tendered by each Holder. To the extent the Unutilized Net
Cash Proceeds exceed the aggregate amount of Securities tendered by the Holders
of the Securities pursuant to such Offer to Purchase, the Company may retain
and utilize any portion of the Unutilized Net Cash Proceeds not applied to
repurchase the Securities for any purpose consistent with the other terms of
this Indenture.
In the event that the Company makes an Offer to Purchase the
Securities, the Company shall comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and
Rule 14e-1 under, the Exchange Act, and any violation of the provisions of this
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed a Default or an Event of Default.
Each Holder shall be entitled to tender all or any portion of the
Securities owned by such Holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Security tendered
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must be tendered in an integral multiple of $1,000 principal amount and
subject to any proration among tendering Holders as described above.
SECTION 4.08. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the
Company) or to the direct or indirect holders of the Company's or any
of its Restricted Subsidiaries' Equity Interests in their capacity as
such (other than (A) dividends, payments or distributions payable
solely in Equity Interests (other than Disqualified Stock) of the
Company and (B) dividends, payments or distributions payable solely
to the Company or its Wholly-Owned Restricted Subsidiaries);
(ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company or other
Affiliate of the Company (other than any such Equity Interests owned
by the Company or any Wholly-Owned Restricted Subsidiary of the
Company); or
(iii) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iii)
above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the
time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Leverage Ratio test set forth in the first paragraph of
Section 4.04; and
(c) such Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the Issue Date (excluding Restricted
Payments permitted by clause (ii) of the next succeeding paragraph),
is less than the sum of (i) 25% of the aggregate cumulative
Consolidated Net Income of the Company for the period (taken as one
accounting period) from and after October 1, 1997 to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate
net cash proceeds received by the Company from the issue or sale
since the Issue Date of Equity Interests of the Company (other than
Disqualified Stock) or of Disqualified Stock or debt securities of
the Company that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the Issue Date is sold
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for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment.
The foregoing provisions do not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of, other Equity Interests of the Company (other than Disqualified
Stock); PROVIDED that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a PRO RATA basis; (iv) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Restricted Subsidiary of the Company
held by any member of the Company's (or any of its Restricted Subsidiaries')
management in connection with compensation or severance arrangements; PROVIDED
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $1.0 million in any twelve-month
period and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (v) payments of withholding taxes due or
payments of exercise prices in connection with exercises of options for common
stock of the Company by any employee or former employee of the Company (or any
Affiliate of the Company) by the tender of common stock owned by such employee
or the withholding of shares of common stock of the Company in connection with
such option exercise as consideration therefor in connection with compensation
arrangements; (vi) any purchase, redemption or other acquisition or retirement
for a nominal amount of Equity Interests issued pursuant to any shareholder
rights plan of the Company, as the same may be adopted or amended from time to
time; (vii) payment of cash in lieu of fractional shares of common stock that
otherwise would be issuable; and (viii) if no Default or Event of Default shall
have occurred and be continuing, the payment of dividends on the Common Stock
not in excess of $0.02 per share (as adjusted for stock splits, stock
dividends, reclassifications and the like) per fiscal quarter.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this Section
4.08. All such outstanding Investments will be deemed to constitute Investments
in an amount equal to the greater of (y) the net book value of such Investments
at the time of such designation or (z) the Fair Market Value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all non-cash Restricted Payments shall be the Fair
Market Value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair
Market Value of any non-cash Restricted Payment shall be determined by the
Board of Directors of the Company, whose resolution with respect thereto shall
be delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such Fair Market Value exceeds $10.0 million. Not later
than 50 days after the end of any fiscal quarter (100 days in the case of the
last fiscal quarter of the fiscal year) during which any Restricted Payment is
made, the Company
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shall deliver to the Trustee an Officers' Certificate stating that all
Restricted Payments made during such fiscal quarter were permitted and
setting forth the basis upon which the calculations required by this Section
4.08 were computed, together with a copy of any opinion or appraisal required
by this paragraph.
SECTION 4.09. NOTICE OF DEFAULTS.
(a) In the event that any Indebtedness of the Company or any of its
Subsidiaries is declared due and payable before its maturity because of the
occurrence of any default (or any event which, with notice or lapse of time, or
both, would constitute such a default) under such Indebtedness, the Company
shall promptly give written notice to the Trustee of such declaration, the
status of such default or event and what action the Company is taking or
proposes to take with respect thereto.
(b) Upon becoming aware of any Default or Event of Default, the
Company shall promptly deliver an Officers' Certificate to the Trustee
specifying the Default or Event of Default.
SECTION 4.10. LIMITATION ON LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) upon any of
their property or assets, now owned or hereafter acquired, unless all payments
due under this Indenture and the Securities and, in the case of a Guarantor,
its Subsidiary Guarantee are secured on an equal and ratable basis (or on a
senior basis in the case of subordinated Indebtedness) with the obligations so
secured until such time as such obligations are no longer secured by a Lien.
SECTION 4.11. REPORTS.
Whether or not required by the rules and regulations of the SEC, so
long as any Securities are outstanding, the Company will furnish to the Trustee
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its consolidated
Subsidiaries (showing in reasonable detail, either on the face of the financial
statements or in the footnotes thereto and in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the financial
condition and results of operations of the Company and its Restricted
Subsidiaries separately from the financial condition and results of operations
of the Unrestricted Subsidiaries of the Company) and, with respect to the
annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the SEC on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and regulations of
the SEC, the Company will file a copy of all such information and reports with
the SEC for public availability (unless the SEC will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request.
SECTION 4.12. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (i)(a) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other
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interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries
or (iii) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (a) this Indenture, (b) applicable law, (c)
any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time
of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person, so acquired, PROVIDED that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred, (d)
by reason of customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (e)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii)
above on the property so acquired, (f) Permitted Refinancing Indebtedness,
PROVIDED that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being refinanced, (g)
the provisions of any Securitization that are exclusively applicable to any
Securitization Entity, or (h) in the case of clause (iii) above, restrictions
contained in security agreements securing Indebtedness of Guarantors relating
to the properties or assets of Guarantors subject to the Liens created
thereby, PROVIDED that such Liens were otherwise permitted to be incurred
under Section 4.10.
SECTION 4.13. ADDITIONAL SUBSIDIARY GUARANTEES.
The Company will cause each Restricted Subsidiary which Guarantees
any Indebtedness of the Company to execute and deliver to the Trustee a
Subsidiary Guarantee pursuant to which such Restricted Subsidiary will
Guarantee the Company's payment obligations under the Securities on a senior
unsecured basis, jointly and severally, with any other Guarantors; PROVIDED,
that the foregoing shall not apply to Subsidiaries that (i) have properly been
designated as Unrestricted Subsidiaries in accordance with this Indenture for
so long as they continue to constitute Unrestricted Subsidiaries or
(ii) qualify as Securitization Entities for so long as they continue to
constitute Securitization Entities.
SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
(a) Following the occurrence of a Change of Control (the date of
such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall notify
the Holders of the Securities of such occurrence in the manner prescribed by
this Indenture and shall, within 30 days after the Change of Control Date, make
an Offer to Purchase all Securities then outstanding at a purchase price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the Purchase Date (subject to the right of
Holders of record on the relevant Interest Record Date to receive interest due
on the relevant Interest Payment Date). Each Holder shall be entitled to
tender all or any portion of the Securities owned by such Holder pursuant to
the Offer to Purchase, subject to the requirement that any portion of a
Security tendered must be tendered in an integral multiple of $1,000 principal
amount.
(b) On or prior to the Purchase Date specified in the Offer to
Purchase, the Company shall (i) accept for payment all Securities or portions
thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying
Agent or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.04, money sufficient to pay the Purchase
Price of all Securities or portions thereof so accepted and (iii) deliver or
cause to be delivered to the Trustee for cancellation all Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof accepted for payment by the Company. The
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Paying Agent (or the Company, if so acting) shall promptly mail or deliver to
Holders of Securities so accepted, payment in an amount equal to the Purchase
Price for such Securities, and the Trustee shall promptly authenticate and
mail or deliver to each Holder of Securities a new Security or Securities
equal in principal amount to any unpurchased portion of the Security
surrendered as requested by the Holder. Any Security not accepted for
payment shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Offer on or
as soon as practicable after the Purchase Date.
(c) If the Company makes an Offer to Purchase, the Company will
comply with all applicable tender offer laws and regulations, including, to the
extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Securities
pursuant of a Change of Control Offer. To the extent that the provisions of
any securities laws or regulations conflict with the provisions of this Section
4.14, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.14.
SECTION 4.15. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee within 120 days after the
close of each fiscal year a certificate signed by the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company has been made under the
supervision of the signing officer with a view to determining whether a Default
or Event of Default has occurred and whether or not the signers know of any
Default or Event of Default by the Company that occurred during such fiscal
year. If they do know of such a Default or Event of Default, their status and
the action the Company is taking or proposes to take with respect thereto. The
first certificate to be delivered by the Company pursuant to this Section 4.15
shall be for the fiscal year ending December 31, 1998.
SECTION 4.16. CORPORATE EXISTENCE.
Subject to Article Five, the Company shall do or shall cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other existence of each
Restricted Subsidiary in accordance with the respective organizational
documents of each such Restricted Subsidiary and the rights (charter and
statutory) and material franchises of the Company and the Restricted
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such right or franchise, or the corporate existence of any
Restricted Subsidiary, if the Board of Directors of the Company shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and the Restricted Subsidiaries, taken as a whole;
PROVIDED, FURTHER, HOWEVER, that a determination of the Board of Directors of
the Company shall not be required in the event of a merger of one or more
Wholly-Owned Restricted Subsidiaries of the Company with or into another Wholly-
Owned Restricted Subsidiary of the Company or another Person, if the surviving
Person is a Wholly-Owned Restricted Subsidiary of the Company organized under
the laws of the United States or a State thereof or of the District of
Columbia. This Section 4.16 shall not prohibit the Company from taking any
other action otherwise permitted by, and made in accordance with, the
provisions of this Indenture.
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ARTICLE FIVE
MERGERS; SUCCESSOR CORPORATION
SECTION 5.01. MERGERS, SALE OF ASSETS, ETC.
(a) The Company may not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Securities and this Indenture pursuant to
a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately before and after such transaction, no Default or Event of
Default exists; and (iv) the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) would, at the time of such
transaction and after giving pro forma effect thereto, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in the first paragraph of Section 4.04.
(b) Notwithstanding paragraph (a) above or paragraph (d) below, any
Wholly-Owned Restricted Subsidiary of the Company may consolidate with or merge
into the Company or any Guarantor; PROVIDED that the Company or the Guarantor,
as the case may be, is the surviving corporation, and any Guarantor may
consolidate with or merge into the Company. Notwithstanding anything in this
Indenture to the contrary, consummation of one or more Securitizations shall
not constitute the sale of all or substantially all of the properties or assets
of the Company.
(c) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all the properties and assets of one or
more Restricted Subsidiaries the Equity Interest of which constitutes all or
substantially all the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all the properties and assets of the
Company.
(d) No Guarantor may consolidate with or merge with or into (whether
or not such Guarantor is the surviving Person), another corporation, Person or
entity whether or not affiliated with such Guarantor unless, subject to the
provisions of Section 10.03, (i) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor under its Subsidiary Guarantee pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Securities and this Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists; (iii) such
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Guarantor immediately preceding the transaction; and (iv) immediately after
giving effect to such transaction, the Company would have been able to in-
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cur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Leverage Ratio test set forth in the first paragraph of Section 4.04.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in Section 5.01 in which the Company or a
Guarantor, as the case may be, is not the Surviving Person and the Surviving
Person is to assume all the Obligations of the Company under the Securities,
this Indenture and the Registration Rights Agreement or of such Guarantor under
its Subsidiary Guarantee, this Indenture and the Registration Rights Agreement,
as the case may be, pursuant to a supplemental indenture, such Surviving Person
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company or such Guarantor, as the case may be, and the Company,
as the case may be, shall be discharged from its Obligations under this
Indenture and the Securities or such Guarantor shall be discharged from its
Obligations under this Indenture and its Subsidiary Guarantee, as the case may
be.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following shall be an "Event of Default" for purposes of
this Indenture:
(a) failure to pay principal of (or premium, if any, on) any
Security when due;
(b) failure to pay any interest on any Security when due, which
failure continues for 30 days or more;
(c) failure by the Company or any of its Restricted Subsidiaries to
comply with its obligations under Section 4.04, Section 4.07, Section 4.12
or Section 4.14;
(d) failure by the Company or any of its Restricted Subsidiaries for
30 days after notice from the Trustee or the Holders of at least 25% in
aggregate principal amount of the Securities then outstanding to comply
with any of the other covenants or agreements in this Indenture;
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness now exists, or
is created after the Issue Date, which default (a) is caused by a failure
to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness
on the date of such default (a "PAYMENT DEFAULT") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more;
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(f) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(g) the Company or any of its Significant Subsidiaries (or one or
more Restricted Subsidiaries that, taken together would constitute a
Significant Subsidiary) pursuant to or within the meaning of any
Bankruptcy Law: (i) admits in writing its inability to pay its debts
generally as they become due; (ii) commences a voluntary case or
proceeding; (iii) consents to the entry of an order for relief against it
in an involuntary case or proceeding; (iv) consents or acquiesces in the
institution of a bankruptcy or insolvency proceeding against it;
(v) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (vi) makes a general assignment for
the benefit of its creditors, or any of them takes any action to authorize
or effect any of the foregoing;
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (i) is for relief against the Company or
any Significant Subsidiary (or one or more Restricted Subsidiaries that,
taken together would constitute a Significant Subsidiary) of the Company
in an involuntary case or proceeding; (ii) appoints a Custodian of the
Company or any Significant Subsidiary (or one or more Restricted
Subsidiaries that, taken together would constitute a Significant
Subsidiary) of the Company for all or substantially all of its property;
or (iii) orders the liquidation of the Company or any Significant
Subsidiary (or one or more Restricted Subsidiaries that, taken together
would constitute a Significant Subsidiary) of the Company; and in each
case the order or decree remains unstayed and in effect for 60 days;
PROVIDED, HOWEVER, that if the entry of such order or decree is appealed
and dismissed on appeal, then the Event of Default hereunder by reason of
the entry of such order or decree shall be deemed to have been cured; or
(i) except as permitted by this Indenture, any Subsidiary Guarantee
shall be held in a judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee.
The term "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors. The term "CUSTODIAN"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
SECTION 6.02. ACCELERATION.
If an Event of Default with respect to the Securities (other than an
Event of Default specified in clauses (g) or (h) of Section 6.01) occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Securities, by notice in writing to the Company (and
to the Trustee if given by the Holders) may declare the unpaid principal of
(and premium, if any) and accrued interest to the date of acceleration on all
outstanding Securities to be due and payable immediately and, upon any such
declaration, such principal amount (and premium, if any) and accrued interest,
notwithstanding anything contained in this Indenture or the Securities to the
contrary, shall become immediately due and payable.
If an Event of Default specified in clauses (g) or (h) of Section
6.01 occurs, all unpaid principal of and accrued interest on all outstanding
Securities shall IPSO FACTO become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
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Any such declaration with respect to the Securities may be rescinded
and annulled by the Holders of a majority in aggregate principal amount of the
outstanding Securities by written notice to the Trustee if all existing Events
of Default (other than the nonpayment of principal of and interest on the
Securities which has become due solely by virtue of such acceleration) have
been cured or waived and if the rescission would not conflict with any judgment
or decree. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay
or omission by the Trustee or any Holder in exercising any right or remedy
maturing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULT.
Subject to Sections 2.09, 6.07 and 9.02, prior to the declaration of
acceleration of the Securities, the Holders of not less than a majority in
aggregate principal amount of the outstanding Securities by written notice to
the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on
any Security as specified in clauses (a), (b) and (c) of Section 6.01 or a
Default in respect of any term or provision of this Indenture that may not be
amended or modified without the consent of each Holder affected as provided in
Section 9.02. The Company shall deliver to the Trustee an Officers'
Certificate stating that the requisite percentage of Holders have consented to
such waiver and attaching copies of such consents. In case of any such waiver,
the Company, the Trustee and the Holders shall be restored to their former
positions and rights hereunder and under the Securities, respectively. This
paragraph of this Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the
TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from
this Indenture and the Securities, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Subject to Section 2.09, the Holders of a majority in principal
amount of the outstanding Securities may 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 it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture that the Trustee
determines may be unduly prejudicial to the rights of another Holder, it being
understood that the Trustee shall have no duty (subject to Section 7.01) to
ascertain whether or not such actions or forebearances are unduly prejudicial
to such holders, or that may involve the Trustee in personal liability;
PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction. In the event the
Trustee takes any action
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or follows any direction pursuant to this Indenture, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
any loss or expense caused by taking such action or following such direction.
This Section 6.05 shall be in lieu of Section 316(a)(1)(A) of the TIA, and
such Section 316(a)(1)(A) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
SECTION 6.06. LIMITATION ON SUITS.
A Holder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of the
outstanding Securities make a written request to the Trustee to pursue a
remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the outstanding Securities do not give the Trustee a direction which,
in the opinion of the Trustee, is inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of or interest on a Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest specified
in Section 6.01(a), (b) or (c) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest overdue
on principal and to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate PER
ANNUM borne by the Securities and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or
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deliverable on any such claims and to distribute the same, and any Custodian
in any such judicial proceedings is hereby authorized by each Holder to make
such payments to the Trustee and, in the event that the Trustee shall consent
to the making of such payments directly to the Holders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agent and counsel, and any other amounts due
the Trustee under Section 7.07. Nothing herein contained shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of the
Holders, vote for the election of a trustee in bankruptcy or similar official
and may be a member of the creditors' committee.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to the Holders pursuant to this
Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a
suit by a Holder or group of Holders of more than 10% in aggregate principal
amount of the outstanding Securities, or to any suit instituted by any Holder
for the enforcement or the payment of the principal or interest on any
Securities on or after the respective due dates expressed in the Security.
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If a Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default:
(1) The Trustee shall not be liable except for the performance of such
duties as are specifically set forth herein; and
(2) In the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions conforming to the requirements
of this Indenture; however, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished to the
Trustee, the Trustee shall examine such certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee shall not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The 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
pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or take any action at the request or direction of
Holders if it shall have reasonable grounds for believing that repayment of
such funds is not assured to it or it does not receive from such Holders an
indemnity satisfactory to it in its sole discretion against such risk,
liability, loss, fee or expense which might be incurred by it in compliance
with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform
to the provisions of Section 11.05. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through attorneys and agents of its
selection and shall not be responsible for the misconduct or negligence of
any agent or attorney (other than an agent who is an employee of the
Trustee) appointed with due care and appointed with the consent of the
Company.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) Before the Trustee acts or refrains from acting, it may consult
with counsel and the advice or opinion of such counsel as to matters of
law shall be full and complete authorization and protection from liability
in respect of any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney.
(i) The Trustee shall not be deemed to have notice of any Event of
Default unless a Trust Officer of the Trustee has actual knowledge thereof
or unless the Trustee shall have received written notice thereof at the
Corporate Trust Office of the Trustee, and such notice references the
Securities and this Indenture.
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(j) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(k) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as a duty and the Trustee shall not
be answerable for other than its gross negligence or willful misconduct.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or their
Affiliates with the same rights it would have if it were not Trustee, subject
to Section 7.10 hereof. Any Agent may do the same with like rights. However,
the Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall
not be accountable for the Company's use of the proceeds from the Securities,
and it shall not be responsible for any statement of the Company in this
Indenture or any document issued in connection with the sale of Securities or
any statement in the Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or an Event of Default occurs and is continuing and the
Trustee has actual knowledge of such Defaults or Events of Default, the Trustee
shall mail to each Holder notice of the Default or Event of Default within 30
days after the occurrence thereof. Except in the case of a Default or an Event
of Default in payment of principal of or interest on any Security or a Default
or Event of Default in complying with Section 5.01, the Trustee may withhold
the notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Holders. This
Section 7.05 shall be in lieu of the proviso to Section 315(b) of the TIA and
such proviso to Section 315(b) of the TIA is hereby expressly excluded from
this Indenture and the Securities, as permitted by the TIA.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
If required by TIA Section 313(a), as amended, within 60 days after
each October 1 beginning with October 1, 1998, the Trustee shall mail to each
Holder a report dated as of such October 1 that complies with TIA
Section 313(a). The Trustee also shall comply with TIA Section 313(b), (c) and
(d).
A copy of each such report at the time of its mailing to Holders
shall be filed with the SEC and each stock exchange, if any, on which the
Securities are listed.
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or of any delisting thereof.
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SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time, and the
Trustee shall be entitled to, such compensation as the Company and the Trustee
shall from time to time agree in writing for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable disbursements, expenses and advances, including all costs and
expenses of collection (including reasonable fees, disbursements and expenses
of its agents and outside counsel) incurred or made by it in addition to the
compensation for its services except any such disbursements, expenses and
advances as may be attributable to the Trustee's negligence or willful
misconduct. Such expenses shall include the reasonable compensation,
disbursements and expenses of the Trustee's agents, accountants, experts and
outside counsel and any taxes or other expenses incurred by a trust created
pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against any and all loss, damage, claims, liability or expense, including taxes
(other than franchise taxes imposed on the Trustee and taxes based upon,
measured by or determined by the income of the Trustee), arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses of defending itself against or
investigating any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent that
such loss, damage, claim, liability or expense is due to its own negligence or
willful misconduct. The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. However, the
failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder unless the Company has been prejudiced thereby.
The Company shall defend the claim and the Trustee shall cooperate in the
defense at the Company's expense, PROVIDED that the Company shall not be liable
in any action or for which it has assumed the defense for the expenses of
separate counsel to the Trustee unless (1) the employment of separate counsel
has been authorized by the Company, (2) the Trustee has reasonably concluded
(based upon advice of counsel to the Trustee) that there may be legal defenses
available to the Trustee that are different from or in addition to those
available to the Company or (3) a conflict or potential conflict exists (based
upon advice of counsel to the Trustee) between the Trustee and the Company, and
PROVIDED, FURTHER, that in any such event the Company's reimbursement
obligation with respect to separate counsel of the Trustee will be limited to
the reasonable fees and expenses of such counsel.
The Company need not pay for any settlement made without their
written consent, which consent shall not be unreasonably withheld. The Company
need not reimburse any expense or indemnify against any loss or liability
incurred by the Trustee as a result of its own negligence or willful
misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Securities against all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Securities
or the Purchase Price or redemption price of any Securities to be purchased
pursuant to an Offer to Purchase or redeemed.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(g) or (h) occurs, the expenses (including
the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute
expenses of administration under any Bankruptcy Law. The Company's under this
Section 7.07 and any claim arising hereunder shall survive the resignation or
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removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Eight and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company
in writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or other public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties
of the Trustee under this Indenture. A successor Trustee shall mail notice of
its succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the outstanding Securities
may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or trans-
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feree corporation or banking corporation without any further act shall be the
successor Trustee; PROVIDED, HOWEVER, that such corporation shall be otherwise
qualified and eligible under this Article Seven.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA SectionSection 310(a)(1) and 310(a)(2). The Trustee
shall have a combined capital and surplus of at least $50,000,000 as set forth
in its most recent published annual report of condition. If the Trustee has or
shall acquire any "conflicting interest" within the meaning of TIA
Section 310(b), the Trustee and the Company shall comply with the provisions of
TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 7.10, the Trustee shall resign immediately in the manner and with the
effect hereinbefore specified in this Article Seven. The provisions of TIA
Section 310 shall apply to the Company and any other obligor of the Securities.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. TERMINATION OF THE COMPANY'S OBLIGATIONS.
The Company may terminate its obligations under the Securities and
this Indenture as well as the obligations of the Guarantors under their
respective Subsidiary Guarantees, except those obligations referred to in the
penultimate paragraph of this Section 8.01, if :
(i) either (a) all the Securities theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which have been replaced
or paid and Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b) all Securities not theretofore delivered to the
Trustee for cancellation have become due and payable or have been called for
redemption and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Securities not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Securities
to the date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(ii) the Company has paid all other sums payable under this Indenture
by the Company; and
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(iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions precedent
under this Indenture relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the first paragraph of this Section 8.01, the
Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 7.07, 8.05 and 8.06
shall survive until the Securities are no longer outstanding pursuant to the
last paragraph of Section 2.08. After the Securities are no longer
outstanding, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall
survive.
After such delivery or irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's and Guarantors'
obligations under the Securities, the Subsidiary Guarantees and this Indenture
except for those surviving obligations specified above.
SECTION 8.02. LEGAL DEFEASANCE AND COVENANT DEFEASANCE
(a) The Company may terminate its obligations in respect of the
Securities by delivering all outstanding Securities to the Trustee for
cancellation and paying all sums payable by it on account of principal of and
interest on all Securities or otherwise. In addition to the foregoing, the
Company may, at its option, at any time elect to have either paragraph (b) or
(c) below be applied to all outstanding Securities, subject in either case to
compliance with the conditions set forth in Section 8.03.
(b) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03, be deemed to have
paid and discharged the entire indebtedness represented by the outstanding
Securities, except for (i) the rights of Holders to receive payments in respect
of the principal of, premium, if any, and interest on the Securities when such
payments are due, (ii) the Company's obligations with respect to the Securities
under Sections 2.02 through 2.07, inclusive, 2.10, 2.13, 4.02 and 4.16, (iii)
the rights, powers, trust, duties and immunities of the Trustee under this
Indenture and the Company's obligations in connection therewith and (iv)
Article Eight of this Indenture (hereinafter, "LEGAL DEFEASANCE"). Subject to
compliance with this Article Eight, the Company may exercise its option under
this paragraph (b) notwithstanding the prior exercise of its option under
paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03, be released from its
obligations under the covenants contained in Sections 4.03 through 4.15,
inclusive, and Article Five with respect to the outstanding Securities
(hereinafter, "COVENANT DEFEASANCE") and thereafter any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Securities. In addition, upon the Company's exercise under
paragraph (a) hereof of the option applicable to this paragraph (c), subject to
the satisfaction of the conditions set forth in Section 8.03, any failure or
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Securities.
SECTION 8.03. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
In order to exercise either Legal Defeasance pursuant to Section
8.02(b) or Covenant Defeasance pursuant to Section 8.02(c):
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in U.S. dollars or United States
Government Obligations, or a combination thereof, in
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such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of
premium, if any, and interest on the Securities on the stated date for
payment thereof or on the applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02(b), the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the Securities will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.02(c), the Company
shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of
the Securities will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Sections 6.01(g) and 6.01(h) are concerned, at any
time in the period ending on the 91st day after the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of or constitute a Default under this Indenture or
any other material agreement or instrument to which the Company or any of
its Restricted Subsidiaries is a party or by which the Company or any of
its Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that assuming no intervening bankruptcy or
insolvency of the Company between the date of deposit and the 91st day
following the deposit and that no Holder is an insider of the Company,
after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar law affecting creditors' rights generally.
Notwithstanding the foregoing, the opinion of counsel required by
clause (b) above need not be delivered if all Securities not theretofore
delivered to the Trustee for cancellation (x) have become due and
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payable, (y) will become due and payable on the Final Maturity Date within
one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company.
SECTION 8.04. APPLICATION OF TRUST MONEY; TRUSTEE ACKNOWLEDGMENT AND INDEMNITY.
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 8.03, and shall apply the
deposited money and the money from United States Government Obligations in
accordance with this Indenture solely to the payment of principal of and
interest on the Securities.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations specified
above.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Government
Obligations deposited pursuant to Section 8.03 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of outstanding Securities.
SECTION 8.05. REPAYMENT TO COMPANY.
Subject to Sections 7.07 and 8.04, the Trustee shall promptly pay to
the Company upon written request any excess money held by it at any time. The
Trustee shall pay to the Company upon written request any money held by it for
the payment of principal or interest that remains unclaimed for two years;
PROVIDED, HOWEVER, that the Trustee before being required to make any payment
may at the expense of the Company cause to be published once in a newspaper of
general circulation in The City of New York or mail to each Holder entitled to
such money notice that such money remains unclaimed and that, after a date
specified therein which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining
shall be repaid to the Company. After payment to the Company, Holders entitled
to money must look solely to the Company for payment as general creditors
unless an applicable abandoned property law designates another person and all
liability of the Trustee or Paying Agent with respect to such money shall
thereupon cease.
SECTION 8.06. REINSTATEMENT.
If the Trustee is unable to apply any money or United States
Government Obligations in accordance with Section 8.02 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.02 until
such time as the Trustee is permitted to apply all such money or United States
Government Obligations in accordance with Section 8.02; PROVIDED, HOWEVER, that
if the Company has made any payment of interest on or principal of any
Securities because of the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money or United States Government Obligations held by the
Trustee.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Guarantors, when authorized by a resolution of
the Board of Directors, and the Trustee may amend or supplement this Indenture
or the Securities without notice to or consent of any Holder:
(a) to cure any ambiguity, defect or inconsistency; PROVIDED,
HOWEVER, that such amendment or supplement does not adversely affect the
rights of any Holder;
(b) to effect the assumption by a successor Person of all
obligations of the Company under the Securities and this Indenture in
connection with any transaction complying with Article Five of this
Indenture;
(c) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(d) to comply with any requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(e) to make any change that would provide any additional benefit or
rights to the Holders;
(f) to make any other change that does not adversely affect the
rights of any Holder under this Indenture;
(g) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company;
(h) to add a Guarantor in accordance with Section 4.13 or otherwise;
or
(i) to secure the Securities pursuant to the requirements of Section
4.10 or otherwise;
PROVIDED, HOWEVER, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such amendment or supplement complies with the provisions
of this Section 9.01.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07, the Company and the Guarantors, when
authorized by a Board Resolution, and the Trustee may modify, amend or
supplement, or waive compliance by the Company with any provision of, this
Indenture or the Securities with the written consent of the Holders of at least
a majority in principal amount of the outstanding Securities. However, without
the consent of each Holder affected, no such modification, amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may:
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(a) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the Stated Maturity of any
Security or alter the provisions with respect to the repurchase or
redemption of the Securities (other than provisions relating to Section
4.07 or 4.14);
(c) reduce the rate of or change the time for payment of interest on
any Security,;
(d) make any Security payable in money other than that stated in the
Securities;
(e) make any change in the provisions of this Indenture relating to
the rights of holders of Securities to receive payments of principal of or
premium, if any, or interest on the Securities;
(f) modify any provisions of Section 6.04 (other than to add
sections of this Indenture or the Securities subject thereto) or 6.07 or
this Section 9.02 (other than to add sections of this Indenture or the
Securities which may not be modified, amended, supplemented or waived
without the consent of each Holder affected);
(g) reduce the percentage of the principal amount of outstanding
Securities necessary for amendment to or waiver of compliance with any
provision of this Indenture or the Securities or for waiver of any Default
in respect thereof;
(h) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Securities (except a rescission
of acceleration of the Securities by the Holders thereof as provided in
Section 6.02 and a waiver of the payment default that resulted from such
acceleration);
(i) waive a repurchase or redemption payment with respect to any
Security (other than a payment required by Section 4.07 or 4.14); or
(j) modify the ranking or priority of any Security or the Subsidiary
Guarantee in respect thereof of any Guarantor in any manner adverse to the
Holders of the Securities.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
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SECTION 9.04. RECORD DATE FOR CONSENTS AND EFFECT OF CONSENTS.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then those persons
who were Holders of Securities at such record date (or their duly designated
proxies), and only those persons, shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders of such Securities after
such record date. No such consent shall be valid or effective for more than 90
days after such record date. The Trustee is entitled to rely upon any
electronic instruction from beneficial owners to the Holders of any Global
Security.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (i) of Section 9.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security
about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determine, the Company in exchange for the Security
shall issue and the Trustee shall authenticate a new Security that reflects the
changed terms. Failure to make the appropriate notation or issue a new
Security shall not affect the validity and effect of such amendment, supplement
or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture and that such amendment, supplement
or waiver constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (subject to customary exceptions).
The Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise. In signing any amendment,
supplement or waiver, the Trustee shall be entitled to receive an indemnity
reasonably satisfactory to it.
ARTICLE TEN
GUARANTEE
SECTION 10.01. UNCONDITIONAL GUARANTEE.
Each Guarantor hereby unconditionally, jointly and severally,
guarantees (each, a "SUBSIDIARY GUARANTEE") to each Holder of a Security
authenticated by the Trustee and to the Trustee and its successors and assigns
that: the principal of and interest on the Securities will be promptly paid in
full when due, subject to any applicable grace period, whether at maturity, by
acceleration or otherwise, and interest on
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the overdue principal and interest on any overdue interest on the Securities,
to the extent lawful, and all other obligations of the Company to the Holders
or the Trustee hereunder or under the Securities will be promptly paid in
full or performed, all in accordance with the terms hereof and thereof. Each
Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of
the Securities or this Indenture, the absence of any action to enforce the
same, any waiver or consent by any Holder of the Securities with respect to
any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against
the Company, protest, notice and all demands whatsoever and covenants that
the Subsidiary Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities, this Indenture
and this Subsidiary Guarantee. If any Holder or the Trustee is required by
any court or otherwise to return to the Company, any Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation
to the Company or any Guarantor, any amount paid by the Company or any
Guarantor to the Trustee or such Holder, this Subsidiary Guarantee, to the
extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between each Guarantor, on the one
hand, and the Holders and the Trustee, on the other hand, (x) the maturity of
the obligations guaranteed hereby may be accelerated as provided in Article
Six for the purpose of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the event of any acceleration
of such obligations as provided in Article Six, such obligations (whether or
not due and payable) shall forth become due and payable by each Guarantor for
the purpose of this Subsidiary Guarantee.
SECTION 10.02. SEVERABILITY.
In case any provision of this Subsidiary Guarantee shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.03. RELEASE OF A GUARANTOR.
If the Securities are defeased in accordance with the terms of this
Indenture, or if Section 5.01(b) is complied with, or if, subject to the
requirements of Section 5.01(a), all or substantially all of the assets of any
Guarantor or all of the Equity Interests of any Guarantor are sold (including
by issuance or otherwise) by the Company in a transaction constituting an Asset
Sale and (x) the Net Cash Proceeds from such Asset Sale are used in accordance
with Section 4.07 or (y) the Company delivers to the Trustee an Officers'
Certificate to the effect that the Net Cash Proceeds from such Asset Sale shall
be used in accordance with Section 4.07 and within the time limits specified by
Section 4.07, then each Guarantor (in the case of defeasance) or such Guarantor
(in the case of compliance with Section 5.01(b) or in the event of a sale or
other disposition of all of the Equity Interests of such Guarantor) or the
corporation acquiring such assets (in the event of a sale or other disposition
of all or substantially all of the assets of such Guarantor) shall be released
and discharged from all obligations under this Article Ten without any further
action required on the part of the Trustee or any Holder.
The Trustee shall, at the sole cost and expense of the Company and
upon receipt at the reasonable request of the Trustee of an Opinion of Counsel
that the provisions of this Section 10.03 have been complied with, deliver an
appropriate instrument evidencing such release upon receipt of a request by the
Company accompanied by an Officers' Certificate certifying as to the compliance
with this Section 10.03.
<PAGE>
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Any Guarantor not so released remains liable for the full amount of principal
of and interest on the Securities and the other obligations of the Company
hereunder as provided in this Article Ten.
SECTION 10.04. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirms that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of title 11 of the United
States Code, as amended, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar U.S. Federal or state or other
applicable law. To effectuate the foregoing intention, the Holders and each
Guarantor hereby irrevocably agree that the obligations of each Guarantor under
its Subsidiary Guarantee shall be limited to the maximum amount as will, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Subsidiary Guarantee or pursuant to Section 10.05, result
in the obligations of such Guarantor under its Subsidiary Guarantee not
constituting such a fraudulent transfer or conveyance under Federal or State
law.
SECTION 10.05. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, INTER SE, that in the event any payment or
distribution is made by any Guarantor (a "FUNDING GUARANTOR") under the
Subsidiary Guarantee, such Funding Guarantor shall be entitled to a
contribution from all other Guarantors in a PRO RATA amount, based on the net
assets of each Guarantor (including the Funding Guarantor), determined in
accordance with GAAP, subject to Section 10.04, for all payments, damages and
expenses incurred by such Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantor's obligations
with respect to the Subsidiary Guarantee.
SECTION 10.06. EXECUTION OF SECURITY GUARANTEE.
To further evidence their Subsidiary Guarantee to the Holders, each
of the Guarantors hereby agrees to execute a Security Guarantee to be endorsed
on each Security ordered to be authenticated and delivered by the Trustee.
Each Security Guarantee shall be substantially in the form set forth in
EXHIBITS A AND B hereto. Each Guarantor hereby agrees that its Subsidiary
Guarantee set forth in Section 10.01 shall remain in full force and effect
notwithstanding any failure to endorse on each Security a Security Guarantee.
Each such Security Guarantee shall be signed on behalf of each Guarantor by two
Officers prior to the authentication of the Security on which it is endorsed,
and the delivery of such Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of such Security Guarantee on
behalf of such Guarantor. Such signature upon the Security Guarantee may be
manual or facsimile signature of such officer and may be imprinted or otherwise
reproduced on the Security Guarantee, and in case such officer who shall have
signed the Security Guarantee shall cease to be such officer before the
Security on which such Security Guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the Person who signed the Security Guarantee had not ceased to be such
officer of such Guarantor.
SECTION 10.07. SUBORDINATION OF SUBROGATION AND OTHER RIGHTS.
Each Guarantor hereby agrees that any claim against the Company that
arises from the payment, performance or enforcement of such Guarantor's
obligations under its Subsidiary Guarantee or this In-
<PAGE>
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denture, including, without limitation, any right of subrogation, shall be
subject and subordinate to, and no payment with respect to any such claim of
such Guarantor shall be made before, the payment in full in cash of all
outstanding Securities in accordance with the provisions provided therefor in
this Indenture.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
This Indenture is subject to the provisions of the TIA that are
required to be a part of this Indenture, and shall, to the extent applicable,
be governed by such provisions. If any provision of this Indenture modifies
any TIA provision that may be so modified, such TIA provision shall be deemed
to apply to this Indenture as so modified. If any provision of this Indenture
excludes any TIA provision that may be so excluded, such TIA provision shall be
excluded from this Indenture.
The provisions of TIA SectionSection 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not physically contained herein.
SECTION 11.02. NOTICES.
Any notice or communication shall be sufficiently given if in writing
and delivered in person, by facsimile and confirmed by overnight courier, or
mailed by first-class mail addressed as follows:
if to the Company:
Metris Companies Inc.
600 South Highway 169
Interchange Tower
Suite 1800
St, Louis Park, Minnesota 55426-1222
Attention: Chief Financial Officer
Facsimile: (612) 525-5070
Telephone: (612) 525-5094
<PAGE>
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if to the Trustee:
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Facsimile: (312) 407-1708
Telephone: (312) 407-1964
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed, first-class, postage prepaid, to
a Holder including any notice delivered in connection with TIA Section 310(b),
TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed
to him at his address as set forth on the Security Register and shall be
sufficiently given to him if so mailed within the time prescribed. To the
extent required by the TIA, any notice or communication shall also be mailed to
any Person described in TIA Section 313(c).
Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. Except
for a notice to the Trustee, which is deemed given only when received, if a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
The Company, the Trustee, the Registrar and any other person shall have the
protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to the
Trustee stating that, in the opinion of the signers, all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent have been complied with; PROVIDED, HOWEVER, that with respect to
matters of fact an Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
<PAGE>
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SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE.
Each certificate with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate has read such
covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements contained in such certificate are
based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
SECTION 11.07. GOVERNING LAW.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE, THE
SECURITIES AND THE SUBSIDIARY GUARANTEES WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.08. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Securities or the Subsidiary
Guarantees, as the case may be, or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities and
the Subsidiary Guarantees.
SECTION 11.09. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of each Guarantor in this Indenture
shall bind its successor. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 11.10. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
<PAGE>
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SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture, in the Securities or in
the Subsidiary Guarantees shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby, and a Holder shall have no claim
therefor against any party hereto.
SECTION 11.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or a Subsidiary of the Company. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.13. LEGAL HOLIDAYS.
If a payment date is not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day.
[Signature Pages Follow]
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed as of the date first written above.
METRIS COMPANIES INC.
By: /s/ Ronald N. Zebeck
------------------------------------
Name: Ronald N. Zebeck
Title: President and Chief Executive
Officer
METRIS DIRECT, INC.
By: /s/ Robert W. Oberrender
------------------------------------
Name: Robert W. Oberrender
Title: Senior Vice President and Chief
Financial Officer
THE FIRST NATIONAL BANK OF CHICAGO, as
Trustee
By: /s/ R. Tarnas
------------------------------------
Name: R. Tarnas
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR
SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUERS' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM AND, IN THE CASE OF THE FOREGOING CLAUSE (D), A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE ISSUERS AND THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
A-1
<PAGE>
METRIS COMPANIES INC.
10% Senior Note due 2004, Series A
CUSIP No.:[ ]
No. [ ] $[ ]
METRIS COMPANIES INC., a Delaware corporation (the "COMPANY", which
term includes any successor corporation), for value received, promise to pay
to [ ] or registered assigns the principal sum of [ ] Dollars, on
November 1, 2004.
Interest Payment Dates: May 1 and November 1, commencing on May 1,
1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
METRIS COMPANIES INC.
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
Dated: [ ]
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10% Senior Notes due 2004, Series A, described
in the within-mentioned Indenture.
Dated:
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By:
-------------------------------------
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
METRIS COMPANIES INC.
10% Senior Note due 2004, Series A
1. INTEREST.
METRIS COMPANIES INC. promises to pay interest on the principal
amount of this Security at the rate per annum shown above. Cash interest on
the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from November 7, 1997. The
Company will pay interest semi-annually in arrears on each Interest Payment
Date, commencing on May 1, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand,
in each case at the rate borne by the Securities
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer
or registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private
debts ("U.S. LEGAL TENDER"). However, the Company may pay principal and
interest by wire transfer of Federal funds (provided that the Paying Agent
shall have received wire instructions on or prior to the relevant Interest
Record Date), or interest by check payable in such U.S. Legal Tender. The
Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, The First National Bank of Chicago (the "TRUSTEE") will
act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to the Holders. The Company may, subject to
certain exceptions, act as Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of
November 7, 1997 (the "INDENTURE"), by and among the Company, the Guarantors
named therein and the Trustee. Capitalized terms herein are used as defined
in the Indenture unless otherwise defined herein. This Security is one of a
duly authorized issue of Securities of the Company designated as its 10%
Senior Notes due 2004, Series A (the "INITIAL SECURITIES"), limited in
aggregate principal amount to $100,000,000, which may be issued under the
Indenture. The Securities include the Initial Securities, the Private
Exchange Securities (as defined in the Indenture) and the Unrestricted
Securities (as defined in the Indenture). All Securities issued under the
Inden-
A-4
<PAGE>
ture are treated as a single class of securities under the Indenture. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of
the Indenture (except as otherwise indicated in the Indenture) until such
time as the Indenture is qualified under the TIA, and thereafter as in effect
on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are subject
to all such terms, and holders of Securities are referred to the Indenture
and the TIA for a statement of them. The Securities are general unsecured
obligations of the Company.
Payment on the Securities is guaranteed (each, a "GUARANTEE") on a
senior basis, jointly and severally, by Metris Direct, Inc. and each
Restricted Subsidiary of the Company which guarantees the Securities (each, a
"GUARANTOR") pursuant to Article Ten of the Indenture. In certain
circumstances, the Guarantees may be released.
5. OPTIONAL REDEMPTION.
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after November 1, 2001, at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the Redemption Date (subject
to the right of holders of record on the relevant Interest Record Date to
receive interest due on the relevant Interest Payment Date) if redeemed
during the 12-month period commencing on November 1 of the years indicated
below:
Year Percentage
---- ----------
2001 107.50%
2002 105.00%
2003 102.50%
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select
for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities
and portions of them the Trustee so selects shall be in amounts of $1,000
principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Security. On and after
the Redemption Date, interest will cease to accrue on Securities or portions
thereof called for redemption so long as the Company has deposited with the
Paying Agent for the Securities funds in satisfaction of the redemption price
pursuant to the Indenture and the Paying Agent is not prohibited from paying
such funds to the Holders pursuant to the terms of the Indenture.
7. CHANGE OF CONTROL OFFER.
Following the occurrence of a Change of Control (the date of such
occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within 30
days after the Change of Control Date, make an Offer to Purchase all
Securities then outstanding at a purchase price in cash equal to 101% of the
aggregate
A-5
<PAGE>
principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the Purchase Date (subject to the right of Holders of record on
the relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date).
8. LIMITATION ON DISPOSITION OF ASSETS.
The Company is, subject to certain conditions and certain
exceptions, obligated to make an Offer to Purchase Securities at a purchase
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of
Holders of record on the Interest Relevant Record Date to receive interest
due on the relevant Interest Payment Date) with the proceeds of certain asset
dispositions.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities or portions thereof selected for
redemption, except the unredeemed portion of any security being redeemed in
part.
10. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the owner
of it for all purposes.
11. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee and the Paying Agent will repay the funds to the
Company at their written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees, except
for certain provisions thereof, and may be discharged from obligations to
comply with certain covenants contained in the Indenture, the Securities and
the Guarantees, in each case upon satisfaction of certain conditions
specified in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture, the Securities and
the Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the
Securities then outstanding, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders
of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture, the Securities and the Guarantees to,
among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated
Securities or
A-6
<PAGE>
comply with any requirements of the SEC in connection with the qualification
of the Indenture under the TIA, or make any other change that does not
materially adversely affect the rights of any Holder of a Security.
14. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets,
to permit restrictions on dividends and other payments by Restricted
Subsidiaries to the Company, to consolidate, merge or sell all or
substantially all of its assets and to engage in transactions with
affiliates. The limitations are subject to a number of important
qualifications and exceptions. The Company must report annually to the
Trustee on compliance with such limitations.
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately
in the manner and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture, the Securities or the Guarantees
except as provided in the Indenture. The Trustee is not obligated to enforce
the Indenture, the Securities or the Guarantees unless it has received
indemnity satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of certain continuing Defaults or Events of Default if it
determines that withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH COMPANY AND GUARANTORS.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, the Guarantors, their respective Subsidiaries or their
respective Affiliates as if it were not the Trustee.
17. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Securities or the
Guarantees, as the case may be, or this Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Securities and the Guarantees.
18. AUTHENTICATION.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
19. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint ten-
A-7
<PAGE>
ants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers
as printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
21. REGISTRATION RIGHTS.
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors will be obligated to consummate an exchange offer pursuant to
which the Holder of this Security shall have the right to exchange this
Security for a 10% Senior Subordinated Note due 2004, Series B, of the
Company which has been registered under the Securities Act, in like principal
amount and having terms identical in all material respects to the Initial
Securities. The Holders shall be entitled to receive certain liquidated
damages payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
22. GOVERNING LAW.
The laws of the State of New York shall govern the Indenture, this
Security and any Guarantee thereof without regard to principles of conflicts
of laws to the extent that the application of the laws of another
jurisdiction would be required thereby.
A-8
<PAGE>
[FORM OF SECURITY GUARANTEE]
SENIOR GUARANTEE
For value received, the undersigned Guarantor (as defined in the
Indenture referred to in the Security upon which this notation is endorsed)
hereby unconditionally guarantees on a senior basis (such Guarantee by the
Guarantor being referred to herein as the "GUARANTEE") the due and punctual
payment of the principal of, premium, if any, and interest on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual
payment of interest on the overdue principal, premium and interest on the
Securities, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms
set forth in Article Ten of the Indenture (as defined below). This Guarantee
will become effective in accordance with Article Ten of the Indenture and its
terms shall be evidenced therein. The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of November 7, 1997,
among Metris Companies Inc., each of the Guarantors named therein and The
First National Bank of Chicago, as trustee, as amended or supplemented (the
"INDENTURE").
The obligations of the undersigned to the Holders of Securities and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Ten of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other
provisions of the Indenture to which this Guarantee relates.
This Security Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Security Guarantee is noted shall have been executed by the Trustee
under the Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to
principles of conflicts of laws to the extent that the application of the
laws of another jurisdiction would be required thereby.
This Security Guarantee is subject to release upon the terms set
forth in the Indenture.
METRIS DIRECT, INC.
By:
------------------------------------
Name:
Title:
A-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- -------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_______________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated:___________________ Signed:______________________________
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:__________________________________________________________
Participant in a recognized Signature Guarantee Medallion Program
(or other signature guarantor program reasonably acceptable to the
Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or Section 4.14 of the Indenture, check the
appropriate box:
Section 4.07 [ ] Section 4.14 [ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.07 or Section 4.14 of the Indenture,
state the amount: $_____________
Dated:___________________ Your Signature: ______________________________
(Signed exactly as name appears
on the other side of this
Security)
Signature Guarantee:__________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT B
[FORM OF SERIES B SECURITY]
METRIS COMPANIES INC.
10% Senior Note due 2004, Series B
CUSIP No.:[ ]
No. [ ] $[ ]
METRIS COMPANIES INC., a Delaware corporation (the "COMPANY", which
term includes any successor corporation), for value received, promise to pay
to [ ] or registered assigns the principal sum of [ ]Dollars, on
November 1, 2004.
Interest Payment Dates: May 1 and November 1, commencing on May 1,
1998.
Interest Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officer.
METRIS COMPANIES INC.
By:
-----------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
Dated: [ ]
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10% Senior Notes due 2004, Series B, described
in the within-mentioned Indenture.
Dated:
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By:
-----------------------------------
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
METRIS COMPANIES INC.
10% Senior Note due 2004, Series B
1. INTEREST.
METRIS COMPANIES INC. promises to pay interest on the principal
amount of this Security at the rate per annum shown above. Cash interest on
the Securities will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from November 15, 1997. The
Company will pay interest semi-annually in arrears on each Interest Payment
Date, commencing on May 1, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal from time to
time on demand and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful from time to time on demand,
in each case at the rate borne by the Securities
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Interest Record Date immediately preceding the Interest
Payment Date even if the Securities are canceled on registration of transfer
or registration of exchange after such Interest Record Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. The
Company shall pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private
debts ("U.S. LEGAL TENDER"). However, the Company may pay principal and
interest by wire transfer of Federal funds (provided that the Paying Agent
shall have received wire instructions on or prior to the relevant Interest
Record Date), or interest by check payable in such U.S. Legal Tender. The
Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, The First National Bank of Chicago (the "TRUSTEE") will
act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to the Holders. The Company may, subject to
certain exceptions, act as Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of
November 7, 1997 (the "INDENTURE"), by and among the Company, the Guarantors
named therein and the Trustee. Capitalized terms herein are used as defined
in the Indenture unless otherwise defined herein. This Security is one of a
duly authorized issue of Securities of the Company designated as its 10%
Senior Notes due 2004, Series B limited in aggregate principal amount to
$100,000,000, which may be issued under the Indenture. The Securities
include the Initial Securities (as defined in the Indenture), the Private
Exchange Securities (as defined in the Indenture) and the Unrestricted
Securities (as defined in the Indenture). All Securities issued under the
Inden-
B-3
<PAGE>
ture are treated as a single class of securities under the Indenture. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of
the Indenture (except as otherwise indicated in the Indenture) until such
time as the Indenture is qualified under the TIA, and thereafter as in effect
on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are subject
to all such terms, and holders of Securities are referred to the Indenture
and the TIA for a statement of them. The Securities are general unsecured
obligations of the Company.
Payment on the Securities is guaranteed (each, a "GUARANTEE") on a
senior basis, jointly and severally, by Metris Direct, Inc. and each
Restricted Subsidiary of the Company which guarantees the Securities (each, a
"GUARANTOR") pursuant to Article Ten of the Indenture. In certain
circumstances, the Guarantees may be released.
5. OPTIONAL REDEMPTION.
The Securities will be redeemable at the option of the Company, in
whole or in part, at any time on or after November 1, 2001, at the redemption
prices (expressed as a percentage of principal amount) set forth below, plus
accrued and unpaid interest thereon, if any, to the Redemption Date (subject
to the right of holders of record on the relevant Interest Record Date to
receive interest due on the relevant Interest Payment Date) if redeemed
during the 12-month period commencing on November 1 of the years indicated
below:
Year Percentage
---- ----------
2001 107.50%
2002 105.00%
2003 102.50%
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Securities to be redeemed at its registered address. The Trustee may select
for redemption portions of the principal amount of Securities that have
denominations equal to or larger than $1,000 principal amount. Securities
and portions of them the Trustee so selects shall be in amounts of $1,000
principal amount or integral multiples thereof.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal
amount equal to the unredeemed portion thereof will be issued in the name of
the Holder thereof upon cancellation of the original Security. On and after
the Redemption Date, interest will cease to accrue on Securities or portions
thereof called for redemption so long as the Company has deposited with the
Paying Agent for the Securities funds in satisfaction of the redemption price
pursuant to the Indenture and the Paying Agent is not prohibited from paying
such funds to the Holders pursuant to the terms of the Indenture.
7. CHANGE OF CONTROL OFFER.
Following the occurrence of a Change of Control (the date of such
occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within 30
days after the Change of Control Date, make an Offer to Purchase all
Securities then outstanding at a purchase price in cash equal to 101% of the
aggregate
B-4
<PAGE>
principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the Purchase Date (subject to the right of Holders of record on the
relevant Interest Record Date to receive interest due on the relevant
Interest Payment Date).
8. LIMITATION ON DISPOSITION OF ASSETS.
The Company is, subject to certain conditions and certain
exceptions, obligated to make an Offer to Purchase Securities at a purchase
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of
Holders of record on the Interest Relevant Record Date to receive interest
due on the relevant Interest Payment Date) with the proceeds of certain asset
dispositions.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities or portions thereof selected for
redemption, except the unredeemed portion of any security being redeemed in
part.
10. PERSONS DEEMED OWNERS.
The registered Holder of a Security shall be treated as the owner
of it for all purposes.
11. UNCLAIMED FUNDS.
If funds for the payment of principal or interest remain unclaimed
for two years, the Trustee and the Paying Agent will repay the funds to the
Company at their written request. After that, all liability of the Trustee
and such Paying Agent with respect to such funds shall cease.
12. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company and the Guarantors may be discharged from their
obligations under the Indenture, the Securities and the Guarantees, except
for certain provisions thereof, and may be discharged from obligations to
comply with certain covenants contained in the Indenture, the Securities and
the Guarantees, in each case upon satisfaction of certain conditions
specified in the Indenture.
13. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture, the Securities and the
Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the
Securities then outstanding, and any existing Default or Event of Default or
compliance with any provision may be waived with the consent of the Holders
of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture, the Securities and the Guarantees to,
among other things, cure any ambiguity, defect or inconsistency, provide for
uncertificated Securities in addition to or in place of certificated
Securities or
B-5
<PAGE>
comply with any requirements of the SEC in connection with the qualification
of the Indenture under the TIA, or make any other change that does not
materially adversely affect the rights of any Holder of a Security.
14. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets,
to permit restrictions on dividends and other payments by Restricted
Subsidiaries to the Company, to consolidate, merge or sell all or
substantially all of its assets and to engage in transactions with
affiliates. The limitations are subject to a number of important
qualifications and exceptions. The Company must report annually to the
Trustee on compliance with such limitations.
15. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately
in the manner and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture, the Securities or the Guarantees
except as provided in the Indenture. The Trustee is not obligated to enforce
the Indenture, the Securities or the Guarantees unless it has received
indemnity satisfactory to it. The Indenture permits, subject to certain
limitations therein provided, Holders of a majority in aggregate principal
amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of certain continuing Defaults or Events of Default if it
determines that withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH COMPANY AND GUARANTORS.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, the Guarantors, their respective Subsidiaries or their
respective Affiliates as if it were not the Trustee.
17. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any
obligations of the Company or any Guarantor under the Securities or the
Guarantees, as the case may be, or this Indenture or for any claim based on,
in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Securities and the Guarantees.
18. AUTHENTICATION.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on this Security.
19. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint ten-
B-6
<PAGE>
ants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
20. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP
numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers
as printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
21. GOVERNING LAW.
The laws of the State of New York shall govern the Indenture, this
Security and any Guarantee thereof without regard to principles of conflicts
of laws to the extent that the application of the laws of another
jurisdiction would be required thereby.
<PAGE>
[FORM OF SECURITY GUARANTEE]
SENIOR GUARANTEE
For value received, the undersigned Guarantor (as defined in the
Indenture referred to in the Security upon which this notation is endorsed)
hereby unconditionally guarantees on a senior basis (such Guarantee by the
Guarantor being referred to herein as the "GUARANTEE") the due and punctual
payment of the principal of, premium, if any, and interest on the Securities,
whether at maturity, by acceleration or otherwise, the due and punctual
payment of interest on the overdue principal, premium and interest on the
Securities, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms
set forth in Article Ten of the Indenture (as defined below). This Guarantee
will become effective in accordance with Article Ten of the Indenture and its
terms shall be evidenced therein. The validity and enforceability of any
Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Indenture dated as of November 7, 1997,
among Metris Companies Inc., each of the Guarantors named therein and The
First National Bank of Chicago, as trustee, as amended or supplemented (the
"INDENTURE").
The obligations of the undersigned to the Holders of Securities and
to the Trustee pursuant to this Guarantee and the Indenture are expressly set
forth in Article Ten of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other
provisions of the Indenture to which this Guarantee relates.
This Security Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Securities upon which
this Security Guarantee is noted shall have been executed by the Trustee
under the Indenture by the manual signature of one of its authorized officers.
This Security Guarantee shall be governed by and construed in
accordance with the laws of the State of New York without regard to
principles of conflicts of laws to the extent that the application of the
laws of another jurisdiction would be required thereby.
This Security Guarantee is subject to release upon the terms set
forth in the Indenture.
METRIS DIRECT, INC.
By:
------------------------------
Name:
Title:
B-8
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- -------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint--------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------------ -----------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.07 or Section 4.14 of the Indenture, check the
appropriate box:
Section 4.07 [ ] Section 4.14 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.07 or Section 4.14 of the Indenture, state
the amount: $_____________
Dated: Your Signature:
-------------------- ---------------------------------
(Signed exactly as name appears
on the other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall
bear a legend (which would be in addition to any other legends required in
the case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY
(OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE.
C-1
<PAGE>
EXHIBIT D
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 10% Senior Notes due 2004
(THE "SECURITIES") OF METRIS COMPANIES INC.
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or*
_______ Physical Securities by ______ (the "TRANSFEROR").
The Transferor:*
/ / has requested by written order that the Registrar deliver in
exchange for its beneficial interest in the Global Security held by the
Depositary a Physical Security or Physical Securities in definitive,
registered form of authorized denominations and an aggregate number equal to
its beneficial interest in such Global Security (or the portion thereof
indicated above); or
/ / has requested that the Registrar by written order exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Indenture relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 2.16 of such
Indenture, and that the transfer of the Securities does not require
registration under the Securities Act of 1933, as amended (the "ACT"),
because*:
/ / Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.16 of the Indenture).
Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
/ / Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Act) which delivers a certificate to the Trustee in the form of
EXHIBIT E to the Indenture.
/ / Such Security is being transferred in reliance on Rule 144 under
the Act.
/ / Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 under the Act to a person other than an institutional
"accredited investor." [An Opinion of Counsel to the effect that such transfer
does not require registration under the Securities Act accompanies this
certification.]
----------------------------------------
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------------
[Authorized Signatory]
Date:
----------------------
*Check applicable box.
D-1
<PAGE>
EXHIBIT E
FORM OF TRANSFEREE LETTER OF REPRESENTATION
Metris Companies Inc.
c/o The First National Bank of Chicago
1 North State Street
Chicago, IL 60602
Dear Sirs:
This certificate is delivered to request a transfer of $________
principal amount of the 10% Senior Notes due 2004 (the "NOTES") of Metris
Companies Inc. (the "COMPANY"). Upon transfer, the Notes would be registered
in the name of the new beneficial owner as follows:
Name:
----------------------------------
Address:
-------------------------------
Taxpayer ID Number:
--------------------
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the
"SECURITIES ACT")) purchasing for our own account or for the account of such
an institutional "accredited investor" at least $250,000 principal amount of
the Notes, and we are acquiring the Notes not with a view to, or for offer or
sale in connection with, any distribution in violation of the Securities Act.
We have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risk of our investment in the
Notes and we invest in or purchase securities similar to the Notes in the
normal course of our business. We and any accounts for which we are acting
are each able to bear the economic risk of our or its investment.
2. We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted
in the following sentence. We agree on our own behalf and on behalf of any
investor account for which we are purchasing Notes to offer, sell or otherwise
transfer such Notes prior to the date which is two years after the later of the
date of original issue and the last date on which the Company or any affiliate
of the Company was the owner of such Notes (or any predecessor thereto) (the
"RESALE RESTRICTION TERMINATION DATE") only (a) to the Company, (b) pursuant
to a registration statement which has been declared effective under the
Securities Act, (c) in a transaction complying with the requirements of
Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A (a "QIB") that purchases for its
own account or for the account of a QIB and to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act that is purchasing for its own account or for the
account of such an institutional "accredited investor," in each case in a
minimum principal amount of Notes of $250,000, (e) pursuant to offers and
sales that occur outside the United States within the meaning of Regulation S
under the Securities Act or (f) pursuant to any other available exemption from
the registration requirements of the Securities Act, subject in each of the
foregoing cases
E-1
<PAGE>
to any requirement of law that the disposition of our property or the
property of such investor account or accounts be at all times within our or
their control and in compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes
is proposed to be made pursuant to clause (d) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the Company and the
Trustee, which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act and that it is acquiring such Notes
for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to any offer, sale or other transfer prior to the
Resale Restriction Termination Date of the Notes pursuant to clause (d), (e)
or (f) above to require the delivery of an opinion of counsel, certificates
and/or other information satisfactory to the Company and the Trustee.
Dated: TRANSFEREE:
----------------------- -----------------------------
By:
-------------------------------------
E-2
<PAGE>
EXHIBIT F
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
_______________, ____
The First National Bank of Chicago
1 North State Street
Chicago, IL 60602
Attention: Corporate Trust Administration
Re: Metris Companies Inc. (the "Company")
10% Senior Notes due 2004, Series A, and
10% Senior Notes due 2004, Series B (the "Securities")
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Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
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You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
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[Authorized Signatory]
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Metris Companies Inc.
$100,000,000
10% Senior Notes due 2004
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
November 7, 1997
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Metris Companies Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to Chase Securities Inc. ("CSI"), Bear, Stearns &
Co. Inc. and NationsBanc Montgomery Securities, Inc. (collectively,. the
"INITIAL PURCHASERS"), upon the terms and subject to the conditions set forth
in a purchase agreement dated November 4, 1997 (the "PURCHASE AGREEMENT"),
$100,000,000 aggregate principal amount of its 10% Senior Notes due 2004 (the
"NOTES"). The Notes will be unconditionally guaranteed (collectively, the
"Guarantees") on a senior basis by the Company's subsidiary, Metris Direct,
Inc. (the "GUARANTOR" and together with the Company, the "ISSUERS"). The Notes
and the Guarantees are collectively referred to herein as the "SECURITIES".
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchasers thereunder, the Issuers agree with the Initial Purchasers, for the
benefit of the holders (including the Initial Purchasers) of the Securities,
the Exchange Securities (as defined herein) and the Private Exchange Securities
(as defined herein) (collectively, the "HOLDERS"), as follows:
1. REGISTERED EXCHANGE OFFER. The Issuers shall (i) prepare and,
not later than 60 days following the date of original issuance of the
Securities (the "ISSUE DATE"), file with the Commission a registration
statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form
under the Securities Act with respect to a proposed offer to the Holders of the
Securities (the "REGISTERED EXCHANGE OFFER") to issue and deliver to such
Holders, in exchange for the Securities, a like aggregate principal amount of
debt securities of the Company that are identical in all material respects to
the Securities, and are unconditionally guaranteed by the Guarantor, except for
the transfer restrictions relating to the Securities, (ii) use their reasonable
best efforts to cause the Exchange Offer Registration Statement to become
effective under the
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Securities Act no later than 120 days after the Issue Date and the Registered
Exchange Offer to be consummated no later than 151 days after the Issue Date
and (iii) keep the Exchange Offer Registration Statement effective for not
less than 30 calendar days (or longer, if required by applicable law) after
the date on which notice of the Registered Exchange Offer is mailed to the
Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD").
The Exchange Securities will be issued under the Indenture or an indenture
(the "EXCHANGE SECURITIES INDENTURE") between the Issuers and the Trustee or
such other bank or trust company that is reasonably satisfactory to the
Initial Purchasers, as trustee (the "EXCHANGE SECURITIES TRUSTEE"), such
indenture to be identical in all material respects to the Indenture, except
for the transfer restrictions relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration Statement,
the Issuers shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate any of the Issuers or an Exchanging Dealer (as defined herein)
not complying with the requirements of the next sentence, (b) is not an Initial
Purchaser holding Securities that have, or that are reasonably likely to have,
the status of an unsold allotment in an initial distribution, (c) acquires the
Exchange Securities in the ordinary course of such Holder's business and (d)
has no arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Issuers, the Initial Purchasers
and each Exchanging Dealer acknowledge that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act,
each Holder that is a broker-dealer electing to exchange Securities, acquired
for its own account as a result of market-making activities or other trading
activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to
deliver a prospectus containing substantially the information set forth in
Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section and in
Annex C hereto in the "Plan of Distribution" section of such prospectus in
connection with a sale of any such Exchange Securities received by such
Exchanging Dealer pursuant to the Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any
Holder holds any Securities acquired by it that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an
initial distribution, or any Holder is not entitled pursuant to current
interpretations by the Commission's Staff to participate in the Registered
Exchange Offer, the Issuers shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "PRIVATE EXCHANGE"), a like aggregate
principal amount of debt securities of the Company (the "PRIVATE EXCHANGE
SECURITIES") that are identical in all material respects to the Exchange
Securities, and are unconditionally guaranteed by the Guarantor , except for
the placement of a legend setting forth transfer restrictions relating to such
Private Exchange Securities. The Private Exchange Securities will be issued
under the same indenture as the Exchange Securities, and the Company shall use
its commercially
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reasonable efforts to cause the Private Exchange Securities to bear the same
CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Issuers shall:
(a) mail to each Holder a copy of the prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less
than 30 days (or longer, if required by applicable law) after the date
on which notice of the Registered Exchange Offer is mailed to the
Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York;
(d) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange
Offer and any Private Exchange, as the case may be, the Issuers shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancellation all Securities
so accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as
the case may be, promptly to authenticate and deliver to each Holder,
Exchange Securities or Private Exchange Securities, as the case may be,
equal in principal amount to the Securities of such Holder so accepted
for exchange.
The Issuers shall use their commercially reasonable efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the prospectus contained therein in order to permit such prospectus to be used
by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; PROVIDED that (i) in
the case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer, such period shall be the lesser of 90 days
and the date on which all Exchanging Dealers have sold all Exchange Securities
held by them and (ii) the Issuers shall make such prospectus and any amendment
or supplement thereto available to any broker-dealer for use
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in connection with any resale of any Exchange Securities for a period of not
less than 90 days after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may
be, shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private
Exchange Securities will have the right to vote or consent as a separate class
on any matter.
Interest on each Exchange Security and Private Exchange Security
issued pursuant to the Registered Exchange Offer and in the Private Exchange
will accrue from the last interest payment date on which interest was paid on
the Securities surrendered in exchange therefor or, if no interest has been
paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Issuers that at the time of the consummation of
the Registered Exchange Offer (i) any Exchange Securities received by such
Holder will be acquired in the ordinary course of business, (ii) such Holder
will have no arrangements or understanding with any person to participate in
the distribution of the Securities or the Exchange Securities within the
meaning of the Securities Act and (iii) such Holder is not an affiliate of any
of the Issuers or, if it is such an affiliate, such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Notwithstanding any other provisions hereof, the Issuers will ensure
that (i) any Exchange Offer Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies in
all material respects with the Securities Act and the rules and regulations of
the Commission thereunder, (ii) any Exchange Offer Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Offer Registration Statement,
and any supplement to such prospectus, does not, as of the consummation of the
Registered Exchange Offer, include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
2. SHELF REGISTRATION. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Issuers are
not permitted to effect the Registered Exchange Offer as contemplated by
Section 1 hereof, or (ii) any Securities validly tendered pursuant to the
Registered Exchange Offer are not exchanged for Exchange Securities on or
before the 151st day after the Issue Date, or (iii) any Initial Purchaser so
requests with respect to Securities or Private Exchange Securities not eligible
to be exchanged for Exchange Securities in the Registered Exchange Offer and
held by it following the consummation of the Registered Exchange Offer, or (iv)
any applicable law or interpretations do not permit any Holder to participate
in the Registered Exchange Offer, or (v) any Holder that validly tenders
Securities in the Registered Exchange Offer does not receive freely
transferable Exchange Securities in
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exchange for tendered Securities (other than due solely to the status of such
Holder as an affiliate of the Company), or (vi) the Issuers so elect, then
the following provisions shall apply:
(a) The Issuers shall use their reasonable best efforts to
file as promptly as practicable (but in no event more than 30 days
after so required or requested pursuant to this Section 2) with the
Commission, and thereafter shall use its reasonable best efforts to
cause to be declared effective, a shelf registration statement on an
appropriate form under the Securities Act relating to the offer and
sale of the Transfer Restricted Securities (as defined below) by the
Holders thereof from time to time in accordance with the methods of
distribution set forth in such registration statement (hereafter, a
"SHELF REGISTRATION STATEMENT" and, together with any Exchange Offer
Registration Statement, a "REGISTRATION STATEMENT").
(b) The Issuers shall use their reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be used by Holders of
Transfer Restricted Securities for a period ending on the earlier of
(i) two years from the Issue Date or such shorter period that will
terminate when all the Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold pursuant thereto and (ii)
the date on which the Securities become eligible for resale without
volume restrictions pursuant to Rule 144 under the Securities Act (in
any such case, such period being called the "SHELF REGISTRATION
PERIOD").
(c) Notwithstanding any other provisions hereof, the Issuers
will ensure that (i) any Shelf Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement
thereto complies in all material respects with the Securities Act and
the rules and regulations of the Commission thereunder, (ii) any Shelf
Registration Statement and any amendment thereto (in either case, other
than with respect to information included therein in reliance upon or
in conformity with written information furnished to the Issuers by or
on behalf of any Holder specifically for use therein (the "HOLDERS'
INFORMATION")) does not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any
prospectus forming part of any Shelf Registration Statement, and any
supplement to such prospectus (in either case, other than with respect
to Holders' Information), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3. LIQUIDATED DAMAGES.
(a) The parties hereto agree that the Holders of Transfer
Restricted Securities will suffer damages if the Company fails to fulfill its
obligations under Section 1 or Section 2, as applicable, and that it would
not be feasible to ascertain the extent of such damages. Accordingly, if (i)
the applicable Registration Statement is not filed with the
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Commission on or prior to 60 days after the Issue Date, (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 120 days after the Issue Date (or in
the case of a Shelf Registration Statement required to be filed in response
to a change in law or the applicable interpretations of Commission's staff,
if later, within 30 days after publication of the change in law or
interpretation), (iii) the Registered Exchange Offer is not consummated on or
prior to the 151st day after the Issue Date, provided that if such day is not
a business day, then the next succeeding business day thereafter, or (iv) the
Shelf Registration Statement is filed and declared effective within 120 days
after the Issue Date (or in the case of a Shelf Registration Statement
required to be filed in response to a change in law or the applicable
interpretations of Commission's staff, if later, within 30 days after
publication of the change in law or interpretation) but shall thereafter
cease to be effective (at any time that the Company is obligated to maintain
the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the
Company will be obligated to pay liquidated damages to each Holder of
Transfer Restricted Securities, during the period of one or more such
Registration Defaults, in an amount equal to $ 0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder until
(i) the applicable Registration Statement is filed, (ii) the Exchange Offer
Registration Statement is declared effective and the Registered Exchange
Offer is consummated, (iii) the Shelf Registration Statement is declared
effective or (iv) the Shelf Registration Statement again becomes effective,
as the case may be. Following the cure of all Registration Defaults, the
accrual of liquidated damages will cease. As used herein, the term "TRANSFER
RESTRICTED SECURITIES" means (i) each Security until the date on which such
Security has been exchanged for a freely transferable Exchange Security in
the Registered Exchange Offer, (ii) each Security or Private Exchange
Security until the date on which it has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) each Security or Private Exchange Security until the date
on which it is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities
Act. Notwithstanding anything to the contrary in this Section 3(a), the
Company shall not be required to pay liquidated damages to a Holder of
Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent
under the Indenture immediately upon the happening of each and every
Registration Default. The Company shall pay the liquidated damages due on the
Transfer Restricted Securities by depositing with the Paying Agent (which may
not be the Company for these purposes), in trust, for the benefit of the
Holders thereof, prior to 10:00 a.m., New York City time, on the next
interest payment date specified by the Indenture and the Securities, sums
sufficient to pay the liquidated damages then due. The liquidated damages
due shall be payable on each interest payment date specified by the Indenture
and the Securities to the record holder entitled to receive the interest
payment to be made on such date. Each obligation to pay liqui-
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dated damages shall be deemed to accrue from and including the date of the
applicable Registration Default.
(c) The parties hereto agree that the liquidated damages
provided for in this Section 3 constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by Holders of
Transfer Restricted Securities by reason of the failure of (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement to be
filed, (ii) the Shelf Registration Statement to remain effective or (iii) the
Exchange Offer Registration Statement to be declared effective and the
Registered Exchange Offer to be consummated, in each case to the extent
required by this Agreement.
4. REGISTRATION PROCEDURES. In connection with any
Registration Statement, the following provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and shall use its reasonable
best efforts to reflect in each such document, when so filed with the
Commission, such comments as any Initial Purchaser may reasonably
propose; (ii) include the information set forth in Annex A hereto on
the cover, in Annex B hereto in the "Exchange Offer Procedures" section
and the "Purpose of the Exchange Offer" section and in Annex C hereto
in the "Plan of Distribution" section of the prospectus forming a part
of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the Letter of Transmittal
delivered pursuant to the Registered Exchange Offer; and (iii) if
requested by any Initial Purchaser, include the information required by
Items 507 or 508 of Regulation S-K, as applicable, in the prospectus
forming a part of the Exchange Offer Registration Statement.
(b) The Issuers shall advise each Initial Purchaser, each
Exchanging Dealer who participates in the Exchange Offer and notifies
the Company in writing that it is an Exchanging Dealer (a "NOTIFYING
EXCHANGING DEALER") and the Holders (if applicable) and, if requested
by any such person, confirm such advice in writing (which advice
pursuant to clauses (ii)-(v) hereof shall be accompanied by an
instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when any Registration Statement and any
amendment thereto has been filed with the Commission and when
such Registration Statement or any post-effective amendment
thereto has become effective;
(ii) of any request by the Commission for
amendments or supplements to any Registration Statement or the
prospectus included therein or for additional information;
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(iii) of the issuance by the Commission of
any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that
purpose;
(iv) of the receipt by the Issuers of any
notification with respect to the suspension of the
qualification of the Securities, the Exchange Securities or the
Private Exchange Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
and
(v) of the happening of any event that requires
the making of any changes in any Registration Statement or the
prospectus included therein in order that the statements
therein are not misleading and do not omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(c) The Issuers will make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending
the effectiveness of any Registration Statement.
(d) The Issuers will furnish to each Holder of Transfer
Restricted Securities included within the coverage of any Shelf
Registration Statement, without charge, at least one conformed copy of
such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules and, if any such
Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
(e) The Issuers will, during the Shelf Registration Period,
promptly deliver to each Holder of Transfer Restricted Securities
included within the coverage of any Shelf Registration Statement,
without charge, as many copies of the prospectus (including each
preliminary prospectus) included in such Shelf Registration Statement
and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use of such prospectus or any
amendment or supplement thereto by each of the selling Holders of
Transfer Restricted Securities in connection with the offer and sale of
the Transfer Restricted Securities covered by such prospectus or any
amendment or supplement thereto.
(f) The Issuers will furnish to each Initial Purchaser and
each Exchanging Dealer, and to any other Holder who so requests,
without charge, at least one conformed copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules and, if any Initial
Purchaser or Exchanging Dealer or any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
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(g) The Issuers will, during the Exchange Offer Registration
Period or the Shelf Registration Period, as applicable, promptly
deliver to each Initial Purchaser, each Notifying Exchanging Dealer and
such other persons that are required to deliver a prospectus following
the Registered Exchange Offer and have so advised the Company in
writing, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement or the Shelf
Registration Statement and any amendment or supplement thereto as such
Initial Purchaser, Notifying Exchanging Dealer or other persons may
reasonably request; and the Issuers consent to the use of such
prospectus or any amendment or supplement thereto by any such Initial
Purchaser, Notifying Exchanging Dealer or other persons, as applicable,
as aforesaid.
(h) Prior to the effective date of any Registration
Statement, the Issuers will use their reasonable best efforts to
register or qualify, or cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities included therein in
connection with the registration or qualification of, such Securities,
Exchange Securities or Private Exchange Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any such
Holder reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such
jurisdictions of the Securities, Exchange Securities or Private
Exchange Securities covered by such Registration Statement; PROVIDED
that the Issuers will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process or
to taxation in any such jurisdiction where it is not then so subject.
(i) The Issuers will cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities to
facilitate the timely preparation and delivery of certificates
representing Securities, Exchange Securities or Private Exchange
Securities to be sold pursuant to any Registration Statement free of
any restrictive legends and in such denominations and registered in
such names as the Holders thereof may request in writing prior to sales
of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through
(v) occurs during the period for which the Issuers are required to
maintain an effective Registration Statement, the Issuers will promptly
prepare and file with the Commission a post-effective amendment to the
Registration Statement or a supplement to the related prospectus or
file any other required document so that, as thereafter delivered to
purchasers of the Securities, Exchange Securities or Private Exchange
Securities from a Holder, the prospectus will not include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable
Registration Statement, the Issuers will provide a CUSIP number for the
Securities, the Exchange Securities and the Private Exchange
Securities, as the case may be, and provide the ap-
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plicable trustee with printed certificates for the Securities, the
Exchange Securities or the Private Exchange Securities, as the case may
be, in a form eligible for deposit with The Depository Trust Company.
(l) The Issuers will comply with all applicable rules and
regulations of the Commission and will make generally available to its
security holders as soon as practicable after the effective date of the
applicable Registration Statement an earning statement satisfying the
provisions of Section 11(a) of the Securities Act; PROVIDED that in no
event shall such earning statement be mailed later than 45 days after
the end of a 12-month period (or 90 days, if such period is a fiscal
year) beginning with the first month of the Company's first fiscal
quarter commencing after the effective date of the applicable
Registration Statement, which statement shall cover such 12-month
period.
(m) The Issuers will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the
Trust Indenture Act as required by applicable law in a timely manner.
(n) The Issuers may require each Holder of Transfer
Restricted Securities to be registered pursuant to any Shelf
Registration Statement to furnish to the Company such information
concerning the Holder and the distribution of such Transfer Restricted
Securities as the Issuers may from time to time reasonably require for
inclusion in such Shelf Registration Statement, and the Issuers may
exclude from such registration the Transfer Restricted Securities of
any Holder that fails to furnish such information within a reasonable
time after receiving such request.
(o) In the case of a Shelf Registration Statement, each
Holder of Transfer Restricted Securities to be registered pursuant
thereto agrees by acquisition of such Transfer Restricted Securities
that, upon receipt of any notice from the Issuers pursuant to Section
4(b)(ii) through (v), such Holder will discontinue disposition of such
Transfer Restricted Securities until such Holder's receipt of copies of
the supplemental or amended prospectus contemplated by Section 4(j) or
until advised in writing (the "ADVICE") by the Company that the use of
the applicable prospectus may be resumed. If the Issuers shall give
any notice under Section 4(b)(ii) through (v) during the period that
the Issuers are required to maintain an effective Registration
Statement (the "EFFECTIVENESS PERIOD"), such Effectiveness Period shall
be extended by the number of days during such period from and including
the date of the giving of such notice to and including the date when
each seller of Transfer Restricted Securities covered by such
Registration Statement shall have received (x) the copies of the
supplemental or amended prospectus contemplated by Section 4(j) (if an
amended or supplemental prospectus is required) or (y) the Advice (if
no amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the
Issuers shall enter into such customary agreements (including, if
requested, not more than one under-
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writing agreement in customary form) and take all such other action, if
any, as Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being
sold or the managing underwriters (if any) shall reasonably request in
order to facilitate any disposition of Securities, Exchange Securities
or Private Exchange Securities pursuant to such Shelf Registration
Statement.
(q) In the case of a Shelf Registration Statement, the
Issuers shall (i) make reasonably available for inspection by a
representative of, and Special Counsel (as defined below) acting for,
Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold and any
underwriter participating in any disposition of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf
Registration Statement, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries and (ii) use its commercially reasonable efforts to have
its officers, directors, employees, accountants and counsel supply all
relevant information reasonably requested by such representative,
Special Counsel (as defined below) or any such underwriter (an
"INSPECTOR") in connection with such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the
Issuers shall, if requested by Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) in connection with such Shelf Registration
Statement, use its reasonable best efforts to cause (i) its counsel to
deliver an opinion relating to the Shelf Registration Statement and the
Securities, Exchange Securities or Private Exchange Securities, as
applicable, in customary form, (ii) its officers to execute and deliver
all customary documents and certificates requested by Holders of a
majority in aggregate principal amount of the Securities, Exchange
Securities and Private Exchange Securities being sold, their Special
Counsel or the managing underwriters (if any) and (iii) its independent
public accountants to provide a comfort letter or letters in customary
form, subject to receipt of appropriate documentation as contemplated,
and only if permitted, by Statement of Auditing Standards No. 72.
5. REGISTRATION EXPENSES. The Issuers will bear all expenses
incurred in connection with the performance of its obligations under Sections
1, 2, 3 and 4 and the Issuers will reimburse the Initial Purchasers and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities to be sold pursuant to each Registration Statement (the
"SPECIAL COUNSEL") acting for the Initial Purchasers or Holders in connection
therewith.
6. INDEMNIFICATION.
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<PAGE>
(a) In the event of a Shelf Registration Statement or in
connection with any prospectus delivery pursuant to an Exchange Offer
Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, each of the Issuers, jointly and severally, shall indemnify and
hold harmless each Holder (including, without limitation, any such Initial
Purchaser or Exchanging Dealer), its affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any,
who controls such Holder within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 6 and
Section 7 as a Holder) from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, without
limitation, any loss, claim, damage, liability or action relating to
purchases and sales of Securities, Exchange Securities or Private Exchange
Securities), to which that Holder may become subject, whether commenced or
threatened, under the Securities Act, the Exchange Act, any other federal or
state statutory law or regulation, at common law or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a material fact
contained in any such Registration Statement or any prospectus forming part
thereof or in any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and shall
reimburse each Holder promptly upon demand for any legal or other expenses
reasonably incurred by that Holder in connection with investigating or
defending or preparing to defend against or appearing as a third party
witness in connection with any such loss, claim, damage, liability or action
as such expenses are incurred; PROVIDED, HOWEVER, that the Issuers shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with any Holders' Information;
and PROVIDED, FURTHER, that with respect to any such untrue statement in or
omission from any related preliminary prospectus, the indemnity agreement
contained in this Section 6(a) shall not inure to the benefit of any Holder
from whom the person asserting any such loss, claim, damage, liability or
action received Securities, Exchange Securities or Private Exchange
Securities to the extent that such loss, claim, damage, liability or action
of or with respect to such Holder results from the fact that both (A) a copy
of the final prospectus was not sent or given to such person at or prior to
the written confirmation of the sale of such Securities, Exchange Securities
or Private Exchange Securities to such person and (B) the untrue statement in
or omission from the related preliminary prospectus was corrected in the
final prospectus unless, in either case, such failure to deliver the final
prospectus was a result of non-compliance by the Company with Section 4(d),
4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each Holder
shall indemnify and hold harmless the Issuers, their affiliates, their
respective officers, directors, employees, representatives and agents, and
each person, if any, who controls any Issuer within the meaning of the
Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 6(b) and Section 7 as the Issuers), from and against any loss,
claim, damage or liability, joint or several, or any action in respect
thereof, to which the Issuers
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<PAGE>
may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with any Holders'
Information furnished to the Issuers by such Holder, and shall reimburse the
Issuers for any legal or other expenses reasonably incurred by the Issuers in
connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER,
that no such Holder shall be liable for any indemnity claims hereunder in
excess of the amount of net proceeds received by such Holder from the sale of
Securities, Exchange Securities or Private Exchange Securities pursuant to
such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that
action; PROVIDED, HOWEVER, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have under this Section
6 except to the extent that it has been materially prejudiced (through the
forfeiture of substantive rights or defenses) by such failure; and PROVIDED,
FURTHER, that the failure to notify the indemnifying party shall not relieve
it from any liability which it may have to an indemnified party otherwise
than under this Section 6. If any such claim or action shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and,
to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; PROVIDED, HOWEVER,
that an indemnified party shall have the right to employ its own counsel in
any such action, but the fees, expenses and other charges of such counsel for
the indemnified party will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there
may be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party,
(3) a conflict or potential conflict exists (based upon advice of counsel to
the indemnified party) between the indemnified party and the indemnifying
party (in which
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<PAGE>
case the indemnifying party will not have the right to direct the defense of
such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases
the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm of
attorneys (in addition to any local counsel) at any one time for all such
indemnified party or parties. Each indemnified party, as a condition of the
indemnity agreements contained in Sections 6(a) and 6(b), shall use all
reasonable efforts to cooperate with the indemnifying party in the defense of
any such action or claim. No indemnifying party shall be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of
the indemnified party (which consent shall not be unreasonably withheld),
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
7. CONTRIBUTION. If the indemnification provided for in Section
6 is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or
liability, or action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the Issuers from the
offering and sale of the Securities, on the one hand, and a Holder with
respect to the sale by such Holder of Securities, Exchange Securities or
Private Exchange Securities, on the other, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Issuers on the one hand
and such Holder on the other with respect to the statements or omissions that
resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuers on the one hand and a Holder on the
other with respect to such offering and such sale shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) received by or on behalf of the
Company as set forth in the table on the cover of the Offering Memorandum, on
the one hand, bear to the total proceeds received by such Holder with respect
to its sale of Securities, Exchange Securities or Private Exchange
Securities, on the other. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material
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<PAGE>
fact relates to the Issuers or information supplied by the Issuers on the one
hand or to any Holders' Information supplied by such Holder on the other, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this Section 7 were to be determined by PRO RATA allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be
deemed to include, for purposes of this Section 7, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 7, an indemnifying party that
is a Holder of Securities, Exchange Securities or Private Exchange Securities
shall not be required to contribute any amount in excess of the amount by
which the total price at which the Securities, Exchange Securities or Private
Exchange Securities sold by such indemnifying party to any purchaser exceeds
the amount of any damages which such indemnifying party has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. RULES 144 AND 144A. The Issuers shall use their reasonable
best efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act in a timely manner and, if at any time
the Issuers are not required to file such reports, it will, upon the written
request of any Holder of Transfer Restricted Securities, make publicly
available other information so long as necessary to permit sales of such
Holder's securities pursuant to Rules 144 and 144A. Each of the Issuers
covenants that it will take such further action as any Holder of Transfer
Restricted Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Transfer Restricted Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rules 144 and 144A (including, without limitation, the
requirements of Rule 144A(d)(4)). Upon the written request of any Holder of
Transfer Restricted Securities, the Issuers shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require any of the Issuers to register any of its securities pursuant to the
Exchange Act.
9. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer
Restricted Securities included in such offering, subject to the consent of
the Company (which shall not be unreasonably withheld or delayed), and such
Holders shall be responsible for all underwriting commissions and discounts
in connection therewith.
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<PAGE>
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and
(ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
10. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company
has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing,
a waiver or consent to depart from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders whose Securities,
Exchange Securities or Private Exchange Securities are being sold pursuant to
a Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:
(i) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this Section
10(b), which address initially is, with respect to each Holder, the address
of such Holder maintained by the Registrar under the Indenture, with a copy
in like manner to Chase Securities Inc., Bear, Stearns & Co. Inc. and
NationsBanc Montgomery Securities, Inc.;
(ii) if to an Initial Purchaser, initially at its address set
forth in the Purchase Agreement; and
(iii) if to the Issuers, initially at the address of the
Company set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the
recipient's telecopier machine, if sent by telecopier.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns.
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<PAGE>
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) and
by the parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
(e) DEFINITION OF TERMS. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc.
is open for trading, (b) the term "subsidiary" has the meaning set forth in
Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under
the Securities Act.
(f) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(h) REMEDIES. In the event of a breach by the Issuers or by any
Holder of any of their obligations under this Agreement, each Holder or the
Issuers, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery
of damages for a breach by the Issuers of their obligations under Sections 1
or 2 hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Issuers and each Holder agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(i) NO INCONSISTENT AGREEMENTS. Each of the Issuers represents,
warrants and agrees that (i) it has not entered into, shall not, on or after
the date of this Agreement, enter into any agreement that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof, (ii) it has not previously entered into
any agreement which remains in effect granting any registration rights with
respect to any of its debt securities to any person and (iii) without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Transfer Restricted Securities, it shall not grant to any person the right to
request the Issuers to register any debt securities of any of the Issuers
under the Securities Act unless the rights so granted are not in conflict or
inconsistent with the provisions of this Agreement.
(j) NO PIGGYBACK ON REGISTRATIONS. Neither the Issuers nor any of
their security holders (other than the Holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities
of any of the Issuers in any Shelf Registration or Registered Exchange Offer
other than Transfer Restricted Securities.
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<PAGE>
(k) SEVERABILITY. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their reasonable best efforts
to find and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
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<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Issuers and the Initial Purchasers.
Very truly yours,
METRIS COMPANIES INC.
By /s/ Ronald N. Zebeck
----------------------------------------------
Name: Ronald N. Zebeck
Title: President and Chief Executive Officer
METRIS DIRECT, INC.
By /s/ Robert W. Oberrender
----------------------------------------------
Name: Robert W. Oberrender
Title: Senior Vice President and Chief
Financial Officer
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<PAGE>
Accepted:
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES, INC.
By: Chase Securities Inc.
By /s/ James C. Neary
-----------------------
Authorized Signatory
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<PAGE>
1 ANNEX A
2 Each broker-dealer that receives Exchange Securities for its own
3 account pursuant to the Registered Exchange Offer must acknowledge that
4 it will deliver a prospectus in connection with any resale of such
5 Exchange Securities. The Letter of Transmittal states that by so
6 acknowledging and by delivering a prospectus, a broker-dealer will not
7 be deemed to admit that it is an "underwriter" within the meaning of the
8 Securities Act. This Prospectus, as it may be amended or supplemented
9 from time to time, may be used by a broker-dealer in connection with
10 resales of Exchange Securities received in exchange for Securities where
11 such Securities were acquired by such broker-dealer as a result of
12 market-making activities or other trading activities. The Company has
13 agreed that, for a period of 90 days after the Expiration Date (as
14 defined herein), it will make this Prospectus available to any
15 broker-dealer for use in connection with any such resale. See "Plan of
16 Distribution"
<PAGE>
17 ANNEX B
18 Each broker-dealer that receives Exchange Securities for its own
19 account in exchange for Securities, where such Securities were acquired
20 by such broker-dealer as a result of market-making activities or other
21 trading activities, must acknowledge that it will deliver a prospectus
22 in connection with any resale of such Exchange Securities. See "Plan of
23 Distribution.
<PAGE>
24 ANNEX C
25 PLAN OF DISTRIBUTION
26 Each broker-dealer that receives Exchange Securities for its own
27 account pursuant to the Registered Exchange Offer must acknowledge that
28 it will deliver a prospectus in connection with any resale of such
29 Exchange Securities. This Prospectus, as it may be amended or
30 supplemented from time to time, may be used by a broker-dealer in
31 connection with resales of Exchange Securities received in exchange for
32 Securities where such Securities were acquired as a result of
33 market-making activities or other trading activities. The Company has
34 agreed that, for a period of 90 days after the Expiration Date, it will
35 make this prospectus, as amended or supplemented, available to any
36 broker-dealer for use in connection with any such resale. In addition,
37 until _______________, 199_, all dealers effecting transactions in the
38 Exchange Securities may be required to deliver a prospectus.
39 The Company will not receive any proceeds from any sale of Exchange
40 Securities by broker-dealers. Exchange Securities received by
41 broker-dealers for their own account pursuant to the Registered Exchange
42 Offer may be sold from time to time in one or more transactions in the
43 over-the-counter market, in negotiated transactions, through the writing
44 of options on the Exchange Securities or a combination of such methods
45 of resale, at market prices prevailing at the time of resale, at prices
46 related to such prevailing market prices or at negotiated prices. Any
47 such resale may be made directly to purchasers or to or through brokers
48 or dealers who may receive compensation in the form of commissions or
49 concessions from any such broker-dealer or the purchasers of any such
50 Exchange Securities. Any broker-dealer that resells Exchange Securities
51 that were received by it for its own account pursuant to the Registered
52 Exchange Offer and any broker or dealer that participates in a
53 distribution of such Exchange Securities may be deemed to be an
54 "underwriter" within the meaning of the Securities Act and any profit on
55 any such resale of Exchange Securities and any commission or concessions
56 received by any such persons may be deemed to be underwriting
57 compensation under the Securities Act. The Letter of Transmittal states
58 that, by acknowledging that it will deliver and by delivering a
59 prospectus, a broker-dealer will not be deemed to admit that it is an
60 "underwriter" within the meaning of the Securities Act.
61 For a period of 90 days after the Expiration Date the Company will
62 send additional copies of this Prospectus and any amendment or
63 supplement to this Prospectus to any broker-dealer that requests such
64 documents in the Letter of Transmittal. The Company has agreed to pay
65 all expenses incident to the Registered Exchange Offer (including the
66 expenses of one counsel for the Holders of the Securities) other than
67 commissions or concessions of any
<PAGE>
68 broker-dealers and will indemnify the Holders of the Securities
69 (including any broker-dealers) against certain liabilities, including
70 liabilities under the Securities Act.
<PAGE>
71 ANNEX D
72 o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
73 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
74 AMENDMENTS OR SUPPLEMENTS THERETO.
75 Name:
76 Address:
77 If the undersigned is not a broker-dealer, the undersigned represents
78 that it is not engaged in, and does not intend to engage in, a
79 distribution of Exchange Securities. If the undersigned is a
80 broker-dealer that will receive Exchange Securities for its own account
81 in exchange for Securities that were acquired as a result of
82 market-making activities or other trading activities, it acknowledges
83 that it will deliver a prospectus in connection with any resale of such
84 Exchange Securities; however, by so acknowledging and by delivering a
85 prospectus, the undersigned will not be deemed to admit that it is an
86 "underwriter" within the meaning of the Securities Act.
<PAGE>
EXHIBIT 5
[Dorsey & Whitney LLP letterhead]
The Board of Directors
Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to Metris Companies Inc., a Delaware
corporation (the "Company"), in connection with a Registration Statement on
Form S-4 (the "Registration Statement") relating to (i) the proposed issuance
by the Company of $100,000,000 aggregate principal amount of the Company's
10% Senior Notes Due 2004 (the "New Notes") registered under the Securities
Act of 1933, as amended (the "Securities Act"), in exchange for up to
$100,000,000 aggregate principal amount of the Company's outstanding 10%
Senior Notes Due 2004 (the "Old Notes") and (ii) the guarantee (the "New
Guarantee") of Metris Direct, Inc., a subsidiary of the Company (the
"Guarantor"), which guarantees, on a senior basis, the Company's payment
obligations under the New Notes, registered under the Securities Act, in
exchange for the guarantee (the "Old Guarantee") which guarantees, on a
senior basis, the Company's payment obligations under the Old Notes. The New
Notes are issuable under an Indenture dated as of November 7, 1997 (the
"Indenture") between the Company, the Guarantor and The First National Bank
of Chicago, as Trustee (the "Trustee").
We have examined such documents, including resolutions adopted by
the Board of Directors of the Company on October 27, 1997, and resolutions,
adopted by written consent by the Board of Directors of the Guarantor, dated
October 28, 1997 (collectively, the "Resolutions"), and have reviewed such
questions of law as we have considered necessary and appropriate for the
purposes of our opinion set forth below. In rendering our opinion, we have
assumed the authenticity of all documents submitted to us as originals, the
genuineness of all signatures and the conformity to authentic originals of
all documents submitted to us as copies. We have also assumed the legal
capacity for all purposes relevant hereto of all natural persons and, with
respect to all parties to agreements or instruments relevant hereto other
than the Company, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to
our opinion, we have relied upon certificates of officers of the Company and
of public officials. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Indenture incorporated
by reference as Exhibits 4.1 to the Registration Statement.
Based on the foregoing, we are of the opinion that:
(1) The New Notes have been duly authorized by all requisite
corporate action and, when executed and authenticated as specified in the
Indenture and delivered against surrender and cancellation of a like
principal amount of Old Notes in the manner described in the Registration
Statement, the New Notes will constitute valid and binding obligations of the
Company, enforceable in accordance with their terms.
<PAGE>
The Board of Directors
Metis Companies Inc.
Page 2
(2) The New Guarantee has been duly authorized by all requisite
corporate action and, when executed as specified in the Indenture and
delivered against surrender and cancellation of the Old Guarantee in the
manner described in the Registration Statement, the New Guarantee will
constitute the valid and binding obligation of the Guarantor, enforceable in
accordance with its terms.
The opinions set forth above are subject to the following
qualifications and exceptions:
(a) Our opinions in paragraphs (1) and (2) above are subject to the
effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or other similar law of general application affecting creditors' rights.
(b) Our opinions in paragraphs (1) and (2) above are subject to the
effect of general principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair dealing, and
other similar doctrines affecting the enforceability of agreements
generally (regardless of whether considered in a proceeding in equity or at
law).
(c) In rendering the opinions set forth above, we have assumed that,
at the time of the authentication and delivery of a series of New Notes and
the delivery of the New Guarantee, the Resolutions referred to above will
not have been modified or rescinded, there will not have occurred any
change in the law affecting the authorization, execution, delivery,
validity or enforceability of the New Notes and the New Guarantee, the
Registration Statement will have been declared effective by the Commission
and will continue to be effective, none of the particular terms of a series
of New Notes and the New Guarantee will violate any applicable law and
neither the issuance and sale thereof nor the compliance by the Company or
the Guarantor with the terms thereof will result in a violation of any
agreement or instrument then binding upon the Company or the Guarantor or
any order of any court or governmental body having jurisdiction over the
Company or the Guarantor.
(d) Minnesota Statutes Section 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does
not have a cause of action upon which it may bring suit under Minnesota law
unless the corporation has filed a Notice of Business Activities Report and
provides that the use of the courts of the State of Minnesota for all
contracts executed and all causes of action that arose before the end of
any period for which a corporation failed to file a required report is
precluded. Insofar as our opinion may relate to the valid, binding and
enforceable character of any agreement under Minnesota law or in a
Minnesota court, we have assumed that any party seeking to enforce such
agreement has at all times been, and will continue at all times to be,
exempt from the requirement of filing a Notice of Business Activities
Report or, if not exempt, has duly filed, and will continue to duly file,
all Notice of Business Activities Reports.
Our opinion expressed above is limited to the laws of the States of
Minnesota and New York and the federal laws of the United States of America.
<PAGE>
We hereby consent to your filing of this opinion as an exhibit to
the Registration Statement, and to the reference to our firm under the
caption "Validity of New Notes" contained in the Prospectus included therein.
Dated: January 6, 1998
Very truly yours,
/s/ Dorsey & Whitney LLP
ECH
<PAGE>
EXHIBIT 12
METRIS COMPANIES INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------- -----------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before income taxes $45,519 $23,896 $32,546 $7,449 $3,503 $1,999 $3,121
Add:
Fixed Charges:
Interest on indebtedness, and
amortization of debt expense 5,930 2,823 280 1,217 - - -
Interest factor of rental expense 986 368 378 50 26 - -
------- ------- ------- ------ ------ ------ ------
Total fixed charges 6,917 3,191 658 1,267 26 - -
------- ------- ------- ------ ------ ------ ------
Total available earnings $52,436 $27,087 $33,204 $8,716 $3,529 $1,999 $3,121
------- ------ ------- ------ ------ ------ ------
------- ------ ------- ------ ------ ------ ------
Ratio of earnings to fixed charges 7.58 8.49 50.47 6.88 134.16 NA NA
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Metris Companies Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
January 6, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Ronald N. Zebeck, his
true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 of Metris Companies
Inc., and any and all amendments thereto, including post-effective
amendments, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or the substitutes for such attorney-in-fact and agent, may
lawfully do or cause to be done by virtue hereof.
SIGNATURE DATE
--------- ----
By /s/ Theodore Deikel Dated: December 31, 1997
----------------------------------------
Theodore Deikel
Chairman of the Board of Directors
By /s/ Dudley C. Mecum Dated: December 31, 1997
---------------------------------------
Dudley C. Mecum
Director
By /s/ Michael P. Sherman Dated: December 31, 1997
---------------------------------------
Michael P. Sherman
Director
By /s/ Frank D. Tresman Dated: December 31, 1997
---------------------------------------
Frank D. Trestman
Director
By /s/ Derek V. Smith Dated: December 31, 1997
---------------------------------------
Derek V. Smith
Director
By /s/ Lee R. Anderson Dated: December 31, 1997
---------------------------------------
Lee R. Anderson
Director
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby constitutes and appoints Ronald N. Zebeck his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 of Metris Direct,
Inc., and any and all amendments thereto, including post-effective
amendments, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or the substitutes for such attorney-in-fact and agent, may
lawfully do or cause to be done by virtue hereof.
Signature Date
--------- ----
By /s/ Michael P. Sherman Dated: December 31, 1997
--------------------------------
Michael P. Sherman
Director
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
THE FIRST NATIONAL BANK OF CHICAGO
(Exact name of trustee as specified in its charter)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. employer
identification number)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(Address of principal executive offices) (Zip Code)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(Name, address and telephone number of agent for service)
------------------------------
METRIS COMPANIES INC. METRIS DIRECT, INC.
(Exact name of obligor as (Exact name of obligor as
specified in its charter) specified in its charter)
DELAWARE MINNESOTA
(State or other jurisdiction of (state or other jurisdiction
incorporation or organization) or incorporation organization)
6159 6159
(Primary Standard Industrial (Primary Standard
Classifaction Code Number) Industrial Classification Code Number)
41-1849591 41-1111974
(I.R.S. employer (I.R.S. employer
identification number) indentification number)
600 South Highway 169 600 South Highway 169
Suite 1800 Suite 1800
St. Louis Park, Minnesota 55246 St. Louis Park, Minnesota 55246
(612) 525-5020 (612) 525-5020
(Address including zip code, (Address including zip code,
and telephone number, including and telephone number, including
area code of registrant's area code of registrant's
principal executive offices) principal executive offices)
10% Senior Notes Due 2004 and
Guarantee relating to Senior Notes
(Title of Indenture Securities)
<PAGE>
ITEM 1. GENERAL INFORMATION. Furnish the following
information as to the trustee:
(a) Name and address of each examining or
supervising authority to which it is subject.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(b) Whether it is authorized to exercise
corporate trust powers.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor
is an affiliate of the trustee, describe each
such affiliation.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. List below all exhibits filed as a
part of this Statement of Eligibility.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a
national banking association organized and existing under the laws
of the United States of America, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Chicago and State of
Illinois, on the 10th day of December, 1997.
The First National Bank of Chicago,
Trustee
By /s/ Richard D. Manella
Richard D. Manella
Vice President and Senior Counsel
* Exhibits 1, 2, 3 and 4 are herein incorporated by reference to Exhibits
bearing identical numbers in item 16 of the Form T-1 of the First National
Bank of Chicago, filed as Exhibit 25.1 to the Registration Statement on Form
S-3 of SunAmerica Inc. filed with the Securities and Exchange Commission on
October 25, 1996 (Registration No. 333-14201).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
December 15, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an Indenture between Metris
Companies Inc., as Issuer, Metris Direct, Inc., as Guarantor, and The First
National Bank of Chicago, the undersigned, in accordance with Section 321(b)
of the Trust Indenture Act of 1939, as amended, hereby consents that the
reports of examinations of the undersigned, made by Federal or State
authorities authorized to make such examinations, may be furnished by such
authorities to the Securities and Exchange Commission upon its request
therefor.
Very truly yours,
The First National Bank of Chicago
By: /s/ Richard D. Manella
Richard D. Manella
Vice President and Senior Counsel
4
<PAGE>
EXHIBIT 7
<TABLE>
<CAPTION>
<S> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/97 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0303 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR SEPTEMBER 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
Dollar Amounts in C400
------------
Thousands RCFD BIL MIL THOU
----------------- ---- ------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and currency and coin(1) . . . . . . 0081 4,499,157 1.a.
b. Interest-bearing balances(2). . . . . . . . . . . . . . . . . . . 0071 6,967,103 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A) . . . . 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, colum D). . . 1773 5,251,713 2.b.
3. Federal funds sold and securities purchased under agreements to
resell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1350 5,561,976 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule
RC-C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RCFD 2122 24,171,565 4.a.
b. LESS: Allowance for loan and lease losses . . . . . . . . . . . . RCFD 3123 419,216 4.b.
c. LESS: Allocated transfer risk reserve . . . . . . . . . . . . . . RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) . . . . . . . . . . . . . . . . 2125 23,752,349 4.d.
5. Trading assets (from Schedule RD-D). . . . . . . . . . . . . . . . . 3545 6,238,805 5.
6. Premises and fixed assets (including capitalized leases) . . . . . . 2145 717,303 6.
7. Other real estate owned (from Schedule RC-M) . . . . . . . . . . . . 2150 7,187 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) . . . . . . . . . . . . . . . . . . . 2130 77,115 8.
9. Customers' liability to this bank on acceptances outstanding . . . . 2155 614,921 9.
10. Intangible assets (from Schedule RC-M) . . . . . . . . . . . . . . . 2143 277,105 10.
11. Other assets (from Schedule RC-F). . . . . . . . . . . . . . . . . . 2160 2,147,141 11.
12. Total assets (sum of items 1 through 11) . . . . . . . . . . . . . . 2170 56,108,875 12.
</TABLE>
- ------------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/97 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0303 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED
Dollar Amounts in
Thousands Bil Mil Thou
------------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, part 1). . . . . . . . . . . . . . . . . . . . . RCON 2200 21,496,468 13.a
(1) Noninterest-bearing(1). . . . . . . . . . . . . . . . . . . . . RCON 6631 8,918,843 13.a.1
(2) Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . RCON 6636 12,577,625 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II) . . . . . . . . . . . . . . . . . RCFN 2200 14,164,129 13.b.
(1) Noninterest bearing . . . . . . . . . . . . . . . . . . . . . . RCFN 6631 352,399 13.b.1
(2) Interest-bearing. . . . . . . . . . . . . . . . . . . . . . . . RCFN 6636 13,811,730 13.b.2
14. Federal funds purchased and securities sold under agreements
to repurchase: . . . . . . . . . . . . . . . . . . . . . . . . . . . RCFD 2800 3,894,469 14
15. a. Demand notes issued to the U.S. Treasury. . . . . . . . . . . . . RCON 2840 68,268 15.a
b. Trading Liabilities(from Schedule RC-D) . . . . . . . . . . . . . RCFD 3548 5,247,232 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less. . . . . . . . . . RCFD 2332 2,608,057 16.a
b. With a remaining maturity of than one year through three years . A547 379,893 16.b
. c. With a remaining maturity of more than three years . . . . . . . A548 323,042 16.c
17. Not applicable
18. Bank's liability on acceptance executed and outstanding. . . . . . . RCFD 2920 614,921 18
19. Subordinated notes and debentures (2). . . . . . . . . . . . . . . . RCFD 3200 1,700,000 19
20. Other liabilities (from Schedule RC-G) . . . . . . . . . . . . . . . RCFD 2930 1,222,121 20
21. Total liabilities (sum of items 13 through 20) . . . . . . . . . . . RCFD 2948 51,718,600 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus. . . . . . . . . . . . RCFD 3838 0 23
24. Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . RCFD 3230 200,858 24
25. Surplus (exclude all surplus related to preferred stock) . . . . . . RCFD 3839 2,989,408 25
26. a. Undivided profits and capital reserves. . . . . . . . . . . . . . RCFD 3632 1,175,518 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RCFD 8434 26,750 26.b.
27. Cumulative foreign currency translation adjustments. . . . . . . . . RCFD 3284 (2,259) 27
28. Total equity capital (sum of items 23 through 27). . . . . . . . . . RCFD 3210 4,390,275 28
29. Total liabilities and equity capital (sum of items 21 and 28). . . . RCFD 3300 56,108,875 29
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1996. . . . . . . . . . . . . . . . RCFD 6724 N/A M.1
------
1 = Independent audit of the bank conducted in accordance 4. = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
- ------------------
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited-life preferred stock and related surplus.
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
METRIS COMPANIES INC.
OFFER TO EXCHANGE ITS
10% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
10% SENIOR NOTES DUE 2004
PURSUANT TO THE PROSPECTUS
DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE FIRST NATIONAL BANK OF CHICAGO
<TABLE>
<CAPTION>
BY MAIL: FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY:
<S> <C> <C>
(Registered or Certified Mail (Eligible Institutions Only) The First National Bank of Chicago
Recommended) (212) 240-8938 c/o First Chicago Trust Company
The First National Bank of Chicago of New York
c/o First Chicago Trust 14 Wall Street
Company of New York 8th Floor, Window 2
14 Wall Street New York, New York 10005
8th Floor, Window 2
New York, New York 10005
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION CALL:
(212) 240-8801
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained by The
First National Bank of Chicago (the "Exchange Agent") at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their Certificates and
all other required documents to the Exchange Agent on or prior to the Expiration
Date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer--Procedures
for Tendering Old Notes" in the Prospectus.
<PAGE>
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
----------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
OLD NOTES OF OLD NOTES
TENDERED TENDERED
(ATTACH (IF PRINCIPAL
PLEASE PRINT NAME AND ADDRESS OF ADDITIONAL AMOUNT OF OLD
REGISTERED HOLDER CERTIFICATE LIST NOTES LESS
(PLEASE FILL IN IF BLANK) NUMBER(S)* IF NECESSARY) THAN ALL)**
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
TOTAL AMOUNT TENDERED:
<CAPTION>
- ------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof, provided that if any Old Notes are
tendered for exchange in part, the untendered principal amount thereof
must be $1,000 or any integral multiple of $1,000 in excess thereof. All
Old Notes held shall be deemed tendered unless a lesser number is
specified in this column.
- --------------------------------------------------------------------------------
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution ______________________________________________
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holders(s) ______________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
<PAGE>
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ______________________________________________
DTC Account Number _________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it acknowledges that it will
deliver a prospectus in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Metris Companies Inc., a Delaware
corporation (the "Company"), the above described aggregate principal amount of
the Company's 10% Senior Notes Due 2004 (the "Old Notes") in exchange for a like
aggregate principal amount of the Company's 10% Senior Notes Due 2004 (the "New
Notes") which have been registered under the Securities Act of 1933 (the
"Securities Act"), upon the terms and subject to the conditions set forth in the
Prospectus dated , 1998 (as the same may be amended or supplemented
from time to time, the "Prospectus"), receipt of which is acknowledged, and in
this Letter of Transmittal (which, together with the Prospectus, constitute the
"Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD NOTES
TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY
WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF
ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD NOTES
TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one of
the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions hereto will, upon the Company's
acceptance for exchange of such tendered Old Notes, constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
<PAGE>
the conditions of the Exchange Offer. The undersigned recognizes that, under
certain circumstances set forth in the Prospectus, the Company may not be
required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Old Notes, that such New Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute Certificates representing Old Notes
not exchanged or not accepted for exchange will be issued to the undersigned or,
in the case of a book-entry transfer of Old Notes, will be credited to the
account indicated above maintained at DTC. Similarly, unless otherwise indicated
under "Special Delivery Instructions," please deliver New Notes to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING, THE UNDERSIGNED HEREBY REPRESENTS TO THE COMPANY THAT, AMONG
OTHER THINGS, THE NEW NOTES ACQUIRED PURSUANT TO THE EXCHANGE OFFER WILL HAVE
BEEN OBTAINED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH
NEW NOTES, WHETHER OR NOT SUCH PERSON IS THE HOLDER, AND THAT NEITHER THE HOLDER
NOR SUCH OTHER PERSON HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN THE DISTRIBUTION OF THE NEW NOTES. IF ANY HOLDER OR ANY SUCH
OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT,
OF THE COMPANY OR IS ENGAGED IN OR INTENDS TO ENGAGE IN, OR HAS AN ARRANGEMENT
OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN, A DISTRIBUTION OF SUCH NEW
NOTES TO BE ACQUIRED PURSUANT TO THE EXCHANGE OFFER, SUCH HOLDER OR ANY SUCH
OTHER PERSON (I) MAY NOT RELY ON THE APPLICABLE INTERPRETATION OF THE STAFF OF
THE COMMISSION AND (II) MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE
TRANSACTION. IF THE UNDERSIGNED IS A BROKER-DEALER THAT WILL RECEIVE NEW NOTES
FOR ITS OWN ACCOUNT IN EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES WERE
ACQUIRED BY SUCH BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES, IT ACKNOWLEDGES THAT IT WILL DELIVER A PROSPECTUS IN
CONNECTION WITH ANY RESALE OF SUCH NEW NOTES; HOWEVER, BY SO ACKNOWLEDGING AND
BY DELIVERING A PROSPECTUS, THE UNDERSIGNED WILL NOT BE DEEMED TO ADMIT THAT IT
IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT. THE COMPANY HAS
AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE
PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED
BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE
FOR OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES,
FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION
UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER,
WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH BROKER-DEALER.
EACH PARTICIPATING BROKER-DEALER BY TENDERING SUCH OLD NOTES AND EXECUTING
THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY
OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY
MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE
<PAGE>
SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR
SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS
FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING
BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY
BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE
SALE OF THE NEW NOTES, IT SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE
DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD
FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE
DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES
OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE
OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and the undersigned waives the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after May 1,
1998.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
<PAGE>
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 14)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s)
by endorsements and documents transmitted herewith (including such opinions
of counsel, certifications and other information as may be required by the
Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
____________________________________________________________________________
____________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date: ___________________, 1996
Name(s) ____________________________________________________________________
____________________________________________________________________
(PLEASE PRINT)
Capacity (full title) ______________________________________________________
Address ____________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
____________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBERS(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
____________________________________________________________________________
(AUTHORIZED SIGNATURE)
Date: ___________________, 1996
Name of Firm _______________________________________________________________
Capacity (full title) ______________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes are to be issued in the name of
someone other than the registered holder of the Old Notes whose name(s)
appear(s) above.
Issue New Notes to:
/ / Old Notes not tendered
/ / Exchange Notes, to:
Name(s) ____________________________________________________________________
Address ____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number _________________________________________________________
____________________________________________________________________________
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBERS(S))
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes are to be sent to someone other than
the registered holder of the Old Notes whose name(s) appear(s) above, or
such registered holder(s) at an address other than that shown above.
Mail New Notes to:
/ / Old Notes not tendered
/ / Exchange Notes, to:
Name(s) ____________________________________________________________________
Address ____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number _________________________________________________________
____________________________________________________________________________
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBERS(S))
- ------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal, must
be received by the Exchange Agent at its address set forth herein on or prior to
the Expiration Date. Old Notes may be tendered in whole or in part in the
principal amount of $1,000 and integral multiples of $1,000, provided that, if
any Old Notes are tendered for exchange in part, the untendered principal amount
thereof must be $1,000 or any integral multiple of $1,000 in excess thereof.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus. Pursuant to such procedures: (i) such
tender must be made by or through an Eligible Institution (as defined below);
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, must be received by the
Exchange Agent on or prior to the Expiration Date; and (iii) the Certificates
(or a book-entry confirmation (as defined in the Prospectus)) representing all
tendered Old Notes, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent within five New
York Stock Exchange, Inc. trading days after the date of execution of such
Notice of Guaranteed Delivery, all as provided in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
<PAGE>
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in
DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof,
provided that if any Old Notes are tendered for exchange in part, the untendered
principal amount thereof must be $1,000 or any integral multiple of $1,000 in
excess thereof. If less than all the Old Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Old Notes which
are to be tendered in the box entitled "Principal Amount of Old Notes Tendered
(if less than all)." In such case, new Certificate(s) for the remainder of the
Old Notes that were evidenced by your old Certificate(s) will only be sent to
the holder of the Old Note, promptly after the Expiration Date. All Old Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if Certificates for Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Certificate for the Old Notes, if different from that of the
person who tendered such Old Notes. If Certificates for the Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Notes, the tendering holder
must submit the serial numbers shown on the particular Certificates for the Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Old Notes," the notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be effective
if delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after withdrawal.
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer--Certain Conditions
to the Exchange Offer" or any conditions or irregularity in any tender of Old
Notes of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding. No
tender of Old Notes will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. Neither
the Company, any affiliates or assigns of the Company, the Exchange Agent, nor
any other person shall be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
<PAGE>
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the registered holder of the Old Notes
tendered, or if a transfer tax is imposed for any reason other than the exchange
of Old Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: FIRST BANK NATIONAL ASSOCIATION
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN ON THE TIN
FORM W-9 LINE AT RIGHT AND CERTIFY BY SIGNING SOCIAL SECURITY NUMBER OR
DEPARTMENT OF THE TREASURY AND DATING BELOW EMPLOYER IDENTIFICATION NUMBER
INTERNAL REVENUE SERVICE
--------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER NAME (PLEASE PRINT) PART 2
IDENTIFICATION NUMBER (TIN) ADDRESS Awaiting
AND CERTIFICATION CITY STATE ZIP CODE TIN / /
--------------------------------------------------------------------------
PART 3--CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1)
the number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), (2) I am not subject to
backup withholding either because (i) I am exempt from backup withholding,
(ii) I have not been notified by the Internal Revenue Service ("IRS") that
I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (iii) the IRS has notified me that I am no
longer subject to backup withholding, and (3) any other information
provided on this form is true and correct.
SIGNATURE ------------------------------- DATE ------------------
You must cross out item (iii) in Part (2) above if you have been notified
by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments made to
me on account of the New Notes shall be retained until I provide a
taxpayer identification number to the Exchange Agent and that, if I do not
provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature
---------------------- Date
-------------, 1998
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
10% SENIOR NOTES DUE 2004
OF
METRIS COMPANIES INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 10% Senior Notes Due 2004 (the
"Old Notes") are not immediately available, (ii) Old Notes, the Letter of
Transmittal and all other required documents cannot be delivered to The First
National Bank of Chicago (the "Exchange Agent") on or prior to the Expiration
Date (as defined in the Prospectus referred to below) or (iii) the procedures
for delivery by book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand, overnight courier or
mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE FIRST NATIONAL BANK OF CHICAGO
<TABLE>
<CAPTION>
BY MAIL: FACSIMILE TRANSMISSIONS: BY HAND OR OVERNIGHT DELIVERY:
<S> <C> <C>
(Registered or Certified Mail (Eligible Institutions Only) The First National Bank of Chicago
Recommended) (212) 240-8938 c/o First Chicago Trust Company
The First National Bank of Chicago of New York
c/o First Chicago Trust 14 Wall Street
Company of New York 8th Floor, Window 2
14 Wall Street New York, New York 10005
8th Floor, Window 2
New York, New York 10005
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION CALL:
(212) 240-8801
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Metris Companies Inc., a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering Old Notes."
<TABLE>
<S> <C>
Aggregate Principal Name(s) of Registered Holder(s):
Amount Tendered:
Certificate No(s). Address(es):
(if available): Area Code and Telephone Number(s):
</TABLE>
If Old Notes will be tendered by book-entry transfer, provide the following
information:
Signature(s): __________________________________________________________________
DTC Account Number: ____________________________________________________________
Date: __________________________________________________________________________
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depositary
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm ___________________________________________________________________
(Authorized Signature) _________________________________________________________
(Title)
Address ________________________________________________________________________
________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number
Date: ________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
3
<PAGE>
EXHIBIT 99.3
[FORM OF EXCHANGE AGENCY AGREEMENT]
______________, 1998
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Ladies and Gentlemen:
Metris Companies Inc. (the "Company"), a Delaware corporation,
hereby appoints The First National Bank of Chicago ("First Chicago") to act
as exchange agent (the "Exchange Agent") in connection with an exchange offer
by the Company to exchange up to $100,000,000 aggregate principal amount of
its 10% Senior Notes Due 2004 (the "New Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a
like principal amount of its outstanding 10% Senior Notes Due 2004 (the "Old
Notes" and together with the New Notes, the "Notes"). The terms and
conditions of the exchange offer are set forth in a Prospectus dated
_____________, 1998 (as the same may be amended or supplemented from time to
time, the "Prospectus") and in the related Letter of Transmittal, which
together constitute the "Exchange Offer." The registered holders of the
Notes are hereinafter referred to as the "Holders." Capitalized terms used
herein and not defined shall have the respective meanings described thereto
in the Prospectus.
On the basis of the representations, warranties and agreements of
the Company and First Chicago contained herein and subject to the terms and
conditions hereof, the following sets forth the agreement between the Company
and First Chicago as Exchange Agent for the Exchange Offer:
1. APPOINTMENT AND DUTIES AS EXCHANGE AGENT.
a. The Company hereby authorizes First Chicago to act as exchange
agent in connection with the exchange offer and First Chicago agrees to act
as Exchange Agent in connection with the Exchange Offer. As Exchange Agent,
First Chicago will perform those services as are outlined herein or which are
customarily performed by an exchange agent in connection with an exchange
offer of like nature, including, but not limited to, accepting tenders of Old
Notes, assisting the Company in the preparation of the documentation
necessary to effect the transactions herein contemplated (without assuming
responsibility for such documentation, unless such information has been
furnished to the Company in writing by First Chicago) and communicating
generally regarding the Exchange Offer with brokers, dealers, commercial
banks, trust companies and other persons, including Holders of the Old Notes.
b. The Company acknowledges and agrees that First Chicago has
been retained pursuant to this Agreement to act solely as Exchange Agent in
connection with the Exchange Offer, and in such capacity, First Chicago shall
perform such duties as are outlined herein and which are specifically set
forth in the section of the Prospectus captioned "The Exchange Offer" and in
the Letter of Transmittal; provided, however, that in no way will First
Chicago's general duty to act in good faith and without gross negligence or
willful misconduct be discharged by the foregoing.
<PAGE>
c. First Chicago will examine each of the Letters of
Transmittal and certificates for Old Notes and any other documents delivered
or mailed to First Chicago by or for Holders of the Old Notes, and any
book-entry conformations (as defined in the Prospectus) received by First
Chicago with respect to the Old Notes, to ascertain whether: (i) the Letters
of Transmittal and any such other documents are duly executed and properly
completed in accordance with the instructions set forth therein and that such
book-entry confirmations are in due and proper form and contain the
information required to be set forth therein, and (ii) the Old Notes have
otherwise been properly tendered. In each case where the Letters of
Transmittal or any other documents have been improperly completed or executed
or where book-entry confirmations are not in due and proper form or omit
certain information, or any of the certificates for Old Notes are not in
proper form for transfer or some other irregularity in connection with the
tender or acceptance of the Old Notes exists, First Chicago will endeavor,
subject to the terms and conditions of the Exchange Offer, to advise the
tendering Holders of the irregularity and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
Notwithstanding the above, First Chicago shall not be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
d. With the approval of the President, any Senior Vice President
or any Vice President of the Company, (such approval, if given orally, to be
confirmed in writing) or any other party designated by any such officer,
First Chicago is authorized to waive any irregularities in connection with
any tender of Old Notes pursuant to the Exchange Offer.
e. Tenders of Old Notes may be made only as set forth in the
Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer" and Old Notes shall be considered properly tendered only when
tendered in accordance with such procedures set forth therein.
Notwithstanding the provisions of this paragraph, Old Notes which the
President, any Senior Vice President, any Vice President or any other
designated officer of the Company, shall approve (such approval, if given
orally, to be confirmed in writing) as having been properly tendered shall be
considered to be properly tendered.
f. First Chicago shall advise the Company with respect to any Old
Notes received as soon as possible after 5:00 p.m., New York City time, on
the Expiration Date and accept its instructions with respect to disposition
of such Old Notes.
g. First Chicago shall ensure (i) that each Letter of Transmittal
and, if required pursuant to the terms of the Exchange Offer, the related Old
Notes or a bond power are duly executed (with signatures guaranteed where
required) by the appropriate parties in accordance with the terms of the
Exchange Offer; (ii) in those instances where the person executing the Letter
of Transmittal (as indicated on the Letter of Transmittal) is acting in a
fiduciary or a representative capacity, proper evidence of his or her
authority so to act is submitted; (iii) in those instances where Old Notes
are tendered by persons other than the registered holder of such Old Notes,
that customary transfer requirements, including any applicable transfer
taxes, and the requirements imposed by the transfer restrictions on the Old
Notes (including any applicable requirements for certifications, legal
opinions or other information) are fulfilled; (iv) that Old Notes tendered in
part are tendered in principal amounts of $1,000 and integral multiples
thereof and that if any Old Notes are tendered for exchange in part, the
untendered principal amount thereof is $1,000 or any integral multiple of
$1,000 in excess thereof; and (v) First Chicago shall deliver certificates
for Old Notes tendered in part to the transfer agent for split-up and shall
return any untendered Old Notes or Old Notes which have not been accepted by
the Company to the Holders promptly after the expiration or termination of
the Exchange Offer.
h. Upon acceptance by the Company of any Old Notes duly tendered
pursuant to the Exchange Offer (such acceptance if given orally, to be
confirmed in writing), First Chicago will cause New Notes in exchange
therefor to be issued as promptly as possible (subject to receipt from the
Company of appropriate certificates under the related Indenture) and First
Chicago will deliver such New Notes on behalf of the Company at the rate of
$1,000 principal amount of New Notes for each
-2-
<PAGE>
$1,000 principal amount of Old Notes tendered as promptly as possible after
acceptance by the Company of the Old Notes for exchange and notice (such
notice if given orally, to be confirmed in writing) of such acceptance by the
Company; provided, however, that in all cases, Old Notes tendered pursuant to
the Exchange Offer will be exchanged only after timely receipt by First
Chicago of certificates for such Old Notes (or a book-entry confirmation), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents. Unless otherwise instructed by the Company, First Chicago shall
issue New Notes only in denominations of $1,000 or any integral multiple
thereof.
i. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and the conditions set forth in the Prospectus and
the Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time on or prior to the Expiration Date in accordance
with the terms of the Exchange Offer.
j. Notice of any decision by the Company not to exchange any Old
Notes tendered shall be given by the Company either orally (if given orally,
to be confirmed in writing) or in a written notice to First Chicago.
k. If, pursuant to the Exchange Offer, the Company does not
accept for exchange all or part of the Old Notes tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus under the caption "The Exchange Offer--Certain Conditions to the
Exchange Offer" or otherwise, First Chicago shall, upon notice from the
Company (such notice if given orally, to be confirmed in writing), promptly
after the expiration or termination of the Exchange Offer return such
certificates for unaccepted Old Notes (or effect appropriate book-entry
transfer), together with any related required documents and the Letters of
Transmittal relating thereto that are in First Chicago's possession, to the
persons who deposited such certificates.
l. Certificates for reissued Old Notes, unaccepted Old Notes or
New Notes shall be forwarded by (a) first-class certified mail, return
receipt requested under a blanket surety bond obtained by First Chicago
protecting First Chicago and the Company from loss or liability arising out
of the non-receipt or non-delivery of such certificates or (b) by registered
mail insured by First Chicago separately for the replacement value of each
such certificate.
m. First Chicago is not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer,
commercial bank, trust company or other nominee or to engage or use any
person to solicit tenders.
n. As Exchange Agent, First Chicago:
(i) shall have no duties or obligations other than those
specifically set forth in the Prospectus, the Letter of Transmittal
or herein or as may be subsequently agreed to in writing;
(ii) will make no representations and will have no
responsibilities as to the validity, value or genuineness of any of
the certificates for the Old Notes deposited pursuant to the Exchange
Offer, and will not be required to and will make no representation as
to the validity, value or genuineness of the Exchange Offer; PROVIDED,
HOWEVER, that in no way will First Chicago's general duty to act in
good faith and without gross negligence or willful misconduct be
limited by the foregoing;
(iii) shall not be obligated to take any legal action
hereunder which might in First Chicago's reasonable judgment involve
any expense or liability, unless First Chicago shall have been
furnished with reasonable indemnity;
-3-
<PAGE>
(iv) may reasonably rely on and shall be protected in
acting in reliance upon any certificate, instrument, opinion,
notice, letter, telegram or other document or security delivered to
First Chicago and reasonably believed by First Chicago to be
genuine and to have been signed by the proper party or parties;
(v) may reasonably act upon any tender, statement,
request, comment, agreement or other instrument whatsoever not only
as to its due execution and validity and effectiveness of its
provisions, but also as to the truth and accuracy of any
information contained therein, which First Chicago believes in good
faith to be genuine and to have been signed or represented by a
proper person or persons acting in a fiduciary or representative
capacity (so long as proper evidence of such fiduciary's or
representative's authority so to act is submitted to First Chicago)
and First Chicago examines and reasonably concludes that such
evidence properly establishes such authority;
(vi) may rely on and shall be protected in acting upon
written or oral instructions from the President, any Senior Vice
President, any Vice President or any other designated officer of
the Company;
(vii) may consult with its own counsel with respect to
any questions relating to First Chicago's duties and
responsibilities and the written opinion of such counsel shall be
full and complete authorization and protection in respect of any
action taken, suffered or omitted to be taken by First Chicago
hereunder in good faith and in accordance with the written opinion
of such counsel; and
(viii) shall not advise any person tendering Old Notes
pursuant to the Exchange Offer as to whether to tender or refrain
from tendering all or any portion of its Old Notes or as to the
market value, decline or appreciation in market value of any Old
Notes that may or may not occur as a result of the Exchange Offer
or as to the market value of the New Notes. First Chicago shall
take such action as may from time to time be requested by the
Company (and such other action as First Chicago may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of
Transmittal and the Notice of Guaranteed Delivery or such other
forms as may be approved from time to time by the Company, to all
persons requesting such documents and to accept and comply with
telephone requests for information relating to the Exchange Offer,
provided that such information shall relate only to the procedures
for tendering into (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your
request.
p. First Chicago shall advise orally and promptly thereafter
confirm in writing to the Company and such other person or persons as the
Company may request, daily (and more frequently during the week immediately
preceding the Expiration Date and if otherwise reasonably requested) up to
and including the Expiration Date, the aggregate principal amount of Old
Notes which have been duly tendered pursuant to and in compliance with the
terms of the Exchange Offer and the items received by First Chicago pursuant
to the Exchange Offer and this Agreement, separately reporting and giving
cumulative totals as to items properly received and items improperly
received. In addition, First Chicago will also provide, and cooperate in
making available to the Company, or any such other person or persons upon
request (such request if made orally, to be confirmed in writing) made from
time to time, such other information as the Company may reasonably request.
Such cooperation shall include, without limitation, the granting by First
Chicago to the Company, and such person or persons as the Company may
request, access to those persons on First Chicago's staff who are responsible
for receiving tenders, in order to ensure that immediately prior to the
Expiration Date the Company shall have received adequate information in
sufficient detail to enable the Company to decide whether to extend the
Exchange Offer. First Chicago shall prepare a final list of all persons
whose tenders were accepted, the aggregate principal amount of Old Notes
tendered, the aggregate principal amount of Old Notes accepted and deliver
said list to the Company.
-4-
<PAGE>
q. Letters of Transmittal, book-entry confirmations and Notices
of Guaranteed Delivery shall be stamped by First Chicago as to the date and
the time of receipt thereof and shall be preserved by First Chicago for a
period of time at least equal to the period of time First Chicago preserves
other records pertaining to the transfer of securities, or one year,
whichever is longer, and thereafter shall be delivered by First Chicago to
the Company. First Chicago shall dispose of unused Letters of Transmittal
and other surplus materials by returning them to the Company.
r. First Chicago hereby expressly waives any lien, encumbrance or
right of set-off whatsoever that First Chicago may have with respect to funds
deposited with it for the payment of transfer taxes by reasons of amounts, if
any, borrowed by the Company, or any of its subsidiaries or affiliates
pursuant to any loan or credit agreement with First Chicago or for
compensation owed to First Chicago hereunder or for any other matter.
2. COMPENSATION.
Pursuant to a letter agreement, dated as of October 14, 1997 (the
"Bond Trusteeships Fee Schedule"), between the Company and First Chicago, no
additional compensation will be payable to First Chicago in its capacity as
Exchange Agent, it being understood and agreed that the Acceptance Fee and
the Annual Administration Fee payable pursuant to the Bond Trusteeships Fee
Schedule are intended to cover, among other things, the services of First
Chicago as Exchange Agent; provided, further, that First Chicago reserves the
right to receive reimbursement from the Company for any reasonable
out-of-pocket expenses incurred as Exchange Agent in performing the services
described herein, provided, however, that First Chicago shall not be entitled
to reimbursement for the fees or disbursements of its legal counsel without
the prior written consent of the Company.
3. INDEMNIFICATION.
a. The Company hereby agrees to protect, defend, indemnify
and hold harmless First Chicago against and from any and all costs, losses,
liabilities, expenses (including reasonable counsel fees and disbursements)
and claims imposed upon or asserted against First Chicago on account of any
action taken or omitted to be taken by First Chicago in connection with its
acceptance of or performance of its duties under this Agreement and the
documents related thereto as well as the reasonable costs and expenses of
defending itself against any claim or liability arising out of or relating to
this Agreement and the documents related thereto. This indemnification shall
survive the release, discharge, termination, and/or satisfaction of this
Agreement. Anything in this Agreement to the contrary notwithstanding, the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of First Chicago's bad
faith, gross negligence or willful misconduct. In no case shall the Company
be liable under this indemnification agreement with respect to any claim
against First Chicago unless the Company shall be notified by First Chicago,
by letter, of the written assertion of a claim against First Chicago or of
any other action commenced against First Chicago, promptly after First
Chicago shall have received any such written assertion or shall have been
served with a summons in connection therewith. The Company shall be entitled
to participate at its own expense in the defense of any such claim or other
action, and, if the Company so elects, the Company may assume the defense of
any pending or threatened action against First Chicago in respect of which
indemnification may be sought hereunder, in which case the Company shall not
thereafter be responsible for the fees and disbursements of legal counsel for
First Chicago under this paragraph; provided that the Company shall not be
entitled to assume the defense of any such action if the named parties to
such action include both the Company and First Chicago and representation of
both parties by the same legal counsel would, in the written opinion of
counsel for First Chicago, be inappropriate due to actual or potential
conflicting interests between them. It is understood that the Company shall
not be liable under this paragraph for the fees and disbursements of more
than one legal counsel for First Chicago. In the event that the Company
shall assume the defense of any such suit, the
-5-
<PAGE>
Company shall not therewith be liable for the fees and expenses of any
counsel retained by First Chicago.
b. First Chicago agrees that, without the prior written
consent of the Company (which consent shall not be unreasonably withheld), it
will not settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding in respect of which
indemnification could be sought in accordance with the indemnification
provision of this Agreement (whether or not First Chicago or the Company or
any of its directors, officers and controlling persons is an actual or
potential party to such claim, action or proceeding), unless such settlement,
compromise or consent includes an unconditional release of the Company and
its directors, officers and controlling persons from all liability arising
out of such claim, action or proceeding.
4. TAX INFORMATION.
a. First Chicago shall arrange to comply with all
requirements under the tax laws of the United States, including those
relating to missing Tax Identification Numbers, and shall file any
appropriate reports with the Internal Revenue Service. The Company
understands that First Chicago is required, in certain instances, to deduct
31% with respect to interest paid on the New Notes and proceeds from the
sale, exchange, redemption or retirement of the New Notes from Holders who
have not supplied their correct Taxpayer Identification Number or required
certification. Such funds will be turned over by First Chicago to the
Internal Revenue Service.
b. First Chicago shall notify the Company of the amount of
any transfer taxes payable in respect of the exchange of Old Notes and, upon
receipt of written approval from the Company shall deliver or cause to be
delivered, in a timely manner, to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Old Notes, a check
in the amount of all transfer taxes so payable, and the Company shall
reimburse First Chicago for the amount of any and all transfer taxes payable
in respect of the exchange of Old Notes; PROVIDED, HOWEVER, that First
Chicago shall reimburse the Company for amounts refunded to it in respect of
its payment of any such transfer taxes, at such time as such refund is
received by First Chicago.
5. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York applicable to contracts
executed in and to be performed in that state.
6. NOTICES. Any communication or notice provided for hereunder shall
be in writing and shall be given (and shall be deemed to have been given upon
receipt) by delivery in person, telecopy, or overnight delivery or by
registered or certified mail (postage prepaid, return receipt requested) to
the applicable party at the addresses indicated below:
If to the Company:
Metris Companies Inc.
600 South Highway 169
Suite 1800
St Louis Park, Minnesota 55426
Telecopier No.: (612) 525-5070
Attention: Robert W. Oberrender, Senior Vice President, Chief
Financial Officer
-6-
<PAGE>
With a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Telecopier No.: (612)-340-8738
Attention: Elizabeth C. Hinck
If to The First National Bank of Chicago:
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Attention: Richard Tarnas
or, as to each party, at such other address as shall be designated by such
party in a written notice complying as to delivery with the terms of this
Section.
7. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement. Without limitation to the foregoing, the parties
hereto expressly agree that no holder of Old Notes or New Notes shall have
any right, benefit or remedy of any nature whatsoever under or by reason of
this Agreement.
8. COUNTERPARTS; SEVERABILITY. This Agreement may be executed in one
or more counterparts, and by different parties hereto on separate
counterparts, each of which when so executed shall be deemed an original, and
all of such counterparts shall together constitute one and the same
agreement. If any term or other provision of this Agreement or the
application thereof is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the agreements contained herein is not affected in any manner
adverse to any party. Upon such determination that any term or provision or
the application thereof is invalid, illegal or unenforceable, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the agreements contained herein may be
performed as originally contemplated to the fullest extent possible.
9. CAPTIONS. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended or modified nor may any provision
hereof be waived except in writing signed by each party to be bound thereby.
11. TERMINATION. This Agreement shall terminate upon the earlier of
(a) the 90th day following the expiration, withdrawal, or termination of the
Exchange Offer, (b) the close of business on the date of actual receipt of
written notice by First Chicago from the Company stating that this
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<PAGE>
Agreement is terminated, (c) one year following the date of this Agreement,
or (d) the time and date on which this Agreement shall be terminated by
mutual consent of the parties hereto.
12. MISCELLANEOUS.
a. First Chicago hereby acknowledges receipt of the
Prospectus and the Letter of Transmittal and the Notice of Guaranteed
Delivery and further acknowledges that it has examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal and the Notice of Guaranteed Delivery (as they may
be amended or supplemented from time to time), on the other hand, shall be
resolved in favor of the latter three documents, except with respect to the
duties, liabilities and indemnification of First Chicago as Exchange Agent
which shall be controlled by this Agreement.
Kindly indicate your willingness to act as Exchange Agent and First
Chicago's acceptance of the foregoing provisions by signing in the space
provided below for that purpose and returning to the Company a copy of this
Agreement so signed, whereupon this Agreement and First Chicago's acceptance
shall constitute a binding agreement between First Chicago and the Company.
Very truly yours,
METRIS COMPANIES INC.
By:_____________________________
Name:___________________________
Title:__________________________
Accepted and agreed to as of
the date first written above:
THE FIRST NATIONAL BANK OF CHICAGO
By:_____________________________
Name:___________________________
Title:__________________________
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