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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended 001-12351
December 31, 1997 COMMISSION FILE NUMBER
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METRIS COMPANIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 41-1849591
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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600 SOUTH HIGHWAY 169, SUITE 1800, ST. LOUIS PARK, MINNESOTA 55426
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(612) 525-5020
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes _X_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of February 27, 1998, 19,225,000 shares of the Registrant's Common Stock were
outstanding and the aggregate market value of Common Stock held by
non-affiliates of the Registrant on that date was approximately $144,680,985,
based upon the closing price on The Nasdaq Stock Market-SM- on February 27,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the year ended
December 31, 1997, are incorporated by reference in Parts II and IV.
Certain portions of the Proxy Statement for the Annual Meeting of Shareholders
of Metris Companies Inc. to be held on May 12, 1998, which will be filed with
the Securities and Exchange Commission within 120 days after December 31, 1997,
are incorporated by reference in Part III.
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TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business........................................................................................... 2
Item 2. Properties......................................................................................... 17
Item 3. Legal Proceedings.................................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders................................................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 17
Item 6. Selected Financial Data............................................................................ 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................................. 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................ 17
Item 8. Financial Statements and Supplementary Data........................................................ 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant................................................ 50
Item 11. Executive Compensation............................................................................ 50
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................................................................. 50
Item 13. Certain Relationships and Related Transactions.................................................... 50
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................................................................ 50
Signatures................................................................................................. 52
Exhibit Index.............................................................................................. 54
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PART I
ITEM 1. BUSINESS
BUSINESS
Metris Companies Inc. ("MCI" and collectively with its subsidiaries, the
"Company") is an information-based direct marketer of consumer credit products
and fee-based services and extended service plans primarily to moderate income
consumers. The Company's consumer credit products are primarily unsecured credit
cards issued by its subsidiary, Direct Merchants Credit Card Bank, National
Association ("Direct Merchants Bank"). The Company's customers and prospects
include existing customers of an affiliate, Fingerhut Corporation ("Fingerhut
Customers"), and individuals who are not Fingerhut Customers but for whom credit
bureau information is available ("External Prospects"). The Company markets its
fee-based services, including debt waiver programs, card registration, extended
service plans, third party insurance, and membership clubs to its credit card
customers, Fingerhut Customers, and customers of third party partners.
MCI, incorporated in Delaware on August 20, 1996, is an 83% owned indirect
subsidiary of Fingerhut Companies, Inc. ("FCI"). The Company became a publicly
held company in October 1996 after completing an initial public offering. The
Company's principal direct and indirect subsidiaries are Direct Merchants Bank,
Metris Direct, Inc., Metris Funding Co. and Metris Receivables, Inc. Prior to
its name change in August 1996, Metris Direct, Inc. was known as Fingerhut
Financial Services Corporation.
HISTORY OF THE COMPANY
MCI is an indirect subsidiary of FCI, a database marketing company that
sells a broad range of products and services via catalogs, telemarketing,
television, and other media. Fingerhut Corporation ("Fingerhut"), a wholly owned
subsidiary of FCI, has been in the direct marketing business for 50 years and is
one of the largest catalog marketers in the United States. Fingerhut sells a
broad range of general merchandise products and services to moderate income
consumers.
Substantially all of Fingerhut's sales are made using closed-end and
revolving credit card loans issued by Fingerhut National Bank, a wholly owned
subsidiary of FCI. As customers make payments and order new products, Fingerhut
enters a variety of payment, behavioral, and other data into its database (the
"Fingerhut Database"). Fingerhut uses this database, along with sophisticated
and highly automated proprietary modeling techniques, to evaluate each
customer's creditworthiness.
THE FINGERHUT DATABASE
The Fingerhut Database contains information on more than 31 million
individuals, including approximately 8 million customers who have made a
purchase from Fingerhut within the past 24 months. This database contains up to
3,500 potential data items in a customer record, including names, addresses,
behavioral characteristics, general demographic information and other
information provided by the customer. Fingerhut uses information in the
Fingerhut Database, along with sophisticated proprietary credit scoring models,
to produce its proprietary credit scores (the "Fingerhut Scores") for Fingerhut
Customers. The Fingerhut Database also includes Fingerhut's suppression and bad
debt file (the "Suppress File"), which contains information on approximately
11.4 million individuals about whom it has information relating to indicators of
unacceptably high risk. Fingerhut periodically updates the information in the
Fingerhut Database. Fingerhut does not report its credit information to the
credit bureaus, which means this information is not publicly available. The
Company has a contract with Fingerhut to use the information in the Fingerhut
Database for marketing its financial services products, including general
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purpose credit cards. This contract expires October 2003 and is renewable
thereafter upon mutual agreement between Fingerhut and the Company unless there
has been a change in control of the Company. A change of control (the "Change of
Control") shall be deemed to have occurred if (a) any person or group (within
the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as in effect),
other than FCI, shall own beneficially or of record, shares representing more
than 25% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Company, (b) a majority of the seats (other
than vacant seats) on the Board of Directors of the Company shall at anytime be
occupied by persons who were neither (i) nominated by FCI, or by the Board of
Directors of the Company nor (ii) appointed by directors so nominated; or (c)
any person or group other than FCI shall otherwise directly or indirectly have
the power to exercise a controlling, or indirectly have the power to exercise a
controlling, influence over management or policies of the Company. The Spin Off
discussed more fully under "Proposed Spin Off," is not a change of control.
However, after the Spin Off, the Company cannot make any predictions as to
whether a change in control might occur.
STRATEGY
The Company primarily targets moderate income consumers whom the Company
believes are underserved by traditional providers of many of the Company's
products and services. The Company intends to serve this target market using its
proprietary scoring techniques together with information from credit bureaus and
the Fingerhut Database to determine a potential customer's creditworthiness. The
Company uses sophisticated modeling techniques to evaluate the expected risk,
responsiveness, and profitability of each prospective customer and to offer and
price the products and services it believes to be appropriate for each customer.
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 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 individual credit
information from the major credit bureaus into this Proprietary Modeling System
and eliminating those individuals contained in the Suppress File, the Company
expects 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 services to its credit card customers and customers
of third parties.
USE RISK-BASED PRICING. The specific pricing for an individual's credit
card offer is determined by the prospective customer's risk profile and expected
responsiveness prior to solicitation, a practice known as "risk-based pricing."
Management believes the use of risk-based pricing allows it to maximize the
profitability of a customer relationship.
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. In 1997,
the Company began offering card registration services to the credit card
customers of two third parties. In addition, the Company introduced a co-branded
MasterCard to customers of a third party.
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PURSUE ACQUISITIONS OF CREDIT CARD PORTFOLIOS OR OTHER BUSINESSES. The
Company expects to 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 ("Key"). In addition, in October 1997,
the Company acquired a $405 million credit card portfolio from Mercantile Bank
National Association ("Mercantile").
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, approval of Fingerhut's Board of Directors and 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
to more effectively 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 may elect to amend its Amended and Restated
Certificate of Incorporation ("The Certificate of Incorporation") to eliminate
the detailed restrictions concerning the business activities in which the
Company is permitted to engage. These restrictions were originally adopted to
address certain potential conflicts of interest between FCI and the Company.
The Spin Off may affect the cost of funds for the Company as discussed more
fully under "Funding and Liquidity."
Each of the intercompany agreements between the Company and Fingerhut or
FCI, 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 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.
Each of the intercompany agreements between the Company and Fingerhut or FCI
may terminate early due to a Change of Control. The proposed Spin Off itself
does not constitute a Change of Control. However, once FCI ceases to own the
stock of the Company, it is possible for a Change of Control to occur, thus
causing early terminations of these agreements.
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.
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.
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BUSINESS LINES
The Company currently operates two business lines: (i) consumer credit
products and (ii) fee-based services and extended service plans.
CONSUMER CREDIT PRODUCTS
PRODUCTS. Consumer credit products currently are unsecured and secured
credit cards, including the Fingerhut co-branded
MasterCard-Registered Trademark-, the Bally Total Fitness co-branded MasterCard,
and the Direct Merchants Bank MasterCard and Visa-Registered Trademark-. In
addition, the Company has affinity programs with two other partners. In the
future, the Company may offer other co-branded credit cards and may also offer
other consumer credit products either directly or through alliances with other
companies. At December 31, 1997, the Company had approximately 2.3 million
credit card accounts with over $3.5 billion in managed credit card loans.
Fingerhut Customers represented approximately 39% of the accounts and
approximately 39% of the managed loans. According to the Nilson Report, at
December 31, 1997, the Company was the 14th largest MasterCard issuer in the
United States based on the number of cards issued, and the 22nd largest credit
card issuer in the United States based on managed credit card loan balances.
CREDIT SCORING. The Company acquires a Fingerhut Score for prospective
customers in the Fingerhut Database. The Company also acquires credit bureau
information, including risk scores provided by Fair, Isaac & Company ("FICO
scores"), for all Fingerhut Customers. For those Fingerhut Customers who have
FICO scores, the Company uses the Fingerhut Score to further segment Fingerhut
Customers into narrower ranges within each FICO score subsegment, allowing the
Company to better evaluate credit risk and to tailor its risk-based pricing
accordingly. Additionally, the Fingerhut Score is used to target individuals who
have no credit bureau information, and consequently no FICO scores, allowing the
Company to target Fingerhut Customers who would not typically be solicited by
other credit card issuers.
The Company has developed a Proprietary Modeling System for External
Prospects. The Proprietary Modeling System consists of sophisticated models
which produce a credit risk score ("a "Proprietary Score") for each prospect.
The Proprietary Score, like the Fingerhut Score, segments External Prospects
into narrower ranges within each FICO score subsegment, allowing the Company to
better evaluate individual credit risk and to tailor its risk-based pricing
accordingly. The Company also uses this segmentation to exclude certain
individuals from its marketing solicitations.
The Company generates External Prospects from lists obtained directly from
the major credit bureaus based on criteria established by the Company. The
Company establishes the range of FICO scores it plans to target for a specific
campaign and receives files from the credit bureaus which contain individual
credit records of the External Prospects who fall within this range. The files
are incorporated into the Proprietary Modeling System, which further segments
External Prospects based upon their Proprietary Scores. The mailing lists
generated from the Proprietary Modeling System are then checked against the
Suppress File and any matching names are excluded. The Company currently does
not solicit External Prospects who do not have FICO scores.
The Company believes the Fingerhut Score and its Proprietary Modeling
System, in conjunction with the Suppress File and FICO Scores, allows it to make
prudent decisions in evaluating the credit risk of moderate income consumers.
SOLICITATION. Prospects for solicitation include both Fingerhut Customers
and External Prospects. They are contacted on a nationwide basis primarily
through pre-screened direct mail and telephone solicitations. The Company
receives responses to its prescreened solicitations, performs fraud screening,
verifies name and address changes, and obtains any information which may be
missing from the application. Applications are then sent to third party data
entry providers, which key the application information and process the
applications based on the criteria provided by the Company. Applications are
approved, denied or referred to the Company for exception processing. The
Company processes exceptions for,
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among other things, derogatory credit bureau information and fraud warnings.
Exception applications are processed manually by credit analysts based on
policies approved by the Company's credit committee.
PRICING. The Company's strategy to maximize customer profitability relies
on its risk-based pricing. The specific pricing for a credit card offer is
primarily based on the prospect's risk profile prior to solicitation. A prospect
is evaluated to determine credit needs, credit risk, and existing credit
availability. A customized offer is developed that includes the most appropriate
product, brand, pricing, and credit line. The Company currently offers over 100
different pricing structures on its credit card products, with annual fees
ranging from $0 to $48 ($60 for some secured cards) and annual percentage rates
ranging from 14.9% to 26.5%, excluding the Key and Mercantile portfolio
acquisitions. After credit card accounts are opened, the Company actively
monitors customers' internal and external credit performance and periodically
recalculates behavior and risk scores. As customers evolve through the credit
lifecycle and are regularly rescored, the lending relationship can evolve to
include more competitive (or more restrictive) pricing and product
configurations.
AGE OF PORTFOLIO. The following table sets forth, as of December 31, 1997,
the number of total accounts and amount of outstanding loans based upon the age
of the managed accounts.
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LOANS PERCENTAGE
OUTSTANDING OF
NUMBER PERCENTAGE (DOLLARS IN LOANS
AGE SINCE ORIGINATION OF ACCOUNTS OF ACCOUNTS THOUSANDS) OUTSTANDING
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0-6 MONTHS 439,432 19.2% $ 406,760 11.5%
7-12 MONTHS 280,244 12.2% 405,071 11.4%
13-18 MONTHS 367,351 16.0% 560,640 15.8%
19-24 MONTHS 425,510 18.6% 726,680 20.5%
25-36 MONTHS 614,969 26.8% 1,163,068 32.8%
37+ MONTHS 165,269 7.2% 284,717 8.0%
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TOTAL 2,292,775 100.0% $ 3,546,936 100.0%
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GEOGRAPHIC DISTRIBUTION. The Company solicits credit card customers on a
national basis and, therefore, maintains a geographically diversified portfolio.
The following table shows the distribution of total accounts and amount of
outstanding loans by state, as of December 31, 1997.
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LOANS
OUTSTANDING PERCENTAGE OF
NUMBER PERCENTAGE (DOLLARS IN LOANS
STATE OF ACCOUNTS OF ACCOUNTS THOUSANDS) OUTSTANDING
- -------------------------- ----------- ------------- -------------------- ---------------
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TEXAS 284,431 12.4% $ 456,415 12.9%
CALIFORNIA 255,424 11.1% 428,750 12.1%
FLORIDA 160,182 7.0% 263,131 7.4%
NEW YORK 139,653 6.1% 215,835 6.1%
OHIO 86,006 3.8% 132,550 3.7%
ILLINOIS 73,949 3.2% 117,447 3.3%
PENNSYLVANIA 78,297 3.4% 115,729 3.3%
MISSOURI 71,497 3.1% 110,409 3.1%
MISSISSIPPI 67,711 3.0% 96,573 2.7%
ALL OTHERS(1) 1,075,625 46.9% 1,610,097 45.4%
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TOTAL 2,292,775 100.0% $ 3,546,936 100.0%
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(1) No other state accounts for more than 2.5% of loans outstanding.
THE ADAPTIVE CONTROL SYSTEM. The Company uses First Data Resources Inc.'s
("FDR") adaptive control system (the "Adaptive Control System"), which uses
statistical models and basic account financial
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information to automatically and regularly assign credit line increases and
decreases to individual customers, as well as to determine the systematic
collection steps to be taken at the various stages of delinquency. The Adaptive
Control System manages the authorization of each transaction; in addition, it
implements the collections strategies determined by the Company to be used for
non-delinquent accounts that have balances above their assigned credit line
(referred to as "overlimit" accounts).
CREDIT LINES. Once an account is approved, an initial credit line is
established based on the individual's risk profile using automated screening and
credit scoring techniques. This process results in a portfolio (excluding
portfolio acquisitions) with average credit lines that are below the industry
average due to the higher average risk elements inherent in the Company's target
market. The Company may elect, at any time and without prior notice to the
cardholder, to preclude or restrict further credit card use by the cardholder,
usually as a result of poor payment performance or the Company's concern over
the creditworthiness of the cardholder. Credit lines are managed based on the
results of the behavioral scoring analysis in accordance with criteria
established by the Company.
The following table sets forth information with respect to account balance
and credit limit ranges of the Company's managed portfolio, as of December 31,
1997.
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LOANS
OUTSTANDING PERCENTAGE OF
NUMBER PERCENTAGE (DOLLARS IN LOANS
CREDIT LIMIT RANGE OF ACCOUNTS OF ACCOUNTS THOUSANDS) OUTSTANDING
- -------------------------- ----------- ------------- -------------------- ---------------
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$1,000 OR LESS 290,015 12.7% 160,416 4.5%
$1,001-$2,000 583,925 25.5% 695,797 19.6%
$2,001-$3,500 621,557 27.1% 1,061,868 30.0%
$3,501-$5,000 581,169 25.3% 1,216,344 34.3%
OVER $5,000 216,109 9.4% 412,511 11.6%
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TOTAL 2,292,775 100.0% $ 3,546,936 100.0%
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LOANS
OUTSTANDING PERCENTAGE OF
NUMBER PERCENTAGE (DOLLARS IN LOANS
ACCOUNT BALANCE RANGE OF ACCOUNTS OF ACCOUNTS THOUSANDS) OUTSTANDING
- -------------------------- ----------- ------------- -------------------- ---------------
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CREDIT BALANCE 23,744 1.1% $ (2,121)
NO BALANCE 312,301 13.6%
$1,000 OR LESS 659,815 28.8% 306,303 8.6%
$1,001-$2,000 575,980 25.1% 858,332 24.2%
$2,001-$3,500 475,350 20.7% 1,243,132 35.0%
OVER $3,500 245,585 10.7% 1,141,290 32.2%
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TOTAL 2,292,775 100.0% $ 3,546,936 100.0%
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DELINQUENCY, COLLECTIONS AND CHARGE-OFFS. The Company considers an account
delinquent if a payment due is not received by the Company within 25 days from
the closing date of the statement. Collection activities are determined by the
Adaptive Control System, which continually monitors all delinquent accounts. The
collections function is handled internally. Accounts that become 60 days
contractually delinquent are closed, but not necessarily charged off. Accounts
are charged off and taken as a loss either after formal notification of
bankruptcy or at the end of the month during which they become contractually 180
days past due. Accounts identified as fraud losses are immediately reserved for
and charged off no later than 90 days after the last activity. Charged-off
accounts are referred to the Company's recovery unit for coordination of
collection efforts to recover the amounts owed. When appropriate, accounts are
placed with external collection agencies or attorneys.
SERVICING, BILLING AND PAYMENT. The Company has established a relationship
with FDR for cardholder processing services. FDR is a subsidiary of First Data
Corporation, a provider of information processing
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and related services including cardholder processing (services for financial
institutions which issue credit cards to cardholders), and merchant processing
(services for financial institutions which make arrangements with merchants for
the acceptance of credit cards as methods of payment). FDR provides data
processing, credit card reissuance, statementing, inbound customer service
telephone calls and interbank settlement for the Company. Effective February
1998, the Company extended it processing services agreement with FDR for an
additional five years, expiring 2006. Applications processing and back office
support for mail inquiries and fraud management are handled internally by the
Company. In addition the Company handles in-bound customer service telephone
calls for the recently acquired Key and Mercantile portfolios.
The Company generally assesses periodic finance charges on an account if the
cardholder has not paid the balance in full from the previous billing cycle.
These finance charges are based upon the average daily balance outstanding on
the account during the monthly billing cycle. Payments by cardholders to the
Company on the accounts are processed by a third party servicer and applied
first to any billed and unpaid fees, next to billed and unpaid finance charges
and then to billed and unpaid transactions in the order determined by the
Company. If a payment in full is not received prior to 25 days after the
statement cycle date (the "Payment Date"), finance charges are imposed on all
purchases from the date of the transaction to the statement cycle date. Finance
charges are also imposed on each cash advance from the day such advance is made
until the advance is paid in full. The finance charge is applied to the average
daily balance. The average daily balance is the sum of the daily unpaid balances
of purchases and cash advances on each day of the monthly billing cycle divided
by the number of days in such monthly billing cycle. Such unpaid balances are
determined by deducting payments and credits, adding any unpaid finance charges
and late charges and adding new purchases, cash advances and other charges, in
each case as of the date of the transaction. For most cardholders, if the entire
balance on the account is paid by the due date a finance charge on purchases is
not imposed.
The Company generally assesses an annual fee. The Company may waive the
annual membership fees, or a portion thereof, in connection with the
solicitation of new accounts depending on the credit terms offered, which are
determined by the prospect's risk profile prior to solicitation or when the
Company determines a waiver to be necessary in order to be competitive. In
addition to the annual fee, the Company may charge accounts certain other fees
including: (i) a late fee with respect to any unpaid monthly payment if the
Company does not receive the required minimum monthly payment by the Payment
Date, (ii) a cash advance fee for each cash advance, (iii) a fee with respect to
each check submitted by a cardholder in payment of an account which is not
honored by the cardholder's bank, and (iv) an overlimit charge if, at any time
during the billing cycle, the total amount owed exceeds the cardholder's credit
line by at least $30.
Each cardholder is subject to an agreement governing the terms and
conditions of the accounts. Pursuant to such agreements, the Company reserves
the right to change or terminate certain terms, conditions, services and
features of the account (including periodic finance charges, late fees, returned
check charges and any other charges or the minimum payment), subject to the
conditions set forth in the account agreement.
Monthly billing statements are sent to cardholders by FDR on behalf of the
Company. When an account is established, it is assigned a billing cycle.
Currently, there are 20 billing cycles and each such cycle has a separate
monthly billing date based on the respective business day the cycle represents
in each calendar month. Each month, a statement is sent to all accounts with an
outstanding balance greater than $1. Cardholders must make a minimum monthly
payment of the greater of $10, 2.0% of the outstanding balance, the finance
charge or the balance of the account if the balance is less than $10. Payment is
due upon receipt of the statement. If the minimum payment is not collected
within 25 days after the statement cycle date, the account is considered
delinquent.
Most merchant transactions by cardholders are authorized online. The
remaining transactions generally are low dollar amounts, typically below $50.
All authorizations are handled through the Adaptive Control System.
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FEE-BASED SERVICES AND EXTENDED SERVICE PLANS
To improve the Company's ability to attract more clients for fee-based
services, in 1997, the Company consolidated the fee-based services and extended
service plan businesses into one business line. The Company currently sells a
variety of fee-based services to its credit card customers, Fingerhut Customers
and customers of third party partners, including (i) debt waiver protection for
unemployment, disability, and death, (ii) programs such as card registration and
club memberships, (iii) extended service plans and (iv) third-party insurance.
In addition, the Company develops customized targeted mailing lists, using both
the Company's and Fingerhut's databases, for external companies to use in their
own financial services product solicitation efforts that do not directly compete
with those of the Company.
The Company currently markets the following programs:
ACCOUNT PROTECTION PLUS.-TM- The Company has developed a proprietary debt
waiver program that protects customers from interest charges on the Company's
credit cards in the event that they become disabled, unemployed, or deceased. In
the event of unemployment or disability, the customer's account is "frozen" for
six months, with no payments due or interest accruing during this time. In the
event of death, the amount due, up to the credit limit, is waived and the
account is closed. Because this is an internally administered program, the
Company is responsible for all of the program's associated costs.
ACCOUNT BENEFIT PLAN. This debt waiver program forgives the customer's
balance due in the event of death.
EXTENDED SERVICE PLANS. Extended service plans provide warranty service
coverage beyond the manufacturer's warranty. In general, the Company's extended
service plans provide customers with the right to have their covered purchases
repaired, replaced, or in certain circumstances, the purchase price of the
product refunded, within certain parameters determined by the Company. Within
the warranty industry, extended service plans are available for a wide variety
of products including consumer electronics, furniture, jewelry, automotive
products, and household mechanical systems such as heating, plumbing and
electrical systems. The Company currently provides extended service plans for
consumer electronics, furniture, and jewelry ("Warrantable Products") purchased
from Fingerhut.
ServiceEdge-SM- is the Company's extended service plan for consumer
electronics and all other electro-mechanical items. ServiceEdge customers have
the right to have their purchases repaired or replaced in the event of
electrical or mechanical failure or defects in materials and workmanship for
coverable events after the manufacturer's warranty expires.
The Company's extended service plan program for furniture is called Quality
Furniture Care-SM-. The services provided to Quality Furniture Care customers
include stain cleaning, structural defect or damage repair, or replacement if
the merchandise cannot be repaired. Customers who need to have their furniture
purchase repaired or cleaned must first notify the Company and obtain an
estimated cost for the service from a qualified repair or service provider. The
service estimate must then be given to the Company's service representatives and
a decision to go ahead with the repair or replace the product will be made by
the Company. Once repair authorization is received from the Company, the
customer, at their option, may then either pay for the service and submit the
bill to the Company for reimbursement, or the Company will pay the servicer
directly.
Quality Jewelry Care-Registered Trademark- is the Company's extended service
plan for jewelry. The services provided to Quality Jewelry Care customers
include repair, soldering, ring sizing, and cleaning, for which the Company has
third party jewelers to perform such services. To submit a claim, the customer
must mail the item to Fingerhut which logs the item and sends it to the
jewelers. The jewelers repair the product and return it to Fingerhut, noting if
it is unrepairable. Fingerhut then returns the item to the customer after it has
been repaired or cleaned or initiates a replacement to be paid for by the
Company, typically within 4 to 6 weeks.
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Most of the Company's extended service plans continue for two years from the
date of the product purchase (three to five years in limited cases). The
customer pays Fingerhut a one-time fee for this coverage based on the price of
the product and the expected claims. The Company also offers customers the
opportunity to renew their coverage in one-year extensions, up to six years from
the date of purchase, upon payment of an additional fee for each renewal.
When Fingerhut Customers purchase Warrantable Products, they have the option
to buy an extended service plan. For electro-mechanical products, approximately
31% of the Company's extended service plans are originated through the on-page
print advertisement located within Fingerhut's catalogs and other direct
marketing materials; the remainder are originated through telemarketing.
Substantially all of the Quality Furniture Care and Quality Jewelry Care plans
are originated through telemarketing and other direct marketing programs. In
order to maximize the efficiency of these programs, the Company has developed
proprietary targeting models to predict which customers will be most responsive
to its extended service plan direct marketing efforts.
Through the end of 1996, claims risk and claims processing for
electro-mechanical items were the responsibility of a third party. The Company
is responsible for claims risk and claims processing for furniture and jewelry.
At the beginning of 1997, the Company internalized the claims processing
operations related to extended service plans for electro-mechanical items and
has incurred the resulting claims risk for extended service plans sold on or
after January 1, 1997.
PURCHASESHIELD-SM-. During 1997, the Company developed a new fee-based
service, PurchaseShield, which offers various levels of purchase protection to
its members. Eligible purchases made on members' credit cards are protected with
the following benefits: warranty extension, sale price protection, and product
return guarantee. In addition, PurchaseShield offers its members a household
repair rebate that can be used on existing in-home appliances. Because this is
an internally administered program, the Company receives all revenues and is
responsible for all of the program's associated costs.
CARD REGISTRATION. Card registration protects members from fraudulent
charges if their credit cards are lost or stolen, provides emergency cash,
airline tickets, change of address notification, valuable property and document
registration, messaging service, and car rental discounts. The Company currently
offers card registration services to its credit card customers and customers of
third parties. The Company internalized this program in September 1996 and is
responsible for all of its associated costs and revenues. Prior to September
1996, the Company had an agreement with a third party vendor to offer card
registration services to its credit card customers.
ACCIDENTAL DEATH INSURANCE. The Company earns a fee from a third-party
insurance administrator for the marketing and billing of an accidental death
insurance program. The Company markets the insurance program to its credit card
customers. Although the Company markets the program, the third-party
administrator fulfills and underwrites the policies.
MEMBERSHIP CLUBS. The Company currently has a cooperative marketing
arrangement with a third party to market the third party's memberships in
discount clubs, in conjunction with its new credit card account acquisitions.
The Company's current arrangement with this third party enables the Company to
acquire new credit card customers at a reduced cost.
TAILORED LIST DEVELOPMENT. The Company currently works with several
companies to develop targeted mailing lists and earns revenue for each name that
is solicited by the companies from these mailing lists. The Company also earns
revenue from the sale of advertising space included in its monthly billing
statements.
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FUNDING AND LIQUIDITY
One of the Company's primary financial goals is to maintain an adequate
level of liquidity through active management of assets and liabilities. Because
the pricing and maturity characteristics of the Company's assets and liabilities
change, liquidity management is a dynamic process, affected by changes in short
and long term interest rates. The Company utilizes a variety of financing
sources to manage liquidity, refunding, rollover and interest rate risks.
Current funding sources are committed and/or available by counterparties to the
Company through facilities established by the Company and FCI.
The Company finances the growth of its credit card loan portfolio through
asset securitization, bank financing, long term debt issuance, equity issuance
and cash flow from operations. The primary financing vehicle is asset
securitization. A securitization involves the transfer by the Company of credit
card loans to third party trusts, which fund the purchase by issuing fixed and
variable rate certificates of beneficial ownership interest secured by the loans
receivable to public and private investors. The Company transfers the loans to
bankruptcy remote subsidiaries, which in turn sell the receivables to the
trusts. The Company sells receivables both to a single seller master trust (the
"Metris Master Trust") as well as a bank sponsored multi-seller trust. The
Metris Master Trust is authorized to sell multiple series and classes of
certificates of beneficial ownership interests in the loans and other assets of
the trust. The bank sponsored multi-seller trust funds the receivables purchase
primarily with asset-backed floating rate commercial paper. The loans are
removed from the Company's balance sheet for financial and regulatory purposes.
For tax purposes, the financing is treated as secured debt.
In September 1996, the Company executed a $300 million revolving credit
facility agreement with a group of banks to fund on-balance sheet loans and for
other general business purposes. 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 loans and interests held therein by the Company. The
revolving credit facility contains certain financial covenants standard for
revolving credit facilities of this type, including minimum net worth, minimum
equity to managed assets ratio, maximum leverage and a limitation on
indebtedness. In addition, the FCI guarantee includes certain covenants
including minimum interest coverage, maximum leverage and minimum net worth for
FCI. Prior to September 1996, the Company borrowed from FCI.
In November 1997, the Company privately issued and sold $100 million of 10%
Senior Notes due 2004 (the "Senior Notes") pursuant to an exemption under the
Securities Act of 1933, as amended. The net proceeds of $97 million were used to
reduce borrowings under the revolving credit facility. In January 1998, the
company commenced an exchange offer for the Senior Notes pursuant to a
registration statement. The terms of the new Senior Notes are identical in all
material respects to the original private issue. The Senior Notes are
unconditionally guaranteed on a senior basis, jointly and severally, by Metris
Direct, Inc. (the "Guarantor"), and all future subsidiaries of the Company that
guarantee any of the Company's indebtedness, including the revolving credit
facility. The guarantee is an unsecured obligation of the Guarantor and ranks
pari passu with all existing and future unsubordinated indebtedness.
As the portfolio of credit card loans grows, or as the Trust certificates
amortize or are otherwise paid, the Company's funding needs will increase
accordingly. The Company believes that its asset securitization programs,
together with the revolving credit facility, long term debt issuance, equity
issuance, and cash flow from operations, will provide adequate liquidity to the
Company for meeting anticipated cash needs, although no assurance can be given
to that effect.
In anticipation of the proposed Spin Off, the Company is negotiating with
its bank lenders to refinance the $300 million 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. The Company has lower
independent credit ratings than those of FCI. While the Company believes it will
be able to obtain stand-alone financing, it is expected to be on terms less
favorable than the current facility and is expected to result in approximately
$8 million in additional funding expense on an annualized basis.
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In addition, the Company's lower independent credit ratings will reduce the
cash advance rate on a portion of the sale of loans to the Metris Master Trust.
This will require approximately $40 million in additional on-balance sheet
funding by the Company to finance the unsold loans.
The Company will also be required to restructure certain interest rate swap
agreements with counterparty banks to remove Fingerhut as a guarantor or
co-obligor. These contracts hedge fixed rate term funding of credit card loans
in one of the trusts. The notional value of these contracts is approximately
$1.3 billion. While the Company believes it will be able to restructure these
contracts, no assurances can be given that it will be able to do so on terms as
favorable as the existing agreements. The market value of these contracts at
December 31, 1997, in total, was favorable to the Company.
COMPETITION
As a marketer of consumer credit products, the Company faces increasing
competition from numerous providers of financial services, many of which have
greater resources than the Company. In particular, the Company competes with
national, regional and local bank card issuers as well as other general purpose
credit card issuers, such as American Express and Discover. In general,
customers are attracted to credit card issuers largely on the basis of price,
credit limit and other product features; as a result, customer loyalty is often
limited. However, the Company believes that its strategy of focusing on an
underserved market and its access to information from the Fingerhut Database,
not available to other credit card issuers, will allow it to more effectively
compete in the market for moderate income cardholders.
There are numerous competitors in the fee-based services market, including
insurance companies, financial services institutions and other membership-based
consumer services providers, many of which are larger, more capitalized and more
experienced than the Company. During the term of an agreement with Fingerhut,
the Company has the exclusive right to use the Fingerhut Database to market
these services to Fingerhut Customers. During the term of an agreement between
Fingerhut and the Company, Fingerhut will offer its customers extended service
plans provided only by the Company. As the Company attempts to expand its
business to market extended service plans to the customers of third-party
retailers, it will compete with manufacturers, financial institutions, insurance
companies and a number of independent administrators, many of which have greater
operating experience and financial resources than the Company.
REGULATION
THE COMPANY AND DIRECT MERCHANTS BANK
Direct Merchants Bank is a limited purpose credit card bank chartered as a
national banking association and a member of the Federal Reserve System. Its
deposits are insured by the Bank Insurance Fund which is administered by the
Federal Deposit Insurance Corporation ("FDIC"). Direct Merchants Bank is subject
to comprehensive regulation and periodic examination by the Office of the
Comptroller of the Currency (the "OCC"), as its regulator. It is also subject to
regulation by the Federal Reserve System and the FDIC, as back-up regulators.
Direct Merchants Bank is not a "bank" as defined under the Bank Holding Company
Act of 1956, as amended (the "BHCA") because it (i) engages only in credit card
operations, (ii) does not accept demand deposits or deposits that the depositor
may withdraw by check or similar means for payment to third parties or others,
(iii) does not accept any savings or time deposit of less than $100,000, (iv)
maintains only one office that accepts deposits and (v) does not engage in the
business of making commercial loans. As a result, the Company is not a bank
holding company under the BHCA. If Direct Merchants Bank failed to meet the
credit card bank criteria described above, Direct Merchants Bank's status as an
insured bank would make the Company subject to the provisions of the BHCA. The
Company believes that becoming a bank holding company would limit the Company's
ability to pursue future opportunities.
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EXPORTATION OF INTEREST RATES AND FEES
Under current judicial interpretations of federal law, national banks such
as Direct Merchants Bank may charge interest at the rate allowed by the laws of
the state where the bank is located and may "export" interest rates by charging
the interest rate allowed by the laws of the state where the bank is located on
loans to borrowers in other states, without regard to the laws of such other
states.
In 1996, the Supreme Court of the United States held that national banks may
also impose late-payment fees allowed by the laws of the state where the
national bank is located on borrowers in other states, without regard to the
laws of such other states. The Supreme Court based its opinion largely on its
deference to a regulation adopted by the OCC that includes certain fees,
including late fees, overlimit fees, annual fees, cash advance fees and
membership fees, within the term "interest" under the provision of the National
Bank Act that has been interpreted to permit national banks to export interest
rates. As a result, national banks such as Direct Merchants Bank may export such
fees.
DIVIDENDS AND TRANSFERS OF FUNDS
There are various federal law limitations on the extent to which Direct
Merchants Bank can finance or otherwise supply funds to the Company and its
affiliates through dividends, loans or otherwise. These limitations include:
minimum regulatory capital requirements and restrictions concerning the payment
of dividends out of net profits or surplus; Sections 23A and 23B of the Federal
Reserve Act governing transactions between a bank and its affiliates; and
general Federal regulatory oversight to prevent unsafe or unsound banking
practices. In general, Federal law prohibits a national bank such as Direct
Merchants Bank from making dividend distributions on common stock if the
dividend would exceed net profits of a specified period. In addition, Direct
Merchants Bank must get OCC approval for a dividend if such distributions are
not paid out of available earnings or if the distribution would cause the bank
to fail to meet applicable capital adequacy standards.
COMPTROLLER OF THE CURRENCY
CAPITAL ADEQUACY. The Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA"), among other things, identifies five capital categories for
insured depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the Federal banking agencies to implement systems
for "prompt corrective action" for insured depository institutions that are not
at least adequately capitalized. FDICIA imposes progressively more restrictive
constraints on operations, management and capital distributions, depending upon
the category in which an institution is classified. Failure to meet the capital
guidelines could also subject a bank to capital raising requirements.
In addition, FDICIA requires the banking agencies to prescribe certain
non-capital standards for safety and soundness relating generally to operations
and management, asset quality and executive compensation. FDICIA also provides
that regulatory action may be taken against a bank that does not meet such
standards.
The OCC, Direct Merchants Bank's primary federal regulator, has adopted
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leveraged capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6 percent, a total capital ratio of at
least 10 percent and a leverage ratio of at least 5 percent and not be subject
to a capital directive order. An "adequately capitalized" institution must have
a Tier 1 capital ratio of at least 4 percent, a total capital ratio of at least
8 percent and a leverage ratio of at least 4 percent (3 percent in some cases).
Under these guidelines, Direct Merchants Bank is considered well capitalized.
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The OCC's risk-based capital standards explicitly consider a bank's exposure
to declines in the economic value of its capital due to changes in interest
rates when evaluating a bank's capital adequacy. Interest rate risk is the
exposure of a bank's current and future earnings and equity capital arising from
adverse movements in interest rates. The evaluation will be made as a part of
the institution's regular safety and soundness examination.
FDICIA. FDICIA revised sections of the Federal Deposit Insurance Act
affecting bank regulation, deposit insurance and provisions for funding of the
Bank Insurance Fund administered by the FDIC. FDICIA (i) revised bank regulatory
schemes embodied in several other federal banking statutes, (ii) linked
explicitly the bank regulators' authority to intervene to the deterioration of a
bank's capital level, (iii) required each company having control of a bank to
guarantee an undercapitalized bank's compliance with a capital restoration plan,
(iv) imposed new safety and soundness standards on management and operations of
a bank, and (v) tightened audit requirements. FDICIA also required the FDIC to
implement a system of risk-based premiums for deposit insurance pursuant to
which the premiums paid by a depository institution will be based on the
probability that the FDIC will incur a loss in respect of such institution. The
FDIC adopted a system that imposes insurance premiums based upon a matrix that
takes into account a bank's capital level and supervisory rating. Given Direct
Merchants Bank's capital level and supervisory rating, Direct Merchants Bank
pays the lowest rate on deposit insurance premiums.
Under FDICIA, only "well capitalized" and "adequately capitalized" banks may
accept brokered deposits. "Adequately capitalized" banks, however, must first
obtain a waiver from the FDIC before accepting brokered deposits and such
deposits may not pay rates that significantly exceed the rates paid on deposits
of similar maturity from the bank's normal market area or the national rate on
deposits of comparable maturity, as determined by the FDIC, for deposits from
outside the bank's normal market area. Direct Merchants Bank may accept brokered
deposits as part of its funding; however, it does not presently rely on brokered
deposits to fund its operations.
LENDING ACTIVITIES
Direct Merchants Bank's activities as a credit card lender are also subject
to regulation under various federal laws including the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Community
Reinvestment Act (the "CRA") and the Soldiers' and Sailors' Civil Relief Act.
Regulators are authorized to impose penalties for violations of these statutes
and, in certain cases, to order Direct Merchants Bank to pay restitution to
injured cardmembers. Cardholders may also bring actions for certain alleged
violations of such regulations. Federal and state bankruptcy and debtor relief
laws also affect Direct Merchants Bank's ability to collect outstanding balances
owed by cardholders who seek relief under these statutes.
The OCC and other federal banking agencies revised their regulations under
the CRA that affect the activities of Direct Merchants Bank. These regulations
subject limited purpose banks, including Direct Merchants Bank, to a "community
development" test for evaluating required CRA performance. The community
development performance of a limited purpose bank is evaluated pursuant to
various criteria involving community development lending, qualified investments
and community development services.
LEGISLATION
From time to time legislation has been proposed in Congress to limit
interest rates that could be charged on credit card accounts; however, the
Company does not anticipate any serious effort by Congress to enact such a
limitation in the current session of Congress.
INVESTMENT IN THE COMPANY AND DIRECT MERCHANTS BANK
Certain acquisitions of capital stock may be subject to regulatory approval
or notice under federal law. Investors are responsible for insuring that they do
not directly or indirectly acquire shares of capital stock of the Company in
excess of the amount which can be acquired without regulatory approval.
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INTERSTATE TAXATION
Several states have passed legislation which attempts to tax the income from
interstate financial activities, including credit cards, derived from accounts
held by local state residents. Based on current interpretations of the
enforceability of such legislation, coupled with the volume of its business in
these states, the Company believes that this will not materially affect Direct
Merchants Bank.
FAIR CREDIT REPORTING ACT
The Fair Credit Reporting Act ("FCRA") regulates "consumer reporting
agencies." Under the FCRA, an entity risks becoming a consumer reporting agency
if it furnishes "consumer reports" to its affiliates or third parties. A
"consumer report" is a communication of information which bears on a consumer's
creditworthiness, credit capacity, credit standing or certain other
characteristics and which is collected or used or expected to be used to
determine the consumer's eligibility for credit, insurance, employment or
certain other purposes. The FCRA explicitly excludes from the definition of
"consumer report" a report containing information solely as to transactions or
experiences between the consumer and the entity making the report.
It is the objective of the Company and Fingerhut to conduct their operations
in a manner which would fall outside the definition of "consumer reporting
agency" under the FCRA. If the Company or Fingerhut were to become a consumer
reporting agency, however, either would be subject to a number of complex and
burdensome regulatory requirements and restrictions, including restrictions
limiting the Company from using information from the Fingerhut Database and
furnishing information to third parties. Such restrictions could have a
significant adverse economic impact on the Company's results of operations and
future prospects.
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,300 employees
located in Illinois, Maryland, Minnesota, Oklahoma, and Utah. None of the
Company's employees are represented by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
TRADEMARKS AND TRADENAMES
MCI and its subsidiaries have registered and continue to register, when
appropriate, various trademarks, tradenames and service marks used in connection
with its business and for private label marketing of certain of its products.
The Company considers these trademarks and service marks to be readily
identifiable with, and valuable to, its business.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the persons
who currently serve as executive officers of MCI. Each executive officer serves
at the discretion of the Board of Directors of MCI. Ronald N. Zebeck currently
is an executive officer of FCI.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- --------------------------------------------------------
<S> <C> <C>
Ronald N. Zebeck 43 President, Chief Executive Officer and Director
William J. Brennan 60 Senior Vice President, Sales and Account Management
Douglas B. McCoy 51 Senior Vice President, Operations
Robert W. Oberrender 38 Senior Vice President, Chief Financial Officer
Douglas L. Scaliti 40 Senior Vice President, Marketing
Z. Jill Barclift 40 Vice President, General Counsel
David R. Reak 39 Vice President, Credit Risk
Jean C. Benson 30 Director of Finance, Corporate Controller
</TABLE>
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Ronald N. Zebeck is President and Chief Executive Officer and a director of
MCI. He has been President of Metris Direct, Inc. since March 1994 and has
served as Chief Executive Officer of Direct Merchants Bank since August 1995.
Mr. Zebeck was Managing Director, GM Card Operations of General Motors
Corporation from 1991 to 1993, Vice President, Marketing and Strategic Planning
of Advanta Corporation (Colonial National Bank USA) from 1987 to 1991, Director
of Strategic Planning of TSO Financial (later Advanta Corporation) from 1986 to
1987 and held various credit card and credit-related positions at Citibank
affiliates from 1976 to 1986.
William J. Brennan has been Senior Vice President, Sales and Account
Management of MCI since June 1997. Prior to joining the Company, he had been
Senior Vice President of Member Relations for MasterCard International Inc. from
1989 to 1997. He spent 12 years with First Interstate Bancorp, holding Senior
Vice President positions in both its bankcard and retail banking operations and,
before that, was Senior Vice President of Operations at Diners Club Inc. for 10
years.
Douglas B. McCoy has been Senior Vice President, Operations of MCI since
December 1996 and was Vice President, Operations of Metris Direct, Inc. from
January 1995 to November 1996. In addition, he has been President of Direct
Merchants Bank since July, 1995. Prior to joining the Company, he was Vice
President, Credit Administration of USAA Federal Savings Bank from September
1984 to January 1995, Assistant Vice President, Credit Administration of Bank of
Oklahoma from July 1984 to September 1984, Assistant Vice President, Operations
of First National Bank of Tulsa from May 1982 to July 1984 and Assistant Vice
President, Credit Card Marketing of The Bank of New Orleans from April 1978 to
April 1982.
Robert W. Oberrender has been Senior Vice President, Chief Financial Officer
of MCI since December 1996. He held the position of Vice President, Chief
Financial Officer of the Company from August 1996 to December 1996. He was Vice
President, Treasurer of FCI from July 1994 to July 1996, and was Assistant
Treasurer of FCI from February 1993 until July 1994. Mr. Oberrender was Vice
President, Corporate Finance & Banking Group of Chemical Bank (now The Chase
Manhattan Bank) for more than five years before joining FCI.
Douglas L. Scaliti has been Senior Vice President, Marketing of MCI since
December 1996. He was Vice President, Marketing of MCI from August 1996 to
November 1996 and held that position at Metris Direct, Inc. since September
1994. For the 12 years prior to joining the Company, he held several positions
at Advanta Corporation (Colonial National Bank USA): Senior Marketing Manager,
Credit Cards from 1987 to 1994, Operations Consultant, Profit Improvement from
1985 to 1987 and Credit Operations Manager from 1982 to 1985. Prior to that he
was Assistant Branch Manager of Avco Financial Services from 1980 to 1982. Mr.
Scaliti also serves on the First Data Resources Market Area Advisory Group.
David R. Reak has been Vice President, Credit Risk of MCI since October
1996. He was Senior Director, Credit Risk of Metris Direct, Inc. from December
1995 to October 1996. For 12 years prior to joining the Company, he had several
positions at American Express, Travel Related Services Company, including:
Senior Manager, Credit Risk Management Europe and Middle East from 1994 to
December 1995, Senior Manager, Credit Risk Management U.S. Consulting Group from
1992 to 1994, and Project Manager, Credit Research and Analysis from 1990 to
1992.
Z. Jill Barclift has been Vice President, General Counsel of MCI since
December 1996 and was Assistant General Counsel from April 1996 to December
1996. Before joining the Company she held various positions at Household
International, Inc. and Household Credit Services, Inc. from October 1989 to
April 1996, most recently as Associate General Counsel. Before that she was
Senior Counsel at Dean Witter Financial Services, Inc. from January 1984 to
October 1989.
Jean C. Benson has been Director of Finance, Corporate Controller of MCI
since March 1997 and was Corporate Controller from August 1996 to March 1997.
Prior to that she held various finance positions
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at the Company and FCI since October 1994. Prior to that she held various
positions at Deloitte & Touche LLP (public accounting), specializing in the
financial services industry from 1990 to 1994.
Officers of the Company are elected by, and hold office at the will of, the
Board of Directors and do not serve a "term of office" as such.
ITEM 2. PROPERTIES
The Company currently leases its principal executive office space in St.
Louis Park, Minnesota, consisting of approximately 75,000 square feet. The lease
expires on November 30, 2000. Direct Merchants Bank leases office space in Salt
Lake City, Utah, consisting of approximately 11,700 square feet. This lease
expires on April 30, 1999. In addition, the Company leases facilities in Tulsa,
Oklahoma, White Marsh, Maryland, and Champaign, Illinois, consisting of 61,000,
52,000, and 6,000 square feet, respectively. These leases expire on December 31,
1998, September 30, 2007, and November 30, 2002, respectively. The leased
properties in Oklahoma and Maryland support the Company's collections, customer
service and back office operations. The Company believes its facilities are
suitable to its businesses and that it will be able to lease or purchase
additional facilities as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that management believes
may have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is set forth in the "Summary of
Consolidated Quarterly Financial Information and Stock Data" on page 57 of the
Company's Annual Report to Shareholders as of and for the year ended December
31, 1997 (the "1997 Annual Report") and is incorporated herein by reference.
The Company made no sales of its equity securities during the period covered
by this report that were not registered under the Securities Act of 1933, as
amended.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under the caption
"Selected Financial Data" on page 16 of the 1997 Annual Report and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is set forth under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Forward Looking Statements" on pages 17 to 33 of the 1997
Annual Report and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is set forth under the captions
"Management's Discussion and Analysis--Market Risk" on pages 29 and 30 of the
1997 Annual Report and is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
ASSETS:
Cash and due from banks $ 21,006 $ 8,902
Federal funds sold 27,089 19,001
Short-term investments 128 4,179
---------- ----------
Cash and cash equivalents 48,223 32,082
---------- ----------
Credit card loans:
Loans held for securitization 8,795 14,164
Retained interests in loans securitized 471,831 201,165
Less: Allowance for loan losses 32,039 12,829
---------- ----------
Net credit card loans 448,587 202,500
---------- ----------
Premises and equipment, net 15,464 5,163
Accrued interest and fees receivable 4,310 2,942
Prepaid expenses and deferred charges 18,473 4,826
Deferred income taxes 80,787 31,528
Customer base intangible 36,752 888
Other assets 20,625 6,687
---------- ----------
TOTAL ASSETS $ 673,221 $ 286,616
---------- ----------
---------- ----------
LIABILITIES:
Interest-bearing deposit from affiliate $ $ 1,000
Short-term borrowings 144,000 54,163
Long-term debt 100,000
Accounts payable 35,356 15,583
Other payables due to credit card securitizations, net 134,559 36,619
Current income taxes payable to FCI 9,701 1,460
Deferred income 49,204 23,183
Accrued expenses and other liabilities 24,363 15,890
---------- ----------
TOTAL LIABILITIES 497,183 147,898
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized, none issued or
outstanding
Common stock, par value $.01 per share; 100,000,000 shares authorized, 19,225,000 shares
issued and outstanding 192 192
Paid-in capital 107,059 107,220
Retained earnings 68,787 31,306
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 176,038 138,718
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 673,221 $ 286,616
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
18
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ---------
INTEREST INCOME:
Credit card loans.............................................................. $ 66,695 $ 29,028 $ 7,054
Federal funds sold............................................................. 1,636 867 487
Other.......................................................................... 863 299 75
---------- ---------- ---------
Total interest income...................................................... 69,194 30,194 7,616
INTEREST EXPENSE:
Deposit........................................................................ 7 48 36
Borrowings..................................................................... 11,944 4,058 1,181
---------- ---------- ---------
Total interest expense..................................................... 11,951 4,106 1,217
---------- ---------- ---------
NET INTEREST INCOME............................................................ 57,243 26,088 6,399
Provision for loan losses...................................................... 43,989 18,477 4,393
---------- ---------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............................ 13,254 7,611 2,006
---------- ---------- ---------
OTHER OPERATING INCOME:
Net extended service plan revenues............................................. 7,911 20,420 17,779
Net securitization and credit card servicing income............................ 79,533 49,921 16,003
Credit card fees, interchange and other credit card income..................... 43,731 26,028 10,639
Fee-based services revenues.................................................... 55,502 29,853 6,662
---------- ---------- ---------
186,677 126,222 51,083
---------- ---------- ---------
OTHER OPERATING EXPENSE:
Credit card account and other product solicitation and marketing expenses...... 30,503 29,297 23,089
Employee compensation.......................................................... 35,200 23,068 2,466
Data processing services and communications.................................... 20,087 12,757 3,090
Third-party servicing expense.................................................. 12,711 9,207 5,300
Warranty and debt waiver underwriting and claims servicing expense............. 6,053 10,024 6,552
Credit card fraud losses....................................................... 3,240 2,276 775
Other.......................................................................... 30,254 14,658 4,368
---------- ---------- ---------
138,048 101,287 45,640
---------- ---------- ---------
INCOME BEFORE INCOME TAXES..................................................... 61,883 32,546 7,449
Income taxes................................................................... 23,825 12,530 2,868
---------- ---------- ---------
NET INCOME..................................................................... $ 38,058 $ 20,016 $ 4,581
---------- ---------- ---------
---------- ---------- ---------
EARNINGS PER SHARE:
Basic.......................................................................... $ 1.98 $ 1.21 $ 0.29
Diluted........................................................................ $ 1.88 $ 1.17 $ 0.28
SHARES USED TO COMPUTE EPS:
Basic.......................................................................... 19,225 16,572 15,967
Diluted........................................................................ 20,238 17,129 16,369
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
PAID-IN RETAINED STOCKHOLDERS'
COMMON STOCK CAPITAL EARNINGS EQUITY
--------------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
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.......................................... 38,058 38,058
Dividends and other................................. (161) (577) (738)
----- ---------- --------- --------
BALANCE, DECEMBER 31, 1997............................ $ 192 $ 107,059 $ 68,787 $ 176,038
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -----------
OPERATING ACTIVITIES:
Net income............................................................. $ 38,058 $ 20,016 $ 4,581
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses............................................ 43,989 18,477 4,393
Depreciation and amortization........................................ 15,942 7,329 2,808
(Gain)/net amortization of gain on securitization of credit card
loans.............................................................. (1,376) 6,194 (7,267)
Changes in operating assets and liabilities:
Accrued interest and fees receivable................................. (1,368) (719) (2,223)
Prepaid expenses and deferred charges................................ (23,150) (6,045) (6,696)
Deferred income taxes................................................ (49,259) (27,222) (4,108)
Accounts payable and accrued expenses................................ 28,246 8,110 20,374
Other payables/receivables due to/from credit card securitizations,
net................................................................ 98,670 61,542 (24,572)
Current income taxes payable to FCI.................................. 8,241 (3,718) 5,051
Deferred income...................................................... 26,021 13,096 10,084
Other................................................................ (16,022) (4,084) (4,431)
------------- ------------- -----------
Net cash provided by (used in) operating activities.................... 167,992 92,976 (2,006)
------------- ------------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of loans........................................... 1,665,700 952,055 448,555
Net loans originated or collected...................................... (1,260,620) (1,081,644) (528,864)
Credit card portfolio acquisition...................................... (733,486) (15,469)
Net decrease in loans to FCI........................................... 9,375
Additions to premises and equipment.................................... (11,705) (4,113) (1,353)
------------- ------------- -----------
Net cash used in investing activities.................................. (340,111) (133,702) (87,756)
------------- ------------- -----------
FINANCING ACTIVITIES:
(Decrease) increase in interest-bearing deposit........................ (1,000) 1,000
Net (decrease) increase in short-term borrowings....................... 89,837 (9,319) 63,482
Net proceeds from issuance of common stock............................. 47,384
Issuance of senior notes............................................... 100,000
Cash dividends paid.................................................... (577)
Capital contributions from FCI......................................... 60,000
------------- ------------- -----------
Net cash provided by financing activities.............................. 188,260 38,065 124,482
------------- ------------- -----------
Net increase (decrease) in cash and cash equivalents................... 16,141 (2,661) 34,720
Cash and cash equivalents at beginning of year......................... 32,082 34,743 23
------------- ------------- -----------
Cash and cash equivalents at end of year............................... $ 48,223 $ 32,082 $ 34,743
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
21
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
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 and
fee-based services and extended service plans primarily to moderate-income
consumers. The Company's business is conducted through Metris Direct, Inc.,
Direct Merchants Credit Card Bank, National Association ("Direct Merchants
Bank"), Metris Funding Co. ("MFC") and Metris Receivables, Inc. ("MRI"), each a
wholly-owned direct or indirect subsidiary of MCI.
Prior to September 1996, Metris Direct, Inc., (previously known as Fingerhut
Financial Services Corporation) 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 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 operations 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 original terms ranging up to seven years, expiring no
later than October 2003.
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.
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
22
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
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 bank sponsored, commercial paper funded, multi-seller receivables
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.
Beginning in 1997, the sales of these loans have been recorded in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." 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.
23
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 various receivables from and payables to the Trust or
Conduit and other assets/liabilities as a result of securitizations, including:
amounts deposited in an investor reserve account held by the Trust for the
benefit of the Trust's certificateholders; interest rate caps and swaps; accrued
interest and fees on the securitized receivables; servicing fee receivables;
recourse reserves; interest-only strip (see discussion in Note 15); and various
other receivables. These amounts are reported as "Other payables due to credit
card securitizations, net" on the consolidated balance sheets.
The Company securitized approximately $1.7 billion and $1.0 billion of
credit card loans in 1997 and 1996, respectively. At December 31, 1997, the
Company had approximately $3.1 billion of investors' interests in securitized
loans, with expected maturities from 1998 to 2006.
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 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
services revenues" and were $47.6 million, $25.5 million, and $4.8 million for
the years ended December 31, 1997, 1996 and 1995, respectively. Unearned
revenues and reserves for pending claims are recorded in the consolidated
balance sheets in "Accrued expenses and other liabilities" and amounted to $4.0
million and $2.5 million as of December 31, 1997 and 1996, respectively.
24
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 incremental direct
acquisition costs are deferred and recognized over the life of the related
extended service plan contracts. The provision for service contract returns
charged against revenues for the years ended December 31, 1997, 1996 and 1995
amounted to $4.6 million, $4.5 million and $3.6 million, respectively.
Additionally, the Company reimburses Fingerhut for the cost of its marketing
media and other services utilized in the sales of extended service plans, based
on contracts sold and on media utilization costs as agreed to by the Company and
Fingerhut. These media cost reimbursements were $3.6 million, $4.8 million, and
$4.2 million for the years ended December 31, 1997, 1996 and 1995, respectively.
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, overlimit,
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
25
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $9.2
million and $14.3 million as of December 31, 1997 and 1996, respectively.
SOLICITATION EXPENSES
Credit card account 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.
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
due to 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. The Company has not sold or
terminated any derivative financial instruments.
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 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
26
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 years ended December 31, 1997, 1996 and
1995 was $9.4 million, $4.1 million, and $1.2 million, respectively. Cash paid
for income taxes for the same periods was $64.8 million, $41.6 million, and $2.0
million, respectively.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS 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 earnings per share, ("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. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to SFAS
128 requirements. The following table presents the computation of basic and
diluted weighted average shares used in the per share calculations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands, except EPS)
<S> <C> <C> <C>
Income available to common stockholders...................... $ 38,058 $ 20,016 $ 4,581
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding................... 19,225 16,572 15,967
Adjustments for dilutive securities:
Assumed exercise of outstanding stock options................ 1,013 557 402
--------- --------- ---------
Diluted common shares........................................ 20,238 17,129 16,369
Basic EPS.................................................... $ 1.98 $ 1.21 $ 0.29
Diluted EPS.................................................. 1.88 1.17 0.28
</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 over the estimated
periods of benefit, generally 5 to 7 years, in proportion to the expected
benefits to be recognized.
27
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 3--ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year.................................. $ 12,829 $ 3,679 $
Allowance related to assets acquired, net..................... 4,619
Provision for loan losses..................................... 43,989 18,477 4,393
--------- --------- ---------
Loans charged off............................................. 30,065 9,514 720
Recoveries.................................................... 667 187 6
--------- --------- ---------
Net loan charge-offs.......................................... 29,398 9,327 714
--------- --------- ---------
Balance at end of year........................................ $ 32,039 $ 12,829 $ 3,679
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 4--PREMISES AND EQUIPMENT
The carrying value of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Furniture and equipment.................................................. $ 6,346 $ 1,013
Computer software and equipment.......................................... 3,733 2,784
Construction in progress................................................. 4,937 1,710
Leasehold improvements................................................... 2,439 248
--------- ---------
Total.................................................................... 17,455 5,755
Less: Accumulated depreciation and amortization.......................... 1,991 592
--------- ---------
Balance at end of year................................................... $ 15,464 $ 5,163
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1997,
1996 and 1995 was $1.4 million, $0.4 million, and $0.1 million, respectively.
NOTE 5--SHORT-TERM BORROWINGS
On September 16, 1996, the Company executed a $300 million, five-year
revolving credit facility (the "Revolving Credit Facility"), with a group of
banks, guaranteed by FCI.
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
loans 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, limitations on dividends and a limitation on
indebtedness. In addition, the FCI guarantee includes certain covenants
including minimum interest coverage, maximum leverage and minimum net worth for
FCI. At December 31, 1997 and 1996, the Company and FCI were in compliance with
these covenants.
28
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 5--SHORT-TERM BORROWINGS (CONTINUED)
The Company borrows under the Revolving Credit Facility, and prior to 1997,
borrowed from FCI, to fund on-balance sheet loans and for other general business
purposes. At December 31, 1997 and 1996, the Company had outstanding borrowings
of $144 million and $50 million, respectively, under the Revolving Credit
Facility and outstanding borrowings from FCI of $4.2 million at December 31,
1996. The weighted average interest rates on the Revolving Credit Facility
borrowings at December 31, 1997 and 1996 were 6.5% and 5.9%, respectively. The
weighted average interest rate on the borrowings from FCI was 7.1% at December
31, 1996.
NOTE 6--PORTFOLIO ACQUISITIONS
In September 1997, the Company acquired a $317 million credit card portfolio
from Key Bank USA, National Association. These credit card receivables were
securitized and sold to investors through the 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 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 approximately 83%. The Company
realized net cash proceeds of approximately $47.2 million from the sale of such
shares after underwriting discounts, commissions and expenses of the offering.
29
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 8--STOCK OPTIONS
In connection with the initial public offering of the Company, 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. As of December 31, 1997 and 1996, 303,925 and
557,425 shares, respectively, 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 are eligible to receive 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. 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 $0.7
million and $7.8 million related to these options was recorded for the years
ended December 31, 1997 and 1996, respectively.
During 1997 the Company granted 318,500 options to officers and employees of
the Company. At the time of the initial public offering, the Company granted
officers and employees of the Company, Fingerhut, and others options to purchase
an aggregate of 742,625 shares of common stock. 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"). Originally, such plan permitted up to
20,000 shares of common stock subject to certain adjustments in certain
circumstances. In 1997, the Board of Directors amended the plan to provide up to
100,000 shares of common stock for awards of options, subject to adjustments in
certain circumstances. During 1997 the Company granted 20,000 options and at the
time of the initial public offering the Company granted 10,000 options. At
December 31, 1997 and 1996, 70,000 and 10,000 shares, respectively, were
available for grant. This plan is subject to approval by the shareholders of the
Company at the annual meeting in 1998. Because FCI will still own approximately
83% of the common stock on the record date for such meeting and FCI has stated
it will approve such plan, the Company expects this plan to be adopted.
30
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 8--STOCK OPTIONS (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 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,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net earnings, as reported..................................... $ 38,058 $ 20,016 $ 4,581
Net earnings, pro forma....................................... $ 36,819 $ 17,395 $ 4,581
Diluted earnings per shares, as reported...................... $ 1.88 $ 1.17 $ 0.28
Diluted earnings per share, pro forma......................... $ 1.82 $ 1.02 $ 0.28
</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 1997 and 1996,
respectively: dividend yield of 0.11% and 0.17%; expected volatility of 68.2%
and 25.1%; risk-free interest rate of 6.34% and 6.48%; and expected lives of 7
years and 6.5 years. There were no options granted in 1995.
Information regarding the Company's stock options for 1997, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
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.............. 1,408,700 $ 8.93 656,075 $ 2.76 656,075 $ 2.76
Options exercised...................................
Options granted..................................... 338,500 40.58 752,625 14.31
Options canceled/forfeited.......................... 65,000 16.00
---------- ----------- ---------- ----------- --------- -----
Options outstanding, end of year.................... 1,682,200 15.03 1,408,700 8.93 656,075 2.76
Weighted-average fair value of options, granted
during the year................................... 28.29 11.54
</TABLE>
31
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 8--STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING --------------------------------
---------------------------------------- NUMBER
NUMBER WEIGHTED-AVERAGE EXERCISABLE
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE AT WEIGHTED AVERAGE
EXERCISE PRICE 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE 12/31/97 EXERCISE PRICE
- --------------- -------------- --------------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$2.76........... 752,200 5.7 $ 2.76 553,327 $ 2.76
$16.00-$24.00... 604,500 8.8 16.17 295,000 16.27
$24.01-$46.00... 325,500 9.7 41.24 10,000 39.00
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS
In January 1997, the Company adopted a defined contribution profit sharing
plan (the "Retirement Plan") that provides retirement benefits for eligible
employees. During 1997, the Company's employees participated in the Retirement
Plan, which provides savings and investment opportunities. The Retirement Plan
stipulates that eligible employees with at least one year of service may elect
to contribute to the Retirement Plan. The Company matches a portion of employee
contributions and makes discretionary contributions based upon the Company's
financial performance. For the year ended December 31, 1997, the Company
contributed $0.9 million to the Retirement Plan.
Prior to 1997, employees of Direct Merchants Bank participated in a defined
contribution plan maintained by Direct Merchants Bank that covered substantially
all of its employees. This plan was merged with and into the Retirement Plan and
the funds transferred to the Retirement Plan respective accounts. Direct
Merchants Bank employees were eligible to participate in the Retirement Plan as
of January 1, 1997.
NOTE 10--INCOME TAXES
The components of the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal................................................... $ 66,496 $ 38,914 $ 6,238
State..................................................... 4,663 4,035 921
Deferred.................................................... (47,334) (30,419) (4,291)
---------- ---------- ---------
$ 23,825 $ 12,530 $ 2,868
---------- ---------- ---------
</TABLE>
32
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 10--INCOME TAXES (CONTINUED)
A reconciliation of the Company's effective income tax rate compared to the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<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% 3.2%
Other, net.............................................................. 0.3% 0.3% 0.3%
--- --- ---
Effective income tax rate............................................... 38.5% 38.5% 38.5%
--- --- ---
</TABLE>
The "other net" tax rate in 1997, 1996 and 1995 was composed of
miscellaneous items, none of which was individually significant.
The Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred income tax assets resulting from future deductible temporary
differences:
Allowance for loan losses and recourse reserves....................... $ 71,240 $ 29,910
Deferred revenues..................................................... 16,140 2,723
Other................................................................. 9,344 1,592
--------- ---------
Total deferred tax assets............................................... $ 96,724 $ 34,225
Deferred income tax liabilities resulting from future taxable temporary
differences:
Deferred solicitation and origination costs........................... $ 6,360 $ 1,692
Accrued interest on credit card loans................................. 8,577 578
Other................................................................. 1,000 427
--------- ---------
Total deferred tax liabilities.......................................... $ 15,937 $ 2,697
--------- ---------
Net deferred tax assets................................................. $ 80,787 $ 31,528
--------- ---------
--------- ---------
</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
33
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 11--RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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 5).
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 provide 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
($1.5 million was paid in January 1998). 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
34
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 11--RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Net extended service plan revenues............................ $ 7,911 $ 20,420 $ 17,779
EXPENSES:
Interest expense.............................................. 3,178 1,181
Credit card account and other product solicitation and
marketing expenses.......................................... 8,432 9,335 8,204
Data processing services and communications................... 1,837 1,324 320
Third-party customer service and collections expenses......... 500
Other affiliate cost allocations.............................. 1,336 950 1,680
</TABLE>
In the ordinary course of business, executive officers of the Company or FCI
may have credit card loans issued by the Company. Pursuant to the Company's
policy, such loans are issued on the same terms as those prevailing at the time
for comparable loans with unrelated persons and do not involve more than the
normal risk of collectibility.
NOTE 12--COMMITMENTS AND CONTINGENCIES
Commitments to extend credit to consumers represent the unused credit limits
on open credit card accounts. These commitments amounted to $4.1 billion and
$1.2 billion as of December 31, 1997 and 1996, 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 years ended December
31, 1997, 1996 and 1995 was $3.9 million, $1.1 million and $0.2 million,
respectively.
35
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
Future minimum lease commitments at December 31, 1997 under cancelable and
non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 4,686
1999............................................................... 3,543
2000............................................................... 2,196
2001............................................................... 839
2002............................................................... 678
Thereafter......................................................... 2,908
---------
Total minimum lease payments..................................... $ 14,850
---------
</TABLE>
NOTE 13--CAPITAL REQUIREMENTS AND RESTRICTED PAYMENTS
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 can finance or otherwise supply funds to 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 with certain restrictions. Such
restrictions limit Direct Merchants Bank's ability to lend to the Company and
its affiliates. Additionally, Direct Merchants Bank is limited in its ability to
declare dividends to the Company in accordance with the National Bank Act
dividend provisions.
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of the Currency ("OCC"). The OCC
considers a range of factors when determining capital adequacy, such as the
organization's size, quality, liquidity and internal controls. At December 31,
1997 and 1996, 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 OCC.
The Company is also bound by restrictions set forth in an indenture related
to the Senior Notes dated November 7, 1997 (see Note 16). Pursuant to that
indenture, the Company may not make dividend payments in the event of a default
or if all such restricted payments would exceed 25% of the aggregate cumulative
net income of the Company.
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
36
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 14--CONCENTRATIONS OF CREDIT RISK (CONTINUED)
concentration of credit risk at December 31, 1997 or 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>
DECEMBER 31, 1997
Texas................................................. $ 61,844 $ 394,571 $ 456,415
California............................................ 58,098 370,652 428,750
Florida............................................... 35,654 227,477 263,131
New York.............................................. 29,246 186,589 215,835
Ohio.................................................. 17,961 114,589 132,550
Illinois.............................................. 15,914 101,533 117,447
Pennsylvania.......................................... 15,681 100,048 115,729
All Others............................................ 246,228 1,570,851 1,817,079
---------- ------------ ------------
Total............................................... $ 480,626 $ 3,066,310 $ 3,546,936
---------- ------------ ------------
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 primarily 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 December 31, 1997, 1996 and 1995, the majority of 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 SFAS 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 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
37
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 DUE TO CREDIT CARD SECURITIZATIONS, NET
The components of this net liability are as follows:
INTEREST-ONLY STRIP
The fair value of the interest-only strip is estimated by discounting the
expected future cash flows from the trusts 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 this, the fair values presented
may not be indicative of the value negotiated in an actual sale. The future cash
flows used to estimate fair value is limited to the receivables that exist at
year end and does not reflect the value associated with future receivables
generated by cardholder activity. The significant assumptions used to estimated
fair value
38
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
include: (i) interest rates on trust assets; (ii) payment rates; (iii)
anticipated charge-offs over the life of the loans under the recourse
provisions; and (iv) discount rates and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
----- -----
Discount rate............................................................... 10% 9%
Payment rate (monthly)...................................................... 5% 6%
Default rate (annually)..................................................... 14% 12%
</TABLE>
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.
OTHER AMOUNTS
For the other components of other payables due to credit card
securitizations, net, the carrying amount is a reasonable estimate of the fair
value.
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.
LONG-TERM DEBT
The fair value of the long-term debt was obtained from a quoted market
price.
39
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996
------------------------------------ ------------------------------------
<CAPTION>
ESTIMATED FAIR ESTIMATED FAIR
CARRYING AMOUNT VALUE CARRYING AMOUNT VALUE
---------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $ 48,223 $ 48,223 $ 32,082 $ 32,082
Credit card loans, net...................... 448,587 448,587 202,500 202,500
Other payables due to credit card
securitizations, net:
Interest-only strip..................... 2,449 2,449 1,073 1,073
Interest rate swap agreements in a net
receivable position................... 21,667 2,657
Interest rate cap agreements............ 3,497 170 4,143 1,989
Other amounts........................... (140,505) (140,505) (41,835) (41,835)
Interest-bearing deposit from affiliate..... 1,000 1,000
Short-term borrowings....................... 144,000 144,000 54,163 54,163
Long-term debt.............................. 100,000 101,750
</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 the impact of fluctuating interest rates associated
with the spread between the floating rate loans owned by the Trust and the
floating and fixed rate certificates issued by the Trust to fund the loans. In
connection with the issuance of the $513 million Trust Series 1995-1 variable
funding certificates in May 1995, the Company entered into eight-year agreements
with bank counterparties in a total notional amount of $513 million effectively
capping the potential impact to the Company of increases in the certificates'
floating interest rate at 11.2%. Also, in connection with the issuance of $513
million of additional Trust Series 1995-1 certificates related to the September
1996 amendment of Trust Series 1995-1, the Company entered into additional six
and two-thirds year agreements in a total notional amount of $513 million
effectively capping the potential impact to the Company of increases in the new
certificates' floating interest rate at 11.2%. The Company entered into interest
rate swap agreements in April 1996 and May 1997 to effectively offset the
potential impact of the fixed rate Trust Series 1996-1 and 1997-1 certificates
by paying a floating rate. Total notional amounts of these swap transactions
amounted to $605.5 million for Series 1996-1 and $722.5 million for Series
1997-1. These swaps exchanged an obligation to pay a weighted-average fixed rate
of 6.26% and 6.69%, respectively, for a one month floating rate based on
prevailing 30 day London Interday Offered Rate ("LIBOR"). The Company receives
the benefits and bears the obligations of these swap transactions, with FCI
guaranteeing the Company's performance under the swap agreements. The
obligations of the Company and the counterparties under these swap agreements
are settled on a monthly basis.
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
40
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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--LONG-TERM DEBT
In November 1997, the Company privately issued and sold $100 million of 10%
Senior Notes due 2004 (the "Senior Notes") pursuant to an exemption under the
Securities Act of 1933, as amended. In January 1998, the Company commenced an
exchange offer for the Senior Notes pursuant to a registration statement. The
terms of the new Senior Notes are identical in all material respects to the
original private issue. The net proceeds of $97 million were used to pay down
borrowings under the Revolving Credit Facility. The Senior Notes are
unconditionally guaranteed on a senior basis, jointly and severally, by Metris
Direct, Inc. (the "Guarantor"), and all future subsidiaries of the Company that
guarantee any of the Company's indebtedness, including the Revolving Credit
Facility. The guarantee is an unsecured obligation of the Guarantor and ranks
pari passu with all existing and future unsubordinated indebtedness.
Metris Direct, Inc. has various subsidiaries which have not guaranteed the
Senior Notes. The following condensed consolidating financial statements of the
Company, the Guarantor subsidiary and the non-guarantor subsidiaries are
presented for purposes of complying with SEC reporting requirements. Separate
financial statements of Metris Direct, Inc. and the non-guaranteeing
subsidiaries are not presented because management has determined that the
subsidiaries financial statements would not be material to investors.
41
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
COMPANIES INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks................ $ 320 $ 390 $ 20,296 $ $ 21,006
Federal funds sold..................... 27,089 27,089
Short-term investments................. 16 112 128
-------------- ----------- -------------- ------------
Cash and cash equivalents.............. 336 390 47,497 48,223
-------------- ----------- -------------- ------------
Credit card loans:
Loans held for securitization.......... 8,140 655 8,795
Retained interests in loans
securitized.......................... 471,831 471,831
Less: Allowance for loan losses........ 54 31,985 32,039
-------------- ----------- -------------- ------------
Net credit card loans.................. 8,086 440,501 448,587
-------------- ----------- -------------- ------------
Premises and equipment, net............ 13,899 1,565 15,464
Accrued interest and fees receivable... 9 4,301 4,310
Prepaid expenses and deferred
charges.............................. 138 15,075 3,260 18,473
Deferred income taxes.................. 682 12,638 67,467 80,787
Customer base intangible............... 1,567 35,185 36,752
Other assets........................... 3,489 6,983 10,153 20,625
Investment in subsidiaries............. 349,731 366,977 (716,708)
-------------- ----------- -------------- ------------ ------------
Total assets........................... $ 364,038 $ 415,962 $ 609,929 $ (716,708) $ 673,221
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
LIABILITIES:
Interest-bearing deposit from
affiliate............................ $ (1,000) $ $ 1,000 $ $
Borrowings/intercompany balances....... 177,598 7,975 (41,573) 144,000
Long-term debt......................... 100,000 100,000
Accounts payable....................... (1,086) 7,975 28,467 35,356
Other payables due to credit card
securitizations, net................. 491 134,068 134,559
Current income taxes payable to
(receivable from) FCI................ (90,003) (486) 100,190 9,701
Deferred income........................ 33 35,044 14,127 49,204
Accrued expenses and other
liabilities.......................... 1,967 15,723 6,673 24,363
-------------- ----------- -------------- ------------
Total liabilities...................... 188,000 66,231 242,952 497,183
-------------- ----------- -------------- ------------
STOCKHOLDERS' EQUITY:
Common stock........................... 192 1,002 1,002 (2,004) 192
Paid-in capital........................ 107,059 279,842 279,815 (559,657) 107,059
Retained earnings...................... 68,787 68,887 86,160 (155,047) 68,787
-------------- ----------- -------------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY............. 176,038 349,731 366,977 (716,708) 176,038
-------------- ----------- -------------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $ 364,038 $ 415,962 $ 609,929 $ (716,708) $ 673,221
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
42
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
COMPANIES INC. SUBSIDIARIES SUBSIDIARIES 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............ 4,669 494 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.................. 290 575 30,663 31,528
Customer base intangible............... 888 888
Other assets........................... 1,187 5 5,495 6,687
Investment in subsidiaries............. 128,125 131,730 (259,855)
-------------- ----------- -------------- ------------ ------------
TOTAL ASSETS........................... $ 147,944 $ 137,682 $ 260,845 $ (259,855) $ 286,616
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
LIABILITIES:
Interest-bearing deposit from
affiliate............................ $ $ $ 1,000 $ $ 1,000
Short-term borrowings/ intercompany
balances............................. 50,172 (3,372) 7,363 54,163
Accounts payable....................... (383) 4,466 11,500 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) (6,834) 49,571 1,460
Deferred income........................ 153 2,060 20,970 23,183
Accrued expenses and other
liabilities.......................... 2 13,237 2,651 15,890
-------------- ----------- -------------- ------------
Total liabilities...................... 9,226 9,557 129,115 147,898
-------------- ----------- -------------- ------------
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 45,097 48,728 (93,825) 31,306
-------------- ----------- -------------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY............. 138,718 128,125 131,730 (259,855) 138,718
-------------- ----------- -------------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................... $ 147,944 $ 137,682 $ 260,845 $ (259,855) $ 286,616
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
43
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
COMPANIES INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Credit card loans...................... $ 1,063 $ $ 65,632 $ $ 66,695
Federal funds sold..................... 1,636 1,636
Other.................................. 184 679 863
-------------- -------------- ------------
Total interest income................ 1,247 67,947 69,194
INTEREST EXPENSE:
Deposit................................ 7 7
Borrowings............................. 13,937 432 (2,425) 11,944
-------------- ----------- -------------- ------------
Total interest expense/(income)...... 13,937 432 (2,418) 11,951
NET INTEREST INCOME/(EXPENSE).......... (12,690) (432) 70,365 57,243
Provision for loan losses.............. 682 43,307 43,989
-------------- ----------- -------------- ------------
NET INTEREST INCOME/(EXPENSE) AFTER
PROVISION FOR LOAN LOSSES............ (13,372) (432) 27,058 13,254
OTHER OPERATING INCOME:
Net extended service plan revenues..... 7,911 7,911
Net securitization and credit card
servicing income..................... 10,653 68,880 79,533
Credit card fees, interchange and other
credit card income................... 478 (21) 43,274 43,731
Fee-based services revenues............ 625 54,877 55,502
-------------- ----------- -------------- ------------
11,131 8,515 167,031 186,677
OTHER OPERATING EXPENSE:
Credit card account and other product
solicitation and marketing
expenses............................. 1,783 28,720 30,503
Employee compensation.................. 32,735 2,465 35,200
Data processing services and
communications....................... 2,883 17,204 20,087
Third-party servicing expense.......... 51 (20,396) 33,056 12,711
Warranty and debt waiver underwriting
and claims servicing expense......... 549 5,504 6,053
Credit card fraud losses............... 27 3,213 3,240
Other.................................. 382 12,644 17,228 30,254
-------------- ----------- -------------- ------------
460 30,198 107,390 138,048
-------------- ----------- -------------- ------------
INCOME/(LOSS) BEFORE INCOME TAXES AND
EQUITY IN INCOME OF SUBSIDIARIES..... (2,701) (22,115) 86,699 61,883
Income taxes........................... (1,040) (8,475) 33,340 23,825
Equity in income of subsidiaries....... 39,719 53,359 (93,078)
-------------- ----------- -------------- ------------ ------------
NET INCOME/(LOSS)...................... $ 38,058 $ 39,719 $ 53,359 $ (93,078) $ 38,058
-------------- ----------- -------------- ------------ ------------
-------------- ----------- -------------- ------------ ------------
</TABLE>
44
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
COMPANIES INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <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 borrowings.................. 7,272 (2,575) (639) 4,058
------- ----------- -------------- ------------
Total interest expense/(income)...... 7,272 (2,575) (591) 4,106
------- ----------- -------------- ------------
NET INTEREST INCOME/(EXPENSE).......... (6,968) 2,575 30,481 26,088
Provision for loan losses.............. 83 18,394 18,477
------- ----------- -------------- ------------
NET INTEREST INCOME/(EXPENSE) AFTER
PROVISION FOR LOAN LOSSES............ (7,051) 2,575 12,087 7,611
OTHER OPERATING INCOME:
Net extended service plan 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 services revenues............ 1,580 28,273 29,853
------- ----------- -------------- ------------
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 expense.......... 3 (6,757) 15,961 9,207
Warranty and debt waiver underwriting
and claims servicing expense......... 6,463 3,561 10,024
Credit card fraud losses............... 10 2,266 2,276
Other.................................. 1 9,900 4,757 14,658
------- ----------- -------------- ------------
5,819 42,845 52,623 101,287
------- ----------- -------------- ------------
INCOME/(LOSS) BEFORE INCOME TAXES AND
EQUITY IN INCOME OF SUBSIDIARIES..... (8,962) (18,163) 59,671 32,546
Income taxes........................... (3,450) (6,993) 22,973 12,530
Equity in income of subsidiaries....... 25,528 36,698 (62,226)
------- ----------- -------------- ------------ ------------
NET INCOME/(LOSS)...................... $ 20,016 $ 25,528 $ 36,698 $ (62,226) $ 20,016
------- ----------- -------------- ------------ ------------
------- ----------- -------------- ------------ ------------
</TABLE>
45
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
COMPANIES INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ----------- -------------- ------------ ------------
<S> <C> <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 borrowings.................. 2,145 (979) 15 1,181
-------------- ----------- ------- ------------
Total interest expense/(income)...... 2,145 (979) 51 1,217
-------------- ----------- ------- ------------
NET INTEREST INCOME/(EXPENSE).......... (2,145) 979 7,565 6,399
Provision for loan losses.............. 4,393 4,393
-------------- ----------- ------- ------------
NET INTEREST INCOME/(EXPENSE) AFTER
PROVISION FOR LOAN LOSSES............ (2,145) 979 3,172 2,006
OTHER OPERATING INCOME:
Net extended service plan 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 services revenues............ 1,817 4,845 6,662
-------------- ----------- ------- ------------
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.................. 1,430 1,036 2,466
Data processing services and
communications....................... 34 3,056 3,090
Third-party servicing expense.......... 500 4,800 5,300
Warranty and debt waiver underwriting
and claims servicing expense......... 5,854 698 6,552
Credit card fraud losses............... 775 775
Other.................................. 3,484 884 4,368
-------------- ----------- ------- ------------
11,244 19,591 14,805 45,640
-------------- ----------- ------- ------------
INCOME/(LOSS) BEFORE INCOME TAXES AND
EQUITY IN INCOME OF SUBSIDIARIES..... (13,389) 1,014 19,824 7,449
Income taxes........................... (5,118) 375 7,611 2,868
Equity in income of subsidiaries....... 12,852 12,213 (25,065)
-------------- ----------- ------- ------------ ------------
NET INCOME/(LOSS)...................... $ 4,581 $ 12,852 $ 12,213 $ (25,065) $ 4,581
-------------- ----------- ------- ------------ ------------
-------------- ----------- ------- ------------ ------------
</TABLE>
46
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
COMPANIES INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES........................................ $ (51,300) $ (526) $ 219,818 $ 167,992
-------------- ----------- -------------- -------------
INVESTING ACTIVITIES:
Proceeds from sales of loans........................ 1,665,700 1,665,700
Net loans originated or collected................... 3,300 (1,263,920) (1,260,620)
Credit card portfolio acquisition................... (733,486) (733,486)
Additions to premises and equipment................. (10,515) (1,190) (11,705)
-------------- ----------- -------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES........................................ 3,300 (10,515) (332,896) (340,111)
-------------- ----------- -------------- -------------
FINANCING ACTIVITIES:
Decrease in interest bearing deposit................ (1,000) (1,000)
Net (decrease) increase in short-term borrowings.... 127,425 11,348 (48,936) 89,837
Issuance of senior notes............................ 100,000 100,000
Cash dividends paid................................. 15,350 (15,927) (577)
Capital contributions............................... (197,814) 197,814
-------------- ----------- -------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 43,961 11,348 132,951 188,260
-------------- ----------- -------------- -------------
Net (decrease) increase in cash and cash
equivalents....................................... (4,039) 307 19,873 16,141
Cash and cash equivalents at beginning of year...... 4,375 83 27,624 32,082
-------------- ----------- -------------- -------------
Cash and cash equivalents at end of year............ $ 336 $ 390 $ 47,497 $ 48,223
-------------- ----------- -------------- -------------
-------------- ----------- -------------- -------------
</TABLE>
47
<PAGE>
METRIS COMPANIES INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
1996 COMPANIES INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
- ---------------------------------------------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES........................................ $ (40,660) $ (4,991) $ 138,627 $ 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................. (3,782) (331) (4,113)
-------------- ----------- -------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES............. (13,994) (3,782) (115,926) (133,702)
-------------- ----------- -------------- -------------
FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings.... 50,172 8,856 (68,347) (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 8,856 (29,820) 38,065
-------------- ----------- -------------- -------------
Net increase (decrease) in cash and cash
equivalents....................................... 4,375 83 (7,119) (2,661)
Cash and cash equivalents at beginning of year...... 34,743 34,743
-------------- ----------- -------------- -------------
Cash and cash equivalents at end of year............ $ 4,375 $ 83 $ 27,624 $ 32,082
-------------- ----------- -------------- -------------
-------------- ----------- -------------- -------------
</TABLE>
<TABLE>
<CAPTION>
METRIS GUARANTOR NON-GUARANTOR
1995 COMPANIES INC. SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
- ---------------------------------------------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES........................................ $ (15,525) $ 3,544 $ 9,975 $ (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 in loans to FCI........................ 9,375 9,375
Additions to premises and equipment................. (910) (443) (1,353)
-------------- ----------- -------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES........................................ 8,465 (96,221) (87,756)
-------------- ----------- -------------- -------------
FINANCING ACTIVITIES:
Increase in interest-bearing deposit................ 1,000 1,000
Net (decrease)/increase in short-term borrowings.... (12,009) 75,491 63,482
Capital contributions............................... 15,525 44,475 60,000
-------------- ----------- -------------- -------------
Net cash provided by (used in) financing
activities........................................ 15,525 (12,009) 120,966 124,482
-------------- ----------- -------------- -------------
Net increase in cash and cash equivalents........... 34,720 34,720
Cash and cash equivalents at beginning of year...... 23 23
-------------- ----------- -------------- -------------
Cash and cash equivalents at end of year............ $ $ $ 34,743 $ 34,743
-------------- ----------- -------------- -------------
-------------- ----------- -------------- -------------
</TABLE>
48
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Metris Companies Inc.:
We have audited the accompanying consolidated balance sheets of Metris
Companies Inc. and subsidiaries as of December 31, 1997 and 1996, 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,
1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
<TABLE>
<S> <C> <C>
/s/ KPMG PEAT MARWICK LLP
</TABLE>
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 21, 1998
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors is set forth
under "The Board: Election of Nominees" in the Company's proxy statement for the
annual meeting of shareholders to be held on May 12, 1998, which will be filed
within 120 days of December 31, 1997 (the "Proxy Statement") and is incorporated
herein by reference. The information required by this item with respect to
executive officers is, pursuant to instruction 3 of Item 401(b) of Regulation
S-K, set forth in Part I of this Form 10-K under "Business Executive Officers of
the Registrant." The information required by this item with respect to reports
required to be filed under Section 16(a) of the Securities Exchange Act of 1934
is set forth under "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under "Compensation
Tables and Compensation Matters" in the Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under "Company Stock
Owned by Officers and Directors" and "Persons Owning More Than Five Percent of
Metris Stock" in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under "Arrangements and
Transactions with Fingerhut" in the Proxy Statement and is incorporated herein
by reference.
With the exception of the information incorporated by reference in Items
10-13 above, the Proxy Statement is not to be deemed filed as part of this Form
10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are made part of this report:
1. Consolidated Financial Statements--See Item 8 above.
2. Financial Statement Schedules
50
<PAGE>
All schedules to the consolidated financial statements normally required
by Form 10-K are omitted since they are either not applicable or the
required information is shown in the financial statements or the notes
thereto.
(b) Reports on Form 8-K: 8-K filed October 15, 1997 (filed pursuant to item
5 of Form 8-K concerning the purchase of
approximately 260,000 credit card accounts).
8-K filed November 7, 1997 (filed pursuant to item 5
of Form 8-K concerning the purchase of
approximately 240,000 credit card accounts).
(c) Exhibits: See Exhibit Index on page 54 of this Report.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 26th day of
March, 1998.
METRIS COMPANIES INC.
(Registrant)
By /s/Ronald N. Zebeck
-----------------------------------------
Ronald N. Zebeck
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Metris
Companies Inc., the Registrant, and in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Principal executive officer President, March 26, 1998
and director: Chief Executive Officer
and Director
/s/Ronald N. Zebeck
- ------------------------------
Ronald N. Zebeck
Principal financial officer: Senior Vice President, March 26, 1998
Chief Financial Officer
/s/Robert W. Oberrender
- ------------------------------
Robert W. Oberrender
Principal accounting officer: Director of Finance, March 26, 1998
Corporate Controller
/s/Jean C. Benson
- ------------------------------
Jean C. Benson
52
<PAGE>
<TABLE>
<C> <S> <C>
DIRECTORS:
/s/Theodore Deikel Director March 26, 1998
- ------------------------------
Theodore Deikel
/s/Michael P. Sherman Director March 26, 1998
- ------------------------------
Michael P. Sherman
/s/Dudley C. Mecum Director March 26, 1998
- ------------------------------
Dudley C. Mecum
/s/Frank D. Trestman Director March 26, 1998
- ------------------------------
Frank D. Trestman
/s/Lee R. Anderson, Sr. Director March 26, 1998
- ------------------------------
Lee R. Anderson, Sr.
/s/Derek V. Smith Director March 26, 1998
- ------------------------------
Derek V. Smith
</TABLE>
53
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C> <C>
ARTICLES OF INCORPORATION AND BYLAWS
3.1 Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by reference to
Exhibit 3.a to the Registrant's Registration Statement on Form S-1 (File No. 333-10831)).
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit 3.b to the Registrant's Registration
Statement on Form S-1 (File No. 333-10831)).
INSTRUMENTS DEFINING RIGHTS:
4.1 Indenture dated as of November 7, 1997, among the Registrant, Metris Direct, Inc. as the Guarantor,
and the First National Bank of Chicago, as Trustee. (Incorporated by reference to Exhibit 4.a to
Registrant's Registration Statement on Form S-4 (File No. 333-43771)).
4.2 Exchange and Registration Rights Agreement, dated as of November 7, 1997, among the Registrant,
Metris Direct, Inc., as Guarantor and Chase Securities, Inc., Bear Stearns & Co., Inc. and
NationsBank Montgomery Securities, Inc. (Incorporated by reference to Exhibit 4.b and Registrant's
Registration Statement on Form S-4 (File No. 333-43771).
4.3 Form of Security for 10% Senior Notes due 2004 originally issued by the Registrant on November 7,
1997 (included in Exhibit 4.1).
4.4 Form of Security of 10% Senior Notes due 2004 issued in exchange for 10% Senior Notes due 2004,
issued November 7, 1997, and to be 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 4.1).
4.6 Form of Guarantee of 10% Senior Notes due 2004 to be issued by Metris Direct, Inc. and registered
under the Securities Act of 1933 (included in Exhibit 4.1).
MATERIAL CONTRACTS
10.1 Pooling and Servicing Agreement, dated as of May 26, 1995, among Fingerhut Financial Services
Receivables, Inc., as Transferor, Direct Merchants Credit Card Bank, National Association, as
Servicer, and The Bank of New York (Delaware), as Trustee (Incorporated by reference to Exhibit 10.u
to Fingerhut Companies, Inc.'s Quarterly Report on Form 10-Q (File No. 1-8668) for the fiscal quarter
ended June 30, 1995).
(i) Amended and Restated Series 1995-1 Supplement, dated as of September 16, 1996
(Incorporated by reference to Exhibit 10.a(i) to Registration Statement on Form S-1 (No.
333-10831)).
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C>
(ii) Series 1996-1 Supplement, dated as of April 23, 1996 (Incorporated by reference to Exhibit
10.c(ii) to Fingerhut Companies, Inc.'s Quarterly Report on Form 10-Q (File No. 1-8668)
for the fiscal quarter ended March 29, 1996).
(iii) Amendment No. 1 to the Pooling and Servicing Agreement, dated as of June 10, 1996
(Incorporated by reference to Exhibit 10.a(iii) to Registration Statement on Form S-1 (No.
333-10831)).
(iv) Amendment No. 2 to the Pooling and Servicing Agreement, dated as of September 16, 1996
(Incorporated by reference to Exhibit 10.a(iv) to Registration Statement on Form S-1 (No.
333-10831)).
(v) Series 1997-1 Supplement, dated as of May 8, 1997 (Incorporated by reference to Exhibit
10.a(v) to Registrant's Quarterly Report on Form 10-Q (File No. 001-12351), for the
quarter ended June 30, 1997.
(vi) Amendment No. 3, dated as of September 30, 1997, to the Pooling and Servicing Agreement
(Incorporated by reference to Exhibit 4.d to Registration Statement on Form S-3 of Metris
Receivables, Inc. (File No. 333-36503)).
(vii) Series 1997-2 Supplement dated as of November 20, 1997 (Incorporated by reference to
Exhibit 4(g) to Registration Statement on Form 8-A of Metris Receivables, Inc. (File No.
0-23961)).
10.2 Amended and Restated Bank Receivables Purchase Agreement dated as of May 26, 1995, between Fingerhut
Companies, Inc., as Buyer, and Direct Merchants Credit Card Bank, National Association, as Seller
(Incorporated by reference to Exhibit 10.b to Registrant's Registration Statement on Form S-1 (No.
333-10831)).
10.3 Purchase Agreement, dated as of May 26, 1995, between Fingerhut Financial Services Receivables, Inc.,
as Buyer, and Fingerhut Companies, Inc., as Seller (Incorporated by reference to Exhibit 10.c to
Registrant's Registration Statement on Form S-1 (No. 333-10831)).
(i) Assignment and Assumption Agreement, dated as of September 16, 1996, among Fingerhut
Companies, Inc., as assignor, Metris Companies Inc., as assignee, and Metris Receivables,
Inc. (Incorporated by reference to Exhibit 10.c(i) to Registrant's Registration Statement
on Form S-1 No. 333-10831)).
(ii) Amendment No. 1, dated as of September 30, 1997, to the Receivables Purchase Agreement
(Incorporated by reference to Exhibit 4 (j) of Metris Receivables, Inc.'s Registration
Statement on Form S-1 (No. 333-36503)).
10.4* Stock Option and Valuation Rights Agreement, dated as of March 21, 1994, between Fingerhut Companies,
Inc. and Ronald N. Zebeck (Incorporated by reference to Exhibit 10.1 to Fingerhut Companies, Inc.'s
Annual Report on Form 10-K (File No. 1-8668) for the fiscal year ended December 29, 1995).
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C>
(i) Amendment, dated October 25, 1996 (Incorporated by reference to Exhibit 10.d(i) to Metris
Companies Inc.'s Annual Report on Form 10-K (File No. 1-12351) for the fiscal year ended
December 31, 1996).
(ii) Non-Qualified Stock Option Agreement pursuant to Metris Companies Long-Term Incentive and
Stock Option Plan dated as of October 25, 1996, by and between the Company and Ronald N.
Zebeck.
10.5* Fingerhut Corporation Profit Sharing Plan 1989 Revision (Incorporated by reference to Exhibit 10(d)
to Fingerhut Companies, Inc.'s Registration Statement on Form S-1 (No. 33-33923)).
10.6 Intentionally left blank.
10.7* Fingerhut Corporation Pension Plan 1990 Revision (Incorporated by reference to Exhibit 10(f) to
Fingerhut Companies, Inc.'s Registration Statement on Form S-1 (No. 33-33923)).
10.8* Metris Companies Inc. Long-Term Incentive and Stock Option Plan (Incorporated by reference to Exhibit
10.h to Registrant's Annual Report on Form 10-K (File No. 001-12351) for the year ended December 31,
1996).
(i)* Form of option agreement (Incorporated by reference to Exhibit 10.h.(i) and Registrant's
Annual Report on Form 10-K (File No. 001-12351) for the year ended December 31, 1996).
10.9* Metris Companies Inc. Non-Employee Director Stock Option Plan.
(i)* Form of option agreement.
10.10* Metris Companies Inc. Annual Incentive Plan for Designated Corporate Officers (Incorporated by
reference to Exhibit 10.j and Registrant's Annual Report on Form 10-K (File No. 001-12351) for the
year ended December 31, 1996).
10.11 Co-Brand Credit Card Agreement, dated as of October 31, 1996, between the Registrant, Fingerhut
Corporation and Direct Merchants Credit Card Bank, N.A.
10.12 Extended Service Plan Agreement, dated as of October 31, 1996, between the Registrant, Fingerhut
Corporation, and Infochoice USA, Inc.
10.13 Database Access Agreement, dated as of October 31, 1996, between the Registrant and Fingerhut
Corporation.
10.14 Administrative Services Agreement, dated as of October 31, 1996 between the Registrant, Fingerhut
Companies, Inc., and Direct Merchants Credit Card Bank, N.A.
10.15 Tax Sharing Agreement, dated as of October 31, 1996, between the Registrant and Fingerhut Companies,
Inc. (Incorporated by reference to Exhibit 10.o and Registrant's Annual Report on Form 10-K (File No.
001-12351) for the year ended December 31, 1996).
10.16 Registration Rights Agreement, dated as of October 31, 1996, between the Registrant and Fingerhut
Companies, Inc. (Incorporated by reference to Exhibit 10.p and Registrant's Annual Report on Form
10-K (File No. 001-12351) for the year ended December 31, 1996).
</TABLE>
56
<PAGE>
<TABLE>
<S> <C> <C>
10.17 Data Sharing Agreement, dated as of October 31, 1996, between Fingerhut Corporation and Direct
Merchants Credit Card Bank, National Association.
10.18 Revolving Credit and Letter of Credit Facility Agreement, dated as of September 16, 1996
(Incorporated by reference to Exhibit 10.s to Registrant's Registration Statement on Form S-1 (No.
333-10831)).
(i) First Amendment and Revolving Credit and Letter of Credit Facility, dated as of October 6,
1997.
(ii) Second Amendment to Revolving Credit and Letter of Credit Facility, dated as of November
14, 1997.
10.19 Transfer and Administration Agreement, dated as of October 23, 1997, among Kitty Hawk Funding
Corporation, Metris Funding Co., as Transferor, Direct Merchants Credit Card Bank, National
Association as Collection Agent, and NationsBank, N.A., as Agent and Bank Investor (Incorporated by
reference to Registrant Quarterly Report on Form 10-Q (File No. 001-12351) for the quarter ended
September 30, 1997).
10.20 Transfer and Administration Agreement, dated as of September 30, 1997, among Kitty Hawk Funding
Corporation, Metris Funding Co., as Transferor, Direct Merchants Credit Card Bank, National
Association, as Collection Agent and NationsBank, as Agent and Bank Investor. (This document is being
omitted from filing pursuant to Instruction 2 and Item 601 of Regulation S-K.).
10.21 Lease Agreement dated as of March 28, 1997 between Nottingham Village, Inc. and Metris Direct, Inc.
(i) Guaranty of Lease dated March 31, 1997 between Nottingham Village, Inc. and Metris
Companies Inc.
(ii) First Amendment and Lease Agreement dated as of October 15, 1997 among Nottingham Village,
Metris Direct, Inc. and Metris Companies Inc.
10.22 Lease Agreement, dated August 11, 1995, between The Equitable Life Assurance Society of the United
States and Fingerhut Financial Services Corporation
(i) Amendment Number One to Lease Agreement dated August 1, 1996, between The Equitable Life
Assurance Society of the United States and Fingerhut Financial Services Corporation
(ii) Amendment Number Two to Lease Agreement dated January 16, 1997, between WHIOP Real Estate
Limited Partnership and Metris Direct, Inc.
(iii) Amendment Number Three to Lease Agreement dated December 4, 1997, between WHIOP Real
Estate Limited Partnership and Metris Direct, Inc.
(iv) Amendment Number Four to Lease Agreement dated January 29, 1997, between WHIOP Real Estate
Limited Partnership and Metris Direct, Inc.
(v) Tenant Estoppel Certificate to WCB Properties Limited Partnership
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C>
10.23 Lease Agreement, dated October 31, 1995, between Exchange Limited Partnership and Fingerhut Financial
Services Corporation.
(i) Addendum to Lease Agreement, dated October 31, 1995, between 1991 Exchange Limited
Partnership and Fingerhut Financial Services Corporation
(ii) Corporate Guaranty of Lease, dated October 31, 1995, between 1991 Exchange Limited
Partnership and Fingerhut Financial Services Corporation
(iii) First Amendment to Lease Agreement, dated February 14, 1996, between 1991 Exchange Limited
Partnership and Fingerhut Financial Services Corporation
(iv) Tenant Estoppel Certificate to Eagle I Investments Limited Liability Company, Bank One,
Oklahoma City and 1991 Exchange Limited Partnership dated January, 1996 from Fingerhut
Financial Services Corporation
10.24 Lease Agreement, dated December 11, 1996, between Koger Equity, Inc. and Metris Direct, Inc.
(i) Lease Amendment, dated June 27, 1997, between Koger Equity, Inc. and Metris Direct, Inc.
(ii) Lease Amendment, dated October 15, 1997, between Koger Equity, Inc. and Metris Direct,
Inc.
10.25 Lease Agreement, dated March 31, 1994, between Textron Collective Investment Trust, Inc., and DMCCB,
Inc.
(i) Tenant Estoppel Certificate dated March 31, 1994, to Textron Collective Investment Trust
OTHER EXHIBITS
11 Computation of Earnings Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
13 Pages 16 to 57 of the 1997 Annual Report to Shareholders. The 1997 Annual Report shall not be deemed
to be filed with the Commission except to the extent that information is specifically incorporated
herein by reference.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
99 Cautionary Statement Regarding Forward Looking Statements.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item
14(c) of Form 10-K.
</TABLE>
58
<PAGE>
METRIS COMPANIES INC.
LONG-TERM INCENTIVE AND STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement is made and entered into
effective as of October 25, 1996 by and between Ronald N. Zebeck (the
"Optionee") and Metris Companies Inc., a Delaware corporation, with its
principal business office located in St. Louis Park, Minnesota (the
"Company").
WHEREAS, Optionee and Fingerhut Companies, Inc. ("Fingerhut") entered
into that certain Stock Option and Valuation Appreciation Rights Agreement
dated as of March 21, 1994, as amended dated October 25, 1996 (collectively
the "VAR"); and
WHEREAS, by action of the Board of Directors dated October 24, 1996, the
Company assumed Fingerhut's obligations under the VAR with respect to the
grant of options to purchase common stock of the Company and the Compensation
Committee (the "Committee") of the Board of Directors of the Company (the
"Board") desires to provide that such option to purchase shares of common
stock of the Company will be pursuant to the provisions of the Metris
Companies Inc. Long-term Incentive and Stock Option Plan (the "Plan") and
this Non-Qualified Stock Option Agreement (the "Agreement").
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF OPTION. In accordance with the VAR, attached hereto and
incorporated herein by reference, and in fulfillment of its obligations
thereunder, the Company hereby provides to Optionee the option (the "Option")
to purchase an aggregate of Six Hundred Fifty-Six Thousand Seventy-Five
(656,075) shares (the "Shares") of common stock of the Company (the "Common
Stock"), subject to the terms and conditions set forth herein and in the
Plan. Any conflicts between the terms and interpretation of this Agreement
and the VAR, shall be governed by the VAR.
2. OPTION PRICE. In accordance with the VAR, the purchase price of
the Shares subject to the Option (the "Option Price") shall be $2.76 per
share, subject to adjustment as provided herein.
3. TERM OF OPTION; TIME OF EXERCISE
3.1 In accordance with the VAR, the term of the Option shall be for a
period ending on the earlier of (A) March 21, 2004 or (B) the date optionee
exercises any of the tandem options
<PAGE>
to purchase the common stock of Fingerhut granted pursuant to the VAR. In
accordance with the VAR, the Option shall be exercisable according to the
following schedule:
<TABLE>
<CAPTION>
Date Vested Percent
---- --------------
<S> <C>
March 21, 1997 73.74%
March 21, 1998 97.49%
March 21, 1999 100.00%
</TABLE>
3.2 This Option shall not under any circumstances be exercisable
after, and this Agreement and Option shall terminate as to all unexercised
Shares at, 5:00 p.m. (Minnesota time) on March 21, 2004 (the "Expiration
Date"), unless terminated prior thereto pursuant to the provisions of Section
3.1 or Section 5 hereof.
3.3 Notwithstanding the vesting provisions contained in Section 3.1
hereof, but subject to the other terms and conditions set forth herein, the
Option may be exercised in full immediately following the date of a "Change
in Control" (as hereinafter defined). For purposes of this Agreement, the
following terms shall have the definitions set forth below:
(a) "Change in Control" shall mean:
(i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; or
(ii) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to Section 13(d)
of the Exchange Act) by the Company or any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) other than Fingerhut Companies,
Inc. ("Fingerhut") or any of Fingerhut's affiliates that such person has
become the "beneficial owner" (as defined in rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities at any time when Fingerhut beneficially owns less than
50% of the combined voting power of the Company's then outstanding
securities; PROVIDED, HOWEVER, that notwithstanding the foregoing, no Change
of Control shall be deemed to have occurred for purposes of this Agreement by
reason of ownership of 30% or more of the total voting capital stock of the
Company then issued and outstanding by any subsidiary of the Company or any
employee benefit plan of the Company or of any subsidiary of the Company or
any entity holding shares of the Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan (any such person
or entity described in this proviso is referred to herein as a "Company
Entity"); or
2
<PAGE>
(iii) the announcement of a tender offer by any person or entity (other
than a Company Entity) for 30% or more of the Company's voting capital stock
then issued and outstanding at any time when Fingerhut beneficially owns less
than 50% of the Company's voting capital stock, which tender offer has not
been approved by the Board, a majority of the members of which are Continuing
Directors (as hereinafter defined), and recommended to the shareholders of
the Company; or
(iv) the Continuing Directors (as hereinafter defined) cease to
constitute a majority of the Company's Board of Directors; or
(v) the shareholders of the Company approve (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Company stock would be converted
into cash, securities or other property, other than a merger of the Company
in which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation immediately
after the merger; (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
of the assets of the Company; or (z) any plan of liquidation or dissolution
of the Company; or
(vi) a Fingerhut Change of Control at any time Fingerhut beneficially
owns 30% or more of the combined voting power of the Company's then
outstanding securities.
(b) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board
of Directors, who is not an Acquiring Person (as defined below) or an
Affiliate or Associate (as defined below) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate,
and who (x) was a member of the Board of Directors on the date of this
Agreement as first written above or (y) subsequently becomes a member of the
Board of Directors, if such person's initial nomination for election or
initial election to the Board of Directors is recommended or approved by a
majority of the Continuing Directors. For purposes of this subparagraph (ii),
"Acquiring Person" shall mean any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) who or which, together with all
Affiliates and Associates of such person, is the "beneficial owner" (as
defined in rule 13d-3 promulgated under the Exchange Act), directly or
indirectly of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities, but shall
not include any Company Entity; and "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in Rule 12b-2 promulgated
under the Exchange Act.
(c) "Fingerhut Change in Control" shall mean:
(i) a change in control of Fingerhut of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not Fingerhut is then subject to
such reporting requirement; or
3
<PAGE>
(ii) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to Section 13(d)
of the Exchange Act) by Fingerhut or any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) that such person has become the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of Fingerhut representing 30% or
more of the combined voting power of Fingerhut's then outstanding securities;
PROVIDED, HOWEVER, that notwithstanding the foregoing, no Fingerhut Change of
Control shall be deemed to have occurred for purposes of this Agreement by
reason of ownership 30% or more of the total voting capital stock of
Fingerhut then issued and outstanding by any subsidiary of Fingerhut or any
employee benefit plan of Fingerhut or of any subsidiary of Fingerhut or any
entity holding shares of the Common Stock organized, appointed or established
for, or pursuant to the terms of, any such plan (any such person or entity
described in this proviso is referred to herein as a "Fingerhut Entity"); or
(iii) the announcement of a tender offer by any person or entity (other
than a Fingerhut Entity) for 30% or more of Fingerhut's voting capital stock
then issued and outstanding, which tender offer has not been approved by the
Fingerhut Board of Directors, a majority of the members of which are
Fingerhut Continuing Directors (as hereinafter defined), and recommended to
the shareholders of Fingerhut; or
(iv) the Fingerhut Continuing Directors (as hereinafter defined) cease
to constitute a majority of Fingerhut's Board of Directors; or
(v) the shareholders of Fingerhut approve (x) any consolidation or
merger of Fingerhut in which Fingerhut is not the continuing or surviving
corporation or pursuant to which shares of Fingerhut stock would be converted
into cash, securities or other property, other than a merger of Fingerhut in
which shareholders immediately prior to the merger have the same
proportionate ownership of stock of the surviving corporation immediately
after the merger; (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all
of the assets of Fingerhut; or (z) any plan of liquidation or dissolution of
Fingerhut.
(vi) "Fingerhut Continuing Director" shall mean any person who is a
member of the Board of Directors of Fingerhut, while such person is a member
of the Fingerhut board of Directors who is not a Fingerhut Acquiring Person
(as defined below) or an Affiliate or Associate (as defined below) of a
Fingerhut Acquiring Person, or a representative of a Fingerhut Acquiring
Person or of any such Affiliate or Associate, and who (x) was a member of the
Fingerhut Board of Directors on the date of this Agreement as first written
above or (y) subsequently becomes a member of the Fingerhut Board of
Directors, if such person's initial nomination for election or initial
election to the Fingerhut Board of Directors is recommended or
4
<PAGE>
approved by a majority of the Fingerhut Continuing Directors. For purposes of
this subparagraph (ii), "Fingerhut Acquiring Person" shall mean any "person"
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act) who or
which, together with all Affiliates and Associates of such person, is the
"beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly of securities of Fingerhut representing 30% or
more of the combined voting power of Fingerhut's then outstanding securities,
but shall not include any Fingerhut Entity; and "Affiliate" and "Associate"
shall have the respective meanings ascribed to such terms in Rule 12b-2
promulgated under the Exchange Act.
4. EXERCISE OF OPTION.
4.1 Subject to the terms and conditions of the Plan and this Section
4, this Option may be exercised by Optionee in whole or in part by written
notice to the Company and its principal executive office addressed to the
attention of its General Counsel. Such notice shall specify Optionee's
election to exercise this Option and the number of Shares in respect of which
it is being exercised, and shall be signed by Optionee. The Company shall
not, however, be required to sell or issue any Shares pursuant to this Option
if the issuance of such Shares would constitute a violation by Optionee or
the Company of any applicable law or regulation of any governmental authority.
4.2 Notice of exercise of the Option by Optionee shall be accompanied
by payment of the full Option Price of the Shares as to which the Option is
to be exercised, together with payment of the amount determined by the
Company to be necessary to satisfy any applicable federal, state and local
tax withholding requirements arising from the exercise of the Option. The
Company shall issue and deliver a certificate or certificates representing
such Shares as soon as practicable after such notice and payments are
received. Payment of such Option Price shall be made; (i) in cash or by check
or wire transfer, payable to the order of the Company; (ii) by tendering to
the Company shares of the Company's common stock having a fair market value
equal to the Option Price; or (iii) by providing the Company with a copy of
irrevocable instructions to a broker to deliver to the Company on the date of
exercise the amount of sale proceeds to pay the Option Price and any
withholding taxes and the Companies actual receipt of such proceeds. Payment
by the Optionee of any required amount of withholding for tax purposes shall
be made in cash or check payable to the order of the Company. The certificate
or certificates for the Shares as to which the Option shall have been so
exercised shall be registered in the name of Optionee (or Optionee's
Representative (as defined in Section 5)) or at the direction of Optionee or
such Representative and shall be delivered as aforesaid to or upon the
written order of such person or persons. In the event that the Option shall
be exercised by any person or persons other than Optionee, such notice shall
be accompanied by appropriate proof of the authority and right of such person
or persons to exercise the Option. All Shares purchased upon the exercise of
the Option as provided herein shall be fully paid and nonassessable.
5. TERMINATION OF OPTION.
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(a) This Option shall terminate and be subject to the following
special rules in the event the Optionee ceases to be employed by the Company
or one of its subsidiaries (as defined in the Plan):
(i) if Optionee's employment shall be terminated for any reason other
than death, disability or retirement, Optionee may, at any time before (x)
the expiration of ninety (90) days after such termination or (y) the
Expiration Date, whichever shall first occur, exercise this Option (A) to the
extent that the Option was exercisable on the date of the termination of
employment in the case of voluntary termination or (B) to the extent that the
Option was or would become exercisable on or before the expiration of such
ninety (90) day period in the case of involuntary termination; PROVIDED,
HOWEVER, that if, immediately prior to such termination of employment,
Optionee was an "officer" as defined in Rule 16a-1(f) promulgated under the
Exchange Act, the periods of exercisability referred to in clauses (A) and
(B) above (but not the acceleration of vesting referred to in clause (B)
shall be extended from ninety (90) days to seven (7) months after the date of
such termination;
(ii) if Optionee's employment shall be terminated by reason of
Optionee's death, this Option will become fully exercisable and may be
exercised by the Optionee's Representative (as defined below) at any time
before (a) the expiration of three (3) years after the date of death, or (b)
the Expiration Date, whichever shall first occur;
(iii) (A) if Optionee's employment shall be terminated by reason of
Optionee's disability (other than Total Disability), as may be determined by
the Committee in its sole and absolute discretion, this Option may be
exercised, to the extent that the Option was exercisable on the date of
disability, by Optionee or Optionee's guardian or legal representative, at
any time before (x) the expiration of one (1) year after the date Optionee's
employment was terminated by reason for such disability or (y) the Expiration
Date, whichever shall first occur; or (B) if Optionee's employment shall be
terminated by reason of Optionee's Total Disability, this Option will become
fully exercisable and may be exercised by Optionee or Optionee's guardian or
legal representative at any time before (x) the expiration of three (3) years
after the date Optionee's employment was terminated by reason of such
disability or (y) the Expiration Date, whichever shall first occur;
(iv) if the Optionee's employment shall be terminated by the
Optionee's Retirement (as defined below), this Option will become fully
exercisable and may be exercised by Optionee before (x) the expiration of
three years after such date, or (y) the Expiration Date, whichever shall
first occur; or
(v) if Optionee dies or become disabled (as may be determined by the
Committee in its sole and absolute discretion) during the time of
exercisability after termination of employment provided in clause (i) of this
Section 5(a), this Option may be exercised, to the extent that the Option was
exercisable on the date of death or disability; (x) in the case of death, by
the Optionee's Representative or (y) in the case of disability, by Optionee
or Optionee's guardian or
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<PAGE>
legal representative, before (A) the expiration of one year after the date of
death or the onset of such disability, or (B) the Expiration Date, whichever
shall fist occur.
(b) Notwithstanding the provisions contained in Section 5(a) above,
but subject to the other terms and conditions set forth herein, in the event
that, within one year following a Change in Control, Optionee's employment is
terminated for any reason (including Optionee's voluntary termination),
Optionee shall have the right to exercise the Option in whole or in part at
any time before (i) the expiration of one year after the date of such
termination of employment, or (ii) the Expiration Date, whichever shall first
occur.
(c) For purposes of this Agreement, the following terms shall be
defined as follows:
(i) "Retirement" shall mean any termination other than by death after
(A) the Optionee has attained at least age fifty-five (55) and (B) the
Optionee's age plus completed continuous years of service equals sixty (60)
or more; PROVIDED, HOWEVER, that if Optionee is less that age sixty-five (65)
on the date of termination of employment, Optionee must have completed at
least five (5) years of service.
(ii) "Representative" shall mean the person or persons to whom
Optionee's rights under this Agreement shall pass upon death, whether by will
or by the applicable laws of descent and distribution.
(iii) "Total Disability" shall have the meaning given to "permanent
and total disability" in Section 22(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code") and shall be determined by the Committee in its
sole and absolute discretion.
(d) Notwithstanding the foregoing provisions of Section 5(a), the
Committee shall have the authority, on a case by case basis, in its sole and
absolute discretion to extend for up to a period of two (2) years following
the termination of employment of Optionee the period of vesting referred to
in Section 3.1 and the period of exercisability, provided such extension does
not exceed the Expiration Date.
6. LEAVE OF ABSENCE; RELATED TO EMPLOYMENT. A leave of absence
granted in accordance with the Company's usual procedure which does not
operate to interrupt continuous employment for other benefits granted by the
Company shall not be considered a termination of employment under this
Agreement. A period of related employment during which Optionee is not
employed by the Company nor a subsidiary (as defined in the Plan) shall not
be considered a termination of employment under this Agreement if (i) such
employment in undertaken by Optionee at the request of the Company or a
subsidiary, (ii) immediately prior to the undertaking of such employment
Optionee was an officer or employee of the Company of a subsidiary or was
engaged in related employment, and (iii) such employment is recognized by the
Committee, in its sole discretion, as related employment. The death or
disability of Optionee during a period of related employment shall be treated
for purposes of this agreement, as if such death or the onset of such
disability had occurred while Optionee was an officer or employee of the
Company.
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<PAGE>
7. ADJUSTMENTS FOR CHANGES IN COMMON STOCK.
7.1 In the event that the outstanding shares of Common Stock (other
than shares held by dissenting shareholders) shall be changed into, or
exchange for, a different number or kind of shares of Common Stock or other
securities of the Company, or, if further changes or exchanges of any Common
Stock or other securities into which the Common Stock shall have been
changed, or for which it shall have been exchanged, shall be made (whether by
reason of merger, consolidation, reorganization, recapitalization, stock
dividend, reclassification, split-up, combination of shares or otherwise),
then for each Share subject to the Option, there shall be substituted and
exchanged therefor the number and kind of shares of Common Stock or other
securities into or for which each outstanding share of Common Stock (other
than shares held by dissenting shareholders) shall be so changed or
exchanged. If in the event of any such changes or exchanges in order to
prevent dilution or enlargement of rights under this Agreement, it is
necessary to make an adjustment in the number, kind, or option exercise price
of the Shares then subject to the Option, such adjustment shall be made by
the Committee and shall be effective and binding for all purposes of this
Agreement.
7.2 All adjustments made pursuant to the provision of this Section 7
shall be made by the Committee, whose determination as to which adjustments
shall be made, and the extent thereof, shall be final, binding and conclusive.
8. NON-TRANSFERABILITY OF OPTION.
(a) Except as provided in subsection 8(b) below, the Option granted
under this Agreement shall not be transferable by Optionee, either
voluntarily or involuntarily, except by will or the laws of descent and
distribution. This Option may not be transferred, assigned, pledged or
hypothecated, whether by operation of law or otherwise, or be subject to
attachment, execution or similar process. Any attempt to do so shall void
this Option. During the lifetime of Optionee, this Option may be exercised
only by the Optionee (or by Optionee's guardian or legal representative in
the case of disability) or by a permitted transferee pursuant to a transfer
as described below.
(b) To the extent such transfers are permitted under the Plan and are
not restricted by Rule 16b-3 promulgated under the Exchange Act, the
Committee, in its sole discretion, may establish, as permitted by applicable
law, rules and conditions under which an Optionee may transfer this Option to
any member of Optionee's "immediate family" (as such term is defined in Rule
16a-1(e) promulgated under the Exchange Act).
9. RIGHTS AS A SHAREHOLDER. No rights of a shareholder of the Company
shall attach to Optionee with respect to any of the Shares until this Option
shall be duly exercise as to such Shares and Optionee shall have become the
holder of record of such Shares. No adjustments
8
<PAGE>
shall be made for cash dividends or other distributions or rights as to which
there is a record date preceding the date that Optionee becomes the holder of
record of such Shares.
10. SECURITIES LAW COMPLIANCE. The exercise of all or any portion of
this Option shall only be effective at such time that the sale of Common
Stock issued pursuant to such exercise will not violate any state or federal
securities or other laws. The Company is under no obligation to effect any
registration of the stock subject to the Option under the Securities Act of
1933 or to effect any state registration or qualification of such Common
Stock. The Company may, in its sole discretion, defer the effectiveness of
any full or partial exercise of the Option in order to ensure that the
issuance of stock upon exercise will be in compliance with federal or state
securities laws and the rules of the NASDAQ National Markets or any other
exchange upon which the Company's Common Stock is traded.
11. LIMITATION OF LIABILITY. Nothing in this Agreement shall be
construed to:
(a) limit in any way the right of the Company or a subsidiary to
terminate the employment of Optionee; or
b) be evidence of any agreement or understanding, express or implied,
that the Company or a subsidiary shall employ Optionee in any particular
position at any particular rate of compensation or for any particular period
of time.
12. SEVERABILITY. It is intended that each provision of this Agreement
shall be viewed as separate and divisible. In the event that any provision
hereof shall be held to be invalid or unenforceable, the remaining provisions
of this Agreement shall continue to be in full force and effect.
13. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Minnesota.
14. FURTHER ASSURANCES. Upon the exercise of the option by Optionee or
at such subsequent date as either the Company or Optionee may reasonably
request, each party hereto agrees to execute and deliver such further
instruments and to take such other action as shall be reasonably required to
carry out the intent and purposes of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
16. NOTICES. All notices that are required or may be given pursuant to
the terms of this Agreement shall be in writing and delivered personally or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows and shall be deemed to have been given upon delivery to
the addressee:
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To the Company:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, MN 55426
Attention: General Counsel
To Optionee:
At Optionee's residence address listed in the Company's
personnel records.
Notice of a change in address of one of the parties hereto shall be given in
writing to the other party as provided above, but shall be effective only
upon actual receipt.
17. AMENDMENT. This Agreement may not be amended or modified by the
parties hereto in any manner, except by a written instrument signed by both
parties hereto.
18. BINDING EFFECT: ASSIGNMENT. This Agreement shall be binding upon
the heirs, successors and assigns of the parties hereto, subject to
shareholder approval of the Plan. This Agreement shall not be assigned by
either party hereto without the express written consent of the other party.
19. ENTIRE AGREEMENT. The Plan, the rules adopted by the Committee
from time to time and this Agreement constitute, except as to any written
agreement between the parties hereto which specifically references this
Section 19, the entire understanding between the parties hereto with respect
to the matters covered herein and supersede all previous written, oral or
implied understandings between the parties hereto with respect to the subject
matter hereof.
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<PAGE>
IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement as
of the day and year first above written.
METRIS COMPANIES INC.
By /s/ Michael Sherman
-------------------------------
OPTIONEE SIGNATURE
/s/ Ronald N. Zebeck
-------------------------------
Ronald N. Zebeck
Social Security #: ###-##-####
------------------------
Date: 4/7/97
--------------------------------
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<PAGE>
METRIS COMPANIES INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE OF PLAN. This plan shall be known as the "Metris Companies
Inc. Nonemployee Director Stock Option Plan" and is hereinafter referred to
as the "Plan." The purpose of the Plan is to promote the interests of Metris
Companies Inc., a Delaware corporation (the "Company"), by enhancing its
ability to attract and retain the services of experienced and knowledgeable
outside directors and by providing an additional means for such directors to
identify with the interests of the Company's shareholders.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board of Directors"). All questions of interpretation of the
Plan or of any options issued under it shall be determined by the Board of
Directors and such determination shall be final and binding upon all persons
having an interest in the Plan. Any or all powers and discretion vested in
the Board of Directors under this Plan may be exercised by any person or
committee duly authorized by the Board of Directors except that the Board of
Directors shall approve and authorize each grant, award or other similar
acquisition from the Company pursuant to or in connection with the Plan.
(b) The Board of Directors shall have plenary authority in its
discretion, but subject to the express provisions of the Plan: (i) to
determine the purchase price of the Common Stock (as hereinafter defined)
covered by each option, (ii) to determine the directors to whom and the time
or times at which such options shall be granted and the number of shares to
be subject to each, (iii) to determine the terms of exercise of each option,
(iv) to amend or modify the terms of any option with the consent of the
optionee, (v) to amend or interpret the Plan, (vi) to prescribe, amend and
rescind rules and regulations relating to the Plan, (vii) to determine the
terms and provisions of each option agreement under the Plan (which
agreements need not be identical), and (viii) to make all other
determinations necessary or advisable for the administration of the Plan.
The Board of Directors also shall have such additional authority and powers
as set forth in Section 17 hereof, including the authority to amend and
terminate the Plan. The Board of Directors' determinations on the foregoing
matters shall be final and conclusive.
3. PARTICIPATION IN THE PLAN. Each director of the Company shall be
eligible to participate in the Plan unless such director is an officer or
employee of the Company, any subsidiary of the Company, or any entity that
owns at least 20% of the outstanding common stock of the Company. A director
who has been granted an option under this Plan may be granted additional
options under the Plan.
<PAGE>
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14
hereof, the stock to be subject to options under the Plan shall be authorized
but unissued shares of the Company's common stock, par value $.01 per share
(the "Common Stock") or treasury shares of Common Stock. Subject to the
adjustment as provided in Section 14 hereof, the maximum number of shares on
which options may be exercised under this Plan shall be 100,000 shares. If
an option under the Plan expires, or for any reason is terminated and
unexercised with respect to any shares, such shares shall be available for
options thereafter granted during the term of the Plan.
5. NONQUALIFIED STOCK OPTIONS. All options granted under the Plan
shall be nonqualified stock options that do not qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
6. TERMS AND CONDITIONS OF OPTIONS. Each option granted under this
Plan shall be evidenced by a written agreement in such form as the Board of
Directors shall from time to time approve, which agreements shall comply with
and be subject to the terms and conditions of the Plan.
7. TERM OF OPTIONS. Each option and all rights and obligations
thereunder shall expire on the date determined by the Board of Directors as
specified in the option agreement. The Board of Directors shall be under no
duty to provide terms of like duration for options granted under the Plan,
but the term of options granted under the Plan may not extend more than
fifteen (15) years from the date of granting of such option.
8. EXERCISE OF OPTIONS.
(a) The Board of Directors shall have full and complete authority to
determine whether an option will be exercisable in full at any time or from
time to time during the term thereof, or to provide for the exercise thereof
in such installments, upon the occurrence of such events (such as termination
of employment for any reason) and at such times during the term of the option
as the Board of Directors may determine and specify in the option agreement.
(b) The exercise of any option granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that
the issuance and delivery of Common Stock pursuant to such exercise will not
violate any state or federal securities or other laws. An optionee desiring
to exercise an option may be required by the Company, as a condition of the
effectiveness of any exercise of an option granted hereunder, to agree in
writing that all Common Stock to be acquired pursuant to such exercise shall
be held for his or her own account without a view to any further distribution
thereof, that the certificates for such shares shall bear an appropriate
legend to that effect and that such shares will not be transferred or
disposed of except in compliance with applicable federal and state securities
laws.
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<PAGE>
(c) An optionee electing to exercise an option shall give written
notice to the Company of such election and of the number of shares subject to
such exercise. The full purchase price of such shares shall be tendered with
such notice of exercise. Payment shall be made to the Company by delivery of
(A) cash (including check, bank draft or money order), (B) shares of Common
Stock already owned by the optionee having a fair market value as of the date
of exercise equal to the full exercise price of the shares to be acquired,
(C) written authorization for the Company to retain from the total number of
shares of Common Stock as to which the option is exercised that number of
shares having a fair market value as of the date of exercise equal to the
aggregate exercise price of the options exercised, (D) any combination of the
foregoing methods of payment, or (E) such other form of consideration as the
Board of Directors may deem acceptable. For purposes of the preceding
sentence, the fair market value of Common Stock tendered shall be determined
as provided in Section 11 as of the date of exercise.
9. EFFECT OF TERMINATION OF DIRECTORSHIP OR DEATH OR DISABILITY.
(a) In the event that an optionee shall cease to be a director of the
Company for any reason other than such person's gross and willful misconduct
or such person's death or disability, (as may be determined in the sole
discretion of the Board of Directors) such optionee shall have the right to
exercise the option at any time within seven months after such termination of
directorship to the extent of the full number of shares he or she was
entitled to purchase under the option on the date of termination, subject to
the condition that no option shall be exercisable after the expiration of the
term of the option.
(b) In the event that an optionee shall cease to be a director of the
Company by reason of the optionee's gross and willful misconduct during the
course of his or her service as a director of the Company, including but not
limited to wrongful appropriation of funds of the Company, or the commission
of a gross misdemeanor or felony, the option shall be terminated as of the
date of the misconduct and the optionee shall have no further rights
thereunder.
(c) If the optionee shall die while serving as a director of the
Company or within seven months after termination of his or her directorship
for any reason other than the optionee's gross and willful misconduct or the
optionee shall become disabled (as may be determined in the sole discretion
of the Board of Directors) while serving as a director of the Company and
such optionee shall not have fully exercised the option, such option may be
exercised at any time within 12 months after the date of such death or the
onset of such disability by the optionee or the optionee's legal
representative, in the case of disability, or by the personal
representative(s), administrator(s), or heir(s) of the optionee, in the case
of death, to the extent of the full number of shares the optionee was
entitled to purchase under the option on the date of death, disability, or
termination of directorship, if earlier, and subject to the condition that no
option shall be exercisable after the expiration of the term of the option.
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<PAGE>
10. OPTION EXERCISE PRICE. The option price for all Options granted
under the Plan shall be determined by the Board of Directors but shall not be
less than 100% of the fair market value per share of Common Stock as of the
date of grant of such option.
11. FAIR MARKET VALUE OF COMMON STOCK. For purposes of this Plan, the
fair market value of the Common Stock as of a given date shall be the closing
price of the Common Stock as reported on the Nasdaq National Market on the
trading date immediately preceding such date. If the Common Stock is not
publicly traded on such date, the Board of Directors shall make a good faith
attempt to determine such fair market value and, in connection therewith,
shall take such actions and consider such factors as it deems necessary or
advisable.
12. TRANSFER RESTRICTIONS. No option granted under the Plan or
interest therein may be transferred, assigned, pledged or hypothecated by the
optionee during such optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process,
except that options shall be transferable by the optionee: (a) by will or by
the laws of descent and distribution as provided in Section 9(c) hereof; (b)
to any child, stepchild, grandchild, parent, step-parent, grandparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law or sister-in-law of the optionee, including adoptive
relationships ("immediate family members"); (c) to charitable organizations;
or (d) to trusts for the benefit of immediate family members of the optionee
or charitable organizations. Except as provided in Section 9 hereof with
respect to disability of the optionee, and except for options that have been
transferred in accordance with the provisions of this Section 12, during the
lifetime of the optionee an option granted under this Plan shall be
exercisable only by the optionee.
13. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute, or be evidence of, any agreement or understanding, express or
implied, that the Company will retain a director for any period of time, or
at any particular rate of compensation.
(b) NO SHAREHOLDER RIGHTS FOR OPTIONS. An optionee shall have no
rights as a shareholder with respect to the shares covered by options until
the date of the issuance to such optionee of a stock certificate therefor,
and no adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
14. ADJUSTMENTS TO COMMON STOCK. If there shall be any change in
Common Stock through merger, consolidation, reorganization, recapitalization,
stock dividend (of whatever amount), stock split or other changes in the
corporate structure, appropriate adjustments to the Plan and outstanding
options shall be made. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number
4
<PAGE>
of shares subject to the Plan, the number of shares subject to outstanding
options and the option exercise prices thereof in order to prevent dilution
or enlargement of option rights.
15. EFFECTIVE DATE OF THE PLAN. The Plan shall take effect immediately
upon its approval by the affirmative vote of the majority of the directors of
the Company at a duly held meeting of the Board of Directors.
16. TIME FOR GRANTING OPTIONS. Unless the Plan shall have been
terminated as provided in Section 17 hereof, the Plan shall terminate upon
the expiration of 10 years from the date upon which it takes effect as
provided in Section 15 hereof. No option may be granted after such
termination, but termination of the Plan shall not, without the consent of
the optionee, alter or impair any rights or obligations under any option
theretofore granted.
17. AMENDMENT OF THE PLAN. The Board of Directors may amend the Plan
in any respect whatsoever; PROVIDED HOWEVER, that the Board of Directors
shall not amend the Plan in a manner that adversely affects any rights of any
holder of any option heretofore granted under the Plan without the consent of
the holder of the option. Notwithstanding the foregoing, only the Board of
Directors has the authority to amend the Plan to increase the number of
shares subject thereto or to terminate the Plan.
18. GOVERNING LAW. The place of administration of the Plan and the
Agreements issued thereunder shall be in the State of Minnesota. The
corporate law of the State of Delaware shall govern issues relating to the
validity and issuances of Shares. Otherwise, this Plan and the Agreements
issued thereunder shall be construed and administered in accordance with the
laws of the State of Minnesota without giving effect to principles relating
to conflict of laws.
5
<PAGE>
METRIS COMPANIES INC.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
MADE AS OF ______________
THIS AGREEMENT, made as of ___________, by and between Metris Companies
Inc., a Delaware corporation (the "Company"), and name ("Optionee").
WHEREAS, the Company has adopted the Metris Companies Inc. Nonemployee
Director Stock Option Plan (the "Plan"), which provides for the grant of stock
options to nonemployee directors of the Company; and
WHEREAS, Optionee is currently a nonemployee director of the Company
eligible to participate in the Plan.
NOW THEREFORE, in consideration of the agreements herein set forth, the
parties hereto hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee, effective
as of __________ (the "Date of Grant"), the right and option (the "Option") to
purchase an aggregate of ___________ shares (the "Shares") of common stock, par
value $.01 per share, of the Company (the "Common Stock), subject to the terms
and conditions set forth herein and in the Plan. This Option is not intended to
be an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE. The purchase price of the Shares subject to the
Option (the "Option Price") shall be $ _____ per share, subject to adjustment as
provided herein.
3. TERM OF OPTION; TIME OF EXERCISE.
3.1 The term of the Option shall be for a period of _______ years
from the Date of Grant. The Option shall be exercisable with respect to
_______________________________________________________________________________
provided that the Plan shall have received shareholder approval at the next
annual meeting of the shareholders of the Company.
3.2 This Option shall not under any circumstances be exercisable after,
and this Agreement and Option shall terminate as to all unexercised Shares at,
5:00 p.m. (Minnesota time) on the date that is _______ years from the Date of
Grant (the "Expiration Date"), unless terminated prior thereto pursuant to the
provisions of Section 5 hereof.
<PAGE>
3.3 Notwithstanding the vesting provisions contained in Section 3.1
hereof, but subject to the other terms and conditions set forth herein, the
Option may be exercised in full immediately following the date of a "Change in
Control" (as hereinafter defined) provided the Plan has received Shareholder
approval. For purposes of this Agreement, the following terms shall have the
definitions set forth below:
(a) "Change in Control" shall mean:
(i) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not the Company is then subject to such reporting requirement; or
(ii) the public announcement (which, for purposes of this definition,
shall include, without limitation, a report filed pursuant to Section 13(d) of
the Exchange Act) by the Company or any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) other than Fingerhut Companies,
Inc. or any of its affiliates that such person has become the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; PROVIDED,
HOWEVER, that notwithstanding the foregoing, no Change of Control shall be
deemed to have occurred for purposes of this Agreement by reason of ownership of
30% or more of the total voting capital stock of the Company then issued and
outstanding by any subsidiary of the Company or any employee benefit plan of the
Company or of any subsidiary of the Company or any entity holding shares of the
Common Stock organized, appointed or established for, or pursuant to the terms
of, any such plan (any such person or entity described in this proviso is
referred to herein as a "Company Entity"); or
(iii) the announcement of a tender offer by any person or entity (other
than a Company Entity) for 30% or more of the Company's voting capital stock
then issued and outstanding, which tender offer has not been approved by the
Board of Directors, a majority of the members of which are Continuing Directors
(as hereinafter defined), and recommended to the shareholders of the Company; or
(iv) the Continuing Directors (as hereinafter defined) cease to
constitute a majority of the Company's Board of Directors; or
(v) the shareholders of the Company approve (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Company stock would be converted into
cash, securities or other property, other than a merger of the Company in which
shareholders immediately prior to the merger have the same proportionate
ownership of stock of the surviving corporation immediately after the merger;
(y) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the assets of the
Company; or (z) any plan of liquidation or dissolution of the Company.
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<PAGE>
(b) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person (as defined below) or an Affiliate or
Associate (as defined below) of an Acquiring Person, or a representative of an
Acquiring Person or of any such Affiliate or Associate, and who (x) was a member
of the Board of Directors on the date of this Agreement as first written above
or (y) subsequently becomes a member of the Board of Directors, if such person's
initial nomination for election or initial election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. For purposes
of this subparagraph (ii), "Acquiring Person" shall mean any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) who or which,
together with all Affiliates and Associates of such person, is the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities, but shall
not include any Company Entity; and "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 promulgated under the
Exchange Act.
4. EXERCISE OF OPTION.
4.1 Subject to the terms and conditions of the Plan and this Section 4,
this Option may be exercised by Optionee, Optionee's Representative (as defined
in Section 5) or any transferree permitted by Section 6 in whole or in part by
written notice to the Company at its principal executive office in St. Louis
Park, Minnesota addressed to the attention of its General Counsel. Such notice
shall specify Optionee's election to exercise this Option and the number of
Shares in respect of which it is being exercised, and shall be signed by
Optionee. The Company shall not, however, be required to sell or issue any
Shares pursuant to this Option if the issuance of such Shares would constitute a
violation by Optionee or the Company of any applicable law or regulation of any
governmental authority.
4.2 Notice of exercise of the Option by Optionee shall be accompanied
by payment of the full Option Price of the Shares as to which the Option is to
be exercised. The Company shall issue and deliver a certificate or certificates
representing such Shares as soon as practicable after such notice and payments
are received. Payment of such Option Price shall be made in cash or check
payable to the order of the Company or, in lieu thereof, if the Board of
Directors in its sole discretion at the time of exercise so permits, by
tendering to the Company shares of common stock of the Company having a fair
market value equal to the Option Price. The certificate or certificates for the
Shares as to which the Option shall have been so exercised shall be registered
in the name of Optionee (or Optionee's Representative (as defined in Section 5))
or Optionee's transferee as provided in Section 6 or at the direction of
Optionee or such Representative or transferee and shall be delivered as
aforesaid to or upon the written order of such person or persons. In the event
that the Option shall be exercised by any person or persons other than Optionee,
such notice shall be accompanied by appropriate proof of the authority and right
of such person or persons to exercise the Option. All Shares purchased upon the
exercise of the Option as provided herein shall be fully paid and nonassessable.
3
<PAGE>
5. TERMINATION OF OPTION. This Option shall terminate and may no
longer be exercised if Optionee ceases to be a member of the Board of Directors
of the Company except:
(a) If Optionee shall cease to be a director of the Company for any
reason other than Optionee's gross and willful misconduct or Optionee's death or
disability (within the meaning of Section 22(e)(3) of the Code), Optionee shall
have the right to exercise the Option at any time within seven months after such
termination of directorship to the extent of the full number of shares Optionee
was entitled to purchase under the Option on the date of termination, subject to
the condition that this Option shall not be exercisable after the expiration of
the term of this Option.
(b) If Optionee shall cease to be a director of the Company by reason
of Optionee's gross and willful misconduct during the course of Optionee's
service as a director of the Company, including but not limited to wrongful
appropriation of funds of the Company, or the commission of a gross misdemeanor
or felony, this Option shall be terminated as of the date of the misconduct.
(c) If Optionee shall die while serving as a director of the Company or
within seven months after termination of Optionee's directorship for any reason
other than gross and willful misconduct, or become disabled (within the meaning
of Section 22(e)(3) of the Code), while serving as a director of the Company and
Optionee shall not have fully exercised this Option, this Option may be
exercised at any time within 12 months after Optionee's death or disability by
Optionee's personal representatives, administrators, or, if applicable, guardian
or by any person or persons to whom the Option is transferred by will or the
applicable laws of descent and distribution (Optionee's "Representative") or the
provisions of Section 6, to the extent of the full number of shares Optionee was
entitled to purchase under this Option on the date of Optionee's death,
disability, or termination or directorship, if earlier, and subject to the
condition that this Option shall not be exercisable after the expiration of the
term of this Option.
6. TRANSFERABILITY OF OPTION. During the lifetime of Optionee,
neither this Option nor any interest herein may be transferred, assigned,
pledged or hypothecated, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process, except that this Option
shall be transferable by the Optionee;
(i) By will or by the laws of descent and distribution.
(ii) To any child, stepchild, grandchild, spouse, son-in-law or
daughter-in-law of Optionee, including adoptive relationships ("immediate
family members").
(iii) To trusts for the benefit of immediate family members of
Optionee.
Except as provided in Section 5(c) hereof with respect to disability of the
Optionee, and except if this Option has been transferred in accordance with the
provisions of this Section 6, during Optionee's lifetime this Option shall be
exercisable only by Optionee.
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7. ADJUSTMENTS FOR CHANGES IN COMMON STOCK.
7.1 In the event that the outstanding shares of Common Stock (other
than shares held by dissenting shareholders) shall be changed into, or exchanged
for, a different number or kind of shares of Common Stock or other securities of
the Company, or, if further changes or exchanges of any Common Stock or other
securities into which the Common Stock shall have been changed, or for which it
shall have been exchanged, shall be made (whether by reason of merger,
consolidation, reorganization, recapitalization, stock dividend,
reclassification, split-up, combination of shares or otherwise), then for each
Share subject to the Option, there shall be substituted and exchanged therefor
the number and kind of shares of Common Stock or other securities into or for
which each outstanding share of Common Stock (other than shares held by
dissenting shareholders) shall be so changed or exchanged. If in the event of
any such changes or exchanges in order to prevent dilution or enlargement of
rights under this Agreement, it is necessary to make an adjustment in the
number, kind, or option exercise price of the Shares then subject to the Option,
such adjustment shall be made by the Board of Directors and shall be effective
and binding for all purposes of this Agreement.
7.2 All adjustments made pursuant to the provision of this Section 7
shall be made by the Board of Directors, whose determination as to which
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
8. RIGHTS AS A SHAREHOLDER. No rights of a shareholder of the Company
shall attach to Optionee with respect to any of the Shares until this Option
shall be duly exercised as to such Shares and Optionee shall have become the
holder of record of such Shares. No adjustments shall be made for cash
dividends or other distributions or rights as to which there is a record date
preceding the date that Optionee becomes the holder of record of such Shares.
9. SECURITIES LAW COMPLIANCE. The exercise of all or any portion of
this Option shall only be effective at such time that the sale of Common Stock
issued pursuant to such exercise will not violate any state or federal
securities or other laws. The Company is under no obligation to effect any
registration of the stock subject to the Option under the Securities Act of 1933
or to effect any state registration or qualification of such Common Stock. The
Company may, in its sole discretion, defer the effectiveness of any full or
partial exercise of the Option in order to ensure that the issuance of stock
upon exercise will be in compliance with federal or state securities laws and
the rules of the NASDAQ or any exchange upon which the Company's Common Stock is
traded.
10. SEVERABILITY. It is intended that each provision of this Agreement
shall be viewed as separate and divisible. In the event that any provision
hereof shall be held to be invalid or unenforceable, the remaining provisions of
this Agreement shall continue to be in full force and effect.
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<PAGE>
11. GOVERNING LAW. The place of administration of the Plan and this
Agreement shall be in the State of Minnesota. The corporate law of the State of
Delaware shall govern issues relating to the validity and issuances of Shares.
Otherwise this Agreement shall be construed and administered in accordance with
the laws of the State of Minnesota, without giving effect to principles relating
to conflict of laws.
12. FURTHER ASSURANCES. Upon the exercise of the option by Optionee or
at such subsequent date as either the Company or Optionee may reasonably
request, each party hereto agrees to execute and deliver such further
instruments and to take such other action as shall be reasonably required to
carry out the intent and purposes of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
14. NOTICES. All notices that are required or may be given pursuant to
the terms of this Agreement shall be in writing and delivered personally or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows and shall be deemed to have been given upon delivery to the
addressee:
To the Company:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, MN 55341
Attention: General Counsel
To Optionee:
At Optionee's residence address listed in the Company's
records.
Notice of a change in address of one of the parties hereto shall be given in
writing to the other party as provided above, but shall be effective only upon
actual receipt.
15. AMENDMENT. This Agreement may not be amended or modified by the
parties hereto in any manner, except by a written instrument signed by both
parties hereto.
16. BINDING EFFECT: ASSIGNMENT. This Agreement shall be binding upon
the heirs, successors and assigns of the parties hereto. This Agreement shall
not be assigned by either party hereto without the express written consent of
the other party.
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17. ENTIRE AGREEMENT. The Plan, the rules adopted by the Board of
Directors from time to time and this Agreement constitute, except as to any
written agreement between the parties hereto which specifically references this
Section 17, the entire understanding between the parties hereto with respect to
the matters covered herein and supersede all previous written, oral or implied
understandings between the parties hereto with respect to the subject matter
hereof.
18. MISCELLANEOUS.
(a) This Option is issued pursuant to the Plan and is subject to its
terms. The Plan is available for inspection during business hours at the
principal office of the Company.
(b) Neither the Plan, nor the granting of this Option or any other
option, nor this Agreement, nor any action taken pursuant to the Plan or this
Agreement, shall constitute, or be evidence of, any agreement or understanding,
express or implied, that the Company will retain Optionee as a director for any
period of time, or at any particular rate of compensation. Optionee shall have
no rights as a shareholder with respect to shares covered by this Option until
the date of the issuance of a stock certificate therefor following due and
proper exercise of this Option.
(c) The exercise of all or any part of this Option shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Common Stock pursuant to such exercise will not violate
any state or federal securities or other laws. Optionee may be required by the
Company, as a condition of the effectiveness of any exercise of this Option, to
agree in writing that all Common Stock to be acquired pursuant to such exercise
shall be held for Optionee's own account without a view to any further
distribution thereof, that the certificates for such shares shall bear an
appropriate legend to that effect and that such shares will not be transferred
or disposed of except in compliance with applicable federal and state securities
laws. The Company may, in its sole discretion, defer the effectiveness of any
full or partial exercise of this Option in order to allow the issuance of Common
Stock pursuant thereto to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of 1933 of any Common Stock to be
issued upon exercise of this Option or to effect similar compliance under any
state laws. The Company shall inform Optionee in writing of its decision to
defer the effectiveness of the exercise of this Option. During the period that
the effectiveness of the exercise of this Option has been deferred, Optionee
may, by written notice, withdraw such exercise and obtain the refund of any
amount paid with respect thereto.
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<PAGE>
(d) In order to provide the Company with the opportunity to claim the
benefit of any income tax deduction which may be available to it upon the
exercise of this Option, and in order to comply with all applicable federal
or state income tax laws or regulations, the Company may take such action as
it deems appropriate to ensure that, if necessary, all applicable federal or
state payroll, withholding, income or other taxes are withheld or collected
from Optionee. If the Company elects to take any such action, Optionee shall
be required to provide the Company with cash (and not shares of Common Stock
or any other form of consideration) for the satisfaction of such withholding
or collection.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the day and year first above written.
METRIS COMPANIES INC.
By
----------------------------
Name
------------------------
Its
-------------------------
------------------------------
Optionee
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CO-BRAND CREDIT CARD AGREEMENT
This Agreement is entered into as of the 31st day of October, 1996, by
and among Direct Merchants Credit Card Bank, National Association, a national
banking association, with its offices at 1455 West 2200 South, Salt Lake City,
Utah 84119 ("Direct Merchants Bank"), Metris Direct, Inc., a Minnesota
corporation, with offices at 600 South Highway 169, Suite 1800, St. Louis Park,
Minnesota 55426 ("Metris") and Fingerhut Corporation, a Minnesota corporation
with offices at 4400 Baker Road, Minnetonka, MN 55343 ("Fingerhut").
WITNESSETH:
WHEREAS, Direct Merchants Bank, Metris, and Fingerhut desire to market
to Fingerhut customers the Fingerhut Card, as defined herein; and
WHEREAS, Fingerhut desires that Direct Merchants Bank be the exclusive
issuer of the Fingerhut Card and acknowledges that Direct Merchants Bank has
designated Metris as the exclusive service provider of marketing, mail
segmentation and such other services as the parties may mutually agree for
the Fingerhut Card;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
DEFINITIONS
The following terms, as used herein shall have the following meanings
whether used in the singular or plural:
"Account" means an open-end line of credit (secured or unsecured), owned by
Direct Merchants Bank (including the receivable generated thereunder),
accessed through the use of the Fingerhut Card or other access device and
used by a Cardholder for personal, family and household purposes. Account
does not mean open or closed end credit accessed by a credit card or other
access device which is a private label credit card, issued by or on behalf of
Fingerhut or any Affiliate of Fingerhut.
"Account Booked" means an Account that meets Direct Merchants Bank's
underwriting criteria for approval and a credit line is opened for the
Cardholder greater than Direct Merchants Bank's minimum credit line in effect
at time of approval. Account Booked does not mean an Account which is
determined to be fraudulent or lost/stolen.
"Affiliate" means (i) with respect to Fingerhut any person or entity directly
or indirectly (including through any subsidiary) owned or controlled by
Fingerhut or under common ownership or control with Fingerhut; (other than
Metris and any person or entity directly or indirectly owned or controlled by
Metris) and (ii) with respect to Direct Merchants Bank and Metris, any person
or entity directly or indirectly (including through any subsidiary) owned or
controlled by Direct Merchants Bank or Metris.
<PAGE>
"Affinity Participant" means a non-Party business that offers special
products or services directly to Cardholder in accordance with terms agreed
upon by Direct Merchants Bank and Metris.
"Agreement" means this Agreement including all Exhibits, as amended from time
to time, identified in this Agreement.
"Direct Merchants Bank" means Direct Merchants Credit Card Bank, National
Association, a national banking association and any Affiliate of Direct
Merchants Bank to which this Agreement is assigned.
"Cardholder" means a Prospect who accepts a Fingerhut Card, and for whom an
Account is established.
"Cardholder Account Agreement" means the agreement between Direct Merchants
Bank and each Cardholder.
"Cardholder List" means a list of Cardholders.
"Card Enhancement Products" means one or more of the following products: auto
clubs, account protection and debt waiver products, credit life insurance,
credit card registration, legal services, shopping services, dining clubs,
bonus or rebate programs, retail memberships, any other credit card value
program developed by Metris or Direct Merchants Bank, and any other products
offered by Metris or Direct Merchants Bank for which the Fingerhut Card (or
its successor product) is the primary billing or access device and which are
offered in conjunction with the Fingerhut Card.
"Direct Competitor of Fingerhut" means any unaffiliated third party that
sells merchandise through direct mail and/or inbound/outbound telemarketing
solicitations.
"Metris" means Metris and any Metris Affiliate to which this Agreement is
assigned or which otherwise become Party to this Agreement.
"Fingerhut Card" means a general purpose credit card, plate or other access
device (including cash advance checks) issued by Direct Merchants Bank that
may be used from time to time to obtain credit on the Account and that bears
the name and logo of VISA, MasterCard or other member association as well as
the name and logo of Fingerhut.
"Initial Term" has the meaning ascribed in Article 7.
"Net Purchases" means purchases of goods or services (including cash
advances) made by Cardholders or their authorized users through the use of
Fingerhut Cards (whether or not the purchases are effected in person or via
telephone, mail or other means), less merchant credits, and reflecting
appropriate purchase adjustments posted to the Accounts.
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"Party" or "Parties" means Direct Merchants Bank and/or Fingerhut and/or
Metris, and/or if the context so requires, any Affiliate which is an assignee
of the parties.
"Pre-Screened Prospect List" means a list of Prospects who have been
prescreened by Direct Merchants Bank for credit worthiness, are approved by
Direct Merchants Bank for solicitation, and will be solicited by Direct
Merchants Bank for the Fingerhut Card.
"Prospect" means an individual who may be solicited for or may seek a
Fingerhut Card.
"Renewal Term" has the meaning ascribed in Article 7.
"Securitization" means any transaction involving the pooling and sale of the
receivable and other assets arising under or through the Accounts to an
entity which may issue securities and fund such purchases. The term is to be
construed broadly to include sales to a trust which issues certificates or
sales to corporations or other institutions which may issue notes or
commercial paper to fund such purchases.
"Securitized Account" means all Accounts whose receivable or other assets
have been transferred in a Securitization.
ARTICLE 1 - CARD PROGRAM
1.1 GENERAL.
(a) Direct Merchants Bank and Fingerhut will develop, as provided
in this Agreement, a credit card program whereby Direct Merchants Bank will
offer a Fingerhut Card. Direct Merchants Bank will establish Accounts and
issue Fingerhut Cards, and Direct Merchants Bank or Metris will administer
such Accounts. Direct Merchants Bank, Metris and Fingerhut will also develop
mutually agreeable lists of Prospects for the Fingerhut Card. Fingerhut
reserves the right to develop a Cardholder "rewards" or "incentive" program
for the Fingerhut Card. At such time, the Parties agree to negotiate in good
faith to develop such a program to enhance the value of the Fingerhut Card
and the terms and conditions to fund such program.
(b) Notwithstanding anything else in this Agreement, Fingerhut
acknowledges that Direct Merchants Bank shall be solely responsible for
credit policy, including Account origination credit criteria, credit
approval, administration, billing, collections, credit terms (including
interest rate) and any other areas of responsibility which applicable laws,
regulations or other member association rules require to be the sole
responsibility of Direct Merchants Bank. Subject to the conditions set forth
in Section 4.3(b), Fingerhut further agrees that Direct Merchants Bank may
enter into any contract, agreement or other arrangement with a Direct
Competitor to issue, process or manage a co-brand, affinity or other jointly
branded credit card or product.
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1.2 RESPONSIBILITIES
(a) LIST DEVELOPMENT. The Parties shall, at Direct Merchants
Bank's expense, prepare lists of Prospects to be solicited for the Fingerhut
Card. Fingerhut will provide Direct Merchants Bank with lists of Prospects
from its lists of customers along with certain attributes regarding those
customers. Fingerhut will not provide any customer information that in its
sole discretion would cause it to become a consumer reporting agency.
(b) SOLICITATIONS/APPLICATIONS. Subject to the review process in
Section 1.2(k), Metris and Direct Merchants Bank will each, at their own
expense, develop and distribute credit solicitations/applications for the
Fingerhut Card. Subject to Fingerhut's prior written consent, such consent
not to be unreasonably withheld, Direct Merchants Bank may use Fingerhut's or
other advertising media (including direct mail, catalog, and inbound/outbound
telemarketing or other media) to solicit Prospects. Any such solicitations
shall be upon terms and conditions mutually agreed to by the Parties.
(c) MARKETING/RESPONSE FULFILLMENT. Metris and Direct Merchants
Bank agree to assume responsibility for all costs and expenses of all
marketing, advertising (including mass media), and other marketing costs
(including mailing of Fingerhut Cards, card carriers and production of
Cardholder Account Agreements) for application fulfillment (including
postage), associated with the marketing of the Fingerhut Card.
(d) ACCOUNT ORIGINATION. Direct Merchants Bank agrees to open an
Account for each Prospect meeting its credit criteria. Direct Merchants
Bank, as owner and issuer of the Account, will have sole discretion in
developing and implementing credit criteria for establishing an Account,
including but not limited to all on-going credit decisions for credit line
increases or decreases, overlimits, point-of-sale authorizations, Account
closures, and re-issuance of Fingerhut Cards.
(e) PRE-SCREENING. Subject to the credit and other criteria of
Direct Merchants Bank, the Parties will develop a Pre-Screened Prospect List
from the lists of Prospects. The Parties agree that the Prospect List
provided shall be considered Confidential Information as such term is defined
in Section 4.1 (b) hereof and agree to maintain the confidentiality of such
Prospect list.
(f) CARD ENHANCEMENT PRODUCTS. Metris or Direct Merchants Bank
will develop, itself or through third parties, Card Enhancement Products to
offer Cardholders. Revenues from such Card Enhancement Products will be for
the sole benefit of Direct Merchants Bank. Metris or Direct Merchants Bank
will not offer a Card Enhancement Product to Cardholders that is provided for
the benefit of or in association with a Direct Competitor of Fingerhut
without Fingerhut's prior written consent, (such consent to be provided
within ten (10) days of request). The Parties confirm that Fingerhut may
reasonably withhold such consent if an offer may have an adverse effect on
Fingerhut's business or its competitive position relative to a Direct
Competitor.
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(g) STATEMENT MESSAGES. Fingerhut shall have the right to use,
without cost, the space allocable to marketing messages on Direct Merchants
Bank's periodic billing statements to Cardholders for up to four of the
twelve periodic billing statements sent to Cardholders within a calendar year
but not more than once per quarter. Direct Merchants Bank shall have the
right to use the remaining space except such space will not be used to offer
products of Direct Competitors of Fingerhut. The total space allocable to
marketing messages shall exclude space reasonably required by Direct
Merchants Bank to communicate credit information to Cardholders, including
but not limited to changes in terms, annual fees, over-the-credit-limit and
late payment information and any information required by law or regulation.
(h) INSERTS. Fingerhut, at no cost, shall have the right to place
inserts in Cardholder periodic billing envelopes, up to the standard postage
weight limitations for statement mailings with a maximum of up to six inserts
per calendar year not to exceed two per quarter or one per month. Direct
Merchants Bank shall have the right to use other statement inserts (which
includes member association inserts such as MasterValues or other similar
member news items) for products and information, or if applicable, for
Affinity Participants (subject to the limitations in Section 1.2(j)).
Notwithstanding the foregoing, Direct Merchants Bank agrees not to mail
statement inserts to Cardholders that offer products or services of a Direct
Competitor of Fingerhut except for retailers or catalogues in Master Values
or other similar member news items. Requests by Fingerhut for additional
space will be reviewed in good faith by Direct Merchants Bank.
Notwithstanding, Direct Merchants Bank reserves the right to decrease the
number of inserts Fingerhut is allowed, as provided herein, in the event
applicable laws, rules or regulations require Direct Merchants Bank to
communicate Cardholder changes via a statement insert. In the event of such
insert decrease, Fingerhut's inserts will be inserted in the next statement
mailing so as not to reduce Fingerhut's total statement insert to less than
six.
(i) "BANGTAILS". Fingerhut or Direct Merchants Bank, subject to
Direct Merchants Bank's discretion, may use space on billing envelopes which
is commonly referred to as the "bangtail"; provided, however, that such user
pays for developing the "bangtail", and for the corresponding remittance
envelopes as well as any other costs incurred or incident to this process
including, but not limited to, the cost of transmitting cardholder orders
from the "bangtail".
(j) ENGAGEMENT OF AFFINITY PARTICIPANTS. Subject to Fingerhut's
prior written approval, not to be unreasonably withheld, Direct Merchants
Bank or Metris may enter into contracts providing for the participation of
Affinity Participants to enhance the value of the Fingerhut Card.
Administration of the relationship with Affinity Participants shall be the
sole responsibility of Direct Merchants Bank or Metris. Except for Affinity
Participants permitted by Fingerhut prior to execution of this Agreement,
Direct Merchants Bank or Metris will not engage Affinity Participants to
market to the Cardholder which are Direct Competitors of Fingerhut. Metris
or Direct Merchants Bank may request Fingerhut's prior written consent to
offer such product of an Affinity Participant to a Cardholder. The Parties
confirm that Fingerhut may reasonably withhold its consent for purposes of
this paragraph (j), if an offer or contract with an Affinity Participant may
have an adverse effect on the value or usefulness of the Fingerhut name or
reputation or on Fingerhut's business or prospects or on its competitive
position relative to a Direct Competitor and the Fingerhut Card.
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Direct Merchants Bank and Metris agree that they will not enter
into any agreements with Affinity Participants which (i) conflict with the
terms of this Agreement, or (ii) impose any additional obligations on any
other Party without such other Party's prior written consent. In addition,
neither Direct Merchants Bank, Metris nor Fingerhut will be liable for any
obligations assumed by any other Party with Affinity Participants in any
agreement other than as contemplated by the preceding sentence.
(k) REVIEW OF SOLICITATION, ADVERTISING AND MARKETING MATERIALS.
All solicitation, advertising and marketing materials (including statement
inserts, "bangtails," and all other communications to Cardholders) for the
Fingerhut Card shall be reviewed by the Parties for legal, regulatory
compliance as well as compliance with direct mail requirements. Any Party
hereto may withhold approval of any solicitation, advertisement or marketing
material which such Party, in its reasonable opinion, considers a violation
of any law, regulation or requirement applicable to the Party or in its
reasonable opinion would have an adverse impact on the Fingerhut Card.
Direct Merchants Bank shall be solely responsible for ensuring compliance
with legal and regulatory requirements applicable to the Fingerhut Card of
all solicitation, advertising and marketing materials approved by Direct
Merchants Bank. Fingerhut shall be solely responsible for ensuring
compliance with legal and regulatory requirements applicable to Fingerhut of
all solicitation, advertising and marketing materials approved by Fingerhut.
Each Party agrees to provide comments on or approval of solicitation,
advertising and marketing materials within 5 business days after receipt.
All solicitation, advertising or other marketing material shall identify
Direct Merchants Bank as the issuer of the Fingerhut Card.
(l) Fingerhut agrees that Direct Merchants Bank, or Metris may
solicit, each at its own expense, the Cardholder List for products offered by
Direct Merchants Bank, or Metris. Direct Merchants Bank agrees that
Fingerhut may solicit at its expense the Cardholder List for merchandise
offered by Fingerhut. The Cardholder List is subject to the confidentiality
requirements of Section 4.1(b). Direct Merchants Bank and Metris agree that,
except as otherwise expressly provided in this Agreement or otherwise agreed
to in writing by the Parties, Fingerhut shall have the exclusive right to
offer merchandise sold by it to the Cardholder List.
ARTICLE 2 - ADMINISTRATION
2.1 USE OF FINGERHUT NAME AND LOGO. During the term of this Agreement,
Direct Merchants Bank shall have the nonexclusive right to use the name
"Fingerhut" and the "Fingerhut" logo which Fingerhut has provided to Direct
Merchants Bank for the limited purposes described herein on the Fingerhut
Card Cardholder statements, Cardholder customer service letters and marketing
materials mailed to Cardholder, and for other purposes approved in advance by
Fingerhut in connection with the Fingerhut Card. Fingerhut reserves the
right to prohibit use of its name and logo on collection letters or other
collection communication from Direct Merchants Bank.
2.2 RIGHT TO ACCESS. Each Party will (i) permit the other Party or
Parties, as applicable and its authorized representatives or regulatory
auditors reasonable access, during normal business
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hours, to audit the books and records of the other Party as they relate to
compliance of the other Party with the terms and conditions of this
Agreement, and (ii) cause its personnel to provide the other Party with
reasonable assistance in its performance of such audit and investigation;
provided, however, that such audit and investigation will be conducted by
such Party in a manner which does not unreasonably interfere with the other
Party's normal operations; and provided further that the other Party will not
be required to divulge any records, including certain customer information,
to the extent prohibited by applicable statutes or regulations or subject to
attorney client or other privilege.
2.3 COMPLIANCE WITH LAWS. Direct Merchants Bank and Metris, in
accomplishing their duties under this Agreement, will, in relation to the
Cardholder Account Agreements and Accounts, comply in all material respects
with all applicable federal and state laws, rules and regulations including
(i) the Federal Consumer Credit Protection Act and its implementing
regulations and (ii) all regulations of VISA, MasterCard or other member
association.
2.4 SECURITIZATION. Fingerhut agrees Direct Merchants Bank shall have
the right to (i) take any action required consistent with industry practices
to effect a Securitization of an Account, (ii) engage in hedging transactions
consistent with industry practices including but not limited to interest rate
swaps or interest caps with respect to revenue anticipated or received from
such Securitized Account, and (iii) determine the terms, conditions and
provisions of any documentation, arrangements or agreements relating to such
Securitization and hedging transactions.
ARTICLE 3 - COMPENSATION
3.1 COMPENSATION. Direct Merchants Bank will pay to Fingerhut for each
Account Booked the fees as specified in Exhibit A.
3.2 SETTLEMENT OF PAYMENT. Direct Merchants Bank will pay Fingerhut
and Fingerhut will pay Direct Merchants Bank or Metris, as applicable, in
immediately available funds and not later than the thirtieth (30th) business
day following the end of each calendar month, all amounts due and payable to
the other pursuant to this Agreement and Exhibit A.
ARTICLE 4 - CERTAIN COVENANTS
Direct Merchants Bank, Metris and Fingerhut each covenant and agree that:
4.1 COOPERATION.
(a) COOPERATION. Each Party will cooperate fully in furnishing
any information or performing any action reasonably requested by the other
Party or Parties, as applicable, which information or action is necessary to
the timely, and successful consummation of the transactions contemplated by
this Agreement.
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4.2 CONFIDENTIALITY.
(a) CONFIDENTIALITY. Proprietary information furnished prior to
and after execution of this Agreement by one Party to the other in connection
with this Agreement and the transactions contemplated hereby will be kept in
confidence by such other Party, including its Affiliates, in accordance with
its policies for maintaining the confidence of its own information of similar
content. The term "Confidential Information" shall mean and include (i) all
trade secrets and other confidential business information learned in the
course of performance by either Party of its obligations hereunder, (ii) the
Fingerhut credit score and any other information provided by Fingerhut with
respect to Prospects or data which is disclosed by a Party to the other Party
under or in contemplation of this Agreement. "Confidential Information" may
be either the property of the disclosing Party or information provided to the
disclosing Party by a corporate Affiliate of the disclosing Party or by a
third party.
(b) Notwithstanding the foregoing, the term "Confidential
Information shall not include information which (i) is already known to such
other Party when received, (ii) thereafter becomes generally obtainable by a
Party other than as a result of an unauthorized disclosure by the Party
taking advantage of this clause, (iii) is required by law, regulation or
court order to be disclosed by such Party, provided that in the case of this
clause, prior notice of such disclosure has been given to the Party which
furnished such information, when legally permissible, and that such other
Party which is required to make the disclosure uses its best efforts to
provide sufficient notice to permit the Party which furnished such
information to take legal action to prevent the disclosure, or (iv) reasonably
necessary, in the opinion of counsel, to be disclosed in the context of a
legal proceeding or regulatory investigation provided that prior notice shall
be given to the party which furnished the information. Any Party may
disclose information to VISA or MasterCard or other member association
pursuant to their respective requirements or to either Party's respective
Affiliates, auditors, counsel rating agencies, or regulators.
(c) In addition, notwithstanding anything contained in this
Section 4.2 to the contrary, Direct Merchants Bank or Metris may (i) with an
appropriate confidentiality agreement in place, disclose such information
relating to this Agreement and the transactions contemplated hereby as may be
reasonably necessary to Affinity Participants, and (ii) with an appropriate
confidentiality agreement in place, disclose such information to others with
a reasonable business need; PROVIDED, HOWEVER, that neither Direct Merchants
Bank or Metris will disclose any of Fingerhut's confidential information
without Fingerhut's prior written consent. Direct Merchants Bank, Metris and
Fingerhut shall not be obligated to disclose to any of the others any
information relating to Cardholders which is required by applicable law to be
kept confidential or is otherwise prohibited from disclosure by this
Agreement, or would cause either party, in its reasonable interpretation, to
be deemed a credit reporting agency as defined under applicable state or
federal law. This Section 4.2 shall survive any termination of this
Agreement for five (5) years.
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4.3 COVENANTS.
(a) COVENANT OF FINGERHUT. Fingerhut agrees that, during the term
of this Agreement, including any renewals, Fingerhut will not own (directly
or indirectly) the credit card (secured or unsecured) account or receivables
on an account, issue, process, manage or enter into an agreement with a third
party to own (directly or indirectly), issue, process, or manage another
Fingerhut Card (including a credit or charge card, or travel and
entertainment card or other general purpose credit card). Direct Merchants
Bank and Metris agree Fingerhut or any of its Affiliates may own, issue,
manage or process itself a private label open or closed end credit card which
is not (x) a credit card bearing the same logo as the Fingerhut Card, or
(y) processed for use as a general purpose credit card by or bearing the name
and logo of a member association as a general purpose credit card.
(b) COVENANT OF DIRECT MERCHANTS BANK. Direct Merchants Bank
agrees that during the term of this Agreement, including any renewals, Direct
Merchants Bank will not solicit the Cardholder List to offer a co-branded,
affinity or jointly branded credit card or product of a Direct Competitor.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATION AND WARRANTIES OF DIRECT MERCHANTS BANK. Direct
Merchants Bank hereby represents and warrants to Fingerhut as follows:
(a) ORGANIZATION. Direct Merchants Bank is a national banking
association duly organized and validly existing under the laws of the United
States.
(b) CAPACITY; AUTHORITY; VALIDITY. Direct Merchants Bank has all
necessary corporate power and authority to enter into this Agreement and to
perform or cause to be performed all of its obligations under this Agreement.
This Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action of
Direct Merchants Bank, and this Agreement has been duly executed and
delivered by Direct Merchants Bank and constitutes the valid and binding
obligation of Direct Merchants Bank, enforceable in accordance with its terms
(except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and by general equity principles).
(c) CONFLICTS; DEFAULTS. Neither the execution and delivery of
this Agreement by Direct Merchants Bank, nor the consummation of the
transactions contemplated hereby by Direct Merchants Bank, will (i) result in
a breach of, constitute a material default under, or accelerate the
performance required by the terms of any contract, instrument or commitment
to which Direct Merchants Bank is a party or by which Direct Merchants Bank
is bound, (ii) violate the charter or by-laws of Direct Merchants Bank, or
any other equivalent organizational document of Direct Merchants Bank,
(iii) require any consent or approval under any judgment, order, decree,
permit or license to which Direct Merchants Bank is a party or by which Direct
Merchants Bank is bound,
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or (iv) require the consent or approval of any governmental authority or
other party to any contract, instrument or commitment to which Direct
Merchants Bank is a party or by which it is bound, except as have been
obtained or as contemplated by the Parties with respect to MasterCard, VISA,
or other member associations.
5.2 REPRESENTATION AND WARRANTIES OF FINGERHUT. Fingerhut hereby
represents and warrants to Direct Merchants Bank as follows:
(a) ORGANIZATION. Fingerhut is a business corporation duly
organized, validly existing and in good standing under the laws of the State
of Minnesota.
(b) CAPACITY; AUTHORITY; VALIDITY. Fingerhut has all necessary
corporate power and authority to enter into this Agreement and to perform all
of its obligations under this Agreement. This Agreement and the consummation
by Fingerhut of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action of Fingerhut, and this
Agreement has been duly executed and delivered by Fingerhut and constitutes
the valid and binding obligation of Fingerhut, enforceable in accordance with
its terms (except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equity principles).
(c) CONFLICTS; DEFAULTS. Neither the execution and delivery of
this Agreement. by Fingerhut nor the consummation of the transactions
contemplated hereby by Fingerhut will (i) result in a material breach of,
constitute a default under, or accelerate the performance required by the
terms of any contract, instrument or commitment to which Fingerhut is a party
or by which Fingerhut is bound, (ii) violate the charter or by-laws of
Fingerhut, or any other equivalent organizational document of Fingerhut,
(iii) require any consent or approval under any judgment, order, decree,
permit or license to which Fingerhut is a party or by which Fingerhut is
bound, or (iv) require the consent or approval of any other party to any
contract, instrument or commitment to which Fingerhut is a party or by which
it is bound.
5.3 REPRESENTATION AND WARRANTIES OF METRIS. Metris hereby represents
and warrants to Direct Merchants Bank as follows:
(a) ORGANIZATION. Metris is a business corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
(b) CAPACITY; AUTHORITY; VALIDITY. Metris has all necessary
corporate power and authority to enter into this Agreement and to perform all
of its obligations under this Agreement. This Agreement and the consummation
by Metris of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action of Metris, and this Agreement
has been duly executed and delivered by Metris and constitutes the valid and
binding obligation Metris, enforceable in accordance with its terms (except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights,
generally and by general equity principles).
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(c) CONFLICTS; DEFAULTS. Neither the execution and delivery of this
Agreement. by Metris nor the consummation of the transactions contemplated
hereby by Metris will (i) result in a breach of, constitute a material default
under, or accelerate the performance required by the terms of any contract,
instrument or commitment to which Metris is a party or by which Metris is bound,
(ii) violate the charter or by-laws of Metris, or any other equivalent
organizational document of Metris, (iii) require any consent or approval under
any judgment, order, decree, permit or license to which Metris is a party or by
which Metris is bound, or (iv) require the consent or approval of any other
party to any contract, instrument or commitment to which Metris is a party or by
which it is bound.
ARTICLE 6 - INDEMNIFICATION
6.1 INDEMNIFICATION OBLIGATIONS
(a) BY DIRECT MERCHANTS BANK. Direct Merchants Bank shall be liable
to and shall defend, indemnify and hold harmless Fingerhut and its Affiliates,
and their respective officers, directors, employees and permitted assigns
harmless from and against any and all Losses (as hereinafter defined) incurred
by reason of or related to (i) Direct Merchants Bank's breach of any
representation, warranty or covenant hereunder, (ii) Direct Merchants Bank's
failure to perform its obligations hereunder, and (iii) any claim by a
Cardholder or an Affinity Participant based on the act or omission of Direct
Merchants Bank with respect to the Fingerhut Card, except that Direct Merchants
Bank shall not be liable for any claim of a Cardholder or an Affinity
Participant caused by the act or omission of Fingerhut or a Fingerhut Affiliate.
(b) BY FINGERHUT. Fingerhut shall be liable to and shall defend,
indemnify and hold harmless Direct Merchants Bank, Metris and their Affiliates,
and their respective officers, directors, employees and permitted assigns
harmless from and against any and all Losses (as hereinafter defined) incurred
by reason of or related to (i) Fingerhut's breach of any representations,
warranty or covenant hereunder, and (ii) failure to perform its obligations
hereunder; except that Fingerhut shall not be liable for any claim of a
Cardholder or an Affinity Participant caused by the act or omission of Direct
Merchants Bank, Metris, or their Affiliates.
(c) METRIS. Metris shall be liable to and shall defend, indemnify
and hold harmless Direct Merchants Bank, Fingerhut, and their Affiliates, and
their respective officers, directors, employees and permitted assigns harmless
from and against any and all Losses (as hereinafter defined) incurred by reason
of or related to (i) Metris' breach of any representations, warranty or
covenant hereunder, and (ii) failure to perform its obligations hereunder;
except any claim of a Cardholder or an Affinity Participant caused by the act
or omission of Direct Merchants Bank.
(d) "LOSSES" DEFINED. For purpose of this Section 6.1, the term
"Losses" shall mean any liability, damages, costs, losses and expenses,
including attorneys' fees, disbursements and court costs, reasonably incurred
by Direct Merchants Bank, Metris or Fingerhut in connection with any
threatened, pending, or adjudicated claim, demands, action, suit or proceeding
(whether civil,
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criminal, administrative or investigated by an unaffiliated third party without
regard to whether or not such Losses would be deemed material under this
Agreement.
6.2 PROCEDURES.
(a) NOTICE OF CLAIMS. The Parties agree that in case any claim is
made, or any suit or action is filed or served (whichever is the earlier)
which, if not corrected, may give rise to a right of indemnification for a
Party hereunder ("Indemnified Party") from the other Party ("Indemnifying
Party"), the Indemnified Party will give notice to the Indemnifying Party as
promptly as practicable after the receipt by the Indemnified Party of such
notice or knowledge of such claim, suit, or action. On a best efforts basis,
notice to the Indemnifying Party shall be given no later than fifteen days
after receipt by the Indemnified Party in the event a suit or action has
commenced or thirty days under all other circumstances; provided, however, that
the failure to give prompt notice shall not relieve an Indemnifying Party of
its obligation to indemnify except to the extent the Indemnifying Party is
materially prejudiced by such failure. The Indemnified Party shall make
available to the Indemnifying Party and its counsel and accountants at
reasonable times and for reasonable periods, during normal business hours, all
books and records of the Indemnified Party relating to any such possible claim
for indemnification, and each Party will render to the other such assistance as
it may reasonably require of the other in order to ensure prompt and adequate
defense of any suit, claim or proceeding based upon a statement of facts which
may give rise to a right of indemnification hereunder.
(b) SELECTION OF COUNSEL. The Indemnifying Party shall have the
right to defend, compromise and settle any suit, claim or proceeding in the
name of the Indemnified Party to the extent that the Indemnifying Party may be
liable to the Indemnified Party under Section 6.1 above in connection
therewith; provided, however, that the Indemnifying Party shall not compromise
or settle a suit, claim or proceeding unless it assumes the obligation to
indemnify for all Losses relating thereto. In the event two of the parties to
this Agreement must indemnify the third, the parties agree the two Indemnifying
Parties must agree to select one to be the Indemnifying Party to the third
Indemnified Party and the third Indemnified Party shall look to one party to
this Agreement for indemnification. The Indemnifying Party shall notify the
Indemnified Party within ten days of having been notified pursuant to Section
6.2(a) of this Agreement if the Indemnifying Party elects to assume the defense
of any such claim, suit or action and employ counsel in a reasonable exercise
of its discretion. The Indemnified Party shall have the right to participate
in such defense compromise or settlement through counsel chosen by it, but the
fees and expenses of such counsel shall be at the Indemnified Party's expense,
unless the Indemnifying Party shall not have employed counsel to take charge of
the defense thereof.
(c) SETTLEMENT OF CLAIMS. The Indemnified Party may at any time
notify the Indemnifying Party of its intention to settle or compromise any
claim, suit or action against the Indemnified Party in respect of which
indemnification payments may be sought from the Indemnifying Party hereunder,
but shall not settle or compromise any matter for which indemnification may be
sought without the consent of the Indemnifying Party. Any settlement or
compromise of any claim, suit or action in accordance with the preceding
sentence, or any final judgment or decree entered on or in any claim, suit or
action which the Indemnifying Party did not
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assume the defense of in accordance herewith, shall be deemed to have been
consented to by, and shall be binding upon, the Indemnifying Party as fully as
if the Indemnifying Party had assumed the defense thereof and a final judgment
or decree had been entered in such suit or action, or with regard to such
claim, by a court of competent jurisdiction for the amount of such settlement,
compromise, judgment or decree.
(d) SUBROGATION. The Indemnified Party shall be subrogated to any
claims or rights of the Indemnifying Party as against any other persons with
respect to any amount paid by the Indemnified Party under this Article 6. The
Indemnified Party shall cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in the assertion by the Indemnifying Party of any
such claim against such other persons.
(e) INDEMNIFICATION PAYMENTS. Amounts owing under this Article 6
shall be paid promptly upon written demand for indemnification containing in
reasonable detail the facts giving rise to such liability; provided, however,
if the Indemnifying Party notifies the Indemnified Party within thirty (30)
days of receipt of such demand that it disputes its obligation to indemnify and
the Parties are not otherwise able to reach agreement, the controversy shall be
settled by final order entered by a court of competent jurisdiction.
6.3 SURVIVAL OF INDEMNIFICATION. The provisions of this Article 6 shall
expressly survive any termination of this Agreement under Article 7 below or
otherwise for a period of ten (10) years.
ARTICLE 7 - TERM AND TERMINATION
7.1 TERM. This Agreement will continue until July 18, 2003 (the "Initial
Term") . Thereafter, this Agreement will automatically renew for one term of
three (3) years ("Renewal Term"), unless one Party provides written notice to
the other Party not less than twelve (12) months prior to the end of the Initial
Term or any Subsequent Renewal Term of its intent to terminate this Agreement.
Six (6) months prior to the conclusion of the Renewal Term, the Parties may
extend this Agreement in three (3) year increments upon mutual agreement. In
the event a replacement agreement has not been agreed upon by the Parties at the
end of the Renewal Term or any other mutually agreed upon extension, the Parties
shall continue to cooperate and to carry out their respective responsibilities
and duties under the terms of this Agreement for up to eighteen (18) months
beyond such Renewal Term or other mutually agreed upon extension to facilitate
an orderly transition.
Notwithstanding anything contained in this Section 7.1 to the
contrary, this Agreement may be terminated prior to the end of the Initial Term
or any Renewal Term upon the mutual written agreement of the Parties. The
termination of this Agreement pursuant to this Article 7 will not terminate,
affect or impair any rights (including the right to commence a suit or claim
for breach of this Agreement), obligations or liabilities of either Party
hereto which may accrue prior to such termination or which, under the terms of
this Agreement, continue after such termination.
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7.2 TERMINATION. Any Party may terminate this Agreement reserving all
other remedies and rights hereunder in whole or in part and otherwise available
in law or in equity, upon the following conditions:
(a) EVENT OF DEFAULT. Upon the occurrence of an Event of Default,
(as hereinafter defined) the non-defaulting Party may terminate this Agreement
by giving no less than 120 days prior written notice of its intent to
terminate. Such written notice shall describe the Event of Default. If the
defaulting Party corrects the condition which resulted in the Event of Default
within 90 days from the date of delivery of the notice from the other Party,
this Agreement shall remain in full force and effect. For purposes of this
Section 7.2, the following events shall be "Events of Default": (i) any Party
materially defaults in the performance of any of its duties or obligations
under this Agreement and continues after notice, (ii) a breach by a Party of
its material covenants, representations and warranties set forth herein which
are not remedied, (iii) Direct Merchants Bank loses its membership in either
VISA, MasterCard, or any other member association and such loss of membership
materially adversely impacts Direct Merchants Bank's issuance of the Fingerhut
Card, (iv) any Party acts in a manner which causes significant harm to the
goodwill of the other and adversely impacts the Fingerhut Card, and (v) Direct
Merchants Bank sells the Accounts to a third person; PROVIDED, HOWEVER, it
shall not be an Event of Default if Direct Merchants Bank sells a Securitized
Account or an account for collection in the ordinary course of business, or any
other such sale of the Account which is necessary in the ordinary course of
business.
(b) BANKRUPTCY. A Party may, to the extent permitted by law,
terminate this Agreement at any time upon written notice to the other in the
event a petition in bankruptcy or for reorganization or debt consolidation
under the federal bankruptcy laws or under any comparable law, or other similar
state or federal banking regulatory action related to bankruptcy, is filed by
or against the other Party and not dismissed within 90 days, or upon the other
Party's making of an assignment of its assets for the benefit of creditors, or
upon the application of the other Party for the appointment of a receiver or
trustee of its assets or if the other Party becomes insolvent or unable to pay
its debts as they mature. The Party which becomes subject to any proceeding
under this Section 7.2(b) will promptly notify the other Parties to this
Agreement.
(c) FORCE MAJEURE. In the event any Party fails to perform its
obligations under this Agreement in whole or in part as a consequence of an act
of God, including fire, explosion, earthquake, public utilities failure,
accident, flood, embargo, war, nuclear disaster, or riot (a "Force Majeure
Occurrence"), such failure to perform shall not be considered a breach of this
Agreement during the period of such disability. The disabled Party shall
promptly and in writing notify the other Parties to this Agreement of the Force
Majeure Occurrence and advise the other Parties of the extent of the disabled
Party's disability and the expected duration of the disabled Party's inability
to perform its obligations hereunder. This Agreement may be terminated by
either Party receiving such notice on or after the 180th day following receipt
of notice from the disabled Party if the failure to perform has not been cured
at the end of such 180 day period.
(d) CHANGE IN LAW. In the event there is a change in law that
materially impairs the goals and objectives of this Agreement, any Party may
terminate this Agreement by giving no
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less than one hundred twenty (120) days prior written notice of its intent to
terminate. Such written notice shall describe the law which materially impairs
the goals and objectives of this Agreement.
(e) CHANGE IN CONTROL. Fingerhut shall have the right to terminate
this Agreement by written notice to Metris upon the occurrence of a Change of
Control (as defined below) with respect to Metris. A "Change in Control" shall
be deemed to have occurred if (a) any person or group (within the meaning or
Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the date
hereof) other than Fingerhut shall own directly or indirectly, beneficially or
of record, shares representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of Metris; (b) a
majority of the seats (other than vacant seats) on the board of directors of
Metris shall at any time be occupied by persons who were neither (i) nominated
by Fingerhut, or by the Board of Directors of Metris, nor (ii) appointed by
directors so nominated; or (c) any person or group other than Fingerhut shall
otherwise directly or indirectly have the power to exercise a controlling
influence over the management or policies of Metris.
7.3 OBLIGATIONS UPON TERMINATION.
(a) OWNERSHIP OF ACCOUNTS. Upon termination of this Agreement
pursuant to this Article 7, unless the accounts are sold, Direct Merchants Bank
shall continue to own the Accounts, and shall have the right to re-issue the
Fingerhut Card with a card which does not use the Fingerhut name or logo or
under any other name or logo it may choose in its sole discretion.
(b) REMEDIES. Each of the Parties hereto shall be liable to the
other for damages arising out of or in connection with any breach of this
Agreement, subject to the duty of the non-breaching party to take all
reasonable actions in order to mitigate such damages. The Parties agree that
in no event shall any Party to this Agreement be liable to the other for
punitive, indirect, special or consequential damages arising out of a breach of
this Agreement. It is understood and agreed that monetary damages may not be a
sufficient remedy for breach with respect to the respective obligations under
this Agreement, and that monetary damages would not be a sufficient remedy for
any Event of Default. Accordingly, the non-breaching Party shall, to the extent
permitted by law or equity, be entitled to specific performance and injunctive
or other equitable relief as a remedy for any breach of, or Event of Default
under this Agreement. The remedies described in this Section 7.3(b) shall not
be deemed to be the exclusive remedies for any breach of, or Event of Default
under this Agreement, but shall be in addition to all other remedies available;
to the parties at law or in equity, subject to the limitations with respect to
damages set forth in this Section 7.3(b).
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7.4 PURCHASE UPON TERMINATION.
(a) PURCHASE RIGHT. Except for a termination resulting from Section
7.2(a), (b), (d) or (e) at the end of the Initial Term or any subsequent
Renewal Term of this Agreement, Fingerhut (including its permitted assigns
under this Agreement), shall have the right to purchase from Direct Merchants
Bank the Accounts, including Securitized Accounts, and the Cardholder List at a
purchase price determined in accordance with Section 7.4(b) below and under the
terms and conditions of a purchase and sale agreement. Such right may be
exercised upon six months' written notice to Direct Merchants Bank prior to the
end of the Initial Term or Renewal Term. Notwithstanding the sale of the
Accounts, Securitized Accounts, and Cardholder List, Fingerhut agrees that
Metris and Direct Merchants Bank shall have the exclusive right, for three
years from the date of purchase of the Accounts, Securitized Accounts, and
Cardholder List by Fingerhut, to sell Card Enhancement Products to the
Cardholder List. Such exclusive right shall include (i) the right to renew any
Card Enhancement Product purchased by a Cardholder prior to the sale of the
Accounts (including Securitized Accounts) and Cardholder List to Fingerhut;
(ii) the right to offer Card Enhancement Products to Cardholder(s) on the
Cardholder List who have previously not accepted an offer to purchase a Card
Enhancement Product (including renewals); and (iii) the right to offer Card
Enhancement Product (including renewals) to any new Cardholders which are added
to the Cardholder List, whether or not the Fingerhut Card is reissued or
rebranded by Fingerhut. Income (including renewal income) derived from the sale
of Card Enhancement Products to the Cardholder List shall be the sole income of
Metris and Direct Merchants Bank.
(b) PURCHASE PRICE. Fingerhut agrees to pay Direct Merchants Bank a
purchase price for the Accounts and Cardholder List as follows: The sum of (i)
the book value (excluding loan loss reserves of the Accounts), plus (ii) any
earned or unbilled interest or fees, plus (iii) the preceding three year
amortized cost to acquire the Account(s), plus (iv) any premium assigned to the
Accounts based on an independent third party valuation of the portfolio.
(c) PURCHASE CONDITION. Fingerhut agrees to purchase the Accounts,
subject to any Securitization agreements or arrangements that Direct Merchants
Bank or its Affiliate may have entered into and subject to any necessary
approvals of rating agencies, trustees or other parties as set forth in such
Securitization transaction. Fingerhut and Direct Merchants Bank agree to
cooperate to take the reasonable necessary actions to effectuate an orderly
transition of the Accounts, including the Securitized Accounts, to Fingerhut.
Direct Merchants Bank further agrees to take reasonable necessary actions to
remove the Securitized Accounts from the Securitization to enable Fingerhut to
complete the purchase of the Accounts.
ARTICLE 8 - MISCELLANEOUS
8.1 NOTICES. All notices and other communications by Direct Merchants
Bank, Metris and Fingerhut hereunder shall be in writing to the other Party and
shall be deemed to have been duly given when delivered in person, or when sent
via telecopy transmission with hard copy sent via first class mail the same
day, receipt requested and mailed via first class mail, or four business days
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after posting to the United States postal service registered or certified mail,
with postage prepaid, addressed as follows:
If to Direct Merchants Bank:
Direct Merchants Credit Card Bank, National Association
1455 West 2200 South, Suite 300
Salt Lake City, UT 84119
Attention: President
If to Metris:
Metris Companies Inc.
Interchange Building
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: President
If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: President
With a copy to the General Counsel
or to such other address as a Party may from time to time designate by notice.
8.2 ENTIRE AGREEMENT. This Agreement, together with its Exhibits
identified in this Agreement, constitutes the entire agreement between the
Parties and supersedes any other agreement, whether written or oral, that may
have been made or entered into by Direct Merchants Bank, Metris and Fingerhut
(or by any officer or officers of either of such Parties) relating to the
matters contemplated hereby.
8.3 AMENDMENTS AND WAIVERS. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, representations, warranties or
covenants hereof may be waived, only by written agreement executed by each of
the Parties or, in the case of a waiver, by the Party waiving compliance. In
the course of the negotiating, planning and coordination of this Agreement,
written documents have been exchanged between the Parties. Such written
documents shall not be deemed to amend or supplement this Agreement. The
failure of any Party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any Party of any condition or term, representation,
warranty or covenant under this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or
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breach or as a waiver of any other condition or any breach of any other term,
representation, warranty or covenant under this Agreement.
8.4 ASSIGNMENT; DELEGATION OF DUTIES. This Agreement and the rights and
obligations created under it shall be binding upon and inure solely to the
benefit of the Parties hereto and their respective successors and permitted
assigns. This Agreement shall not be assigned or transferred by any Party,
except to an Affiliate or any successor upon written notice to the other
Parties hereto, provided that any such Affiliate or successor agrees in writing
to be bound by the terms of this Agreement, without the prior written consent
of the other. Direct Merchants Bank or Metris may at any time delegate any
duties hereunder to an Affiliate which normally performs such credit card
related services on behalf of Direct Merchants Bank or Metris.
8.5 AUDIT RIGHTS. Fingerhut agrees that all records relating to Direct
Merchants Bank's Accounts at all times shall be subject to inspection and
review by the examiners of the Office of the Comptroller of the Currency (the
"OCC") and any other regulatory agency having jurisdiction over Direct
Merchants Bank or any of its operations. If Fingerhut receives any requests or
demands under authority of law (subpoenas, so called discovery means, or audit
demands of any taxing authority) for access to information of Direct Merchants
Bank, Fingerhut shall immediately inform Direct Merchants Bank or Metris of
such request or demand and shall not grant access to such information without
Direct Merchants Bank's or Metris' permission not to be unreasonably withheld.
8.6 EXPENSES. Unless specifically provided for elsewhere in this
Agreement, each Party will bear all costs and expenses incurred by it in
connection with the transactions herein, including legal fees, accounting fees
and taxes which are imposed upon that Party based upon its activities hereunder.
8.7 CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
an original, but all of which together shall constitute one and the same
instrument.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without giving effect to the
principles of conflicts of laws thereof.
8.9 SEVERABILITY. If any provision of this Agreement or portion thereof
is held invalid, illegal, void or unenforceable by reason of any rule of law,
administrative or judicial provision or public policy, such provision shall be
ineffective only to the extent invalid, illegal, void or unenforceable, and the
remainder of such provision and all other provisions of this Agreement shall
nevertheless remain in full force and effect.
8.10 NO PARTNERSHIP OR JOINT VENTURE. This Agreement does not create a
partnership or joint venture between the Parties, and no Party to this
Agreement shall have any authority whatsoever to bind the other Parties to any
obligation.
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8.11 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or
implied, is intended or shall be construed to confer upon any person or entity,
other than the Parties and their respective successors and assigns permitted by
this Agreement, any right, remedy or claim under or by reason of this Agreement.
IN WITNESS WHEREOF, Direct Merchants Bank, Metris and Fingerhut have caused
this Agreement to be duly executed as of the date first written above;
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION
By: Robert W. Oberrender
-----------------------------------------
Title: Chief Financial Officer and Cashier
--------------------------------------
FINGERHUT CORPORATION
By: Michael P. Sherman
-----------------------------------------
Title: General Counsel
--------------------------------------
METRIS DIRECT, INC.
By: Ronald N. Zebeck
-----------------------------------------
Title: President
--------------------------------------
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EXHIBIT A
COMPENSATION
SOLICITATION FEE
1. Direct Merchants Bank will pay Fingerhut for each Prospect for whom there
is an Account Booked:
(i) Five Dollars ($5.00) for an unsecured credit line;
(ii) Two Dollars and Fifty Cents ($2.50) for each secured credit line once
the minimum deposit amount is deposited in an account by the Prospect; and
(iii) Two Dollars and Fifty Cents ($2.50) for each secured Account Booked
which subsequently is converted to an unsecured credit line.
Payment of the above fees terminates upon termination of the Agreement.
NET PURCHASE FEE
2. Direct Merchants Bank will also pay to Fingerhut a non-cumulative fee of 15
basis points of Net Purchases, exclusively on Accounts Booked pursuant to
this Agreement. Payment of the Net Purchase fee terminates upon termination
of this Agreement.
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EXTENDED SERVICE PLAN AGREEMENT
This Agreement (the "Agreement"), made and entered into this 31st day of
October, 1996, by and among Fingerhut Corporation, Infochoice USA, Inc.
(collectively "Fingerhut"), and Metris Direct, Inc. ("Metris").
WHEREAS, Fingerhut makes available to purchasers of its Merchandise (as
defined herein), an Extended Service Agreement (as defined below), providing
coverage for defects in materials and workmanship and for mechanical or
electrical failure of the Merchandise; and
WHEREAS, Metris desires to coordinate and manage all of the marketing
activities for Fingerhut's sales of extended warranties or service plans to
purchasers of its Merchandise.
WHEREAS, Metris intends to either itself or through a third party
underwriter, insure and service the contractual obligations of the Extended
Service Agreements sold by Fingerhut;
NOW THEREFORE, in consideration of the mutual promises contained herein,
the parties hereby agree as follows:
DEFINITIONS
The following terms, as used in this Agreement shall have the following
meanings whether used in the singular or plural:
"Customer" shall mean a customer of Fingerhut who purchases Merchandise for
personal, family and household purposes within the U.S. and its territories,
where applicable.
"Extended Service Agreement" shall mean a repair or replacement service
agreement sold by Fingerhut between Customer (as defined herein) and the
applicable service plan underwriter, and managed by Metris, covering mechanical
or electrical failure of Merchandise and defects in materials and workmanship.
"Marketing Management Fee" shall mean the amount of the Net Price, as set forth
in Exhibit A and Schedule attached hereto and incorporated herein by reference
that Fingerhut is required to pay Metris for coordinating and managing the
marketing programs for each Extended Service Agreement sold under this
Agreement.
"Merchandise" shall mean any new goods as identified in Exhibit B attached
hereto and incorporated herein by reference sold by Fingerhut to a Customer
during the term of this Agreement.
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"Merchandise Warranty" shall mean the warranty of the manufacturer with respect
to the Merchandise.
"Net Price" shall mean the amount Fingerhut is required to pay Metris for each
Extended Service Agreement sold under this Agreement and shall be comprised of
the Marketing Management Fee and the Underwriting and Servicing Fee.
"Sales Price" shall mean the retail sales cash price at which Fingerhut sells
each Extended Service Agreement.
"Underwriting and Servicing Fee" shall mean the amount of the Net Price, as set
forth in Exhibit B attached hereto and incorporated herein by reference, that
Fingerhut is required to pay Metris for performing, either itself or through a
third party underwriter and servicer, the contractual obligations of the
Extended Service Agreements sold by Fingerhut.
ARTICLE 1. PROGRAM
Section 1.1. SERVICE.
During the term of this Agreement, including any renewals,
Fingerhut shall sell the Extended Service Agreement to all of its Customers who
purchase Merchandise eligible for extended service beyond the Merchandise
Warranty in accordance with this Agreement.
Section 1.2. EXCLUSIVITY.
During the term of this Agreement, Fingerhut shall not make
available to any Customer, any other agreement providing for extended service
that is competitive, similar, or an alternative to the Extended Service
Agreement offered by Metris. Notwithstanding the foregoing, in the event Metris
notifies Fingerhut in writing of its inability to provide an Extended Service
Agreement on Merchandise, Fingerhut may provide directly or contract with a
third party service provider to provide such Extended Service Agreement.
Section 1.3. COVERAGE UNDER THE EXTENDED SERVICE AGREEMENT.
Coverage for parts and labor for each component protected by the
Extended Service Agreement shall begin on the date following expiration of the
parts or labor Merchandise Warranty applicable to each Merchandise component
indicated in the Merchandise Warranty. Coverage will continue for the period
shown in Exhibit B for each product.
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Section 1.4. SERVICE COVERAGE.
Metris shall be responsible for the fulfillment of the
contractual obligations to the Customer, either itself or through a third party
underwriter, under each Extended Service Agreement from the date sold to a
Customer by Fingerhut; provided however, the Merchandise covered under the
Extended Service Agreement was received by the Customer in an undamaged state
and that Metris has received the appropriate Net Price from Fingerhut for each
Extended Service Agreement as required under Section 1.5. Fingerhut agrees to
pay the Net Price. Upon payment of the Net Price by Fingerhut, Metris shall
become contractually liable directly to the Customer and Metris will pay the
full amount of any claim provided that such claim is within the terms of
coverage of the Extended Service Agreement and the Extended Service Agreement is
sold within a state in which Metris is legally authorized to fulfill such
obligations.
If Merchandise covered under the Extended Service Agreement is to
be replaced, Fingerhut agrees to provide the Customer with such replacement
product in accordance with Fingerhut's product replacement policies in effect
from time to time. In such case, Metris shall reimburse Fingerhut for the cost
of such product at Fingerhut's standard cost plus 20% to cover shipping and
handling. Additionally, if Fingerhut repairs any Merchandise covered under the
Extended Service Agreement, Metris shall reimburse Fingerhut for the cost of
such repair. All such reimbursements shall be netted against any remittances
required by Fingerhut under Section 1.5, on a monthly basis, provided detail
supporting such reimbursement has been previously provided to and approved by
Metris. Fingerhut and Metris shall, in good faith, mutually agree on the Sales
Price of the Extended Service Agreement.
Section 1.5. REMITTANCES REQUIRED BY FINGERHUT.
(a) Fingerhut shall have the right to offer (either directly or
through third parties) the Customer financing for the Customer's warranty
purchase using any credit offer Fingerhut or its Customers may choose, however;
Metris shall have no collection risk with respect to any Extended Service
Agreement financed by Fingerhut or a third party.
(b) Daily, Fingerhut shall send Metris via system data transfer
the names, addresses and other information necessary for fulfillment of all
Customers who purchased Extended Service Agreements. Within ten (10) days after
the close of each Fingerhut accounting month, Fingerhut shall remit the sales
report and other information for that month to Metris for each such Extended
Service Agreement sold and for all cancellations; such report will also provide
the net amount due to Metris. Metris shall send Fingerhut an invoice for the
Net Price, which shall include the Marketing Management Fee and Underwriting and
Servicing Fee for all Extended Service Agreements sold during the month for
Merchandise that has been shipped, less
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cancellations or returns of such Extended Service Agreements. Terms shall be
30 days from the last day of the accounting month in which the Extended
Service Agreements were sold or cancelled.
Section 1.6. MERCHANDISE COVERED.
The list of Merchandise in Exhibit B shall constitute the
eligible goods for which an Extended Service Agreement may be sold. The list
may be amended by mutual written agreement of the parties. Any Merchandise,
other than jewelry and furniture, that does not have a Merchandise Warranty,
shall not be eligible goods for which an Extended Service Agreement may be sold.
Section 1.7. RECORDS/AUDITS.
Both parties shall maintain records related to the Extended
Service Agreements sold under this Agreement. The parties shall each allow its
auditors or other designees to audit performance under this Agreement. Such
audits shall be subject to reasonable notice and conducted during normal
business hours.
Section 1.8. SOLICITATION.
Unless Metris and Fingerhut agree to use Fingerhut's direct mail
solicitation or telemarketing media, Metris shall develop media sources for
direct mail solicitations or telemarketing. If Metris uses Fingerhut's direct
mail solicitation and telemarketing media, Metris shall reimburse Fingerhut for
the cost of such catalog or other mail space that it uses, and the variable cost
of telemarketing services, plus a reasonable allocation of fixed overhead, at a
combined rate per hour of telemarketing time used, all as mutually agreed to at
the beginning of each calendar year during this Agreement by the parties to this
Agreement. Metris and Fingerhut agree to cooperate in good faith to develop
direct mail solicitations, and telemarketing programs that meet applicable
regulatory guidelines and requirements and are designed to provide the most cost
effective use of customer service time.
Section 1.9. OWNERSHIP OF CUSTOMER NAMES.
Metris agrees that Fingerhut has and shall have exclusive
ownership of all of its Customer names, information, marketing methods and
business practices (collectively "Customer Names"). Metris shall not use or
provide to any other firm or entity, any names or information developed in the
term of this Agreement or furnished to Metris by Fingerhut, for any purpose
whatsoever except as contemplated herein. Metris will hold all customer names
and information as confidential information and will provide appropriate
security measures to protect such information from unauthorized use.
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Section 1.10. PROGRAM LITERATURE.
Neither Fingerhut, nor anyone on its behalf, shall in any
document or advertising describe the coverage offered under the Extended Service
Agreement in terms other than those used in the Extended Service Agreement and
as otherwise approved by Metris. Metris shall notify Fingerhut in writing of
its objections to any such advertising within ten (10) business days of receipt
of the advertising from Fingerhut. Fingerhut agrees its name may be used in any
advertising for Extended Service Agreements provided such use is approved prior
to use and does not imply that Fingerhut has any contractual obligation under
the Extended Service Agreement.
ARTICLE 2. INDEMNIFICATION
Section 2.1. OBLIGATIONS.
(a) BY METRIS. Metris shall be liable to and shall defend,
indemnify and hold harmless Fingerhut and its Affiliates, and its respective
officers, directors, employees and permitted assigns from and against any and
all Losses (as hereinafter defined) incurred by reason of or related to Metris'
breach of its obligations hereunder.
(b) BY FINGERHUT. Fingerhut shall be liable to and shall
defend, indemnify and hold harmless Metris and its Affiliates, and its
respective officers, directors, employees and permitted assigns from and against
any and all Losses (as hereinafter defined) incurred by reason of or related to
Fingerhut's breach of any of its obligations hereunder.
(c) "LOSSES" DEFINED. For purposes of this Section 2.1., the
term "Losses" shall mean any liability, damages, costs, losses and expenses,
including attorneys' fees, disbursements and court costs, reasonably incurred by
Metris or Fingerhut in connection with any threatened, pending or adjudicated
claim, demand, action, suit or proceeding (whether civil, criminal,
administrative or investigative by an unaffiliated third party) without regard
to whether or not such Losses would be deemed material under this Agreement.
Section 2.2. PROCEDURES.
(a) NOTICE OF CLAIMS. The Parties agree that in case any claim
is made, or any suit or action is commenced which, if not corrected, may give
rise to a right of indemnification for a Party hereunder ("Indemnified Party")
from the other Party ("Indemnifying Party"), the Indemnified Party will give
notice to the Indemnifying Party as promptly as practicable after the receipt by
the Indemnified Party of such notice or knowledge of such claim, suit, or
action. On a best efforts basis, notice to the Indemnifying Party shall be
given no later than fifteen days after receipt by the Indemnified Party in the
event a suit or action has commenced or thirty
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days under all other circumstances; provided, however, that the failure to
give prompt notice shall not relieve an Indemnifying Party of its obligation
to indemnify except to the extent the Indemnifying Party is materially
prejudiced by such failure. The Indemnified Party shall make available to
the Indemnifying Party and its counsel and accountants at reasonable times
and for reasonable periods, during normal business hours, all books and
records of the Indemnified Party relating to any such possible claim for
indemnification, and each Party will render to the other such assistance as
it may reasonably require of the other in order to ensure prompt and adequate
defense of any suit, claim or proceeding based upon a statement of facts
which may give rise to a right of indemnification hereunder.
(b) SELECTION OF COUNSEL. The Indemnifying Party shall have the
right to defend, compromise and settle any suit, claim or proceeding in the name
of the Indemnified Party to the extent that the Indemnifying Party may be liable
to the Indemnified Party under Section 2.1. above in connection therewith;
provided, however, that the Indemnifying Party shall not compromise or settle a
suit, claim or proceeding unless it assumes the obligation to indemnify for all
Losses relating thereto. The Indemnifying Party shall notify the Indemnified
Party within ten days of having been notified pursuant to Section 2.2.(a) of
this Agreement if the Indemnifying Party elects to assume the defense of any
such claim, suit or action and employ counsel in a reasonable exercise of its
discretion. The Indemnified Party shall have the right to employ its own
counsel if the Indemnifying Party so elects to assume such defense, but the fees
and expenses of such counsel shall be at the Indemnified Party's expense, unless
the Indemnifying Party shall not have employed counsel to take charge of the
defense thereof.
(c) SETTLEMENT OF CLAIMS. The Indemnified Party may at any time
notify the Indemnifying Party of its intention to settle or compromise any
claim, suit or action against the Indemnified Party in respect of which
indemnification payments may be sought from the Indemnifying Party hereunder,
but shall not settle or compromise any matter for which indemnification may be
sought without the consent of the Indemnifying Party. Any settlement or
compromise of any claim, suit or action in accordance with the preceding
sentence, or any final judgment or decree entered on or in any claim, suit or
action which the Indemnifying Party did not assume the defense of in accordance
herewith, shall be deemed to have been consented to by, and shall be binding
upon, the Indemnifying Party as fully as if the Indemnifying Party had assumed
the defense thereof and a final judgment or decree had been entered in such suit
or action, or with regard to such claim, by a court of competent jurisdiction
for the amount of such settlement, compromise, judgment or decree.
(d) SUBROGATION. The Indemnified Party shall be subrogated to
any claims or rights of the Indemnifying Party as against any other persons with
respect to any amount paid by the Indemnifying Party under this Article 2. The
Indemnified Party shall cooperate with the Indemnifying Party, at the
Indemnifying Party's expense,
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in the assertion by the Indemnifying Party of any such claim against such
other persons.
(e) INDEMNIFICATION PAYMENTS. Amounts owing under this Article
2 shall be paid promptly upon written demand for indemnification containing in
reasonable detail the facts giving rise to such liability; provided, however,
that if the Indemnifying Party notifies the Indemnified Party within thirty (30)
days of receipt of such demand that it disputes its obligation to indemnify and
the Parties are not otherwise able to reach agreement, the controversy shall be
settled by final order entered by a court of competent jurisdiction.
Section 2.3. SURVIVAL OF INDEMNIFICATION.
The provisions of this Article 2 shall expressly survive any
termination of this Agreement for five (5) years.
ARTICLE 3. CONFIDENTIALITY
Section 3.1. CONFIDENTIAL INFORMATION.
Confidential Information will be kept in confidence by such other
party, including its subsidiaries, affiliates, officers, directors, employees,
agents, consultants and contractors, in accordance with its policies for
maintaining the confidence of its own information of similar content. The term
"Confidential Information" shall mean and include: (i) all trade secrets and
other confidential business information learned in the course of performance by
any party of its obligations hereunder, and (ii) any information or data which
is disclosed by a party to the other party under or in contemplation of this
Agreement.
Notwithstanding the foregoing, the term Confidential Information
shall not include information which: (i) is already known to such other party
when received, (ii) thereafter becomes generally obtainable by a party other
than as a result of an unauthorized disclosure by the party taking advantage of
this clause, or (iii) is required by law, regulation or court order to be
disclosed by such party, provided that in the case of this clause, prior notice
of such disclosure has been given to the party which furnished such information,
when legally permissible, and that such other party which is required to make
the disclosure uses its best efforts to provide sufficient notice to permit the
party which furnished such information to take legal action to prevent the
disclosure or (iv) is reasonably necessary in the opinion of counsel, to be
disclosed in the context of a legal proceeding or regulatory investigation,
provided that prior notice shall be given by the party which furnished the
information.
The provisions of this Article 3 shall expressly survive any termination of
this Agreement for five (5) years.
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ARTICLE 4. TERM AND TERMINATION
Section 4.1. TERM AND TERMINATION.
This Agreement shall take effect upon the date first written
above, and shall remain in effect for seven (7) years ("Initial Term").
Thereafter, this Agreement will automatically renew for one term of three (3)
years ("Renewal Term") unless either Party provides written notice to the other,
not less than twelve (12) months prior to the end of the Initial Term or Renewal
Term, of its intent to terminate this Agreement. Either Party may terminate
this Agreement reserving all other remedies and rights hereunder in whole or in
part and otherwise available at law or in equity, upon the occurrence of an
Event of Default, as defined herein. Upon the occurrence of an Event of
Default, the non-defaulting Party may terminate this Agreement by giving notice
of its intent to terminate. Such written notice shall describe the Event of
Default.
Fingerhut shall also have the right to terminate this Agreement
by written notice to Metris upon the occurrence of a Change of Control (as
defined below) with respect to Metris. A "Change in Control" shall be deemed to
have occurred if (a) any person or group (within the meaning of Rule 13d-5 of
the Securities Exchange Act of 1934 as in effect on the date hereof) other than
Fingerhut shall own directly or indirectly, beneficially or of record, shares
representing more than 25% of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of Metris; (b) a majority of the seats
(other than vacant seats) on the Board of Directors of Metris shall at any time
be occupied by persons who were neither (1) nominated by Fingerhut, or by the
Board of Directors of Metris, nor (2) appointed by directors so nominated; or
(3) any person or group other than Fingerhut shall otherwise directly or
indirectly have the power to exercise a controlling influence over the
management or policies of Metris.
Section 4.2 EVENT OF DEFAULT.
An "Event of Default" shall be deemed to have occurred upon the
occurrence of any of the following:
(a) A material breach of a representation, agreement, covenant
or other obligation of any of the parties to this Agreement (any such breach is
herein referred to as a "Material Breach"); provided, however, that no Event of
Default shall be deemed to have occurred unless and until a non-breaching party
provides the breaching party with written notice of such Material Breach,
describing in reasonable detail the nature of such Material Breach, and (i) the
breaching party shall have had an opportunity to cure such Material Breach
(which is capable of being cured) within sixty (60) days after such notice
(unless such Material Breach is with respect to a monetary matter, the cure of
which requires only the payment of a specified amount of money
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pursuant to the terms of this Agreement, in which case the breaching party
shall have an opportunity to cure within five (5) business days after such
notice), (ii) the breaching party does not cure such Material Breach within
the applicable time period, or, if such Material Breach, other than a
Material Breach relating to a monetary matter, cannot reasonably be cured
within sixty days, but is curable, the breaching party does not; (x)
undertake to cure such Material Breach within such sixty day period and (y)
after such sixty day period, diligently and continuously use all reasonable
efforts to cure, and (iii) the notifying party thereafter declares an Event
of Default. In respect of clause (ii) of this Section 4.2, such extended
cure period shall continue so long as the parties hereto reasonably agree
that the actions being taken by the breaching party are reasonably expected
to cure such Material Breach.
(b) If, at any time within twelve (12) months following the
expiration of any cure period provided in Section 4.2(a) above, there shall
occur a Material Breach (the "Second Material Breach") and such Second Material
Breach is of the same nature as the Material Breach (the "First Material
Breach") by the breaching party that gave rise to such cure period, then an
Event of Default shall be deemed to have occurred upon the delivery of notice of
such Second Material Breach to the breaching party by the notifying party
referred to in Section 4.2(a) and upon such notifying party declaring an Event
of Default.
(c) If there shall occur a "Bankruptcy," as hereinafter defined,
of either Party, the non-Bankruptcy party may declare an Event of Default. For
purposes of this Agreement, the term "Bankruptcy" shall mean: (i) the entry of
a decree or order for relief by a court of competent jurisdiction in any
involuntary case under any bankruptcy, insolvency or similar law now or
hereafter in effect and such decree or order shall not be vacated, set aside or
stayed within ninety (90) days after its entry, (ii) the entry of a decree or
order appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar agent for any substantial part of the assets or property
of such party and such decree or order shall not be vacated, set aside or stayed
within ninety (90) days after its entry, (iii) the ordering of the winding up or
liquidation of the affairs of a party and such order shall not be vacated, set
aside or stayed within one hundred twenty (120) days after its entry, (iv) the
filing of a petition in any such involuntary bankruptcy case, which petition
remains undismissed for a period of ninety (90) days or which is not dismissed
or suspended pursuant to Section 305 of Title 11 of the United States Code (or
any corresponding provision of any future United States Bankruptcy law), (v) the
commencement of a voluntary case under any bankruptcy, insolvency or similar law
now or hereafter in effect, (vi) the consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of or taking
possession of any substantial part of the assets or property by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar agent, or
(vii) the making of any general assignment for the benefit of creditors.
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ARTICLE 5. MISCELLANEOUS
Section 5.1. NOTICES.
Any notice given in accordance with the provisions of this
Agreement must be in writing and sent by registered or certified mail return
receipt requested to the respective addresses of the parties shown at the
beginning of this Agreement. Notices shall be sent to Metris and to Fingerhut
and shall be addressed as follows:
If to Metris:
Metris Direct, Inc.
Interchange Building
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Senior Vice President of Marketing
With a copy to the General Counsel
Section 5.2. APPLICABLE LAW.
This Agreement, the rights and obligations of the parties hereto,
and any claims or disputes relating thereto, shall be governed by and construed
in accordance with the internal laws of the State of Minnesota without giving
effect to the principles or conflicts of laws thereof.
Section 5.3. SEVERABILITY.
If any provision of this Agreement or portion thereof is held
invalid, illegal, void or unenforceable by reason of any rule of law,
administrative or judicial provision or public policy, such provision shall be
ineffective only to the extent invalid, illegal, void or unenforceable, and the
remainder of such provision and all other provisions of this Agreement shall
nevertheless remain in full force and effect.
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Section 5.4. NO PARTNERSHIP OR JOINT VENTURE.
This Agreement does not create a partnership or joint venture
between the Parties, and neither Party to this Agreement shall have any
authority whatsoever to bind the other Party to any obligation.
Section 5.5. NO THIRD PARTY BENEFICIARIES.
Nothing in this Agreement, express or implied, is intended or
shall be construed to confer upon any person or entity, other than the Parties
and their respective successors and assigns permitted by this Agreement, any
right, remedy or claim under or by reason of this Agreement.
Section 5.6. CAPTIONS: COUNTERPARTS.
The captions in this Agreement are for convenience only and shall
not be considered a part of or affect the construction or interpretation of any
provision of this Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
Section 5.7. AMENDMENTS AND WAIVERS.
Neither the waiver by any party hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure of any
party hereto, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right, remedy or privilege hereunder shall
thereafter be construed as a waiver of any such provisions, rights, remedies or
privileges hereunder. Any of the terms, covenants, representations, warranties,
or conditions hereof may be waived only by a written instrument executed by the
party waiving compliance. This Agreement may only be amended or modified by a
subsequent written agreement by and among the parties hereto.
Section 5.8. ASSIGNMENT.
No party to this Agreement shall have the right to assign or
otherwise transfer its rights or obligations under this Agreement, except with
the prior written consent of the other; notwithstanding, either party may assign
or otherwise transfer its rights or obligations under this Agreement to a
subsidiary or affiliate (in the case of Fingerhut however, only to a subsidiary
or affiliate to which the rights to sell merchandise to Fingerhut Customers was
also transferred) upon notice to the other. Regardless of the party to whom an
assignment is made pursuant to this Section 5.8., the assignee shall, as a
condition to such assignment, by written undertaking satisfactory to the other,
represent and warrant that the assignment was made in
11
<PAGE>
accordance with all applicable laws and regulations and assume and agree to
be bound by the terms, provisions and conditions of this Agreement to the
same extent as the assignor; provided, however, that no such assignment shall
relieve the assignor of its obligations (which shall be primary and which may
be discharged in whole or in part by the assignee) under this Agreement, to
the extent applicable. Any unauthorized assignment and any assignment made
in contravention of this Section 5.8. shall be null and void.
Section 5.9 GOVERNING LAW.
This Agreement, the rights and obligations of the parties hereto,
and any claims or disputes relating thereto, shall be governed by and construed
in accordance with the internal laws of the State of Minnesota without giving
effect to the principles or conflicts of laws thereof.
Section 5.10 EXECUTION IN COUNTERPARTS.
To facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
Persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the Persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than the number of counterparts containing the
respective signatures of, or on behalf of all of the parties hereto.
Section 5.11 NO AGENCY.
This Agreement shall not be deemed expressly or by implication to
create an agency, employee, or servant relationship between or among any of the
parties hereto, or any affiliates of the parties hereto for any purpose
whatsoever.
Section 5.12 FORCE MAJEURE.
No party shall be liable for any failure of or delay in the
performance of this Agreement for the period that such failure or delay is due
to acts of God, public enemy, war, strikes or labor disputes, or any other cause
beyond the parties' reasonable control; it being understood that lack of
financial resources is not to be deemed a cause beyond a party's control. Each
party shall notify the other parties promptly of the occurrence of any such
cause and carry out this Agreement as promptly as practicable after such cause
is terminated; provided, however, that the existence of any such cause shall not
extend the term of this Agreement.
12
<PAGE>
Section 5.13 AMENDMENT AND MODIFICATION.
This Agreement may only be amended or modified by a subsequent
written agreement mutually agreed to by and among the parties hereto.
Section 5.14 MANAGEMENT REVIEW.
(a) Unless otherwise mutually agreed to by the parties, on or before
January 1, 2001, Fingerhut and Metris agree to evaluate the Marketing Management
Fee and the Underwriting and Servicing Fee (collectively, the "Fees") as set
forth in this Agreement and Exhibit. The purpose of such evaluation shall be to
determine the then arms-length market rate for the Fees. The parties agree to
meet and negotiate in good faith to reach a mutual agreement on the market rate
for the Fees. Any failure by the parties to reach mutual agreement on the
market rate of the Fees as a result of the negotiations conducted pursuant to
this subsection (a) shall not be deemed by either party to be a breach of this
Agreement and unless otherwise terminated as provided herein, this Agreement
shall remain in full force and effect.
(b) In the event Fingerhut and Metris are unable to agree on the then
market rate for the Fees to be charged hereunder by January 1, 2001, they agree
to send out within 5 days after January 1, 2001, requests for proposals ("RFPs")
to three (3) reputable companies that are in the business of providing extended
product service or extended warranty coverage for retailers to sell to their
customers (the "Independent Providers"). The identity of the three Independent
Providers who are sent RFPs and the assumptions/parameters to be set forth in
the RFPs will be as mutually agreed upon by Fingerhut and Metris. The
Independent Providers will be instructed to respond with bid proposals within 5
days of receipt of the RFPs. The parties agree to use the middle price bid
proposal submitted by the Independent Providers as the market rate for the Fees
for the services provided by Metris for the balance of the term of this
Agreement. Any failure by the parties to reach mutual agreement on the market
rate of the Fees as a result of the failure to agree on the Independent
Providers to whom RFPs would be sent or on the assumptions/parameters of the
RFPs under this subsection (b) shall not be deemed by either party to be a
breach of this Agreement and unless otherwise terminated as provided herein,
this Agreement shall remain in full force and effect.
(c) In the event Fingerhut and Metris are unable to reach a mutually
acceptable agreement under subsection (a) above or to agree on the three
Independent Providers or on the assumptions/parameters to be included in the
RFPs for the procedure set forth in subsection (b) above, then the issue of the
market price of the Fees will be submitted on a binding basis to an arbitrator
selected by mutual agreement of the parties. If the parties are unable to agree
upon a single mutually acceptable arbitrator, each party will select one
arbitrator and the two arbitrators will select a third arbitrator. In
consultation with the arbitrator(s), the parties will select or devise an
alternative dispute resolution ("ADR") procedure by the which arbitrator(s) will
13
<PAGE>
attempt to resolve the dispute. The ADR procedure will be held in Minneapolis,
Minnesota unless the parties mutually agree on another location. The parties
agree to participate in good faith in the ADR procedure to its reasonable and
prompt (not to exceed 45 days) conclusion. The arbitrator(s) will be required
to conduct the ADR in accordance with the rules and procedures of the American
Arbitration Association.
(d) Each party agrees that the decision of the arbitrator(s) shall be
binding on all parties. Each party will bear equally all fees, costs and
expenses of the ADR, and each party will bear its own legal expenses, attorneys'
fees and costs of any experts and/or witnesses.
(e) The fact that arbitration has commenced will not impair the
exercise of any termination rights in accordance with the provisions of this
Agreement.
(f) The parties agree to make amendments to this Agreement pursuant
to Section 5.13 to reflect the mutually acceptable agreements under subsection
(a) or subsection (b) above or the final decision of the arbitrator(s), as
applicable. A party's refusal to amend this Agreement to reflect the final
decision of the arbitrator(s) under subsections (c) and (d) above shall be
deemed to be a breach of this Agreement.
IN WITNESS WHEREOF, the duly authorized representatives of the
parties have executed this Agreement as of the day and year first above written.
FINGERHUT CORPORATION METRIS DIRECT, INC.
By: /s/ Michael P. Sherman By: /s/ Ronald N. Zebeck
-------------------------- ---------------------------
Title: SVP Title:
----------------------- ------------------------
INFOCHOICE USA, INC.
By: /S/ Michael P. Sherman
--------------------------
Title: SVP
-----------------------
14
<PAGE>
EXHIBIT A
I. CALCULATION AND DETERMINATION OF THE NET PRICE AND
MARKETING MANAGEMENT FEE
Upon Metris' receipt from Fingerhut of the system data transfer information
necessary for fulfillment of all Customers who purchased Extended Service
Agreements, Metris will issue and mail or contract with a third party to issue
and mail an Extended Service Agreement to the Customer. The Extended Service
Agreements will be mailed to each Customer within ten (10) business days of
receipt of the fulfillment information.
Metris will calculate a percentage of the Extended Service Agreement's
Sales Price to be deducted from such price in determining the amount payable by
Fingerhut to Metris (the "Net Price") for managing the marketing programs and
for servicing and fulfilling the obligations for each Extended Service Agreement
sold under such plan or contracting with a third party to fulfill such
obligations. From the Net Price, Metris shall calculate and deduct the
Underwriting and Servicing Fee in accordance with the fee schedule in Exhibit B
as compensation to Metris for servicing and fulfilling the obligations for each
Extended Service Agreement sold. The amount of the Net Price remaining after
deduction for the Underwriting and Servicing Fee shall become the Marketing
Management Fee.
The percentage to be deducted from the Net Price to determine the
allocation between the fixed Underwriting and Servicing Fee and the variable
Marketing Management Fee is to be determined based on the sales method used to
solicit the sale, and based on the effort expended by Fingerhut in soliciting
the sale using certain of its advertising or offering media versus other media
produced by Metris with little input or effort conducted by Fingerhut or its
representatives. Such percentage schedule shall initially be as found below,
based on each sales method as further defined below:
<TABLE>
<S> <C>
On-Page (Any Extended Service
Agreement plan sale or order
received by Fingerhut at the
same time as the product order
without the inbound 10%
telemarketing representative
offering the Extended Service
Agreement separately as an
addition to a customer's order.)
Add-On (An inbound or outbound
telemarketing call made at or
within 10 days of the original
product order during
15
<PAGE>
which the Fingerhut telemarketing
representative specifically
solicits the customer for the 25%
purchase of an Extended Service
Agreement in addition to their
merchandise order.)
Stand-Alone (A telemarketing
call made by a Fingerhut or a
Metris telemarketing
representative or Metris' agent 15%
offering an Extended Service
Agreement product greater than
10 days after Merchandise
purchase.
Renewal (An offer conducted by
Metris to renew Extended Service 15%
Agreement coverage after the
original term of the Extended
Service Agreement.)
</TABLE>
Any offers or methods of further offering Extended Service Agreements
developed subsequent to the execution of this contract which do not meet any of
the definitions noted above, shall be conducted under an amended percentage
schedule to be mutually agreed to by the parties based on the sales method used
to solicit the sale, and also determined based on the effort expended by
Fingerhut in soliciting the sale using certain of its advertising or offering
methods versus other methods conducted by Metris with minimal input or effort
conducted by Fingerhut or its representatives as noted above.
II. ADJUSTMENTS TO THE NET PRICE AND THE MARKETING
MANAGEMENT FEE
After December 31, 1996, the percentage of the Extended Service Agreement's
Sales Price to be deducted in determining the Net Price, shall be adjusted
annually, on a calendar year basis, to reflect Fingerhut's efforts to increase
serviceable product sales thereafter. Such adjustment shall be reflected as a
reduction in the Marketing Management Fee and shall be calculated by taking each
of the percentages in paragraph three of Section I and increasing them by 10%,
then multiplying such increased percentages by sales method by the Sales Price
for all Extended Service Agreements sold in any calendar year in excess of the
sum of all of the Sales Prices of the Extended Service Agreements sold in the
calendar year ended December 31, 1996. However, no such increased percentages
shall be reflected until the sum of all of the Sales Prices in any given
calendar year exceed that of the calendar year ended December 31, 1996,
16
<PAGE>
regardless of whether the sum of the Sales Prices by certain sales methods
exceed the sum of the Sales Prices of that same sales method in calendar year
1996. The increase in the percentages noted above shall only occur once and
will apply thereafter only to total Sales Price increases in excess of the base
calendar year ended December 31, 1996.
Extended Service Agreement returns or cancellation of such agreement may
only be accepted by Fingerhut under its normal return policy terms and
conditions. In accordance therewith, Metris shall pay to Fingerhut the amount
of the Net Price paid by Fingerhut (less 20% after December 31, 1996) for any
Merchandise cancelled or returned by a Customer to Fingerhut within the relevant
Merchandise Warranty period and for which Fingerhut has given full refund of the
Sales Price to the Customer. Fingerhut will provide Metris details in writing
of any such refund within ten business days after the calendar month in which
such refund occurs. Any such payment due from Metris will be considered paid
when Fingerhut deducts the amount of the Net Price for such Merchandise from the
next payment to be made in accordance with the remittance provisions of Section
1.5. In the event that a Customer cancels a Service Agreement after the
Merchandise Warranty expires, Metris shall calculate and reimburse Fingerhut for
a pro rata portion of the Net Price less any claims incurred by such Customer
and paid by Metris (and less 20% of this amount after December 31, 1996). The
pro-rata portion shall be computed by dividing the Net Price by the term in
months of the Extended Service Agreement and then multiplying that monthly rate
times the number of months from the Extended Service Agreement return to the
original month of its expiration. However, in no event shall the amount
reimbursed exceed the Net Price of the Customer contract.
III. ADVERTISING AND OTHER COST REIMBURSEMENTS
Metris shall reimburse Fingerhut for the advertising cost it expends in
directly offering extended service plans through its own advertising media for
the reasons previously mentioned in Section I above. Such advertising cost
reimbursements shall be determined and calculated based on an advertising cost
standard, including both fixed and variable costs, developed specifically for
Metris' Extended Service Agreement product offers within each sales method as
denoted in Section I above. The method and details of such calculation,
including the basis for cost reimbursement, (i.e., orders received within each
media or a flat charge per catalog shipped or telephone call made or received)
shall be provided to Metris management in writing for their review and approval
within a reasonable time prior to the establishment of such a charge or
reimbursement. Additionally, such standard may be adjusted periodically, in
conjunction with Fingerhut's normal adjustment of all of its advertising cost
standards, based on actual cost data and experience with the advertising for
Extended Service Agreement products within the Fingerhut media and with prior
review and approval by Metris management. This reimbursement will be calculated
and determined monthly with prior review and approval by Metris management and
will be deducted from the
17
<PAGE>
monthly payment to be made in accordance with the remittance provisions of
Section 1.5.
Metris may also periodically receive various products and services directly
from Fingerhut to assist Metris in its management and coordination of the
Extended Service Agreement marketing programs. Such products and services shall
initially include the additional premiums provided to a Customer in conjunction
with an Add-On Extended Service Agreement sale and printing and shipping
services for the preparation and delivery of the actual service agreements. The
provision and standard cost for such additional products and services provided
by Fingerhut to Metris shall be mutually agreed upon by both Metris and
Fingerhut prior to such services being performed or products delivered and may
be adjusted periodically in accordance with the provisions of the paragraph
above. Reimbursement for such additional products and services shall also be
performed consistent with the terms for advertising costs noted in the paragraph
above.
18
<PAGE>
EXHIBIT B
UNDERWRITING AND SERVICING FEES
MERCHANDISE/PRICING RECOMMENDATIONS
<TABLE>
<CAPTION>
Section I - Electronics
<S> <C>
AUDIO
PRODUCT TERM
Audio Components Coverage from Date of Purchase
(Receivers, compact disc, cassette 2 Year/3 Year
decks, turntables, equalizers)
2 Component Rack "
3 Component Rack "
4 Component Rack "
5 Component Rack "
6 Component Rack "
Audio/Visual System
(With television only) "
Audio/Visual System
(With TV and VCR) "
Compact Stereo "
Portable Stereo "
MOBILE ELECTRONICS
Car Stereo "
Radar Detector "
Auto Alarms "
Cellular Phones "
Police Scanners "
CB Radios "
Walkie Talkies "
HOME OFFICE
Typewriter "
Computer with or without Monitor "
Printer "
Word Processor "
19
<PAGE>
PRODUCT TERM
Fax Machine "
Copy Machine "
Corded Phone "
Cordless Phone "
Telephone Answering Machine "
Phone with Answering Machine "
Telephone/Answer Machine/Clock Radio "
Tape Recorder "
Paper Shredder "
Computer/Printer/Monitor "
APPLIANCES
*Refrigerator Coverage from Date of Purchase
2 Year/3 Year
*Compact Refrigerator "
*Freezer "
*Range "
*Microwave "
*Air Conditioner "
*Washer "
*Dryer "
*Dishwasher "
VIDEO
*Color TV (27" or less) "
*Color TV (28" - 35") "
*Big Screen/Projection "
VCR "
Camcorder "
TV/VCR Combo "
Black & White TV "
Video Games "
Video Disc Player "
HOUSEWARES
Vacuum Cleaner "
Carpet Extractor "
Floor Polisher "
Sewing Machine "
Kitchen Electrics "
20
<PAGE>
PRODUCT TERM
Fans "
Clock Radios "
Personal Care Items "
TOOLS, LAWN AND HARDWARE
Snowblower "
Power Tools "
Air Compressors "
Battery Chargers "
Portable Generators "
Portable Welders "
Lawn Mowers "
Snow Blowers "
Riding Lawnmower "
Electric Trimmer/Blower/Vacuum "
Gas Trimmers/Blower/Vacuums "
Cultivator "
Chainsaws "
Logsplitters "
Shredder/Chipper "
MISCELLANEOUS
*Home Security System Coverage from Date of Purchase
2 Year/3 Year
Musical Instruments "
Exercise Equipment "
35MM Cameras "
110 Cameras "
Polaroid Cameras "
Suntanning Canopy "
Word Finder/Speller/Translator "
</TABLE>
*Denotes in-home service
21
<PAGE>
1) First Purchase Underwriting and Servicing Fees
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ITEM RETAIL 2 YEAR CONTRACT 3 YEAR CONTRACT
- -------------------------------------------------------------------------------
<S> <C> <C>
$79.99 - 99.99 7.00 10.00
- -------------------------------------------------------------------------------
$100 - 199.99 8.00 11.00
- -------------------------------------------------------------------------------
$200 - 299.99 10.00 13.00
- -------------------------------------------------------------------------------
$300 - 499.99 13.00 19.00
- -------------------------------------------------------------------------------
$500 - 999.99 17.00 24.00
- -------------------------------------------------------------------------------
$1,000 - 2,499.99 32.00 56.00
- -------------------------------------------------------------------------------
$2,500 - 4,000.00 44.00 82.00
- -------------------------------------------------------------------------------
</TABLE>
2) 5 Year Step-Up Appliance Underwriting and Servicing Fees
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ITEM 5 YEAR CONTRACT COST
- -------------------------------------------------------------------------------
<S> <C>
Refrigerator, Freezer, Washing Machine $35.00
- -------------------------------------------------------------------------------
Refrigerator with Icemaker $45.00
- -------------------------------------------------------------------------------
</TABLE>
3) Renewal Underwriting and Servicing Fees
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ITEM RETAIL 3RD YEAR RENEWAL 4TH YEAR RENEWAL 5TH YEAR RENEWAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$79.99 - 99.99 7.00 15.00 20.00
- -------------------------------------------------------------------------------
$100 - 199.99 8.00 16.00 21.00
- -------------------------------------------------------------------------------
$200 - 299.99 10.00 18.00 23.00
- -------------------------------------------------------------------------------
$300 - 499.99 13.00 25.00 31.00
- -------------------------------------------------------------------------------
$500 - 999.99 17.00 49.00 69.00
- -------------------------------------------------------------------------------
$1,000 - 2,499.99 32.00 79.00 99.99
- -------------------------------------------------------------------------------
$2,500 - 4,000.00 44.00 119.00 139.00
- -------------------------------------------------------------------------------
</TABLE>
Limitations
- - All Extended Service Agreements are inclusive of the manufacturer's
warranty and begin on date of purchase.
- - Commercial use is excluded.
- - Only those products with a manufacturer's warranty of at least 90 days'
parts and labor are eligible for extended service.
- - Products with a 2 year manufacturer's labor and parts warranty are not
eligible for a 2 year service agreement and products with a 3 year
manufacturer's labor and parts warranty are not eligible for a 3 year
service agreement.
22
<PAGE>
Section II
QUALITY FURNITURE CARE
Extended Service Agreement provides stain coverage for upholstered furniture;
lifting, peeling, cracking of solid wood, veneered or laminated furniture;
structural defects to frames; warpage, breakage, or bending of metal components
on recliners and sleeper mechanisms, glass coverage on tables, wall units and
cabinets; and foam resiliency to cushions and mattresses.
<TABLE>
<CAPTION>
PRODUCT RETAILS UNDERWRITING AND
SERVICING FEES
<S> <C>
$ 100 - $ 250 $12.00
251 - 500 18.00
501 - 1000 22.50
1001+ 27.00
</TABLE>
Term of coverage - 2 years from date of purchase.
<TABLE>
<CAPTION>
Product Categories
<S> <C>
Upholstered furniture End tables/soft tables
Wood furniture Recliners
Wall units/cabinets Leather furniture
Laminated furniture Mattresses
Room rugs
</TABLE>
23
<PAGE>
Section III
QUALITY JEWELRY CARE
Extended Service Agreement provides labor and materials necessary to maintain
the jewelry purchased for 2 years from date of purchase, and if the item cannot
be repaired it will be replaced. Benefits include ring resizing, stone
tightening, prong retipping, polishing; chain and bracelet soldering, earring
and clasp repair.
<TABLE>
<CAPTION>
UNDERWRITING AND
PRODUCT RETAILS SERVICING FEES
<S> <C>
$ 50 - $ 100 $4.50
101 - 199 4.50
200 - 299 4.50
300 - 499 4.50
500+ 4.50
</TABLE>
<TABLE>
<CAPTION>
Product Categories
<S> <C>
Rings - 10K/14K Necklaces
Bracelets Earrings
Broaches Chains
Pendants
</TABLE>
24
<PAGE>
DATABASE ACCESS AGREEMENT
THIS AGREEMENT is made as of this 31st day of October, 1996, by and
between Metris Direct, Inc. ("Metris"), a corporation duly organized under
the laws of the State of Minnesota, with offices at 600 South Highway 169,
Suite 1800, St. Louis Park, Minnesota 55426 and Fingerhut Corporation
("Fingerhut"), a corporation duly organized under the laws of the State of
Minnesota with offices at 4400 Baker Road, Minnetonka, Minnesota 55343.
WITNESSETH:
WHEREAS, Fingerhut (itself or through subsidiaries or affiliates) owns a
customer database and maintains such database on its systems; and
WHEREAS, Metris is in the business of providing financial service
products and services; and
WHEREAS, Fingerhut desires to license to Metris exclusive access to its
customer database to market financial service products (as defined herein);
NOW, THEREFORE in consideration of the mutual promises set forth and
other good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged by the parties, the parties agree as follows:
I. LICENSE USAGE
Section 1.1 GRANT OF LICENSE. During the term of this Agreement,
including renewals, and subject to the terms and conditions hereof, Fingerhut
hereby grants to Metris and its subsidiaries the exclusive license to use the
customer lists, models and other information related thereto described in
Exhibit A attached hereto and incorporated herein by reference (hereinafter
the "Customer Database") for the sole purpose of marketing financial service
products identified in Exhibit B attached hereto and incorporated herein by
reference ("Financial Service Products") of Metris, its subsidiaries and
unaffiliated third parties. Such license includes the right to access the
computer systems which maintain the Customer Database; the right to perform
file selection, segmentation and modeling of the Customer Database; the right
to develop marketing lists using the Customer Database or segments thereof
for use on behalf of itself, subsidiaries, and unaffiliated third parties;
the right to append third party demographic data for aggregate analysis and
other rights which the parties may mutually agree to in writing from time to
time. Such license does not include the right to access a consumer name and
credit report (as defined under applicable laws and regulations) to determine
such consumer's eligibility for credit or insurance. Fingerhut reserves for
itself, its affiliates and subsidiaries, and its licensees, the right to use
the Customer Database, including the right to license the use of the Customer
Database to unaffiliated third parties; except in no event shall Fingerhut
for itself, its affiliates and subsidiaries or its licensed third parties
have the right to use the Customer Database to offer Financial Service
Products. Fingerhut and Metris confirm that Fingerhut may continue to
license use of the Customer Database (specifically the Fingerhut Customer
file) to the unaffiliated third parties for the services identified in
Exhibit D,
<PAGE>
attached hereto and incorporated herein by reference, on the terms and
conditions as set forth in such Exhibit D.
Section 1.2 DELIVERY OF INFORMATION. At Metris' request, Fingerhut
will provide or provide access to, on a timely basis in accordance with
Fingerhut's standard internal practices, the Customer Database or any subset
thereof, in a format as the parties may, in good faith, agree from time to
time. Fingerhut and Metris will cooperate in good faith to ensure that
Metris' written production and solicitation deadlines are met. Throughout
the term of this Agreement, Fingerhut shall update the Customer Database with
all additions, deletions and other amendments to the Customer Database
("Updates") made or developed by Fingerhut in the ordinary course of its
business, including, without limitation, the addition of the name and other
information related thereto of all persons which may, from time to time, come
within the definition of the Customer Database set forth in Exhibit A, and
such Updates shall thereafter become part of the Customer Database for
purposes of this Agreement.
During the term of this Agreement, Fingerhut agrees to maintain a
backup, archival or disaster recovery copy ("Back-up Copy") of the Customer
Database. Metris shall have the right to access such Back-up Copy in the
event of (i) Fingerhut's Bankruptcy (as defined herein), (ii) failure of
Fingerhut's main computer system, and (iii) the expiration of the cure period
as defined in Section 5.1 following an Event of Default by Fingerhut.
Section 1.3 LIMITS OF DISCLOSURE. Nothing in this Agreement shall
require Fingerhut to disclose to Metris (i) confidential information received
by Fingerhut from third parties, including without limitation, customer lists
from third party sources, which confidential information Fingerhut is
precluded by written agreement from disclosing to others, or (ii) information
which Fingerhut, in its reasonable interpretation, is precluded from
disclosing under any applicable law, regulation or other industry practices
related to consumer privacy.
Section 1.4 OWNERSHIP OF BEHAVIORAL MODELS. Fingerhut agrees that
any behavioral models or similar credit scoring algorithms which are
developed by Metris or developed by Fingerhut expressly for or on behalf of
Metris from the Customer Database ("Behavioral Models") shall be owned,
unencumbered, by Metris; Fingerhut, further agrees, that Metris has the sole
right to use of such Behavioral Models for Financial Service Products during
the term of this Agreement, including any renewals, and Metris retains sole
ownership of such Behavioral Models upon termination of this Agreement.
II. COMPENSATION
Section 2.1 COMPENSATION. Metris agrees to pay Fingerhut (in
immediately available funds) in accordance with the terms and conditions set
forth in Exhibit C, attached hereto and incorporated herein by reference.
Payment of the Database License Fee shall be made by the fifteenth of the
first month within each calendar year during the Initial Term or subsequent
Renewal Term. Payment of the Solicitation Fee and the Suppress File Fee
shall be made not later than the thirtieth business day of each month
following the end of a calendar quarter for all amounts due and
2
<PAGE>
owing for the immediately preceding calendar quarter. Fingerhut and Metris
agree that upon mutual written consent, Exhibit C may be amended from time to
time.
III. OWNERSHIP AND REPRESENTATIONS AND WARRANTIES
Section 3.1 OWNERSHIP OF INFORMATION. Fingerhut represents and
warrants that (i) it is the owner of the entire right, title and interest to
and in the Customer Database, subject to any licenses that have previously
been granted, (ii) it is under no legal impediment that would prevent its
entering into this Agreement or granting to Metris the licenses described
herein, (iii) the licenses granted hereby and Metris' use of the Customer
Database as described herein, will not infringe upon the rights of any third
party or violate any existing license, agreement, arrangement or
understanding of Fingerhut or any subsidiary or affiliate of Fingerhut with
any third party, (iv) it has no knowledge of any infringement of the rights
granted to Metris pursuant to Section 1.1 above, and (v) it has not granted
any rights to any third party that conflict with the rights granted to Metris
pursuant to Section 1.1 above (except those identified in Exhibit D).
Section 3.2 NO SALE OR ASSIGNMENT. Except as otherwise provided
herein, nothing in this Agreement shall be construed as a sale, assignment or
other complete transfer of any title to, or ownership of the Customer
Database, including any and all trade secrets, copyrights and proprietary
rights and interests in and to the Customer Database. Fingerhut shall retain
all right, title and interest in and to all trade secrets, copyrights and
other proprietary rights and interests in and to the Customer Database,
subject only to the license granted under this Agreement.
Section 3.3 METRIS AUTHORITY. Metris hereby represents and warrants,
as of the date of this Agreement, as follows:
(a) Metris is a duly organized corporation, validly existing, and
in good standing under the laws of the State of Delaware. Prior to
its use of the Customer Database, Metris will be duly qualified or
licensed to do business necessary and will be in good standing in
each jurisdiction in which its business or the exercise of its
rights, powers or authority under this Agreement renders such
qualification necessary.
(b) Metris has the requisite corporate power and authority to enter
into, and to carry out its obligations under this Agreement.
(c) The execution and delivery Metris of this Agreement and the
consummation by Metris of the transactions contemplated hereby have
been duly authorized prior to the date of this Agreement by all
necessary corporate action on its part.
(d) This Agreement has been duly executed and delivered by Metris
and constitutes a valid and binding obligation of Metris enforceable
against Metris in accordance with its terms.
(e) Metris is not subject to, or obligated under any provision of
(i) its articles of incorporation, (ii) any agreement, arrangement
or understanding, (iii) any license,
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franchise or permit, or (iv) any law, regulation, order, judgment or
decree that would be breached or violated, or in respect of which a
right of termination or acceleration or any encumbrance on any of
its assets would be created by the execution, delivery and
performance of this Agreement by Metris, or the consummation by
Metris of the transactions contemplated by this Agreement.
(f) No authorization, consent or approval of, waiver or
exemption by, or filing or registration with any public body, court,
third party or authority is necessary on the part of Metris for the
consummation by Metris of the transactions contemplated by this
Agreement.
Section 3.4 FINGERHUT AUTHORITY. Fingerhut hereby represents and
warrants, as of the date of this Agreement, as follows:
(a) Fingerhut is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota, and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which its business or the exercise of its rights,
powers or authority under this Agreement renders such qualification
necessary.
(b) Fingerhut has the requisite corporate power and authority to enter
into, and to carryout its obligations under this Agreement.
(c) The execution and delivery by Fingerhut of this Agreement and the
consummation by Fingerhut of the transactions contemplated hereby have
been duly authorized prior to the date of this Agreement by all
necessary corporate action on its part.
(d) This Agreement has been duly executed and delivered by Fingerhut and
constitutes a valid and binding obligation of Fingerhut enforceable
against Fingerhut in accordance with its terms.
(e) Fingerhut is not subject to, or obligated under any
provision of (i) its articles of incorporation or bylaws, (ii) any
agreement, arrangement or understanding, (iii) any license,
franchise or permit, or (iv) any law, regulation, order, judgment or
decree that would be breached or violated, or in respect of which a
right of termination or acceleration or any encumbrance on any of
its assets would be created by the execution, delivery and
performance of this Agreement by Fingerhut, or the consummation by
Fingerhut of the transactions contemplated by this Agreement.
(f) No authorization, consent or approval of, waiver or exemption
by, or filing or registration with any public body, court, third
party or authority is necessary on the part of Fingerhut for the
consummation by Fingerhut of the transactions contemplated by this
Agreement.
IV. CONFIDENTIALITY
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Section 4.1 CONFIDENTIALITY OF CUSTOMER DATABASE. All Customer
Database disclosed hereunder is confidential and proprietary to Fingerhut.
Metris, its subsidiaries, affiliates, officers, directors, employees, agents,
consultants and contractors shall not use any of the Customer Database and
the Behavioral Models for any purpose other than as expressly permitted
hereunder. Metris shall not disclose or provide any of such Customer
Database and the Behavioral Models to any third party, except as provided in
Sections 1.1, 4.2 and 4.3 below, and shall take all reasonable measures to
limit any such disclosure by its affiliates, subsidiaries, officers,
directors, employees, agents, contractors or consultants to a need to know
basis during the term of this Agreement. Metris agrees it will not provide
Customer Database and Behavioral Models that are proprietary to Fingerhut to
a third party without a written agreement that prohibits, among other things,
such third party from using or disclosing the information hereunder except as
permitted pursuant to this Agreement.
Section 4.2 OTHER CONFIDENTIAL INFORMATION. This Agreement and the
transactions contemplated hereby will be kept in confidence by such other
party, including its subsidiaries, affiliates, in accordance with its
policies for maintaining the confidence of its own information of similar
content. The term "Confidential Information" shall mean and include (i) the
Customer Database, (ii) all trade secrets and other confidential business
information learned in the course of performance by either party of its
obligations hereunder, and (iii) any information or data which is disclosed
by a party to the other party under or in contemplation of this Agreement.
Notwithstanding the foregoing, the term Confidential
Information shall not include information which (i) is already known to such
other party when received, (ii) thereafter becomes generally obtainable by a
party other than as a result of an unauthorized disclosure by the party
taking advantage of this clause, or (iii) is required by law, regulation or
court order to be disclosed by such party, provided that in the case of this
clause prior notice of such disclosure has been given to the party which
furnished such information, when legally permissible, and that such other
party which is required to make the disclosure uses its best efforts to
provide sufficient notice to permit the party which furnished such
information to take legal action to prevent the disclosure.
Section 4.3 REQUIRED OR REQUESTED INFORMATION. If Metris is required
to disclose any information contained in the Customer Database to any
regulatory or governmental agency, department or other regulatory entity or
court of law, Metris may not disclose such information without the prior
written approval of Fingerhut, and gives all available information and
assistance to enable Fingerhut to take the measures (consistent with
requirements of applicable laws and regulations) that, in its sole
discretion, it deems appropriate or necessary to protect the Customer
Database from disclosure. Sections 4.1 and 4.2 shall survive any termination
of this Agreement for five (5) years.
Metris or Fingerhut shall not be obligated to disclose to the
other any information which is required by applicable law to be kept
confidential or is otherwise prohibited from disclosure by applicable federal
or state laws and regulations or would cause either party, in its reasonable
interpretation, to be deemed a credit reporting agency as defined under
applicable state or federal law.
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V. EVENTS OF DEFAULT AND REMEDIES
Section 5.1 EVENT OF DEFAULT. An "Event of Default" shall be deemed
to occur upon the occurrence of any of the following:
(a) A material breach of a representation, agreement, covenant
or other obligation of any of the parties to this Agreement (any
such breach is herein referred to as a "Material Breach"); provided,
however, that no Event of Default shall be deemed to have occurred
unless and until a non-breaching party provides the breaching party
with written notice of such Material Breach, describing in
reasonable detail the nature of such Material Breach, and (i) the
breaching party shall have had an opportunity to cure such Material
Breach (which is capable of being cured) within sixty (60) days
after such notice (unless such Material Breach is with respect to a
monetary matter, the cure of which requires only the payment of a
specified amount of money pursuant to the terms of this Agreement,
in which case the breaching party shall have an opportunity to cure
within five (5) business days after such notice), (ii) the breaching
party does not cure such Material Breach within the applicable time
period, or, if such Material Breach, other than a Material Breach
relating to a monetary matter, cannot reasonably be cured within
sixty days, but is curable, the breaching party does not; (x)
undertake to cure such Material Breach within such sixty day period
and (y) after such sixty day period, diligently and continuously use
all reasonable efforts to cure, and (iii) the notifying party
thereafter declares an Event of Default. In respect of clause (ii)
of this Section 5.1(a), such extended cure period shall continue so
long as the parties hereto reasonably agree that the actions being
taken by the breaching party are reasonably expected to cure such
Material Breach.
(b) If, at any time within twelve (12) months following the
expiration of any cure period provided in Section 5.1(a) above,
there shall occur a Material Breach (the "Second Material Breach")
and such Second Material Breach is of the same nature as the
Material Breach (the "First Material Breach") by the breaching party
that gave rise to such cure period, then an Event of Default shall
be deemed to have occurred upon the delivery of notice of such
Second Material Breach to the breaching party by the notifying party
referred to in Section 5.1(a) and upon such notifying party
declaring an Event of Default.
(c) If there shall occur a "Bankruptcy," as hereinafter defined, of
either Party, the non-Bankruptcy party may declare an Event of
Default. For purposes of this Agreement, the term "Bankruptcy"
shall mean (i) the entry of a decree or order for relief by a court
of competent jurisdiction in any involuntary case under any
bankruptcy, insolvency or similar law now or hereafter in effect and
such decree or order shall not be vacated, set aside or stayed
within ninety (90) days after its entry, (ii) the entry of a decree
or order appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar agent for any substantial part of
the assets or
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<PAGE>
property of such party and such decree or order shall not be
vacated, set aside or stayed within ninety (90) days after its
entry, (iii) the ordering of the winding up or liquidation of the
affairs of a party and such order shall not be vacated, set aside or
stayed within one hundred twenty (120) days after its entry, (iv)
the filing of a petition in any such involuntary bankruptcy case,
which petition remains undismissed for a period of ninety (90) days
or which is not dismissed or suspended pursuant to Section 305 of
Title 11 of the United States Code (or any corresponding provision
of any future United States Bankruptcy law), (v) the commencement of
a voluntary case under any bankruptcy, insolvency or similar law now
or hereafter in effect, (vi) the consent to the entry of an order
for relief in an involuntary case under any such law or to the
appointment of or taking possession of any substantial part of the
assets or property by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or similar agent, or (vii) the making of any
general assignment for the benefit of creditors.
Section 5.2 REMEDIES. Each of the parties hereto shall be liable to
the other for damages arising out of or in connection with any breach of
this Agreement, subject to the duty of the non-breaching party to take all
reasonable actions in order to mitigate such damages. The parties agree that
in no event shall any party to this Agreement be liable to the other for
punitive, indirect, special or consequential damages arising out of a breach
of this Agreement. It is understood and agreed to by the parties that
monetary damages may not be a sufficient remedy for breach with respect to
their respective obligations under this Agreement. Accordingly, the
non-breaching party shall, to the extent permitted by law or equity, be
entitled to seek specific performance and injunctive or other equitable
relief as a remedy for any breach of, or Event of Default under this
Agreement. The remedies described in this Section 5.2 shall not be deemed to
be the exclusive remedies for any breach of, or Event of Default, under this
Agreement, but shall be in addition to all other remedies available to the
parties at law or equity, subject to the limitations with respect to damages
set forth above in this Section 5.2.
VI. INDEMNIFICATION
Section 6.1 INDEMNIFICATION BY FINGERHUT. Fingerhut shall indemnify,
hold harmless and defend Metris, its officers, directors, partners,
employees, agent or permitted assigns of Metris from and against any and all
losses, claims, damages, liabilities, whether joint or several, expenses
(including legal fees and expenses), judgments, fines and other amounts paid
in settlement, incurred or suffered by any such person(s) in connection with
any threatened, pending or completed claim, demand, action, suit or
proceeding (whether civil, criminal, administrative or investigative, and
whether formal or informal) by an unaffiliated third party arising out of or
in connection with any breach or alleged breach of this Agreement by
Fingerhut; including without limitation any claim or allegation that (i) any
Customer Database provided to Metris constitutes an infringement of any
copyright, (ii) the Customer Database provided to Metris contains, embodies
or incorporates any trade secret or proprietary information of any third
party. In the event the Customer Database is held to infringe and its use is
enjoined, the sole obligation of Fingerhut (and the exclusive remedy of
Metris) shall be as provided pursuant to Sections 6.1 and 6.3.
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Section 6.2 INDEMNIFICATION BY METRIS. Metris shall indemnify, hold
harmless and defend Fingerhut, and each person that is a stockholder,
officer, director, partner, employee or agent of Fingerhut, from and against
any and all losses, claims, damages, liabilities, whether joint or several,
expenses (including legal fees and expenses), judgments, fines and other
amounts paid in settlement incurred or suffered by any such person(s) in
connection with any threatened, pending or completed claim, demand, action,
suit or proceeding (whether civil, criminal, administrative or investigative,
and whether formal or informal) by an unaffiliated third party arising out of
or in connection with any breach or alleged breach of this Agreement by
Metris.
Section 6.3 RIGHTS UPON INDEMNIFICATION. The rights of the parties
hereto to be indemnified pursuant to this Agreement shall be governed by the
following:
(a) Within a reasonable time (not to exceed 30 days from receipt) after
receipt by an indemnified party of notice of any claim or the
commencement of any action which may result in a claim for
indemnification pursuant to Sections 6.1 or 6.2, an indemnified
party will notify in writing the indemnifying party thereof within
a reasonable time thereafter; the omission to so notify any
indemnifying party will relieve it of any liability for
indemnification thereunder as to the particular item for which
indemnification may then be sought (except to the extent that the
failure to give notice shall not have been prejudicial to such
indemnifying party), but not from any other liability which it may
have to any indemnified party.
(b) An indemnified party shall have the right (i) to employ separate
counsel chosen by it in any action as to which indemnification may
be sought under any provision of this Agreement and to participate
in the defense thereof, or (ii) to the extent that it may wish,
jointly with any other indemnified party, to assume the defense of
any such action with counsel reasonably satisfactory to the
indemnifying party, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless; (x) the
indemnifying party has agreed in writing to pay such fees and
expenses, (y) the indemnifying party has failed to employ counsel
and assume the defense thereof without reservation and employ
counsel within a reasonable period of time after being given the
notice required above, and as a consequence thereof, the
indemnified party is required to employ separate counsel to protect
its rights, or (z) the named parties to any such action (including
any impleaded parties) include both such indemnified party and the
indemnifying party and such indemnified party shall have been
advised by its counsel that representation of such indemnified
party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct
(whether or not such representation by the same counsel has been
proposed) due to actual or potential conflict of interest between
them. It is understood, however, that the indemnifying party
shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction,
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate
counsel (in addition to any local counsel) at any time for all such
indemnified parties having actual or potential differing interests
with the indemnifying party.
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(c) The indemnifying party shall not be liable for any settlement of
any such action effected without its written consent, which consent
shall not be unreasonably withheld, but if settled with such
written consent, or if there be a final judgment against any
indemnified party in any such action, the indemnifying party agrees
to indemnify and hold harmless any indemnified parties to the
extent provided above from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.
(d) The indemnification obligations set forth in Sections 6.1, 6.2 and 6.3
shall survive the termination this Agreement.
VII. TERM AND TERMINATION
Section 7.1 TERM AND TERMINATION. This Agreement shall take effect
upon the date first written above, and shall remain in effect for seven (7)
years ("Initial Term"). Thereafter, this Agreement will automatically renew
for one term of three (3) years ("Renewal Term") unless either Party provides
written notice to the other, not less than twelve (12) months prior to the
end of the Initial Term or Renewal Term, of its intent to terminate this
Agreement. Either Party may terminate this Agreement reserving all other
remedies and rights hereunder in whole or in part and otherwise available in
law or equity, upon the occurrence of an Event of Default, as defined herein.
Upon the occurrence of an Event of Default, the non-defaulting Party may
terminate this Agreement by giving notice of its intent to terminate. Such
written notice shall describe the Event of Default. Fingerhut shall have the
right to terminate this Agreement by written notice to Metris upon the
occurrence of a Change of Control (as defined below) with respect to Metris.
A "Change in Control" shall be deemed to have occurred if (a) any person or
group (within the meaning or Rule 13d-5 of the Securities Exchange Act of
1934 as in effect on the date hereof) other than Fingerhut shall own directly
or indirectly, beneficially or of record, shares representing more than 25%
of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Metris; (b) a majority of the seats (other than
vacant seats) on the board of directors of Metris shall at any time be
occupied by persons who were neither (i) nominated by Fingerhut, or by the
board of directors of Metris, nor (ii) appointed by directors so nominated;
or (c) any person or group other than Fingerhut shall otherwise directly or
indirectly have the power to exercise a controlling influence over the
management or policies of Metris.
VIII. MISCELLANEOUS PROVISIONS
Section 8.1 ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties
hereto agrees to take or cause to be taken such further actions, to execute,
acknowledge, deliver and file or cause to be executed, acknowledged, delivered
and filed such further documents and instruments, and to use all reasonable
efforts to obtain such consents, as may be necessary or as may be reasonably
requested in order to fully effectuate the purposes, terms and conditions of
this Agreement.
Section 8.2 NOTICE. All notices, demands, requests or other
communications which may be or are required to be given pursuant to this
Agreement shall be in writing and shall be personally
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delivered, mailed by first class, registered or certified mail, postage
prepaid, or sent by electronic or facsimile transmission, addressed as
follows:
(a) If to Metris:
Metris Companies Inc.
Interchange Building
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: Chief Executive Officer
(b) If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Senior Vice President
With a copy to the General Counsel
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication which shall be delivered,
mailed or transmitted in the manner described above shall be deemed sufficiently
given, served, sent or received for all purposes at such time as it is delivered
to the addressee or at such time as delivery is refused by the addressee upon
presentation.
Section 8.3 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of this Agreement (unless those provisions which are
invalidated or unenforceable are clearly material and inseparable from such
other provisions). In the event of such declaration of invalidity or
unenforceability, this Agreement, as so modified, shall be applied and construed
so as to reflect substantially the intent of the parties and achieve the same
economic effect as originally intended by the terms hereof. In the event that
the scope of any provision to this Agreement is deemed unenforceable by a court
of competent jurisdiction, the parties agree to the reduction of the scope of
such provision as such court shall deem reasonably necessary to make such
provision enforceable under the circumstances.
Section 8.4 SURVIVAL. It is the express intention and agreement of the
parties hereto that all covenants, agreements, statements, representations,
warranties and indemnities made in this Agreement shall survive the execution
and delivery of this Agreement.
Section 8.5 WAIVERS. Neither the waiver by any party hereto of a breach
of or a default under any of the provisions of this Agreement, nor the failure
of any party hereto, on one or more
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occasions, to enforce any of the provisions of this Agreement or to exercise
any right, remedy or privilege hereunder shall thereafter be construed as a
waiver of any such provisions, rights, remedies or privileges hereunder. Any
of the terms, covenants, representations, warranties, or conditions hereof
may be waived only by a written instrument executed by the party waiving
compliance.
Section 8.6 EXERCISE OF RIGHTS. No failure or delay on the part of any
party hereto in exercising any right, power or privilege hereunder and no course
of dealing among the parties hereto shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein expressly provided
are cumulative and not exclusive of any other rights or remedies which any party
hereto would otherwise have at law or in equity or otherwise.
Section 8.7 BINDING EFFECT. Subject to any provisions hereof
restricting assignment, this Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
Section 8.8 ENTIRE AGREEMENT. This Agreement contains the entire
agreement among the parties hereto with respect to the matters contained herein,
and supersedes all prior oral or written agreements, commitments or
understandings with respect to the matters provided for herein.
Section 8.9 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the Person may require.
Section 8.10 HEADINGS. Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
Section 8.11 GOVERNING LAW. This Agreement, the rights and obligations
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the internal laws of the State of
Minnesota without giving effect to the principles of conflicts of laws thereof.
Section 8.12 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf of, each party, or
that the signatures of all Persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the Persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of all of the parties
hereto.
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Section 8.13 ASSIGNMENT. No party to this Agreement shall have the right
to assign or otherwise transfer its rights or obligations under this Agreement,
except with the prior written consent of the other; notwithstanding, either
party may assign or otherwise transfer its rights or obligations under this
Agreement to a subsidiary or affiliate upon notice to the other. Regardless of
the party to whom an assignment is made pursuant to this Section 8.13, the
assignee shall, as a condition to such assignment, by written undertaking
satisfactory to the other, represent and warrant that the assignment was made in
accordance with all applicable laws and regulations and assume and agree to be
bound by the terms, provisions and conditions of this Agreement to the same
extent as the assignor; provided, however, that no such assignment shall relieve
the assignor of its obligations (which shall be primary and which may be
discharged in whole or in part by the assignee) under this Agreement, to the
extent applicable. Any unauthorized assignment and any assignment made in
contravention of this Section 8.13 shall be null and void.
Section 8.14 NO AGENCY. This Agreement shall not be deemed expressly or
by implication to create an agency, employee, or servant relationship between or
among any of the parties hereto, or any affiliates of the parties hereto for any
purpose whatsoever.
Section 8.15 FORCE MAJEURE. No party shall be liable for any failure of
or delay in the performance of this Agreement for the period that such failure
or delay is due to acts of God, public enemy, war, strikes or labor disputes, or
any other cause beyond the parties' reasonable control; it being understood that
lack of financial resources is not to be deemed a cause beyond a party's
control. Each party shall notify the other parties promptly of the occurrence
of any such cause and carry out this Agreement as promptly as practicable after
such cause is terminated; provided, however, that the existence of any such
cause shall not extend the term of this Agreement.
Section 8.16 TIME. Time is to be considered of the essence for the
purposes of this Agreement.
Section 8.17 AMENDMENT AND MODIFICATION. This Agreement may only be
amended or modified by a subsequent written agreement by and among the parties
hereto.
Section 8.18 ADHERENCE TO APPLICABLE LAW. In connection with the
performance of their respective obligations and the exercise of their respective
rights hereunder, each of the parties hereto agrees, on behalf of itself and its
subsidiaries or affiliates, to comply in all material respects with all
applicable state, federal and local laws and regulations.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first set forth above.
FINGERHUT CORPORATION
By: /s/ Michael P. Sherman
---------------------------
Its: General Counsel
--------------------------
METRIS DIRECT, INC.
By: /s/ Ronald N. Zebeck
---------------------------
Its: President
--------------------------
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EXHIBIT A
CUSTOMER DATABASE
Customer Database includes information solely of Fingerhut's which relates to
its transactions or experiences with all of its customers (including all past
and current customers [name, address, telephone and account numbers] as well as
prospective customers). The Customer Database does not include any information
of third parties which Fingerhut does not have by contract or otherwise the
right to provide to Metris. The Customer Database also includes but is not
limited to, as updated from time to time, the following:
- - Credit or behavioral data (including but not limited to customer payment
histories, behavior scores, fraud, deceased, bad debt and other collection
data),
- - All existing or developed models (including algorithms and documentation)
that derive credit scores related to such datas;
- - Demographic (including promotional database) data and models;
- - Attitudinal data (such as order level purchasing preferences); and
- - Psychographic data (including customer surveys).
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EXHIBIT B
<TABLE>
<CAPTION>
FINANCIAL SERVICE PRODUCTS
<S> <C>
Insurance Products* Brokerage Services (real estate, financial,
insurance)
Warranty or Extended Service Plans Auto Lending/Leasing
Tax Preparation Services Equity Loans, Mortgages
Deposit Products Bank Credit Cards
Investment Services Secured Bank Cards
(Annuities, Mutual Funds, CDs) Prepaid Cards
Car Buying Services Smart Cards
Debit Cards
Consumer Loans (other than closed end Co Branded Cards, Credit Card Registration
installment or revolving credit loans to Private label cards (that are in competition with
Fingerhut customers for the exclusive the Fingerhut private label card)
purchase of merchandise) Auto Clubs
Credit Enhancement Products
Affinity Bank Credit Cards
Travel Services
Student Loans Mobile Home Financing
Mail Grams
Travelers Checks, Money Orders
</TABLE>
*except for any Insurance products offered within the closed-end installment
loan coupon book or credit insurance which is directly tied to a revolving
credit balance owed directly to Fingerhut or its wholly owned subsidiaries or
the wholly owned subsidiaries of its parent.
Fingerhut confirms that it will endorse the Physician Mutual Insurance (PMI)
product until such time as Metris no longer offers the PMI product. In the
event Metris requests Fingerhut's endorsement of other Financial Service
Products, the parties agree to cooperate in good faith to develop a mutually
agreed Fingerhut endorsed product.
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EXHIBIT C
COMPENSATION
Metris shall pay Fingerhut a non-refundable Database License Fee as set forth
below:
<TABLE>
<S> <C>
1996 $500,000
1997 $1,000,000
1998 $1,500,000
1999 $2,000,000
2000 $2,000,000
2001 $2,000,000
2002 $2,000,000
</TABLE>
In addition to the Database License Fee, Metris shall pay Fingerhut a
Solicitation Fee and Suppress File Fee as set forth below:
Solicitation Fee: $0.01 per consumer name mailed from the Customer Database
solely for solicitation by Metris on behalf of unaffiliated
third parties to sell Financial Services Products as set
forth in Exhibit B.
Suppress File Fee: $.47 for each consumer name obtained from a third party that
is matched to the Fingerhut suppress file solely for
purposes of elimination from a solicitation.
The above fees terminate upon termination of this agreement.
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EXHIBIT D
MAILER
Providian
U. S. Credit
AIG Marketing
Colonial Exchange
Mutual of Omaha
Gerber Life
Credential Services
Signature Group
Classified Insurance
Response Marketing
Globe Life
20th Century Insurance
CUC International
AMOCO
AARP
DeVry Inc.
Independence Director
ICS Cleveland Institute
Fingerhut and Metris agree that Fingerhut may continue to license the use of the
Customer Database to the above identified companies until December 31, 1996.
Thereafter, Fingerhut shall either (a) assign its contract with such company to
Metris or (b) terminate its agreement with such company effective January 1,
1997.
Until December 31, 1996, Fingerhut agrees to pay to Metris 20% of revenues it
receives from the above named companies to license use of the Customer
Database.
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ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made and
entered into as of the 31st day of October, 1996 by and among Fingerhut
Companies, Inc., a Minnesota corporation, ("FCI"), Direct Merchants Credit Card
Bank, National Association ("Direct Merchants Bank"), a national banking
association, and Metris Companies Inc. ("Metris"), a Delaware corporation.
WHEREAS, FCI has performed and following the initial public offering of
Metris will continue to perform (or cause to be performed) certain Services (as
defined herein) on behalf of Direct Merchants Bank, Metris and their
subsidiaries; and
WHEREAS, Direct Merchants Bank and Metris, desire to use the Services of
FCI;
NOW THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the parties hereby agree as follows:
I. SERVICES
Section 1.1 SERVICES. During the term of this Agreement, FCI agrees
to perform the services (herein "Services") set forth in Exhibits 1 through 8
(including any schedules to such Exhibits) attached hereto and incorporated
herein by reference. Exhibit 9, attached hereto and incorporated herein by
reference, reflects Services which Metris has agreed to perform for FCI. Each
Exhibit shall be subject to the terms as identified in the Exhibit. In the
event any Exhibit is terminated, the Agreement shall remain in effect unless
otherwise terminated as provided herein. The Exhibits may be amended from time
to time as the parties may mutually agree as evidenced by an amendment signed by
the President, and/or Chief Financial Officer of each party. The most recent of
each Exhibit shall supersede all earlier dated Exhibits. In the event of any
conflict between the terms of this Agreement and any Exhibit, the terms of this
Agreement shall govern. For purposes of this Agreement, Services and resources
provided by FCI shall include services rendered and resources provided by any of
its subsidiaries or affiliates other than Metris and Direct Merchants Bank.
Section 1.2 PERFORMANCE OF SERVICES.
(a) FCI shall perform the Services with the same degree of care, skill
and prudence customarily exercised for its own operations. In the event FCI
changes the degree of care, skill and prudence customarily exercised for its own
operations, the Services performed hereunder may be modified by FCI to meet its
revised internal performance standards for the Services hereunder. It is
understood and agreed that the Services will be substantially identical in
nature and quality to the Services performed by FCI during the years prior to
the execution of this Agreement, except as required by Metris becoming a public
company.
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(b) Each party acknowledges that the Services will be provided only with
respect to the business (including joint ventures and partnerships) of the party
receiving such Services and its subsidiaries as such businesses exist as of the
execution of this Agreement or as otherwise mutually agreed by the parties.
Services will not be requested for the benefit of any entity other than Direct
Merchants Bank, Metris and their respective subsidiaries. Each party agrees
that it will use the Services only in accordance with all applicable federal,
state and local laws, regulations and tariffs, and in accordance with reasonable
conditions, rules, regulations and specifications which are or may be set forth
in any manuals, materials, documents or instructions of the party providing the
Services. The parties hereto each reserve the right to take all actions,
including the termination of any Services, in order to assure that the Services
are provided in accordance with any applicable laws, regulations and tariffs.
(c) Any input or information needed by either party to perform the
Services pursuant to the provisions of this Agreement shall be provided by the
other party or its subsidiaries, as the case may be, in a manner consistent with
the practices employed by the parties during the year prior to the execution of
this Agreement. Should the failure to provide such input or information render
the performance of the Services impossible or unreasonably difficult, the party
providing the Services may, upon reasonable notice to the other parties hereto,
refuse to provide such Services.
Section 1.3 COMPENSATION. FCI shall be compensated for the Services
rendered under this Agreement and Services rendered prior to this Agreement as
determined and as set forth in the Exhibits hereto. Metris shall be responsible
for payments owed to FCI hereunder. In the event Metris incurs an Event of
Default and after FCI has exercised its remedies pursuant to Section 4.2, Direct
Merchants Bank and any other subsidiary of Metris shall be responsible for
payment to FCI for Services it received hereunder. Payments shall be made by
the thirtieth (30th) of the month following the month in which such Services are
performed either by check or wire transfer. If there are additional Services,
and to the extent charges are to be agreed upon in the future in accordance with
any Exhibit, the charges will be determined as follows:
(i) Charges for Services performed by a third party shall be equal to
the incremental costs charged by such third party to perform those Services as
agreed to by the parties. With respect to all other Services not to be provided
by a third party, the parties hereto will negotiate in good faith, fees to be
charged on a monthly basis. Fees for Services not provided by third parties
shall be based on the estimated costs of providing such Services, which shall
include a reasonable allocation of direct and indirect overhead costs
(including, without limitation, employee salaries, benefits and other costs)
expected to be incurred in connection therewith.
(ii) If any additional Services provided by FCI and as set forth in the
Exhibits attached hereto, or if the scope or nature of Services provided at any
time under this Agreement change materially, the parties hereto will negotiate
in good faith new fees
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based on the estimated cost of providing such additional or revised Services.
Fees for Services not provided by third parties shall be based on the
estimated costs of providing such Services, which shall include a reasonable
allocation of direct and indirect overhead costs (including, without
limitation, employee salaries, benefits and other costs) expected to be
incurred in connection therewith.
II. CONFIDENTIALITY
Section 2.1 CONFIDENTIALITY OF INFORMATION. All Confidential
Information (as hereinafter defined) disclosed by any of the parties to any
other party hereunder is confidential and proprietary to such disclosing party.
Each party, its affiliates, and officers, directors, employees, agents,
consultants and contractors shall not use any of the Confidential Information
for any purpose other than as expressly permitted hereunder. Confidential
Information furnished by any of the parties to any other in connection with this
Agreement (or previously disclosed prior to execution of this Agreement) and the
transactions contemplated hereby will be kept in confidence by such other party,
including its affiliates or subsidiaries, in accordance with its policies for
maintaining the confidence of its own information of similar content. The term
Confidential Information shall mean and include: (i) all trade secrets and
other confidential business information learned in the course of performance by
any party of its obligations hereunder, (ii) any information, data, software or
computer programs which are disclosed by any party to the other party under or
in contemplation of this Agreement. Confidential Information may be either the
property of the disclosing party or information provided to the disclosing party
by a corporate affiliate of the disclosing party or by a third party.
Notwithstanding the foregoing, the term "Confidential Information" shall not
include information which: (i) is already known to such other party when
received (except for information previously disclosed which the parties have
identified as Confidential Information and subject to the confidentiality
requirements of this Agreement), (ii) thereafter becomes generally obtainable by
a party other than as a result of an unauthorized disclosure by the party taking
advantage of this clause, (iii) is required by law, regulation or court order to
be disclosed by such party, provided that in the case of this clause, prior
notice of such disclosure has been given to the party which furnished such
information, when legally permissible, and that such other party which is
required to make the disclosure uses its best efforts to provide sufficient
notice to permit the party which furnished such information to take legal action
to prevent the disclosure or (iv) is reasonably necessary, in the opinion of
counsel, to be disclosed in the context of a legal proceeding or regulatory
investigation provided that prior notice shall be given to the party which
furnished the information. This Section 2.1 shall survive any termination of
this Agreement for five (5) years.
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III. CONFLICT RESOLUTION
Section 3.1 CONFLICT RESOLUTION. Any dispute, controversy or claim
relating to this Agreement (a "Dispute") shall initially be referred to the
executive management of each of the parties to the Dispute. In the event
executive management cannot come to an agreement on a particular Dispute, then
the matter shall be submitted to the respective Chief Executive Officers and
General Counsel ("Designated Officers") of the parties to the Dispute. The
Designated Officers of each party then shall investigate and evaluate the
dispute. The parties agree to cooperate in this process by exchanging relevant
information unless such information is privileged. The Designated Officers or
their respective designees shall meet as appropriate to, in good faith, resolve
the dispute.
IV. EVENTS OF DEFAULT AND REMEDIES
Section 4.1 EVENT OF DEFAULT. An "Event of Default" shall be deemed
to occur upon the earliest to occur of the following:
(a) A material breach of a material representation, agreement or other
obligation of any of the parties to this Agreement (any such breach is herein
referred to as a "Material Breach"); provided, however, that no Event of Default
shall be deemed to have occurred unless and until: (i) a non-breaching party
provides the breaching party with written notice of such Material Breach,
describing in reasonable detail the nature of such Material Breach, (ii) the
breaching party shall have had an opportunity to cure such Material Breach
within sixty (60) days after such notice, (unless such Material Breach is with
respect to a monetary matter, the cure of which requires only the payment of a
specified amount of money pursuant to the terms of this Agreement, in which case
the breaching party shall have had an opportunity to cure within ten (10)
business days after such notice); (iii) the breaching party does not cure such
Material Breach within the applicable time period, or, if such Material Breach,
other than a Material Breach relating to a monetary matter, cannot reasonably be
cured within such period, but is curable, the breaching party does not (x)
undertake to cure such Material Breach within such sixty (60) day period and (y)
after such sixty (60) day cure period, diligently and continuously use all
reasonable efforts to cure, and (iv) the notifying party thereafter declares an
Event of Default. In respect of clause (iii), (x), (y) of this Section 4.1(a),
such extended cure period shall continue so long as the parties hereto
reasonably agree that the actions being taken by the breaching party are
reasonably expected to cure such Material Breach.
(b) If, at any time within twelve (12) months following the expiration
of any cure period provided in Section 4.1(a) above, there shall occur a
Material Breach (the "Second Material Breach") and such Second Material Breach
is of the same nature as the Material Breach (the "First Material Breach") by
the breaching party that gave rise to such cure period, then an Event of Default
shall be deemed to have occurred upon the delivery of notice of such Second
Material Breach to the breaching party by the notifying party
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referred to in paragraph (a) of this Section 4.1 and upon such notifying party
declaring an Event of Default.
(c) If there shall occur a "Bankruptcy," as hereinafter defined, of any
party, any non-bankruptcy party may declare an Event of Default. For purposes
of this Agreement, the term "Bankruptcy" shall mean (i) the entry of a decree or
order for relief by a court of competent jurisdiction in any involuntary case
under any bankruptcy, insolvency or similar law now or hereafter in effect, and
such decree or order shall not be vacated, set aside or stayed within ninety
(90) days after its entry, (ii) the entry of a decree or order appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
agent for any substantial part of the assets or property and such decree or
order shall not be vacated, set aside or stayed within ninety (90) days after
its entry, (iii) the ordering of the winding up or liquidation of the affairs of
a party and such order shall not be vacated, set aside or stayed within one
hundred twenty (120) days after its entry, (iv) the filing of a petition in any
such involuntary bankruptcy case, which petition remains undismissed for a
period of ninety (90) days or which is not dismissed or suspended pursuant to
Section 305 of Title 11 of the United States Code (or any corresponding
provision of any future United States Bankruptcy law), (v) the commencement of a
voluntary case under any bankruptcy, insolvency or similar law now or hereafter
in effect, (vi) the consent to the entry of an order for relief in an
involuntary case under any such law or to the appointment of or taking
possession of any substantial part of the assets or property by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar agent, or
(vii) the making of any general assignment for the benefit of creditors
Section 4.2 REMEDIES. Each of the parties hereto shall be liable
to the other parties for damages arising out of or in connection with any
breach of this Agreement including any breach by their respective
subsidiaries (except to the extent that Direct Merchants Bank and Metris are
subsidiaries of FCI) to the extent permitted by law, subject to the duty of
the non-breaching parties to take all reasonable actions in order to mitigate
such damages. The parties agree that in no event shall any party to this
Agreement be liable to the other parties for punitive, indirect, special or
consequential damages arising out of a breach of this Agreement. It is
understood and agreed that monetary damages may not be a sufficient remedy
for any Event of Default. Accordingly, the non-breaching parties shall, to
the extent permitted by law or equity, be entitled to specific performance
and injunctive or other equitable relief as a remedy for any breach of, or
Event of Default under this Agreement. The remedies described in this
Section 4.2 shall not be deemed to be the exclusive remedies for any breach
of, or Event of Default under this Agreement, but shall be in addition to all
other remedies available to the parties at law or in equity, subject to the
limitations with respect to damages set forth above in this Section 4.2.
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V. INDEMNIFICATION
Section 5.1 INDEMNIFICATION OBLIGATIONS
(a) BY DIRECT MERCHANTS BANK. Direct Merchants Bank shall be liable to
and shall defend, indemnify and hold harmless, Metris, FCI and their affiliates,
and their respective officers, directors, employees and permitted assigns, from
and against any and all Losses (as hereinafter defined) incurred by any of them
by reason of or related to Direct Merchants Bank's failure to perform its
obligations hereunder.
(b) BY FCI. FCI shall be liable to and shall defend, indemnify and hold
harmless, Direct Merchants Bank, Metris and their affiliates, and their
respective officers, directors, employees and permitted assigns, from and
against any and all Losses (as hereinafter defined) incurred by reason of or
related to FCI's failure to perform its obligations hereunder.
(c) BY METRIS. Metris shall be liable to and shall defend, indemnify
and hold harmless, Direct Merchants Bank, FCI and their affiliates, and their
respective officers, directors, employees and permitted assigns from and against
any and all Losses (as hereinafter defined) incurred by any of them by reason of
or related to Ff.'s failure to perform its obligations hereunder.
(d) "LOSSES" DEFINED. For purposes of this Section 5.1, the term
"Losses" shall mean any losses, liability, claims, damages, costs, and expenses,
including attorney's fees, disbursements and court costs, reasonably incurred by
an indemnified party, judgments, fines and other amounts paid in settlement,
incurred or suffered by an indemnified party in connection with any threatened,
pending or adjudicated claim, demand, action, suit or proceeding (whether civil,
criminal, administrative or investigative, by an unaffiliated third party
arising out of or in connection with any breach or alleged breach of this
Agreement) without regard to whether or not such Losses would be deemed material
under this Agreement.
Section 5.2 PROCEDURES
(a) NOTICE OF CLAIMS. The parties agree that in case any claim is made,
or any suit or action is commenced which, if not corrected, may give rise to a
right of indemnification by a party hereunder ("Indemnified Party") from one of
the other parties ("Indemnifying Party"), the Indemnified Party will give notice
to the Indemnifying party as promptly as practicable after the receipt by the
Indemnified party of such notice or knowledge of such claim, suit, or action.
On a best efforts basis, notice to the Indemnifying Party shall be given no
later than fifteen days after receipt by the Indemnified Party in the event a
suit or action has commenced or thirty days under all other circumstances;
provided, however, that the failure to give prompt notice shall not relieve an
Indemnifying Party of its obligation to indemnify except to the extent that the
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Indemnifying Party is materially prejudiced by such failure. The Indemnified
Party shall make available to the Indemnifying Party and its counsel and
accountants at reasonable times and for reasonable periods, during normal
business hours, all books and records of the Indemnified Party relating to any
such possible claim for indemnification, and each party will render to the other
such assistance as it may reasonably require of the other in order to ensure
prompt and adequate defense of any suit, claim or proceeding based upon a
statement of facts which may give rise to a right of indemnification hereunder.
(b) SELECTION OF COUNSEL. The Indemnifying Party shall have the right
to defend, compromise and settle any suit, claim or proceeding in the name of
the Indemnified Party to the extent that the Indemnifying Party may be liable to
the Indemnified Party under Section 5.1 above in connection therewith; provided,
however, that the Indemnifying Party shall not compromise or settle a suit,
claim or proceeding unless it assumes the obligation to indemnify for all Losses
related thereto. In the event two of the parties to this Agreement must
indemnify the third, the parties agree the two Indemnifying Parties must agree
to select one to be the Indemnifying Party to the third Indemnified Party and
the third Indemnified Party shall look to one party to this Agreement for
indemnification. The Indemnifying Party shall notify the Indemnified Party
within ten days of having been notified pursuant to Section 5.2(a) of this
Agreement if the Indemnifying Party elects to assume the defense of any such
claim, suit or action and employ counsel in a reasonable exercise of its
discretion. The Indemnified Party shall have the right to employ its own
counsel to participate in such defense, compromise or settlement, but the fees
and expenses of such counsel shall be at the Indemnified Party's expense, unless
the Indemnifying Party shall not have employed counsel to take charge of the
defense thereof.
(c) SETTLEMENT OF CLAIMS. The Indemnified Party may at any time notify
the Indemnifying Party of its intention to settle or compromise any claim, suit
or action against the Indemnified Party in respect of which indemnification
payments may be sought from the Indemnifying Party hereunder, but shall not
settle or compromise any matter for which indemnification may be sought without
the consent of the Indemnifying Party. Any settlement or compromise of any
claim, suit or action in accordance with the preceding sentence, or any final
judgment or decree entered on or in any claim, suit or action which the
Indemnifying Party did not assume the defense of in accordance herewith, shall
be deemed to have been consented to by, and shall be binding upon, the
Indemnifying Party as fully as if the Indemnifying Party had assumed the defense
thereof and a final judgment or decree had been entered in such suit or action,
or with regard to such claim, by a court of competent jurisdiction for the
amount of such settlement, compromise, judgment or decree.
(d) SUBROGATION. The Indemnifying Party shall be subrogated to any
claims or rights of the Indemnified Party as against any other persons with
respect to any amount paid by the Indemnifying Party under this Section 5. The
Indemnified Party shall cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in the assertion by the Indemnifying Party of any
such claim against such other persons.
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(e) INDEMNIFICATION PAYMENTS. Amounts owing under this Section 5 shall
be paid promptly upon written demand for indemnification containing in
reasonable detail the facts giving rise to such liability; provided, however, if
the Indemnifying Party notifies the Indemnified Party within thirty (30) days of
receipt of such demand that it disputes its obligation to indemnify and the
Parties are not otherwise able to reach agreement, the controversy shall be
settled by final order entered by a court of competent jurisdiction.
Section 5.3 SURVIVAL OF INDEMNIFICATION. The provisions of this
Section 5 shall expressly survive any termination of this Agreement or otherwise
for a period of five (5) years.
VI. TERM AND TERMINATION
Section 6.1 TERM AND TERMINATION. This Agreement shall take effect
upon the date first written above, and shall remain until December 31, 1998
("Initial Term"). Thereafter, this Agreement will automatically renew for an
additional term of one (1) year ("Renewal Term") unless each party provides
written notice to the other parties to this Agreement of not less than six (6)
months prior to the end of the Initial Term or Renewal Term of its intent to
terminate this Agreement. Any party may terminate this Agreement reserving all
other remedies and rights hereunder in whole or in part and otherwise available
in law or in equity, upon the following conditions:
(a) the occurrence of an Event of Default. Upon the occurrence of an
Event of Default, a non-defaulting party may terminate this Agreement by giving
no less than 30 days prior written notice of its intent to terminate to each of
the other parties to this Agreement which notice shall describe the Event of
Default;
(b) at any time upon mutual agreement of the parties upon 90 days' prior
written notice;
(c) any party may terminate any Exhibit upon mutual agreement of the
parties during any Initial Term or Renewal Term without terminating this
Agreement; or
(d) FCI shall have the right to terminate this Agreement by written
notice to Metris and Direct Merchants Bank upon the occurrence of a Change of
Control (as defined below) with respect to Metris. A "Change in Control" shall
be deemed to have occurred if (i) any person or group (within the meaning of
Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the date
hereof) other than FCI shall own directly or indirectly, beneficially or of
record, shares representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of Metris; (ii) a
majority of the seats (other than vacant seats) on the Board of Directors of
Metris shall at any time be occupied by persons who were neither (1) nominated
by FCI or by the Board of Directors of Metris, nor (2) appointed by directors so
nominated; or (iii) any
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person or group other than FCI shall otherwise directly or indirectly have
the power to exercise a controlling influence over the management or policies
of Metris.
VII. MISCELLANEOUS
Section 7.1 ADDITIONAL ACTIONS AND DOCUMENTS. Each of the parties
hereto agrees to take or cause to be taken such further actions, to execute,
acknowledge, deliver and file or cause to be executed, acknowledged, delivered
and filed such further documents and instruments, and to use all reasonable
efforts to obtain such consents, as may be necessary or as may be reasonably
requested in order to fully effectuate the purposes, terms and conditions of
this Agreement.
Section 7.2 NOTICE. All notices, demands, requests or other
communications which may be or are required to be given pursuant to this
Agreement shall be in writing and shall be personally delivered, mailed by first
class, registered or certified mail postage prepaid, or sent by electronic or
facsimile transmission, addressed as follows:
(a) If to Metris:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: President
(b) If to FCI:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
(c) If to Direct Merchants Bank:
Direct Merchants Credit Card Bank, National Association
1455 West 2200 South, Suite 300
Salt Lake City, Utah 84119
Attention: President
Each party may designate by notice in writing a new address to which any
notice, demand, request or communication may thereafter be so given, served or
sent. Each notice, demand, request or communication which shall be delivered,
mailed or transmitted in the manner described above shall be deemed sufficiently
given, served, sent or received for all purposes at such time as it is delivered
to the addressee or at such time as delivery is refused by the addressee upon
presentation.
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Section 7.3 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if one or more of the provisions of this Agreement is
subsequently declared invalid or unenforceable, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions of this Agreement (unless those provisions which are
invalidated or unenforceable are clearly material and inseparable from such
other provisions). In the event of such declaration of invalidity or
unenforceability, this Agreement, as so modified, shall be applied and construed
so as to reflect substantially the intent of the parties and achieve the same
economic effect as originally intended by the terms hereof. In the event that
the scope of any provision to this Agreement is deemed unenforceable by a court
of competent jurisdiction, the parties agree to the reduction of the scope of
such provision as such court shall deem reasonably necessary to make such
provision enforceable under the circumstances.
Section 7.4 SURVIVAL. It is the express intention and agreement of
the parties hereto that all covenants, agreements, statements, representations,
warranties and indemnities made in this Agreement shall survive the execution
and delivery of this Agreement.
Section 7.5 WAIVERS. Neither the waiver by any party hereto of a
breach of or a default under any of the provisions of this Agreement, nor the
failure of any party hereto, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right, remedy or privilege
hereunder shall thereafter be construed as a waiver of any such provisions. The
provisions, rights, remedies, warranties and conditions of this Agreement may be
waived only by a written instrument executed by the party warning compliance.
Section 7.6 AUDIT RIGHTS. Each party agrees that all records
relating to this Agreement at all times shall be subject to inspection and
review by each party's internal auditors or its designees and the examiners of
any regulatory agency, having jurisdiction over each party to this Agreement.
If any party to this Agreement receives any requests or demands under authority
of law (subpoenas, so called discovery means, or audit demands of any taxing
authority) for access to information of any other party, the party receiving
such request or demand but shall immediately inform the party from whom such
information is requested of such request or demand but shall not grant access to
such information without FCI's, Metris' and/or Direct Merchant Bank's
permission. By entering into this Agreement, FCI agrees that the appropriate
bank regulatory agency will have the authority and responsibility to do all
things required or contemplated by applicable banking laws or regulations
provided to the other regulatory agencies relating to services performed by
contract or otherwise for a bank or bank holding company. FCI further agrees to
reasonably cooperate with and provide any reasonable information to the
appropriate bank regulatory agency.
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Section 7.7 BINDING EFFECT. Subject to any provisions hereof
restricting assignment, this Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and permitted
assigns.
Section 7.8 PRONOUNS. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person may require.
Section 7.9 HEADINGS. Section headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
Section 7.10 GOVERNING LAW. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the internal laws of the
State of Minnesota without giving effect to the principles of conflicts of laws
thereof.
Section 7.11 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf of, each party, or
that the signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or that the signatures of the persons required to bind any party,
appear on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of all of the parties
hereto.
Section 7.12 ASSIGNMENT. No party to this Agreement shall have the
right to assign or otherwise transfer its rights or obligations under this
Agreement, except with the prior written consent of the other parties hereto;
notwithstanding, any party may assign or otherwise transfer its rights or
obligations under this Agreement to a successor in interest, subsidiary or
affiliate upon notice to the other parties. Regardless of the party to whom an
assignment is made pursuant to this Section 7.13, the assignee shall, as a
condition to such assignment, by written undertaking satisfactory to the other
parties, represent and warrant that that assignment was made in accordance with
all applicable laws and regulations and assume and agree to be bound by the
terms, provisions and conditions of this Agreement to the same extent as the
assignor; provided, however, that no such assignment shall relieve the assignor
of its obligations (which shall be primary and which may be discharged in whole
or in part by the assignee) under this Agreement, to the extent applicable. Any
unauthorized assignment and any assignment made in contravention of this Section
7.12 shall be null and void.
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Section 7.13 NO AGENCY. This Agreement shall not be deemed expressly
or by implication to create an agency, employee, or servant relationship between
or among any of the parties hereto, or any affiliates of the parties hereto for
any purpose whatsoever.
Section 7.14 FORCE MAJEURE. No party shall be liable for any failure
of or delay in the performance of this Agreement for the period that such
failure or delay is due to acts of God, public enemy, war, strikes or labor
disputes, or any other cause beyond the parties' reasonable control; it being
understood that lack of financial resources is not to be deemed a cause beyond a
party's control. Each party shall notify the other parties promptly of the
occurrence of any such cause and carry out this Agreement as promptly as
practicable after such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of this Agreement.
Section 7.15 TIME. Time is to be considered of the essence for the
purposes of this Agreement.
Section 7.16 AMENDMENT AND MODIFICATION. This Agreement or any
Exhibits may only be amended or modified by a subsequent written agreement by
and among the parties hereto.
Section 7.17 ADHERENCE TO APPLICABLE LAW. In connection with the
performance of their respective obligations and the exercise of their respective
rights hereunder, each of the parties hereto agrees, on behalf of itself, and
its subsidiaries or affiliates (except to the extent that Direct Merchants Bank
and Metris are affiliates of FCI), to comply in all material respects with all
applicable state, federal and local laws and regulations.
Section 7.18 ENTIRE AGREEMENT. This Agreement and the Exhibits
represent the entire undertaking of the parties hereto with respect to the
subject matter hereof. This Agreement and the Exhibits supersede all prior
agreements and all contemporaneous agreements not required or contemplated
hereby, whether oral or written, and all representations, warranties,
undertakings, and understandings by and between the parties with respect to the
subject matter hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first written above.
FINGERHUT COMPANIES, INC.
By /s/ Michael P. Sherman
---------------------------------------------
Title
-----------------------------------------
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION
By /s/ Robert W. Oberrender
---------------------------------------------
Title
-----------------------------------------
METRIS COMPANIES INC.
By /s/ Ronald N. Zebeck
---------------------------------------------
Title
-----------------------------------------
13
<PAGE>
EXHIBIT 1
TREASURY SERVICES
FCI agrees that it has or will on behalf of Direct Merchants Bank and/or Metris
(including subsidiaries) as the case may be:
1. Use its best reasonable efforts to arrange and will administer all
financing arrangements, including the securitization of assets, any
corporate financing and execution of any leases.
2. Arrange and Administer all interest rate and similar hedging
transactions, and the leasing or sale leaseback of any real or personal
property, including the execution of any leases.
3. Provide cash management administration and banking advisory services.
DURATION:
Effective through December 31, 1996.
COMPENSATION:
1. Incremental third party expenses, and
2. A Pro rata share of department expenses as agreed to by the parties for
each of the calendar years ended as reflected below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$25,000 $25,000 $25,000 $35,000 $220,000 $220,000
</TABLE>
14
<PAGE>
EXHIBIT 2
GENERAL ACCOUNTING AND ADMINISTRATIVE SERVICES
1. TAX SERVICES
FCI agrees that it has or will on behalf of Direct Merchants Bank and/or
Metris (including subsidiaries) as the case may be:
1. Prepare all Federal tax filings, including any extensions
thereof, and any payroll tax filings for Metris, or its
predecessor, and its subsidiaries and affiliates, including
Metris Financial Services Receivables, Inc. ("MFSRI") and Direct
Merchants Bank. Prepare and file any and all estimated tax
installments required hereunder pursuant to the Tax Sharing
Agreement dated October 31, 1996.
2. Prepare any and all state tax filings, any extensions thereof,
and any other non-federal tax filings, including any payroll tax
filings, for Metris, or its predecessor and subsidiaries and
affiliates, and for the states of Minnesota, Utah and Oklahoma.
Any tax filings for other states where it is determined that
Metris or its predecessor and its subsidiaries and affiliates
have income tax nexus shall require an amendment to this Exhibit.
Prepare and file any and all estimated tax installments required
hereunder pursuant to the Tax Sharing Agreement dated October
31,1996.
3. Assist in the analysis of any and all securitization, interest
rate hedging and other financing arrangements and any and all
other transactions or arrangements which may have tax
ramifications for the purpose of determining the proper tax
treatment for such transactions or arrangements;
4. Assist in the analysis of any and all employee compensation
issues from a tax perspective
5. Assist with any tax planning and research for Metris, or its
predecessor, and their subsidiaries or affiliates; and
6. Be the sole and exclusive agent and representative of Metris, or
its predecessor, and subsidiaries and affiliates, in any matters
relating to the tax filings noted above, and subject to
examination by representatives of the Internal Revenue Service or
any similar state agency pursuant to the Tax Sharing Agreement
dated October 31, 1996.
15
<PAGE>
DURATION:
Effective through December 31, 1997.
2. INSURANCE SERVICES/RISK MANAGEMENT
FCI agrees that it has or will:
Use its best reasonable efforts to arrange and will administer all
existing insurance arrangements, including: Workman's Compensation
Insurance, Property and Casualty Insurance, excess liability insurance,
Employee Blanket Bond Insurance, Director and Officer liability
insurance and any other types of insurance reasonably required by
Metris, or its predecessor, and its subsidiaries and affiliates,
including Direct Merchants Bank. FCI may, subject to notification of
Metris, fulfill its obligation with respect to any of the identified
coverages by arranging for Metris and its subsidiaries and affiliates to
be included under FCI's policies.
DURATION:
Effective through December 31, 1997
3. GENERAL ACCOUNTING SERVICES
FCI agrees that it has or will:
1. Provide the assistance of its Chief Financial Officer, Corporate
Controller and other accounting staff in the preparation of the
financial statements and other financial information of Metris
for internal and external business needs, or its predecessor, and
its subsidiaries and affiliates including Direct Merchants Bank.
Such FCI personnel will also assist such parties by providing
financial advice and guidance, where necessary, in the conduct of
their business, including financial advice provided in the
negotiation of any contractual arrangements and other financial
transactions;
2. Provide Metris, or its predecessor, and its subsidiaries and
affiliates, including Direct Merchants Bank with access and use
of FCI's general ledger system for the recording and analyzing of
such entities financial transactions;
3. Provide accounts payable and other disbursement services for
Metris, or its predecessor, and its subsidiaries and affiliates,
including Direct Merchants Bank; and
16
<PAGE>
4. Provide payroll and other employee compensation accounting
services for Metris, or its predecessor, and its subsidiaries and
affiliates, including Direct Merchants Bank
COMPENSATION:
1. Incremental third party expenses; and
2. A pro rata share of expenses as agreed to by the parties for each of the
calendar years ended as reflected below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$15,000 $15,000 $25,000 $110,000 $170,000 $225,000 TBN*
</TABLE>
* To be negotiated in good faith subsequent to the execution of this agreement.
17
<PAGE>
EXHIBIT 3
HUMAN RESOURCE SERVICES
FCI agrees that it has or that it will on behalf of Direct Merchants Bank
and/or Metris (including subsidiaries) as the case may be:
1. Use its best reasonable efforts to arrange and will administer all human
resource activities, including the development and administration of all
policies and procedures for the determination of all Metris, or its
predecessor and its subsidiaries and affiliates, including Direct
Merchants Bank employee compensation and benefits including the
development and administration of all related benefit plans which such
employees may now, have been or hereafter may be participants in.
2. Assist in the review and determination of all hiring and termination
decisions of employees of Metris, or its predecessor, and Direct
Merchants Bank, and its subsidiaries, including the development of
policies and procedures therefor; and including assistance in
interviewing, placing adds and hiring search firms for new employees
3. Assist in the counseling process for employees, including all job
performance reviews, and maintain all personnel records, including
those required by the laws, rules and regulations of the states or
the Federal Government.
DURATION:
Effective through December 31, 1997.
COMPENSATION:
1. Incremental third party expenses; and
2. A pro-rata share of department expenses as agreed to by the parties for
each of the calendar years ended as reflected below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
$10,000 $10,000 $50,000 $35,000 $94,000 $187,000 TBN*
</TABLE>
*To be negotiated in good faith subsequent to the execution of this agreement.
18
<PAGE>
EXHIBIT 4
LEGAL SERVICES
FCI agrees that it has or that it will on behalf of Direct Merchants Bank
and/or Metris (including subsidiaries) as the case may be, provide legal
services, including the retention and management of outside counsel:
1. Assist in the preparation and review of all contractual obligations of
Metris, Direct Merchants Bank and their subsidiaries.
2. Assist in the assessment of the applicability and subsequent compliance
of the laws, rules and regulations of the various authorities which have
jurisdiction over Metris, Direct Merchants Bank and their subsidiaries.
3. Review and recommend changes to the legal structure and organization of
the business of Metris. Direct Merchants Bank and their subsidiaries.
4. Provide counsel on all other business issues as appropriate
5. Assist in the preparation and review of all required filings with the
SEC, OCC, FDIC, the Federal Reserve and any other applicable authority
having jurisdiction over Metris, Direct Merchants Bank and their
subsidiaries.
6. Any matter which any party deems to create a conflict or possible
conflict with any other party shall be handled by separate independent
counsel on behalf of each party. FCI's legal department shall only
represent FCI in any such matter, even if the conflict or potential
conflict is between FFS and Direct Merchants Bank.
DURATION:
Effective date through December 31, 1997.
COMPENSATION:
1. Incremental third party expenses, and;
2. A pro-rata share of department expenses as agreed to by the parties in
this agreement for each of the calendar years ended as reflected below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$35,000 $35,000 $35,000 $55,000 $115,000 $137,723 TBN*
</TABLE>
* To be negotiated in good faith subsequent to the execution of this agreement.
19
<PAGE>
EXHIBIT 5
INTERNAL AUDIT
FCI agrees that it has or it will on behalf of Direct Merchants Bank and/or
Metris (including subsidiaries) as the case may be:
1. Conduct periodic audits and reviews of the operations and the level of
compliance with both Metris, or its predecessor, Direct Merchants Bank
and their subsidiaries' policies and procedures and the rules and
regulations of the various authorities having jurisdiction over them;
Assess the adequacy of the internal control structure of both Metris,
Direct Merchants Bank and their subsidiaries and provide written reports
summarizing the conclusions from such audits and reviews, including
recommendations for improvement in the areas audited or reviewed.
DURATION:
Effective date through December 31, 1997.
COMPENSATION:
1. Incremental third party expenses, and;
2. A pro-rata share of department expenses as agreed to by the parties to
this agreement for each of the calendar years ended as reflected below:
<TABLE>
<CAPTION>
1996 1997
--------------------
<S> <C>
$133,336 TBN*
</TABLE>
*To be negotiated in good faith subsequent to the execution of this agreement.
20
<PAGE>
EXHIBIT 6
MARKETING ANALYSIS
FCI agrees that it has or that it will on behalf of Direct Merchants Bank and/or
Metris (including subsidiaries) as the case may be:
1. Provide the equivalent of up to one full time analyst in the marketing
analysis department to assist with access, review, selection and
segmentation of the Customer Database as allowed for under separate
agreements between FCI and/or its subsidiaries, and Metris and/or its
subsidiaries, including Direct Merchants Bank. Also, assist Metris and
Direct Merchants Bank and their subsidiaries, in conducting marketing
research, including present customer and potential customer surveys and
competitive analysis, among other similar projects.
DURATION:
Effective through December 31, 1996.
COMPENSATION:
1. Incremental third party expenses, and;
2. A pro-rata share of department expenses as agreed to by the parties to this
agreement for each of the calendar years ended as reflected below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$30,000 $30,000 $30,000 $63,000 $63,000 $63,000
</TABLE>
21
<PAGE>
EXHIBIT 7
EXECUTIVE TIME & SPACE/PROPERTY ALLOCATIONS
(ended prior to execution of this agreement)
FCI agrees that it has or it will on behalf of Direct Merchants Bank and/or
Metris (including subsidiaries) as the case may be:
1. Provide executive time and leadership in the development of the
businesses of Metris, or its predecessor, Direct Merchants Bank and
their subsidiaries.
2. Review and conclude on all business deals, contracts and transactions of
Metris, or its predecessor, Direct Merchants Bank or their subsidiaries
which would normally require such level of review and approval. Provide
any other assistance normally required of executive talent where
necessary.
3. Provide adequate space and fixed assets necessary for the conduct of the
business of Metris or its predecessor, Direct Merchants Bank and their
subsidiaries, including mainframe computer and peripherals access and
use.
DURATION:
Effective through December 31, 1995 (no allocations for 1996)
COMPENSATION:
1. Incremental third party expenses, including leases in Tulsa, Oklahoma,
and Salt Lake City, Utah, but excluding the lease at the Interchange
Tower in St. Louis Park, Minnesota or at the Seagate Building in
Minnetonka, Minnesota.
2. A pro-rata portion of executive time and space, other than that noted in
1 above, and a pro-rata portion of the depreciation and amortization
expense of fixed assets utilized by Metris, Direct Merchants Bank, and
their subsidiaries, other than that which Metris already owns or has
contracted for itself directly, including mainframe computer and
peripherals usage as agreed to by the parties to this agreement for each
of the calendar years ended as noted below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
$170,000 $200,000 $700,000 $775,000 $1,204,000
</TABLE>
22
<PAGE>
EXHIBIT 8
INFORMATION SYSTEMS SERVICES
FCI agrees that it has or that it will on behalf of Direct Merchants Bank
and/or Metris (including subsidiaries) as the case may be:
I Provide certain "Systems", which shall mean certain data processing
hardware and software that Metris and/or Direct Merchants Bank do not
own because they do not have the processing needs to justify ownership
of such hardware or software, or where such hardware and software is
proprietary to FCI, but such hardware and software is integral to the
ongoing business operations of Metris and its subsidiaries and
affiliates. Such hardware and software shall include but not be limited
to mainframe computers, certain data and voice communication hardware
and software, certain telephone lines, certain telecommunications
equipment. and certain local and wide area networking services, software
and equipment.
2. Provide certain "System Resources", which shall mean certain skilled
employees or independent contractors of FCI who are programmers, system
analysts, data processing and data communications technical support
staff who support the Systems. Such System Resources shall not include
those personnel who are employees or independent contractors of Metris,
and its subsidiaries and affiliates and shall primarily be those
personnel whose functions Metris or its subsidiaries and affiliates
cannot justify a full-time need for. Metris and FCI may mutually agree
to transfer System Resources to the cost center of Metris.
3. During the service periods noted below, provide the System Resources and
maintain the Systems, in accordance with the Service Level Agreement
attached hereto and incorporated herein by reference as Schedule I to
Exhibit 8, in connection with the services to be provided to Metris in
the operation of its businesses.
4. Ensure that the operations, hardware configurations, software and other
facilities and procedures relating to access to, operation and use of
the Systems Resources and Systems made available by FCI shall,
throughout the term of this Agreement, be consistent with the Operating
System and Procedures of FCI as in effect immediately prior to the date
hereof, except as described in any "Change Control Procedures" which
shall be agreed to in writing by the signatories to this Agreement prior
to any such Change Control Procedures taking place.
5. Upon notification from Metris of non-application processing errors, and
as reasonably practicable to do so after discovery thereof by Metris,
use its reasonable best efforts to correct any non-application
processing errors with respect to the System.
23
<PAGE>
6. FCI agrees to maintain Metris' and Direct Merchant Bank's customer data
("Customer Data") on its computers (i.e. data processing equipment and
software), and to maintain (including update) Metris and Direct Merchant
Bank Customer Data with the same degree of care it uses to maintain its
customer database information. FCI will segregate Metris and Direct
Merchant Bank Customer Data from customer database information and will
maintain procedures that FCI, in its sole discretion, does not become a
credit reporting agency as defined under the Fair Credit Reporting Act
and its implementing regulations.
7. Maintain Metris', and its subsidiaries and affiliates, including Direct
Merchants Bank, customer data (hereinafter "Metris Customer Data") on
its computers (i.e. data processing equipment and software), and to
maintain (including updates) such Metris Customer Data with the same
degree of care it uses to maintain customer data. Subject to the
confidentiality requirements of Section 2.1 in the Agreement, FCI agrees
that it has and it will continue to segregate Metris Customer Data from
its customer data and will maintain procedures such that FCI does not
become a credit reporting agency as defined under the Fair Credit
Reporting Act and its implementing regulations. Metris' use and its
unlimited exclusive access to the Metris Customer Data shall include
file selection, segmentation, response modeling, storage, updating, and
maintenance of Metris Customer Data.
Additionally, FCI agrees that has or that it will provide, on a timely
basis, the requested Metris Customer Data via magnetic tape or such
other forms as the parties may from time to time agree. FCI also will
continue to provide the requested data on a timely basis to ensure
Metris' production and solicitation deadlines are met, Throughout the
term of this Agreement, FCI will also update the Metris Customer Data
with all additions, deletions, and other amendments ("Updates") made or
developed by Metris in the ordinary course of its business, including
without limitation, the addition of name and other information related
thereto of all persons on the Metris Customer Database, and such Updates
shall thereafter become part of the Metris Customer Database for
purposes of this Exhibit to this Agreement.
FCI also agrees that it has or that it will maintain a backup, archival
or disaster recovery copy ("Back-up Copy") of the Metris Customer Data.
Metris shall have the right to access such Back-Up Copy in the event of
(1) FCI's or Fingerhut Corporation's Bankruptcy (as defined within
Section 4.1 (c) of the Agreement), (ii) FCI's main computer system is
unable to process its files, and (iii) upon expiration of this Agreement
without renewal.
8. Maintain for the benefit of Metris an adequate supply of tape
cartridges, desk spaces and general computer supplies or the operation
of the business contracted for herein.
24
<PAGE>
9. Maintain hours of operation for the Systems Resources and the Systems
performed and provided by FCI hereunder on a basis consistent with the
practice of FCI for the periods prior to the execution of this
Agreement, except as otherwise provided in the Service Level Agreement,
as provided in Schedule I to this Exhibit. If such hours of operations
are interrupted for any reasons whatsoever, Metris shall be notified as
soon as reasonably possible.
10. If for any reason, including without limitation, system failures, power
failures, interruption of data communication lines or otherwise (but
excluding periods of "down time" scheduled in advance for any purpose
consistent with the practice of FCI prior to the execution of this
Agreement, i.e. systems maintenance or systems modifications), FCI shall
not be able to provide Metris the Systems Resources and the Systems
during the hours of operation (in each case, a "System Failure"), (i)
notify Metris as soon as reasonably possible thereafter of each such
System Failure, (ii) use its reasonable best efforts to correct each
such System Failure, and (iii) keep Metris informed on a reasonably
frequent basis during each such System Failure as to the status thereof.
As a result of such System Failure, and subject to the provisions of
item #15 below and except in the case that any such System Failure
results from or arises out of FCI's gross negligence or willful
misconduct, FCI shall not be liable to Metris for any damages (direct or
indirect, consequential or otherwise), losses or other liabilities
arising from or caused by any System Failure or any failure by FCI to
provide any notice required to be provided hereby, except for an
appropriate credit, as agreed upon by the parties to this Exhibit 8, in
an amount equal to the full amount of the Systems Resources and Systems
which were not provided or performed due to such System Failure.
Subject also to the provisions of item #15 below, in the event any
System Failure continues for more than 24 consecutive hours, in addition
to Metris' right to receive a credit as noted above, Metris shall have
the right to obtain the provision and/or performance of the System
Resources and Systems from a third party provider.
11. Exercise and provide back-up procedures and systems consistent with the
practice of FCI in the event circumstances beyond the control of FCI
prevent FCI from being able to provide the Systems Resources and Systems
as provided for hereunder. FCI further agrees that it will continue to
use the same level of care, consistent with the practice of FCI to
minimize the likelihood of all damages, losses of data, delays and
errors resulting from uncontrollable events; and should such damages,
losses of data, delays or errors occur, that FCI will use its reasonable
best efforts, consistent with the practice of FCI to mitigate the
effects of such occurrence.
12. Take such precautions and observe such procedures to protect the
security of the Confidential Information. Such precautions and
procedures shall include, without limitation, the restriction of
physical and electronic access to the Confidential Information to those
persons identified in Article 11 of this Agreement as authorized to have
access thereto, in all cases at least to the extent that FCI
25
<PAGE>
protects its own confidential and proprietary information and data. In
addition, consistent with FCI's standard security policies and
procedures, take such precautions to protect the Confidential
Information against unauthorized access by persons who pursuant to the
terms of this Exhibit and the Agreement, or otherwise, are not
authorized to access the Confidential Information, including without
limitation, taking reasonable precautions against unauthorized access
over phone lines, data networks or other communications means.
Should any employee, agent or consultant, or any other party that
obtains access to the Confidential Information through FCI or within the
scope of their employment with FCI, improperly access, use, transfer,
distribute or disclose (or otherwise provide unauthorized access to)
such Confidential Information, FCI agrees that it has or that it will,
notify Metris, as soon as reasonably practicable after learning of (or
having reasonable reason to suspect) any such conduct, and, at its own
expense for its legal fees and other expenses, cooperate with Metris
(and, as appropriate, any third party whose data or other proprietary
information may have been comprised) to assist Metris or such third
party to enjoin and otherwise redress such conduct, and discourage any
repetitions by the offending individual, entity or others similarly
situated, and will take such further steps as Metris (or such third
party) shall reasonably request (including complaints to law enforcement
authorities). In the event that civil litigation is desired by Metris
(or such third party), and subject further to the indemnification
provisions of Article V of the Agreement, Metris (or such third party)
shall have supervision and control and, in defense of any counterclaim,
the parties shall, to the extent it is mutually beneficial, cooperate in
preparing such defense and consider a joint defense, and generally,
shall conduct and defend any litigation in such manner as to preserve
the attorney client and work-product privileges and maintain the
Confidential Information in confidence, such as through entry of
appropriate protective orders.
DURATION.
Effective date through December 31, 1996.
COMPENSATION:
A Systems and Systems Resource user fee, broken out between those costs which
would be capitalizable for software development projects and those costs which
would not be capitalizable, all as in accordance with generally accepted
accounting principles, is as reflected for the Service Periods below:
<TABLE>
<CAPTION>
Service Periods: 1995 1996
---- ----
<S> <C> <C>
Non-Capitalizable Services (NCS) $314,341 $1,617,840
Capitalizable Software Development Services (CS) $104,338 $1,227,662
</TABLE>
26
<PAGE>
SCHEDULE 1
SERVICE LEVEL AGREEMENT
1. Service Level Review and Change Procedure
A review of the Service Level Agreement may be called for by FCI or
Metris at any time. Consistent with past practices, Fingerhut shall
reasonably cooperate with Metris to address additional needs and
particular requirements.
A formal review will be held after the first six months of implementation
and as necessary thereafter.
2. Statement of Intent
This document defines the Service Level Agreement between the Fingerhut
Data Center and Metris.
The scope of this agreement covers the level of service provided by the
Fingerhut Data Center. The primary areas of service are:
* Hours of operation
* Online transaction response time
* Batch job turnaround time
The intent is to provide service to Metris at the same level as Fingerhut.
This will be accomplished by using Fingerhut's existing standards and
practices.
3. Participant's Signatories.
Service Supplier (Fingerhut Data Center)
Tom Bozlinski
4. Service Communications
Service levels are measured monthly to be documented via e-mail to Metris.
5. Service Details
In addition to normal working hours, the Operations area will be staffed on
Saturday afternoons to accommodate copying of files received on Saturday
mornings.
27
<PAGE>
Fingerhut commits to the following mainframe service levels:
<TABLE>
<S> <C>
Production batch jobs on time daily 95%
Production batch jobs on time bi-weekly 97%
Production batch jobs on time weekly 97%
Production batch jobs on time monthly 90%
Test batch jobs on time 90%
IMS availability 99%
TSO availability 99%
IMS foreground trans. less than 3 seconds 90%
IMS background trans. less than 60 seconds 90%
CICS Availability 99%
CICS Foreground 90%
DB2 Availability 99%
Oracle Availability 99%
Access to the Internet/Intranet 98%
Access to the RS600 File Server 98%
Access to Local Servers 98%
Access to Local Area Network 98%
Access to PC, PC Printer or Sun Workstation 98%
Access to the Mainframe via Network 98%
Access to all Locations via Network 98%
Access to all Locations via Network 98%
Access to Email/Scheduling 98%
</TABLE>
Restrictions:
IMS and CICS transactions for foreground (short response time requirements)
must be 25 calls or less.
DB2 transaction must be limited to 50 get-pages or less.
ORACLE transaction must be limited to 50 get-pages or less.
Weekly scheduled downtime must be provided for hardware/software
maintenance needs. This scheduled "downtime" will begin at 11 p.m.
Saturday and continue until 7 a.m. Sunday. This will occur on weekly
basis. This scheduled "downtime" will not be included in calculating
service level performance. Any changes to this schedule will be
communicated as needed.
Metris must adhere to Fingerhut's Network & Distributed Systems
standards unless agreed to by both parties in writing in advance. This
includes hardware, software and processing.
28
<PAGE>
As technology changes or significant changes in the processing
requirements of Metris change, Fingerhut will from time to time
recommend software/hardware upgrades and redundancies to continue to
provide the service level outlined in this document. If Metris chooses
not to make these upgrades, these service levels will have to be
reviewed and reconsidered as appropriate.
6. Help Desk
The Fingerhut Help Desk will be used to report all problems. Problems
not reported through the Help Desk will not be considered against the
Service Level Agreement.
Calls to the Fingerhut Help Desk will be assigned one of three severity
codes:
SEV 1 - Fingerhut will contact appropriate Metris personnel within one
hour of call being placed to Help Desk. Problem resolution will
occur as soon as possible and will be prioritized with the rest
of Fingerhut's SEV 1 problems. Only problems that affect
multiple users or affect a business critical process will be
classified as SEV 1.
SEV 2 - Fingerhut will contact appropriate Metris personnel within 2
hours or the next business day as specified on the job card.
Problems that cause degradation of critical applications and/or
service level agreements to be jeopardized, will be classified
as a SEV 2 problem.
SEV 3 - Fingerhut will contact appropriate Metris personnel within four
business hours or the next business day if during off hours of
the call being placed to Help Desk. Problem resolution will
occur as soon as possible assuming no other higher priority
tasks are affected. They will be prioritized with the rest of
Fingerhut's SEV 3 problems.
Metris retains the right to address all problems with their own
resources. Standards and procedures need to be strictly adhered to.
Metris will provide Fingerhut with their problem notification process to
be used for all SEV 1, SEV 2 and SEV 3 problems. Updates and changes to
this process will be communicated to the Fingerhut Help Desk.
29
<PAGE>
7. Class Structure
Metris will use Fingerhut's job class structure and accounting
parameters to ensure accurate measurement of the objectives. Job classes
will be mutually agreed upon by Metris and Fingerhut to meet the goals
of each party. The job class structure is as follows:
Production job classes currently used are:
Job Class Purpose
A Critical runs.
B Production Priority Classes used to expedite
certain jobs to make our user commitments.
C Production Priority Classes used to expedite
certain jobs to make our user commitments.
D Production Priority Classes used to expedite
certain jobs to make our user commitments.
E Regular Production - Non Intervention
F Regular production - Intervention Required
G User (non IS) submitted production with class A-F
dependencies.
H User (non IS) submitted production without
dependencies.
I User (non IS) submitted "pseudo production" that does
not have an immediate dependency to production jobs
but has a future relationship to production jobs.
30
<PAGE>
Test job classes currently used are:
<TABLE>
<CAPTION>
Job Class Purpose
<S> <C>
2 User submitted tests, no tapes or cartridges required.
Up to 10 minutes of CPU time.
3 IS submitted tests, no tapes or cartridges required.
Up to 10 minutes of CPU time.
4 User and IS submitted tests using 2 cartridge drives
or less and/or up to 20 minutes of CPU time.
5 User and IS submitted tests using 3 cartridge drives
or less and/or up to 20 minutes of CPU time.
6 *Scheduled User and IS test that:
1) Exceed 20 min. CPU or,
2) Exceed 100,000 lines in any SYSOUT dataset or
3) Use 4 or more cartridge drives
N IS submitted tests that:
1) Create production datasets and
2) Use 3 or less cartridge drives
3) Uses up to 20 minutes of CPU time.
O *Scheduled IS submitted tests that:
1) Create production datasets or
2) Exceed 20 min. CPU time in any step or
3) Exceed 100,000 lines in any SYSOUT dataset or
4) Use 4 or more cartridge drives
</TABLE>
*Jobs must be scheduled; see next section.
SCHEDULING TESTS
If test jobs satisfy any of the conditions listed below, they must be submitted
with a job class of "6" or "O" and must be scheduled. A programmer schedules a
test by submitting form 23-724 "Request for Scheduled Test" or by using ISPF
option 8.3 "Scheduled Test Form". Jobs with class "6" or "O" will not be run
without this form.
a. Use of tape drives.
b. Use of 3 or more cartridge drives.
31
<PAGE>
c. Jobs that run over 45 minutes of wall clock time or steps that use more
than 20 minutes CPU time.
d. When output exceeds 100,000 lines for any DD.
e. When dependencies exist between a production job and a test.
f. For critical tests that require special treatment.
g. The required input files(tape or cartridge) are not in the computer room,
but are in either vaults or on Metris site.
FINGERHUT COMMITMENT
FOR TEST JOB TURNAROUND
<TABLE>
<CAPTION>
CPU MINUTES
--------------------------------------------------
JOB 0-1 1-5 5-10 10-20 GREATER
CLASS THAN 20
--------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2 5 25 120 N/A N/A T
----------------------------------------- U
3 6 30 120 N/A N/A R
----------------------------------------- N
4 45 120 300 480 N/A A
----------------------------------------- R
5 90 180 360 540 N/A O
----------------------------------------- U
6 240 360 480 1440 1440 N
----------------------------------------- D
G 10 60 120 240 1440
----------------------------------------- M
H 10 60 120 240 1440 I
----------------------------------------- N
I 10 60 120 240 1440 U
----------------------------------------- T
N 20 90 180 480 N/A E
----------------------------------------- S
O 240 360 480 1440 1440
-----------------------------------------
</TABLE>
8. Telecommunications
Fingerhut will provide management, design, installation and ongoing support
for Metris telephone systems, voice/data cabling, public switched and
dedicated private line network services and network equipment. This
support to be provided using Fingerhut personnel or by
coordinating/managing service through Metris personnel and/or service
contracts under Metris agreements.
32
<PAGE>
As requested, Fingerhut will provide project management and project
analysis for Metris projects.
As requested, Fingerhut will provide/manage maintenance contract support
analysis and justification for vendor support services under existing
AT&T/Fingerhut/Metris maintenance agreements.
Fingerhut will manage all documentation, invoicing and chargebacks for all
LAC (Local Exchange Carrier) services and IXC (Inter Exchange Carrier)
services for all Metris sites.
Inbound and Outbound rate per minute and rates for point-to-point services
will be at the same rate provided to Fingerhut.
Service Levels
Every effort will be made to provide uninterrupted telecommunications
services to all Metris sites. The public switched network and the
switching hardware chosen and installed by Fingerhut are engineered to
provide maximum level of availability. Fingerhut vendors (and subsequently
Fingerhut) are indemnified against responsibility for damages or losses
incurred due to a Telecommunications outage. Beyond prescheduled outages
for Metris requested upgrades or manufacture maintenance upgrade, Fingerhut
will provide the following service levels.
<TABLE>
<S> <C>
Public switched and private network 99.975%
Network interface 99.975%
PBX/ACD switching hardware 99.925%
Call processing equipment 99.800%
Call reporting equipment 99.800%
</TABLE>
33
<PAGE>
SCHEDULE 1
(continued)
SERVICE LEVEL
Mainframe Standard Costs:
<TABLE>
<S> <C>
1. Computer Time HDS GX8524 (SYSD) $588.12/cpu hour
IBM 9021-982 (SYSC) $534.79/cpu hour
2. Disk Space $.47/meg-month
3. Disk I/O's $30.57/million
4. 3490 Cartridge Drive Hours $1.43/hour
5. 3490 Cartridge I/O's $10.00/million
6. 3420 Tape Drive Hours $1.76/hour
7. 3420 Tape I/O's $15.84/million
8. Tape/Cart Mounts $.18/mount
9. 3490 Cartridges $1.60/tape-year
10. Cartridge Vault Storage $40.35/tape-year
11. Client Tape Shipments $5.21/shipment
12. Outside Tapes Received $3.37/tape
13. Outside Tapes Returned $2.97/tape
14. Scheduled Jobs Run $.08/job
15. Laser Footage - Reports $8.93/thousand feet
16. Laser Footage - Special Forms $9.87/thousand feet
17. Fingerhut Impact Printer Time $18.72/hour
18. Stock Tab Paper (lasers) $6.21/thousand feet
34
<PAGE>
19. Microfiche original $.46/fiche
copy $.11/copy
20. I.S. Resources Market Rate
Charge Back
21. Terminals and Mainframe Terminal $55/month
Associated Large Screen Terminal $170/month
Charges Printer $170/month
22. Personal **See Budget Users Manual for complete list
Computers
And Accessories
23. On-Line Transaction Costs $.01/transaction
</TABLE>
35
<PAGE>
EXHIBIT 9
CREDIT INSURANCE MANAGEMENT SERVICES
Metris agrees that it has or that it will on behalf of Direct Merchants Bank
and/or Metris (including subsidiaries) as the case may be:
1. Provide FCI with the personnel and other resources to manage the insurance
products offered within the closed-end installment coupon book,
including credit insurance offers therein. Manage the relationship with
the third party insurance provider and coordinate resolution of legal
and regulatory issues.
2. Budget, forecast and project insurance premiums and related expenses,
including claims and other fulfillment costs, on a daily basis. Report
on insurance and provide other reports to management on the experience
of the program.
3. Coordinate all marketing activities for such insurance product offers
including any modifications to such offers. Review, modify and approve
all insurance literature and coordinate any tests with customer service,
credit marketing and operations.
4. Manage the continuing development and maintenance of the insurance
database. Monitor and modify individual state rate and product tables as
necessary. Also, monitor the coupon master file.
5. Manage the insurance customer service functions.
6. Assist in Fingerhut's transition to a proprietary open-end revolving
charge product, particularly with respect to the development of credit
insurance offers for such product.
7. Transition the above functions to FCI personnel in late 1996, but no
later than January 1, 1997.
Metris agrees to perform the above services in accordance with the
Performance of Services in Section 1.2 and other terms and conditions of the
Agreement.
DURATION:
Effective through December 31, 1996.
32
<PAGE>
COMPENSATION:
1. Incremental third party expenses, and
2. A pro-rate share of Metris' insurance and warranty department's expenses
as agreed to by the parties for each of the calendar years ended as
reflected below:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$491,300 $507,800 $860,000 $696,000 $354,600 $248,658
</TABLE>
33
<PAGE>
DATA SHARING AGREEMENT
THIS AGREEMENT dated the 31st day of October, 1996, between Fingerhut
Corporation (hereinafter referred to as "Fingerhut"), a corporation duly
organized under the laws of the State of Minnesota, with offices at 4400
Baker Road, Minnetonka, Minnesota 55343, and Direct Merchants Credit Card
Bank, National Association, a national banking association (hereinafter
referred to as "Direct Merchants Bank") with offices at 1400 West 2200 South,
Salt Lake City, Utah, 84119.
WHEREAS, Direct Merchants Bank and Fingerhut create and maintain files
on their customers (as defined herein); and
WHEREAS, Direct Merchants Bank and Fingerhut desire to exchange certain
customer data;
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
I. DEFINITIONS
The following terms, as used herein, shall have the following meanings
whether used in the singular or plural:
"Account Booked" means a consumer credit account which meets Direct Merchant
Bank's underwriting criteria for approval with a credit line opened greater
than Direct Merchant Bank's minimum credit line in effect at time of
approval. Account Booked shall not mean an account which is determined to be
fraudulent.
"Behavior Model" means one or more attributes which rank a Customer's credit
performance with Fingerhut or Direct Merchants Bank, as the case may be, with
a credit score.
"Customer" means any consumer name and address which resides on the data
processing systems of Direct Merchants Bank or Fingerhut, as the case may be.
"Customer File" means a name, address and other identifying information of a
Customer who has an account or other relationship with Fingerhut or Direct
Merchants Bank, as the case may be, and includes any updates of such
information.
<PAGE>
II. SERVICES
Section 2.1 FILE ACCESS.
Fingerhut agrees to provide the Fingerhut Customer File to Direct
Merchants Bank for its use to solicit offers for all credit products issued
by Direct Merchants Bank. Fingerhut agrees to provide the requested Customer
File on a timely basis so as to ensure that Direct Merchants Bank meets its
production and solicitation dates for its credit product offers; provided
that Direct Merchants Bank has provided such production and solicitation
dates in writing to Fingerhut at least one week prior to the date it needs
such Customer File.
Section 2.2 COMPENSATION.
Direct Merchants Bank agrees to pay Fingerhut (in immediately
available funds) in accordance with the terms and conditions set forth in
Exhibit A, attached hereto and incorporated herein by reference. Payment of
the fees shall be made not later than the thirtieth (30th) business day of
each month following the end of a calendar quarter, within each calendar year
during the Initial Term or subsequent Renewal Term.
Section 2.3 USE OF INFORMATION.
Direct Merchants Bank and Fingerhut agree to provide to each other,
without charge, their own transaction and experience data on their own
Customer list which shall also include a Behavior Model derived from each
parties own transaction and experience data. The parties agree to update
such Customer list and Behavior Models in accordance with their own business
practices for updating such information. Other than as set forth in this
Agreement, Fingerhut agrees that it, any subsidiary or affiliate or on behalf
of third parties, will not directly or indirectly solicit via direct mail or
telemarketing Direct Merchants Bank Customers for any products or services
without the prior written consent of Direct Merchants Bank. Subject to
compliance with banking applicable laws and regulations related to
transactions with affiliates, Fingerhut and Direct Merchants Bank agree that,
during the term of this Agreement, Fingerhut will be the exclusive provider
of retail merchandise offers to the Customer list of Direct Merchants Bank
(excluding Direct Merchants Bank Customers that have a co-brand, affinity,
private label or other third party affiliation credit account). The parties
shall cooperate in good faith and mutually agree on the parameters for
merchandise offers. The parties confirm Direct Merchants Bank may reasonably
withhold approval of a merchandise offer if such offer does not comply with
applicable laws and regulations.
Section 2.4 RESTRICTIONS ON USE.
The Customer File and Behavior Models will only contain data on
each party's own transactions or experiences with its customers and shall not
contain any information provided by third parties, or other information, that
would cause either party in its reasonable interpretation, to be deemed a
consumer reporting agency as defined under applicable state or
2
<PAGE>
federal law. Nothing in this Agreement shall require either party to
disclose to the other: (i) confidential information it received from third
parties, including without limitation, customer lists from third party
sources, or (ii) information which either party, in its reasonable
interpretation, is precluded from disclosing under any applicable laws,
rules, regulations or industry practices related to consumer privacy.
III. TERM
Section 3.1 TERM AND TERMINATION.
This Agreement shall terminate on September 23, 2003 ("Initial
Term"). Unless otherwise terminated as provided herein, at the end of the
Initial Term, this agreement will automatically renew for successive one year
terms ("Renewal Term"). This Agreement may also be terminated by either
party under the following conditions:
a. If either party materially breaches its obligations and such
breach is not cured within thirty (30) days of receipt of written notice of
breach by the non-breaching party.
b. Upon ninety (90) days' written notice prior to the end of the
Initial Term or any Renewal Term.
c. Fingerhut shall have the right to terminate this Agreement by
written notice to Direct Merchants Bank upon the occurrence of a Change of
Control (as defined below) with respect to Direct Merchants Bank. A "Change
of Control" shall be deemed to have occurred if (i) any person or group
(within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as
in effect on the date hereof) other than Fingerhut shall own directly or
indirectly, beneficially or of record, shares representing more than 25% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock of Direct Merchants Bank; (ii) a majority of the seats (other
than vacant seats) on the Board of Directors of Direct Merchants Bank shall
at any time be occupied by persons who were neither (a) nominated by
Fingerhut or by the Board of Directors of Direct Merchants Bank, nor (b)
appointed by directors so nominated; or (iii) any person or group other than
Fingerhut shall otherwise directly or indirectly have the power to exercise a
controlling influence over the management or policies of Direct Merchants
Bank.
IV. CONFIDENTIALITY
Section 4.1 CONFIDENTIAL INFORMATION.
a. All Confidential Information (as hereinafter defined)
disclosed by any of the parties to any other party hereunder is confidential
and proprietary to such disclosing party. Each party, its affiliates, and
officers, directors, employees, agents, consultants and contractors shall not
use any of the Confidential Information for any purpose other than as
expressly permitted hereunder. Confidential Information furnished by any of
the parties to any other in connection with this Agreement and the
transactions contemplated hereby will be kept
3
<PAGE>
in confidence by such other party, including its affiliates or subsidiaries,
in accordance with its policies for maintaining the confidence of its own
information of similar content. The term Confidential Information shall mean
and include: (i) Customer data, Customer Files and Behavior Models, (ii) all
trade secrets and other confidential business information learned in the
course of performance by any party of its obligations hereunder, or (iii) any
information or data which is disclosed by any party to the other party under
or in contemplation of this Agreement.
b. Confidential Information may be either the property of the
disclosing party or information provided to the disclosing party by a
corporate affiliate of the disclosing party or by a third party.
Notwithstanding the foregoing, the term "Confidential Information" shall not
include information which: (i) is already known to such other party when
received, except for information periodically disclosed which is identified
as confidential prior to execution of this Agreement, (ii) thereafter becomes
generally obtainable by a party other than as a result of an unauthorized
disclosure by the party taking advantage of this clause, (iii) is required by
law, regulation or court order to be disclosed by such party, provided that
in the case of this clause, prior notice of such disclosure has been given to
the party which furnished such information, when legally permissible, and
that such other party which is required to make the disclosure uses its best
efforts to provide sufficient notice to permit the party which furnished such
information to take legal action to prevent the disclosure, or (iv) is
reasonably necessary, in the opinion of counsel, to be disclosed in the
context of a legal proceeding or regulatory investigation provided that prior
notice shall be given to the party which furnished the information. This
Section 4.1 shall survive any termination of this Agreement for two (2)
years.
V. REPRESENTATIONS & WARRANTIES
Section 5.1 REPRESENTATIONS & WARRANTIES OF FINGERHUT
Fingerhut hereby represents and warrants, as of the date of this
Agreement, as follows:
a. Fingerhut is a duly organized corporation, validly existing,
and in good standing under the laws of the State of Minnesota. Fingerhut is
duly qualified or licensed to perform any business necessary under this
Agreement and will be in good standing in each jurisdiction in which its
business or the exercise of its rights, powers or authority under this
Agreement renders such qualification necessary.
b. Fingerhut has the requisite corporate power and authority to
enter into, and to carry out its obligations under this Agreement.
c. The execution and delivery by Fingerhut of this Agreement and
the consummation by Fingerhut of the transactions contemplated hereby have
been duly authorized prior to the date of this Agreement by all necessary
corporate action on its part.
4
<PAGE>
d. This Agreement has been duly executed and delivered by
Fingerhut and constitutes a valid and binding obligation of Fingerhut
enforceable against Fingerhut in accordance with its terms.
e. Fingerhut is not subject to, or obligated under any provision
of (i) its articles of incorporation, (ii) any material agreement,
arrangement or understanding, (iii) any license, franchise or permit, or (iv)
any law, regulation, order, judgment or decree that would be breached or
violated, or of which a right of termination or acceleration or any
encumbrance on any of its assets would be created by the execution, delivery
and performance of this Agreement by Fingerhut, or the consummation by
Fingerhut of the transactions contemplated by this Agreement.
f. No authorization, consent or approval of, waiver or exemption
by, or filing or registration with any public body, court, third party or
authority is necessary on the part of Fingerhut for the consummation by
Fingerhut of the transactions contemplated by this Agreement.
Section 5.2. DIRECT MERCHANTS BANK REPRESENTATIONS AND WARRANTIES.
Direct Merchants Bank hereby represents and warrants, as of the date of
this Agreement, as follows:
a. Direct Merchants Bank is a national banking association duly
organized, validly existing, and in good standing under the laws of the
United States of America, and is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which its business or the
exercise of its rights, powers or authority under this Agreement renders such
qualification necessary.
b. Direct Merchants Bank has the requisite power and authority to
enter into, and to carry out its obligations under this Agreement.
c. The execution and delivery by Direct Merchants Bank of this
Agreement and the consummation by Direct Merchants Bank of the transactions
contemplated hereby have been duly authorized prior to the date of this
Agreement by all necessary action on its part.
d. This Agreement has been duly executed and delivered by Direct
Merchants Bank and constitutes a valid and binding obligation of Direct
Merchants Bank enforceable against Direct Merchants Bank in accordance with
its terms.
e. Direct Merchants Bank is not subject to, or obligated under
any provision of (i) its articles of incorporation or bylaws, (ii) any
material agreement, arrangement or understanding, (iii) any license,
franchise or permit, or (iv) any law, regulation, order, judgment or decree
that would be breached or violated, or which a right of termination or
acceleration or any encumbrance on any of its assets would be created by the
5
<PAGE>
execution, delivery and performance of this Agreement by Direct Merchants
Bank, or the consummation by Direct Merchants Bank of the transactions
contemplated by this Agreement.
f. No authorization, consent or approval of, waiver or exemption
by, or filing or registration with any public body, court, third party or
authority is necessary on the part of Direct Merchants Bank for the
consummation by Direct Merchants Bank of the transactions contemplated by
this Agreement.
VI. INDEMNIFICATION
Section 6.1 INDEMNIFICATION OBLIGATIONS
a. BY DIRECT MERCHANTS BANK. Direct Merchants Bank shall be
liable to and shall defend, indemnify and hold harmless, Fingerhut and its
affiliates, and its respective officers, directors, employees and permitted
assigns, from and against any and all Losses (as hereinafter defined)
incurred by any of them by reason of or related to Direct Merchants Bank's
failure to perform its obligations hereunder.
b. BY FINGERHUT. Fingerhut shall be liable to and shall defend,
indemnify and hold harmless, Direct Merchants Bank and its affiliates, and
its respective officers, directors, employees and permitted assigns, from and
against any and all Losses (as hereinafter defined) incurred by reason of or
related to Fingerhut's failure to perform its obligations hereunder.
c. "LOSSES" DEFINED. For purposes of this Section 6.1, the term
"Losses" shall mean any losses, liability, claims, damages, costs, and
expenses, including attorney's fees, disbursements and court costs,
reasonably incurred by an indemnified party, judgments, fines and other
amounts paid in settlement, incurred or suffered by an indemnified party in
connection with any threatened, pending or adjudicated claim, demand, action,
suit or proceeding (whether civil, criminal, administrative or investigative)
by an unaffiliated third party arising out of or in connection with any
breach or alleged breach of this Agreement), without regard to whether or not
such Losses would be deemed material under this Agreement.
Section 6.2 PROCEDURES
a. NOTICE OF CLAIMS. The parties agree that in case any claim is
made, or any suit or action is commenced which, if not corrected, may give
rise to a right of indemnification by a party hereunder ("Indemnified Party")
from one of the other parties ("Indemnifying Party"), the Indemnified Party
will give notice to the Indemnifying party as promptly as practicable after
receipt by the Indemnified party of such notice or knowledge of such claim,
suit, or action. On a best efforts basis, notice to the Indemnifying Party
shall be given no later than fifteen days after receipt by the Indemnified
Party in the event a suit or action has commenced or thirty days under all
other circumstances; provided, however, that the failure to give prompt
notice shall not relieve an Indemnifying Party of its obligation to indemnify
except to the extent that the Indemnifying Party is materially prejudiced by
such
6
<PAGE>
failure. The Indemnified Party shall make available to the Indemnifying
Party and its counsel and accountants at reasonable times and for reasonable
periods, during normal business hours, all books and records of the
Indemnified Party relating to any such possible claim for indemnification,
and each party will render to the other such assistance as it may reasonably
require of the other in order to ensure prompt and adequate defense of any
suit, claim or proceeding based upon a statement of facts which may give rise
to a right of indemnification hereunder.
b. SELECTION OF COUNSEL. The Indemnifying Party shall have the
right to defend, compromise and settle any suit, claim or proceeding in the
name of the Indemnified Party to the extent that the Indemnifying Party may
be liable to the Indemnified Party under Section 6 above in connection
therewith; provided, however, that the Indemnifying Party shall not
compromise or settle a suit, claim or proceeding unless it assumes the
obligation to indemnify for all Losses related thereto. The Indemnifying
Party shall notify the Indemnified Party within ten days of having been
notified pursuant to Section 6 of this Agreement if the Indemnifying Party
elects to assume the defense of any such claim, suit or action and employ
counsel in a reasonable exercise of its discretion. The Indemnified Party
shall have the right to employ its own counsel to participate in such
defense, compromise or settlement, but the fees and expenses of such counsel
shall be at the Indemnified Party's expense, unless the Indemnifying Party
shall not have employed counsel to take charge of the defense thereof.
c. SETTLEMENT OF CLAIMS. The Indemnified Party may at any time
notify the Indemnifying Party of its intention to settle or compromise any
claim, suit or action against the Indemnified Party in respect of which
indemnification payments may be sought from the Indemnifying Party hereunder,
but shall not settle or compromise any matter for which indemnification may
be sought without the consent of the Indemnifying Party. Any settlement or
compromise of any claim, suit or action in accordance with the preceding
sentence, or any final judgment or decree entered on or in any claim, suit or
action which the Indemnifying Party did not assume the defense of in
accordance herewith, shall be deemed to have been consented to by, and shall
be binding upon, the Indemnifying Party as fully as if the Indemnifying Party
had assumed the defense thereof and a final judgment or decree had been
entered in such suit or action by a court of competent jurisdiction for the
amount of such settlement, compromise, judgment or decree.
d. SUBROGATION. The Indemnified Party shall be subrogated to any
claims or rights of the Indemnifying Party as against any other persons with
respect to any amount paid by the Indemnifying Party under this Section 6.
The Indemnified Party shall cooperate with the Indemnifying Party, at the
Indemnifying Party's expense, in the assertion by the Indemnifying Party of
any such claim against such other persons.
e. INDEMNIFICATION PAYMENTS. Amounts owing under this Section
6.2 shall be paid promptly upon written demand for indemnification containing
in reasonable detail the facts giving rise to such liability; provided,
however, if the Indemnifying Party notifies the Indemnified Party within
thirty (30) days of receipt of such demand that it disputes its
7
<PAGE>
obligation to indemnify and the Parties are not otherwise able to reach
agreement, the controversy shall be settled by final order entered by a court
of competent jurisdiction.
Section 6.3. SURVIVAL OF INDEMNIFICATION.
The provisions of this Section shall expressly survive any
termination of this Agreement, under Section 3.1, or otherwise for a period
of five (5) years.
VII. MISCELLANEOUS
Section 7.1 NOTICES. Any notice provided for herein shall be in writing
and shall be hand delivered or mailed by first class, registered or certified
mail, postage prepaid return receipt requested, or sent by electronic or
facsimile transmission, addressed as follows:
If to Direct Merchants Bank:
Direct Merchants Credit Card Bank, National Association
1455 West 2200 South, Suite 300
Salt Lake City, Utah 84119
Attention: President
with a copy to:
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Attention: President
If to Fingerhut:
Fingerhut Corporation
4400 Baker Road
Minnetonka, Minnesota 55426
Attention: President
With a copy to the General Counsel
Or at such other place as may be directed in writing by the party to
receive notice.
Section 7.2. ASSIGNMENT. This Agreement may be assigned by the parties to
any affiliate, subsidiary or successor of such party upon notice, provided
that any affiliate, subsidiary or successor agrees in writing to be bound by
the Terms of this Agreement. This Agreement may not otherwise be assigned
without the prior written consent of the non-assigning party.
8
<PAGE>
Section 7.3 NO JOINT VENTURE. In performing the obligations under this
Agreement, the parties are independent contractors. This Agreement is not
intended to create and shall not be construed to create a partnership, joint
venture or agency relationship.
Section 7.4 CAPTIONS. The captions and headings used in this Agreement
have been inserted for convenience and for reference only and shall not be
deemed to limit or define the text of this Agreement.
Section 7.5 VALIDITY. If any provision or portion thereof of this
Agreement is held invalid, illegal, void or unenforceable by reason of any
rule or law, administrative order, judicial decision or public policy, all
other provisions of this Agreement shall remain in full force and effect.
Section 7.6 AMENDMENTS. Except as provided herein, neither this Agreement
nor any of its provisions shall be amended or modified except in writing
executed by a duly authorized officer of each of the parties.
Section 7.7 AUDIT. Each party agrees to allow the other, upon reasonable
notice, to audit its performance under this agreement.
Section 7.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota without
giving effect to the principles of conflicts of laws thereof.
Section 7.9 FORCE MAJEURE. No party shall be liable for any failure of or
delay in the performance of this Agreement for the period that such failure
or delay is due to acts of God, public enemy, war, strikes or labor disputes,
or any other cause beyond the parties' reasonable control; it being
understood that lack of financial resources is not to be deemed a cause
beyond a party's control. Each party shall notify the other parties promptly
of the occurrence of any such cause and carry out this Agreement as promptly
as practicable after such cause is terminated; provided, however, that the
existence of any such cause shall not extend the term of this Agreement.
Section 7.10 WAIVER. No party shall deemed to have waived any of its
rights, powers or remedies under this Agreement unless such waiver is given
in writing by such party.
Section 7.11 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties in connection with the services hereunder and
supersedes all prior agreements, negotiations and communications on such
subject matter.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement
effective as of the date and year first above written:
FINGERHUT CORPORATION
By /s/ Michael P. Sherman
------------------------------------------
Title General Counsel
---------------------------------------
DIRECT MERCHANTS CREDIT CARD
BANK, NATIONAL ASSOCIATION
By /s/ Ronald N. Zebeck
------------------------------------------
Title Chairman and Chief Executive Officer
---------------------------------------
jb-17a
10
<PAGE>
EXHIBIT A
COMPENSATION
Direct Merchants Bank agrees to pay Fingerhut a fee of five dollars
($5.00) for each Fingerhut Customer name and address subject to the following
conditions: (i) the Fingerhut customer name and address was first obtained
from the Fingerhut Customer File, and (ii) such Fingerhut Customer name and
address results in a Direct Merchants Bank Account Booked, notwithstanding
whether such Account Booked was a jointly marketed product between Direct
Merchants Bank and an unaffiliated third party. Direct Merchants Bank shall
not pay such fee to Fingerhut for any Account Booked pursuant to the Co-brand
Credit Card Agreement between Fingerhut and Direct Merchants Bank dated
October 31, 1996. In addition, Direct Merchants Bank shall pay a
non-cumulative fee of 15 basis points of net purchases on an Account Booked
excluding any Account Booked pursuant to the Co-brand Credit Card Agreement.
Payment of the $5.00 and 15 basis points of net purchases terminates upon
termination of this Agreement.
11
<PAGE>
FIRST AMENDMENT, dated as of October 6, 1997 (this "FIRST
AMENDMENT"), to each of (a) the Revolving Credit and Letter of Credit
Facility Agreement, dated as of September 16, 1996 (as amended, supplemented
or otherwise modified from time to time, the "CREDIT AGREEMENT"), among
METRIS COMPANIES, INC. (the "BORROWER"), the Lenders parties thereto,
NATIONSBANK, N.A., as co-agent (in such capacity, the "CO-AGENT"), and THE
CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT"), (b) the Guaranty, dated as of September 16, 1996 (as
amended, supplemented or otherwise modified from time to time, the "PARENT
GUARANTY"), made by FINGERHUT COMPANIES, INC. (the "GUARANTOR") in favor of
the Administrative Agent and (c) the Security Agreement, dated as of
September 16, 1996 (as amended, supplemented or otherwise modified from time
to time, the "SECURITY AGREEMENT"), made by the Borrower in favor of the
Administrative Agent. Unless otherwise defined herein, all capitalized terms
defined in the Credit Agreement and used herein are so used as so defined.
W I T N E S S E T H :
WHEREAS, the Borrower and the Guarantor have requested that the
Administrative Agent and the Lenders enter into this First Amendment;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS TO THE CREDIT AGREEMENT
1. Section 1.01 of the Credit Agreement is hereby amended by
adding the following definitions in the appropriate alphabetical order:
"SENIOR NOTE INDEBTEDNESS" shall mean the indebtedness of the
Borrower issued pursuant to the Senior Note Indenture.
"SENIOR NOTE INDENTURE" shall mean the $100,000,000 Indenture
governing the Borrower's Senior Notes due 2004 among the Borrower, the
guarantors parties thereto and the trustee named therein, as the same may
be amended, supplemented, modified or restated from time to time as
permitted thereby.
2. Section 6.04 of the Credit Agreement is hereby amended by (i)
re-lettering clause (b) thereof as clause (c) and (ii) inserting a new clause
(b) immediately before such re-lettered clause (c) which shall read in its
entirety as follows:
<PAGE>
2
", (b) Indebtedness of the Borrower and any Subsidiary Guarantor
pursuant to the Senior Note Indenture in an aggregate principal amount
not to exceed $100,000,000 at any one time outstanding, and"
3. Paragraph (g) of Article VII of the Credit Agreement is hereby
amended by adding a new clause (iv) to the end thereof which shall read in
its entirety as follows:
", or (iv) in the case of the Borrower, fail to observe or perform any
term, covenant, condition or agreement contained in the Senior Note
Indenture or any other agreement or instrument evidencing or governing
any of the Senior Note Indebtedness if the effect of any failure
referred to in this clause (iv) is to cause, or to permit the holder
or holders of such Senior Note Indebtedness (or any Person acting on
their behalf) to cause, with the giving of notice if required, all or
any portion of such Senior Note Indebtedness to become due prior to
its stated maturity"
ARTICLE II
AMENDMENT TO THE PARENT GUARANTY
Section 5(h) of the Parent Guaranty is hereby amended by adding a
new clause (w) immediately before clause (x) thereof which shall read in its
entirety as follows:
"(w) as specifically set forth in (1) the Senior Note Indenture or (2) any
other document or instrument governing Indebtedness so long as such
restrictions are no more onerous than those contained in the Senior Note
Indenture,"
ARTICLE III
AMENDMENT TO THE SECURITY AGREEMENT
Section 1.1(b) of the Security Agreement is hereby amended by
amending and restating the definition of "Excluded Assets" contained therein
as follows:
"EXCLUDED ASSETS": any property, including but not limited to
Accounts, Chattel Paper, Documents, General Intangibles, Instruments, books
and records pertaining to such property and all Proceeds and products of
any and all of the foregoing and all collateral security and guarantees
given by any Person with respect to the foregoing, sold, assigned,
transferred, set-over and otherwise conveyed from time to time to a special
purpose Receivables Transfer Subsidiary pursuant to a Receivables Transfer
Program.
<PAGE>
3
ARTICLE IV
MISCELLANEOUS
1. REPRESENTATIONS AND WARRANTIES. Each of the Borrower and the
Guarantor (each, an "AMENDMENT PARTY") hereby represents and warrants on and
as of the Effective Date (as defined below) that (a) this First Amendment has
been duly authorized, executed and delivered by such Amendment Party and
constitutes the legal, valid and binding obligation of such Amendment Party
enforceable against such Amendment Party in accordance with its terms; (b)
this First Amendment and the consummation of the transactions contemplated
hereunder will not (i) violate (A) any provision of any law, statute, rule or
regulation where such violation would be materially likely to result in a
Material Adverse Effect, (B) the articles of incorporation or other
constitutive documents or by-laws of such Amendment Party, (C) any order of
any Governmental Authority where such violation would be materially likely to
result in a Material Adverse Effect or (D) any provision of any material
indenture, agreement or other instrument to which such Amendment Party is a
party or by which it or any of its property is or may be bound or (ii) result
in a breach of or constitute (alone or with notice or lapse of time or both)
a default under any such indenture, agreement or other instrument; and (c) no
action, consent or approval of, registration or filing with or any other
action by, any Governmental Authority is or will be required by such
Amendment Party in connection with this First Amendment and the transactions
contemplated hereby.
2. NO OTHER MODIFICATIONS. Except as expressly modified hereby,
all the provisions of the Credit Agreement are and shall continue to be in
full force and effect. Each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" and words of like import referring to the
Credit Agreement and each reference in any other Loan Document to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
expressly modified hereby, all the provisions of the Parent Guaranty are and
shall continue to be in full force and effect. Each reference in the Parent
Guaranty to "this Guaranty", "this Agreement", "hereunder", "hereof" and
words of like import referring to the Parent Guaranty and each reference in
any other Loan Document to the Parent Guaranty shall mean the Parent Guaranty
as amended hereby. Except as expressly modified hereby, all the provisions
of the Security Agreement are and shall continue to be in full force and
effect. Each reference in the Security Agreement to "this Agreement",
"hereunder", "hereof" and words of like import referring to the Security
Agreement and each reference in any other Loan Document to the Security
Agreement shall mean the Security Agreement as amended hereby.
3. GOVERNING LAW. THIS FIRST AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
4. COUNTERPARTS. This First Amendment may be executed by one or
more of the parties to this First Amendment on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
<PAGE>
4
5. EFFECTIVENESS. This First Amendment shall become effective as
of the date (the "EFFECTIVE DATE") upon which the Administrative Agent shall
have received executed counterparts of this First Amendment from each
Amendment Party and the Required Lenders as specified by Section 9.08(b) of
the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
METRIS COMPANIES INC., as Borrower
By /s/ Robert W. Oberrender
-----------------------------------------
Name:
Title:
By /s/ J. C. Benson
-----------------------------------------
Name:
Title:
FINGERHUT COMPANIES, INC., as Guarantor
By /s/ James M. Welsh
-----------------------------------------
Name:
Title:
By /s/ Gerald T. Knight
-----------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually and
as Administrative Agent
By /s/ Timothy J. Storms
-----------------------------------------
Name: Timothy J. Storms
Title: Managing Director
NATIONSBANK, N.A., individually and as
Co-Agent
By /s/ Valerie C. Mills
-----------------------------------------
Name: Valerie C. Mills
Title: Sr. Vice President
<PAGE>
5
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By /s/ J. Casey Cosgrove
-----------------------------------------
Name: J. Casey Cosgrove
Title: Assistant Vice President
THE BANK OF NEW YORK
By /s/ Michael Flannery
-----------------------------------------
Name: Michael Flannery
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ A. S. Norsworthy
-----------------------------------------
Name: A. S. Norsworthy
Title: Sr. Team Leader-Loan Operations
BANK OF TOKYO-MITSUBISHI, LTD.,
Chicago Branch
By /s/ Jeffrey R. Arnold
-----------------------------------------
Name: Jeffrey R. Arnold
Title: Vice President
COMMERZBANK AKTIENGESELLSCHAFT
Grand Cayman Branch
By /s/ J. Timothy Shortly
-----------------------------------------
Name: J. Timothy Shortly
Title: Senior Vice President
By /s/ Mark Monson
-----------------------------------------
Name: Mark Monson
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/ David Bouhl
-----------------------------------------
Name: David Bouhl, F.V.P.
Title: Head of Corporate Banking Chicago
<PAGE>
6
CREDIT LYONNAIS CHICAGO BRANCH
By /s/ Mary Ann Klemm
-----------------------------------------
Name: Mary Ann Klemm
Title: Vice President and Group Head
THE DAI-ICHI KANGYO BANK, LTD.
By /s/ Seiichiro Ino
-----------------------------------------
Name: Seiichiro Ino
Title: Vice President
DEUTSCHE BANK AG-NEW YORK BRANCH and/or
CAYMAN ISLANDS BRANCH
By /s/ Susan M. O'Connor
-----------------------------------------
Name: Susan M. O'Connor
Title: Director
By /s/ Joel D. Makowsky
-----------------------------------------
Name: Joel D. Makowsky
Title: Assistant Vice President
DEUTSCHE GENOSSENSCHAFTSBANK-CAYMAN ISLAND
BRANCH
By /s/ Mark Connely
-----------------------------------------
Name: Mark Connely
Title: Vice President
By /s/ Pamela D. Ingram
-----------------------------------------
Name: Pamela D. Ingram
Title: Assistant Vice President
FIRST BANK NATIONAL ASSOCIATION
By /s/ Elliot Jaffee
-----------------------------------------
Name: Elliot Jaffee
Title: Vice President
<PAGE>
7
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ John Runger
-----------------------------------------
Name: John Runger
Title: Managing Director
FIRST UNION NATIONAL BANK
By /s/ Thomas M. Cambern
-----------------------------------------
Name: Thomas M. Cambern
Title: VP
THE FUJI BANK, LIMITED,
CHICAGO BRANCH
By
-----------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
CHICAGO BRANCH
By /s/ Walter Wolff
-----------------------------------------
Name: Walter Wolff
Title: Senior Vice President and
Deputy General Manager
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, CHICAGO CBO
By /s/ Masaharu Kuhara
-----------------------------------------
Name: Masaharu Kuhara
Title: Regional Head
THE MITSUI TRUST AND BANKING COMPANY,
LIMITED, NEW YORK BRANCH
By /s/ Margaret Holloway
-----------------------------------------
Name: Margaret Holloway
Title: Senior Vice President & Manager
<PAGE>
8
NORDDEUTSCHE LANDESBANK GIROZENTRALE-
NEW YORK and/or CAYMAN ISLAND BRANCH
By /s/ Stephen K. Hunter
-----------------------------------------
Name: Stephen K. Hunter
Title: SVP
By
-----------------------------------------
Name: Jens A. Westrick
Title: EVP
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By /s/ Douglas A. Lindstrom
-----------------------------------------
Name: Douglas A. Lindstrom
Title: AVP
THE SAKURA BANK, LIMITED
By /s/ Yukiharu Sakumoto
-----------------------------------------
Name: Yukiharu Sakumoto
Title: Joint General Manager
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
By /s/ Paula Mueller
-----------------------------------------
Name: Paula Mueller
Title: Vice President
By /s/ Mary V. Turnbach
-----------------------------------------
Name: Mary V. Turnbach
Title: Assistant Treasurer
<PAGE>
9
THE YASUDA TRUST AND BANKING CO., LIMITED
By /s/ Rohn M. Laudenschlager
-----------------------------------------
Name: Rohn M. Laudenschlager
Title: Senior Vice President
<PAGE>
SECOND AMENDMENT, dated as of November 14, 1997 (this "SECOND
AMENDMENT"), to the Revolving Credit and Letter of Credit Facility Agreement,
dated as of September 16, 1996, as amended by the First Amendment thereto
dated as of October 6, 1997 (as amended, supplemented or otherwise modified
from time to time, the "CREDIT AGREEMENT"), among METRIS COMPANIES, INC. (the
"BORROWER"), the Lenders parties thereto, NATIONSBANK, N.A., as co-agent (in
such capacity, the "CO-AGENT"), and THE CHASE MANHATTAN BANK, as
administrative agent (in such capacity, the "ADMINISTRATIVE AGENT"). Unless
otherwise defined herein, all capitalized terms defined in the Credit
Agreement and used herein are so used as so defined.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Administrative Agent
and the Lenders enter into this Second Amendment;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
AMENDMENTS TO THE CREDIT AGREEMENT
1. Section 1.01 of the Credit Agreement is hereby amended by
amending and restating the definition of "Consolidated Tangible Net Worth" in
its entirety as follows:
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as at any date of
determination, Consolidated Net Worth less (to the extent reflected in
determining Consolidated Net Worth) (a) all write-ups subsequent to June
30, 1996 in the book value of any asset by the Borrower or any of its
consolidated Subsidiaries, (b) all investments in Persons that are not
consolidated Subsidiaries and (c) all unamortized debt discount and expense
(other than unamortized fees), unamortized deferred charges (except to the
extent offset by deferred income), goodwill, patents, trademarks, service
marks, trade names, anticipated future benefit of tax loss carry-forwards,
copyrights, organization or developmental expenses and other intangible
assets.
2. Section 6.08 of the Credit Agreement is hereby amended and restated
in its entirety as follows:
SECTION 6.08. MINIMUM EQUITY TO MANAGED ASSETS RATIO. In the
case of the Borrower, permit the Equity to Managed Assets Ratio at any time
on or after the Initial Test Date to be less than (a) 4% during the period
from and including the Initial Test Date through and including September
29, 1997 and (b) 3.5% at any time after September 29, 1997.
<PAGE>
2
ARTICLE II
CONSENT
The parties hereto hereby consent to the amendment and restatement
of the Borrower Pledge Agreement in its entirety as set forth in Annex A
hereto, which Annex A shall replace Exhibit D to the Credit Agreement,
effective on the "Effective Date" (as defined in said form of amended and
restated Borrower Pledge Agreement). The parties hereto authorize the
Administrative Agent to cooperate to effectuate the corporate reorganization
referred to in Section 25 of the amended and restated Borrower Pledge
Agreement, including the release of shares in its possession if necessary to
effectuate such reorganization. The Borrower agrees to cause the delivery of
shares pledged under the amended and restated Borrower Pledge Agreement and
to provide such opinions and certificates as the Administrative Agent may
reasonably request.
ARTICLE III
MISCELLANEOUS
1. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants on and as of the Effective Date (as defined below)
that (a) this Second Amendment has been duly authorized, executed and
delivered by the Borrower and constitutes the legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance
with its terms; (b) this Second Amendment and the consummation of the
transactions contemplated hereunder will not (i) violate (A) any provision of
any law, statute, rule or regulation where such violation would be materially
likely to result in a Material Adverse Effect, (B) the articles of
incorporation or other constitutive documents or by-laws of the Borrower, (C)
any order of any Governmental Authority where such violation would be
materially likely to result in a Material Adverse Effect or (D) any provision
of any material indenture, agreement or other instrument to which the
Borrower is a party or by which it or any of its property is or may be bound
or (ii) result in a breach of or constitute (alone or with notice or lapse of
time or both) a default under any such indenture, agreement or other
instrument; and (c) no action, consent or approval of, registration or filing
with or any other action by, any Governmental Authority is or will be
required by the Borrower in connection with this Second Amendment and the
transactions contemplated hereby.
2. NO OTHER MODIFICATIONS. Except as expressly modified hereby,
all the provisions of the Credit Agreement are and shall continue to be in full
force and effect. Each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof" and words of like import referring to the Credit Agreement
and each reference in any other Loan Document to the Credit Agreement shall mean
the Credit Agreement as amended hereby. Except as expressly modified pursuant
hereto, all the provisions of the Borrower Pledge Agreement are and shall
continue to be in full force and effect. Effective on the "Effective Date" (as
defined in the form of amended and restated Borrower Pledge Agreement attached
hereto as Annex A), each reference in any Loan Document to the Borrower Pledge
Agreement shall mean the Borrower Pledge Agreement as amended and restated
pursuant hereto.
3. GOVERNING LAW. THIS SECOND AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS SECOND AMENDMENT SHALL
<PAGE>
3
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
4. COUNTERPARTS. This Second Amendment may be executed by one
or more of the parties to this Second Amendment on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
5. EFFECTIVENESS. This Second Amendment shall become effective
as of the date (the "EFFECTIVE DATE") upon which the Administrative Agent
shall have received executed counterparts of this Second Amendment from the
Borrower and the Required Lenders as specified by Section 9.08(b) of the
Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
METRIS COMPANIES INC., as Borrower
By /s/ Robert W. Oberrender
----------------------------------------
Name:
Title:
By
----------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent
By /s/ Timothy J. Storms
----------------------------------------
Name: Timothy J. Storms
Title: Managing Director
NATIONSBANK, N.A., individually and as Co-Agent
By /s/ Valerie C. Mills
----------------------------------------
Name: Valerie C. Mills
Title: Sr. Vice President
<PAGE>
4
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By /s/ R. Guy Stapleton
----------------------------------------
Name: R. Guy Stapleton
Title: Managing Director
THE BANK OF NEW YORK
By /s/ Michael Flannery
----------------------------------------
Name: Michael Flannery
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. Ashby
----------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
BANK OF TOKYO-MITSUBISHI, LTD., Chicago Branch
By /s/ Jeffrey R. Arnold
----------------------------------------
Name: Jeffrey R. Arnold
Title: Vice President
COMMERZBANK AKTIENGESELLSCHAFT Grand Cayman Branch
By /s/ J. Timothy Shortly
----------------------------------------
Name: J. Timothy Shortly
Title: Senior Vice President
By /s/ Mark Monson
----------------------------------------
Name: Mark Monson
Title: Vice President
CREDIT AGRICOLE INDOSUEZ
By /s/ David Bouhl
----------------------------------------
Name: David Bouhl
Title: F.V.P., Head of Corporate Banking
Chicago
By /s/ Katherine Abbott
----------------------------------------
Name: Katherine Abbott
Title: F.V.P.
<PAGE>
5
CREDIT LYONNAIS CHICAGO BRANCH
By /s/ Mary Ann Klemm
----------------------------------------
Name: Mary Ann Klemm
Title: Vice President
THE DAI-ICHI KANGYO BANK, LTD.
By
----------------------------------------
Name:
Title:
DEUTSCHE BANK AG-NEW YORK BRANCH and/or CAYMAN
ISLANDS BRANCH
By /s/ Susan M. O'Connor
----------------------------------------
Name: Susan M. O'Connor
Title: Director
By /s/ Shannon Sewsankar
----------------------------------------
Name: V. Shannon Sewsankar
Title: Assistant Vice President
DEUTSCHE GENOSSENSCHAFTSBANK-CAYMAN ISLAND BRANCH
By /s/ Mark Connely
----------------------------------------
Name: Mark Connely
Title: Vice President
By /s/ Elizabeth L. Ryan
----------------------------------------
Name: Elizabeth L. Ryan
Title: Vice President
FIRST BANK NATIONAL ASSOCIATION
By /s/ Elliot Jaffee
----------------------------------------
Name: Elliot Jaffee
Title: Vice President
<PAGE>
6
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ John Runger
----------------------------------------
Name: John Runger
Title: Managing Director
FIRST UNION NATIONAL BANK
By /s/ Thomas M. Cambern
----------------------------------------
Name: Thomas M. Cambern
Title: Vice President
THE FUJI BANK, LIMITED,
CHICAGO BRANCH
By
----------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO
BRANCH
By /s/ Walter Wolff
----------------------------------------
Name: Walter Wolff
Title: SVP & Deputy General Manager
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, CHICAGO BRANCH
By /s/ Armund J. Schoen, Jr.
----------------------------------------
Name: Armund J. Schoen, Jr.
Title: Senior Vice President
THE MITSUI TRUST AND BANKING COMPANY, LIMITED, NEW
YORK BRANCH
By /s/ Eiichi Akama
----------------------------------------
Name: Eiichi Akama
Title: Vice President
<PAGE>
7
NORDDEUTSCHE LANDESBANK GIROZENTRALE-NEW YORK
and/or CAYMAN ISLAND BRANCH
By
----------------------------------------
Name:
Title:
By
----------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By /s/ Douglas A. Lindstrom
----------------------------------------
Name: Douglas A. Lindstrom
Title: Assistant Vice President
THE SAKURA BANK, LIMITED
By /s/ Yukiharu Sakumoto
----------------------------------------
Name: Yukiharu Sakumoto
Title: Joint General Manager
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
By /s/ Paula Mueller
----------------------------------------
Name: Paula Mueller
Title: Vice President
By /s/ Mary V. Turnbach
----------------------------------------
Name: Mary V. Turnbach
Title: Assistant Treasurer
<PAGE>
8
THE YASUDA TRUST AND BANKING CO., LIMITED
By /s/ Rohn M. Laudenschlager
----------------------------------------
Name: Rohn M. Laudenschlager
Title: Senior Vice President
<PAGE>
ANNEX A TO SECOND AMENDMENT
EXHIBIT D TO CREDIT AGREEMENT
FORM OF PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of September 16, 1996, as amended and
restated as of the Effective Date (as defined below), among Metris Companies
Inc. (the "Borrower"), a Delaware corporation, Metris Direct, Inc., a
Delaware corporation ("Direct"; together with the Borrower, the "Pledgors")
and The Chase Manhattan Bank, as administrative agent (in such capacity, the
"Administrative Agent") for the lenders (the "Lenders") party to the
Revolving Credit and Letter of Credit Facility Agreement, dated as of
September 16, 1996 (as amended, modified, extended or restated from time to
time, the "Credit Agreement"), among the Borrower, the Lenders and the
Administrative Agent.
The Lenders have agreed to make Loans to the Borrower and to issue
or participate in Letters of Credit for the account of the Borrower pursuant
to, and subject to the terms and conditions specified in the Credit
Agreement. Direct is a wholly owned Subsidiary of the Borrower and will
derive substantial direct and indirect benefit from the extensions of credit
made to the Borrower under the Credit Agreement. The Pledgors intend to
undertake a corporate reorganization as described in Section 25, in
connection with which the Pledge Agreement as in effect immediately prior to
the Effective Date (the "Existing Pledge Agreement") will be amended and
restated in its entirety as set forth herein. The obligations of the Lenders
to make Loans and to issue or participate in Letters of Credit, in each case,
under the Credit Agreement, are and will be conditioned on, among other
things, the execution and delivery by the Pledgors of a pledge agreement in
the form hereof to secure the due and punctual payment by (a) the Borrower of
(i) the principal of and interest on the Loans under the Credit Agreement
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by the
Borrower under Section 2.15 of the Credit Agreement in respect of any LC
Disbursement, when and as due, including interest thereon, if any, and (iii)
all Fees, expenses, indemnities, reimbursements and other obligations,
monetary or otherwise, of the Borrower to the Administrative Agent and the
Lenders, in each case, as applicable, under the Credit Agreement and the
other Loan Documents (all of the foregoing obligations being collectively
called the "Borrower Obligations") and (b) Direct of (i) all of its
obligations under the Subsidiary Guaranty, including, without limitation, the
Borrower Obligations guaranteed by it thereunder and (ii) all expenses,
indemnities, reimbursements and other obligations, monetary or otherwise, of
Direct to the Administrative Agent and the Lenders, in each case, as
applicable, under the Subsidiary Guaranty and the other Loan Documents (all
of the foregoing obligations being collectively called the "Direct
Obligations"; together with the Borrower Obligations, the "Obligations").
Capitalized terms used but not otherwise defined herein shall have the
meanings specified in the Credit Agreement.
Accordingly, the Pledgors and the Administrative Agent hereby agree
as follows:
<PAGE>
2
SECTION 1. DEFINITIONS. (a) The definitions in this Section 1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
(b) As used herein, the following terms shall have the following
meanings:
"COLLATERAL" shall have the meaning assigned to such term in
Section 2.
"CREDIT AGREEMENT TERMINATION DATE" shall mean the date upon which
all amounts outstanding (including all principal, interest, fees and
expenses) under the Credit Agreement shall be paid in full and all
Commitments thereunder shall be terminated.
"CREDIT CARD BANK" shall mean Direct Merchants Credit Card Bank,
National Association, and any other Person that issues credit cards to be formed
or acquired by either Pledgor or one of its Subsidiaries.
"EFFECTIVE DATE" shall have the meaning assigned to such term in
Section 25.
"FEDERAL SECURITIES LAWS" shall have the meaning assigned to such term
in Section 12.
"ORIGINAL EFFECTIVE DATE" shall mean September 16, 1996.
"PLEDGED SECURITIES" shall have the meaning assigned to such term in
Section 2.
"PLEDGED STOCK" shall have the meaning assigned to such term in
Section 2.
"PROCEEDS" shall have the meaning assigned to such term under the New
York Uniform Commercial Code and, in any event, shall include (i) any and all
proceeds of any guarantee, insurance or indemnity payable to either Pledgor from
time to time with respect to any of the Collateral, (ii) any and all payments
(in any form whatsoever) made or due and payable to either Pledgor from time to
time in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under the color of Governmental Authority) and (iii) any
and all other amounts from time to time paid or payable with respect to or in
connection with any of the Collateral.
"SECURED PARTIES" shall mean the Lenders and the Administrative Agent.
"SECURITY INTEREST" shall have the meaning assigned to such term in
Section 2.
"SUBSIDIARY" shall mean any subsidiary of either Pledgor including any
subsidiary of either Pledgor created or acquired by such Pledgor after the
Original Effective Date other than Fingerhut Financial Services Master Trust.
<PAGE>
3
SECTION 2. PLEDGE. As security for the payment and performance in
full of the Borrower Obligations (in the case of the Borrower) and the Direct
Obligations (in the case of Direct), each Pledgor hereby transfers, grants,
bargains, sells, conveys, hypothecates, pledges, sets over and delivers unto
the Administrative Agent, and grants to the Administrative Agent, for the
benefit of the Secured Parties, a security interest (the "Security Interest")
in all its right, title and interest in, to and under the following, whether
now owned or hereafter acquired: (a) the shares of capital stock listed in
Schedule I hereto as being owned by it and any shares of capital stock of any
Subsidiary (other than a Credit Card Bank) obtained by it in the future, and
the certificates representing or evidencing such shares (the "Pledged
Stock"), (b) all other property which may be delivered to and held by the
Administrative Agent pursuant to the terms hereof, (c) subject to Section 5
below, all payments of principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of, in exchange for or upon the conversion of the
securities referred to in clauses (a) and (b) above, (d) subject to Sections
4 and 5 below, all rights and privileges of such Pledgor with respect to the
securities and other property referred to in clauses (a), (b) and (c) above,
and (e) all Proceeds of any of the foregoing (the items referred to in
clauses (a) through (e) being collectively called the "Collateral"). Upon
delivery to the Administrative Agent, (a) any stock certificates, notes or
other securities now or hereafter included in the Collateral (the "Pledged
Securities") shall be accompanied by stock powers duly executed in blank or
other instruments of transfer satisfactory to the Administrative Agent and by
such other instruments and documents as the Administrative Agent may
reasonably request and (b) all other property comprising part of the
Collateral shall be accompanied by proper instruments of assignment duly
executed by the relevant Pledgor and such other instruments or documents as
the Administrative Agent may request. Each subsequent delivery of Pledged
Securities shall be accompanied by a schedule describing the securities
theretofore and then being pledged hereunder, which schedule shall be
attached hereto as Schedule I and made a part hereof. Each schedule so
delivered shall supersede any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental
thereto, unto the Administrative Agent, its successors and assigns, forever;
SUBJECT, HOWEVER, to the terms, covenants and conditions hereinafter set
forth.
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Pledgor hereby
represents, warrants and covenants to and with the Administrative Agent that,
from and after the Effective Date:
(a) the Pledged Stock set forth in Schedule I attached hereto pledged
by such Pledgor represents all the outstanding capital stock of each of its
Subsidiaries (other than a Credit Card Bank);
(b) except for the security interest granted to the Administrative
Agent, on behalf of the Secured Parties, such Pledgor (i) is and will at
all times continue to be the direct owner, beneficially and of record, of
the Pledged Securities pledged by it, (ii) holds the same free and clear of
all liens, charges, encumbrances and security
<PAGE>
4
interests of every kind and nature, (iii) will make no assignment,
pledge, hypothecation or transfer of, or create any security interest
in, the Collateral and (iv) subject to Section 5 below, will cause any
and all Collateral, whether for value paid by such Pledgor or otherwise,
to be forthwith deposited with the Administrative Agent and pledged or
assigned hereunder;
(c) such Pledgor (i) has good right and legal authority to pledge the
Collateral pledged by it in the manner hereby done or contemplated and (ii)
will defend its title or interest thereto or therein against any and all
attachments, liens claims, encumbrances, security interests or other
impediments of any nature, however arising, of all Persons;
(d) no consent or approval of any governmental body or regulatory
authority or any securities exchange was or is necessary to the validity of
the pledge effected hereby;
(e) by virtue of the execution and delivery by such Pledgor of this
Pledge Agreement, when the certificates, instruments or other documents
representing or evidencing the Collateral pledged by it are delivered to
the Administrative Agent in accordance with this Pledge Agreement, the
Administrative Agent will obtain a valid and perfected first lien, upon and
security interest in such Collateral (except for Liens permitted by the
Credit Agreement) as security for the payment and performance of the
relevant Obligations, prior to all other liens and encumbrances thereon and
security interests therein; and
(f) the pledge effected hereby is effective to vest in the
Administrative Agent, on behalf of the Secured Parties, the rights of the
Administrative Agent in the Collateral as set forth herein.
SECTION 4. REGISTRATION IN NOMINEE NAME; DENOMINATIONS. The
Administrative Agent, on behalf of the Secured Parties, shall have the
right, in its sole and absolute discretion, to hold the Pledged
Securities in the name of the relevant Pledgor, endorsed or assigned in
blank or in favor of the Administrative Agent, or in its own name or the
name of its nominee. The relevant Pledgor will promptly give to the
Administrative Agent copies of any notices or other communications
received by it with respect to Pledged Securities registered in its
name. The Administrative Agent shall at all times have the right to
exchange the certificates representing Pledged Securities for
certificates (a) of smaller or larger denominations for any purpose
consistent with this Pledge Agreement or (b) registered in its name or
the name of its nominee.
SECTION 5. VOTING RIGHTS; DIVIDENDS AND INTEREST; ETC.
(a) Unless and until an Event of Default shall have occurred and be
continuing:
<PAGE>
5
(i) The relevant Pledgor shall be entitled to exercise any and
all voting and/or other consensual rights and powers accruing to an owner
of Pledged Securities or any part thereof for any purpose not inconsistent
with the terms of this Pledge Agreement, the Credit Agreement and the other
Loan Documents.
(ii) The Administrative Agent shall execute and deliver to the
relevant Pledgor, or cause to be executed and delivered to such Pledgor,
all such proxies, powers of attorney, and other instruments as such Pledgor
may reasonably request for the purpose of enabling such Pledgor to exercise
the voting and/or consensual rights and powers which it is entitled to
exercise pursuant to subparagraph (i) above.
(iii) The relevant Pledgor shall be entitled to receive and retain
any and all cash dividends and cash interest paid on the Pledged
Securities.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of either Pledgor to exercise the voting and consensual
rights and powers which they are entitled to exercise pursuant to paragraph
(a)(i) of this Section 5 and the right to receive and retain cash dividends and
cash interest shall cease, and all such rights shall thereupon become vested in
the Administrative Agent, which shall have the sole and exclusive right and
authority to exercise such voting and consensual rights and powers and to
receive and retain such dividends and interest during the continuance of such
Event of Default, which shall be applied against the Obligations in accordance
with Section 7.
SECTION 6. REMEDIES UPON DEFAULT. If an Event of Default shall
have occurred and be continuing, the Administrative Agent may sell the
Collateral, or any part thereof, at public or private sale or at any broker's
board or on any securities exchange, for cash, upon credit or for future
delivery as the Administrative Agent shall deem appropriate. The
Administrative Agent shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or purchasers to
Persons who will represent and agree that they are purchasing the Collateral
for their own account for investment and not with a view to the distribution
or sale thereof, and upon consummation of any such sale the Administrative
Agent shall have the right to assign, transfer and deliver to the purchaser
or purchasers thereof the Collateral so sold. Each such purchaser at any
such sale shall hold the property sold absolutely, free from any claim or
right on the part of either Pledgor, and each Pledgor hereby waives (to the
extent permitted by law) all rights of redemption, stay and appraisal which
such Pledgor now has or may at any time in the future have under any rule of
law or statute now existing or hereafter enacted.
The Administrative Agent shall give the relevant Pledgor 10 days'
written notice (which each Pledgor agrees is reasonable notice within the
meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the
State of New York) of the Administrative Agent's intention to make any sale of
Collateral owned by such Pledgor. Such notice, in the case of a public sale,
shall state the time and place for such sale and, in the case of a sale at a
broker's board or on a securities exchange, shall state the board or exchange at
which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall
<PAGE>
6
be held at such time or times within ordinary business hours and at such
place or places as the Administrative Agent may fix and state in the notice
(if any) of such sale. At any such sale, the Collateral, or portion thereof,
to be sold may be sold in one lot as an entirety or in separate parcels, as
the Administrative Agent may, in its sole and absolute discretion, determine.
The Administrative Agent shall not be obligated to make any sale of any
Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of such Collateral shall have been given. The Administrative
Agent may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at the
time and place fixed for sale, and such sale may, without further notice, be
made at the time and place to which the same was so adjourned. In case any
sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Administrative Agent
until the sale price is paid by the purchaser or purchasers thereof, but the
Administrative Agent shall not incur any liability in case any such purchaser
or purchasers shall fail to take up and pay for the Collateral so sold and,
in case of any such failure, such Collateral may be sold again upon like
notice. At any public sale made pursuant to this Section 6, the
Administrative Agent or any other Secured Party may bid for or purchase, free
(to the extent permitted by law) from any right of redemption, stay or
appraisal on the part of either Pledgor (all said rights being also hereby
waived and released to the extent permitted by law), the Collateral or any
part thereof offered for sale and may make payment on account thereof by
using any claim then due and payable to the Administrative Agent or any other
Secured Party from such Pledgor as a credit against the purchase price, and
the Secured Parties may, upon compliance with the terms of sale, hold, retain
and dispose of such property without further accountability to such Pledgor
therefor. For purposes hereof, a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof; the
Administrative Agent shall be free to carry out such sale pursuant to such
agreement, and neither Pledgor shall be entitled to the return of the
Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Administrative Agent shall have entered into such an agreement
all Events of Default shall have been remedied and the Obligations paid in
full; PROVIDED, HOWEVER, that in the event the Obligations shall have been
paid in full, the relevant Pledgor shall be entitled to the return of the
proceeds of the sale of any such Collateral to the extent not applied to
payment of the Obligations. As an alternative to exercising the power of
sale herein conferred upon it, the Administrative Agent may proceed by a suit
or suits at law or in equity to foreclose upon the Collateral pursuant to
this Pledge Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
SECTION 7. APPLICATION OF PROCEEDS OF SALE. The proceeds of any
sale of Collateral pursuant to Section 6 hereof, as well as any Collateral
consisting of cash, shall be applied by the Administrative Agent as follows:
FIRST, to the payment of all reasonable costs and expenses incurred by
the Administrative Agent in connection with such sale or otherwise in
connection with this Pledge Agreement or any of the Obligations, including
all court costs and the reasonable fees and expenses of its agents and
legal counsel, the repayment of all advances made by the Administrative
Agent hereunder on behalf of the Pledgors and
<PAGE>
7
any other costs or expenses incurred in connection with the exercise of
any right or remedy hereunder;
SECOND, to the payment in full of the Obligations, pro rata as among
the Secured Parties in accordance with the monetary Obligations owed to
them until all the Obligations have been paid in full; and
THIRD, to the relevant Pledgor, its successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
The Administrative Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Pledge Agreement. Upon any sale of the Collateral by the Administrative
Agent (including, pursuant to a power of sale granted by statute or under a
judicial proceeding), the receipt of the Administrative Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold and such purchaser or purchasers shall
not be obligated to see to the application of any part of the purchase money
paid over to the Administrative Agent or such officer or be answerable in any
way for the misapplication thereof.
SECTION 8. LIMITATIONS ON RESPONSIBILITY OF ADMINISTRATIVE AGENT.
The Administrative Agent shall not be responsible in any manner whatsoever
for the correctness of any recitals, statements, representations or
warranties contained herein or in any other Collateral Documents, except for
those made by it herein. The Administrative Agent makes no representation as
to the value or condition of the Collateral or any part thereof, as to the
title of either Pledgor to the Collateral, as to the security afforded by
this Pledge Agreement or the related Collateral Documents or as to the
validity, execution, enforceability, legality or sufficiency of this Pledge
Agreement or the related Collateral Documents, and the Administrative Agent
shall incur no liability or responsibility in respect of any such matters.
The Administrative Agent shall not be responsible for insuring the
Collateral, for the payment of taxes, charges or assessments or for liens
upon the Collateral or otherwise as to the maintenance of the Collateral,
except as provided in the immediately following sentence when the
Administrative Agent has possession of the Collateral. The Administrative
Agent shall have no duty to either Pledgor or to the holders of the
Obligations as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of the Administrative Agent or
any income thereon or as to the preservation of rights against prior parties
or any other rights pertaining thereto, except the duty to accord such of the
Collateral as may be in its possession substantially the same care as it
accords its own assets and the duty to account for monies received by it.
The Administrative Agent shall not be required to ascertain or inquire as to
the performance by either Pledgor of any of the covenants or agreements
contained herein or in the other Loan Documents. Neither the Administrative
Agent nor any officer, agent or representative thereof shall be personally
liable for any action taken or omitted to be taken by any such Person in
connection with this Pledge Agreement or any related Collateral Document
except for (i) such Person's own gross negligence or willful misconduct or
(ii) such Person's failure to perform its duties or obligations under this
Pledge Agreement; PROVIDED, HOWEVER, neither the Administrative Agent nor any
officer, agent or representative thereof shall be personally liable for any
action taken by any such Person in
<PAGE>
8
accordance with any notice given by the Required Lenders hereunder solely by
reason of the circumstances that, at the time such action is taken by any
such Person, the Required Lenders which gave the notice to take such action
are no longer the Required Lenders. The Administrative Agent may execute any
of the powers granted under this Pledge Agreement or any of the related
Collateral Documents and perform any duty hereunder or thereunder either
directly or by or through agents or attorneys-in-fact, and shall not be
responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it without gross negligence or willful
misconduct.
SECTION 9. RELIANCE BY ADMINISTRATIVE AGENT; INDEMNITY AGAINST
LIABILITIES; ETC. (a) Whenever in the performance of its duties under this
Pledge Agreement the Administrative Agent shall deem it necessary or
desirable that a matter be proved or established with respect to either
Pledgor or any other Person in connection with the taking, suffering or
omitting of any action hereunder by the Administrative Agent, such matter may
be conclusively deemed to be proved or established by a certificate executed
by an officer of such Person, and the Administrative Agent shall have no
liability with respect to any action taken, suffered or omitted in reliance
thereon.
(b) The Administrative Agent may consult with counsel and shall be
fully protected in taking any action hereunder in accordance with any advice
of such counsel. The Administrative Agent shall have the right but not the
obligation at any time to seek instructions concerning the administration of
this Pledge Agreement, the duties created hereunder or the Collateral from
any court of competent jurisdiction.
(c) The Administrative Agent shall be fully protected in relying
upon any resolution, statement, certificate, instrument, opinion, report,
notice, request consent, order or other paper or document which it reasonably
believes to be genuine and to have been signed or presented by the proper
party or parties. In the absence of its gross negligence or willful
misconduct, the Administrative Agent may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein, upon
any certificate or opinions furnished to the Administrative Agent in
connection with this Pledge Agreement.
(d) The Administrative Agent shall not be deemed to have actual,
constructive, direct or indirect notice or knowledge of the occurrence of any
Default or Event of Default unless and until the Administrative Agent shall
have received a notice of such Default or Event of Default. The
Administrative Agent shall have no obligation whatsoever either prior to or
after receiving such a notice to inquire whether a Default or Event of
Default has, in fact, occurred and shall be entitled to rely conclusively,
and shall be fully protected in so relying, on any notice so furnished to it
so long as such notice is received directly or indirectly from either Pledgor
or the Required Lenders. The Administrative Agent may (but shall not be
obligated to) take action hereunder on the basis of an Event of Default of
the type specified in clause (i) or (j) of Article VII of the Credit
Agreement whether or not the Administrative Agent has received any notice of
such Event of Default.
(e) If the Administrative Agent has been requested to take any
specific action pursuant to any provision of this Pledge Agreement, the
Administrative Agent shall not
<PAGE>
9
be under any obligation to exercise any of the rights or powers vested in it
by this Pledge Agreement in the manner so requested unless it shall have been
provided indemnity satisfactory to it against the costs, expenses and
liabilities which may be incurred by it in compliance with such request or
direction.
SECTION 10. INDEMNIFICATION BY PLEDGORS. Each Pledgor agrees to
indemnify and hold harmless the Administrative Agent and its directors,
officers, employees and agents, on demand, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Administrative
Agent in its capacity as the Administrative Agent or any of them in any way
relating to or arising out of this Pledge Agreement or any related Collateral
Document or any action taken or omitted by them under this Pledge Agreement
or any related Collateral Document; PROVIDED that neither Pledgor shall be
liable to the Administrative Agent for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from (i) the gross negligence or willful
misconduct of the Administrative Agent or any of its directors, officers,
employees or agents or (ii) failure of the Administrative Agent to perform
its duties or obligations under this Pledge Agreement.
SECTION 11. THE ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT.
Each Pledgor hereby appoints the Administrative Agent the attorney-in-fact of
such Pledgor for the purpose of carrying out the provisions of this Pledge
Agreement and taking any action and executing any instrument which the
Administrative Agent may deem necessary or advisable to accomplish the
purposes hereof, which appointment is irrevocable and coupled with an
interest. In accordance with this Pledge Agreement and without limiting the
generality of the foregoing sentence, the Administrative Agent shall have the
right and power to receive, endorse and collect all checks and other orders
for the payment of money made payable to such Pledgor representing any
dividend or other distribution payable in respect of the Collateral or any
part thereof and to give full discharge for the same.
SECTION 12. SECURITIES ACT, ETC. In view of the position of each
Pledgor in relation to the Pledged Securities, or because of other present or
future circumstances, a question may arise under the Securities Act of 1933,
as now or hereafter in effect (the "Securities Act"), or any similar statute
hereafter enacted analogous in purpose or effect (the Securities Act and any
such similar statute as from time to time in effect being called the "Federal
Securities Laws") with respect to any disposition of the Pledged Securities
permitted hereunder. Each Pledgor understands that compliance with the
Federal Securities Laws might very strictly limit the course of conduct of
the Administrative Agent if the Administrative Agent were to attempt to
dispose of all or any part of the Pledged Securities, and might also limit
the extent to which or the manner in which any subsequent transferee of any
Pledged Securities could dispose of the same. Similarly, there may be other
legal restrictions or limitations affecting the Administrative Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose
or effect. Each Pledgor agrees that the Administrative Agent shall not incur
any liability as a result of the sale of the Pledged Securities or any
portion thereof at any such private sale in a manner that the Administrative
Agent reasonably believes is
<PAGE>
10
commercially reasonable (within the meaning of Section 9-504(3) of the
Uniform Commercial Code). Each Pledgor hereby waives any claims against the
Administrative Agent, the Agent or the Lenders arising by reason of the fact
that the price at which the Pledged Securities may have been sold at such
sale was less than the price that might have been obtained at a public sale
or was less than the aggregate amount of the Obligations, even if the
Administrative Agent shall accept the first offer received and does not offer
any portion of the Pledged Securities to more than one possible purchaser.
Each Pledgor further agrees that the Administrative Agent has no obligation
to delay the sale of any Pledged Securities for the period of time necessary
to permit such Pledgor to qualify or register such Pledged Securities for
public sale under the Securities Act, applicable Blue Sky laws and other
applicable state and federal securities laws, even if such Pledgor would
agree to do so. Without limiting the generality of the foregoing, the
provisions of this Section 12 would apply if, for example, the Administrative
Agent were to place all or any portion of the Pledged Securities for private
placement by any investment banking firm, or if such investment banking firm
purchased all or any portion of the Pledged securities for its own account,
or if the Administrative Agent placed all or any portion of the Pledged
Securities privately with a purchaser or purchasers.
SECTION 13. ADMINISTRATIVE AGENT'S EXPENSES. Each Pledgor agrees
to pay upon demand to the Administrative Agent the amount of any and all
reasonable expenses, including the reasonable expenses of its counsel and of
any experts or agents, which the Administrative Agent may incur in connection
with (i) the administration of this Pledge Agreement, (ii) the custody or
preservation of, or the sale of, collection from or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights
of the Administrative Agent hereunder or (iv) the failure of such Pledgor to
perform or observe any of the provisions hereof. Any such amounts payable as
provided hereunder shall be additional Obligations secured hereby.
SECTION 14. NOTICES. Notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed or sent by telex, graphic scanning or other
telegraphic communications equipment of the sending party, to the relevant
address specified in Section 9.01 of the Credit Agreement.
All notices and other communications given to any party hereto in
accordance with the provisions of this Pledge Agreement shall be deemed to
have been given on the date of receipt if delivered by hand or overnight
courier service or sent by telex, graphic scanning or other telegraphic
communications equipment of the sender, or on the date five Business Days
after dispatch by certified or registered mail if mailed, in each case
delivered, sent or mailed (properly addressed) to such party as provided in
this Section 14 or in accordance with the latest unrevoked direction from
such party given in accordance with this Section 14.
SECTION 15. SUCCESSORS AND ASSIGNS. (a) Whenever in this Pledge
Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Pledgors, the
Administrative Agent or the Lenders that are contained in this Pledge
Agreement shall bind and inure to the benefit of their respective successors
and assigns.
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11
(b) Neither Pledgor shall assign or delegate any of its rights and
duties hereunder.
(c) The covenants, promises and agreements by each Pledgor shall
inure to the benefit of each assignee of any Lender permitted under Section
9.04 of the Credit Agreement.
SECTION 16. APPLICABLE LAW. THIS PLEDGE AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW
YORK.
SECTION 17. WAIVERS; AMENDMENT. (a) No failure or delay of the
Administrative Agent in exercising any power or right hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such
right or power, or any abandonment or discontinuance of steps to enforce such
a right or power, preclude the exercise of any other right or power. The
rights and remedies of the Administrative Agent hereunder are cumulative and
not exclusive of any rights or remedies which it would otherwise have. No
waiver of any provision of this Pledge Agreement or consent to any departure
by either Pledgor therefrom shall in any event be effective unless the same
shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for
which given. No notice or demand on either Pledgor in any case shall entitle
either Pledgor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Pledge Agreement nor any provision hereof may be
waived, amended or modified, except as provided in Section 9.08 of the Credit
Agreement.
SECTION 18. ENTIRE AGREEMENT. This Pledge Agreement and the other
Loan Documents constitute the entire contract between the parties relative to
the subject matter hereof. Any previous agreement among the parties with
respect to the subject matter hereof is superseded by this Pledge Agreement
and the other Loan Documents. Nothing in this Pledge Agreement or in the
other Loan Documents, expressed or implied, is intended to confer upon any
party other than the parties hereto or thereto any rights, remedies,
obligations or liabilities under or by reason of this Pledge Agreement or the
other Loan Documents.
SECTION 19. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the Pledgors herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Pledge Agreement shall be considered to have been relied
upon by the Lenders and shall survive the making by the Lenders of the Loans
under the Credit Agreement and the issuance by the Issuing Banks of Letters
of Credit, regardless of any investigation made by the Lenders or on their
behalf, and shall continue in full force and effect as long as any Obligation
is outstanding and unpaid and so long as the Commitments have not been
terminated.
SECTION 20. TERMINATION. This Pledge Agreement, and the Security
Interest shall terminate when all the Obligations have been paid in full, the
Lenders have no further
<PAGE>
12
commitment to lend under the Credit Agreement and no Letters of Credit are
outstanding, at which time the Administrative Agent shall reassign and
deliver to the relevant Pledgor, or to such Person or Persons as the relevant
Pledgor shall designate, against receipt, such of the Collateral (if any) as
shall not have been sold or otherwise applied by the Administrative Agent
pursuant to the terms hereof and shall still be held by it hereunder,
together with appropriate instruments of reassignment and release. Any such
reassignment shall be without recourse to or warranty by the Administrative
Agent and at the expense of the relevant Pledgor.
SECTION 21. SEVERABILITY. In the event any one or more of the
provisions contained in this Pledge Agreement should be held invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provisions.
SECTION 22. COUNTERPARTS. This Pledge Agreement may be executed
in two or more counterparts, each of which shall constitute an original but
all of which when taken together shall constitute but one contract.
SECTION 23. HEADINGS. Article and Section headings used herein
are for convenience of reference only, are not part of this Pledge Agreement
and are not to affect the construction of, or to be taken into consideration
in interpreting, this Pledge Agreement.
SECTION 24. FURTHER ASSURANCES. Each Pledgor agrees to do such
further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Administrative
Agent may at any time request in connection with the administration and
enforcement of this Pledge Agreement or with respect to the Collateral or any
part thereof or in order better to assure and confirm unto the Administrative
Agent its rights and remedies hereunder.
SECTION 25. EFFECTIVE DATE. The amendment and restatement of the
Existing Pledge Agreement pursuant hereto shall become effective on the date
(the "Effective Date") on which the Pledgors shall have consummated a
corporate reorganization, after giving effect to which Direct shall become
the only direct Subsidiary of the Borrower and all other Subsidiaries of the
Borrower shall become direct Subsidiaries of Direct. Concurrently with the
Effective Date, the Pledgors shall cause to be delivered to the
Administrative Agent (a) new stock powers, UCC-1 financing statements and
other instruments in connection with the perfection of the security interests
created hereby and (b) an opinion of counsel containing opinions comparable
to those originally given in respect of the Existing Pledge Agreement.
<PAGE>
13
IN WITNESS WHEREOF, the parties hereto have duly executed this
Pledge Agreement, or caused this Pledge Agreement to be duly executed on
their behalf, as of the day and year first above written.
METRIS COMPANIES INC., as a Pledgor
By
-----------------------------------------
Name:
Title:
METRIS DIRECT, INC., as a Pledgor
By
-----------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent
By /s/ Timothy J. Storms
-----------------------------------------
Name: Timothy J. Storms
Title: Managing Director
<PAGE>
14
SCHEDULE 1
PLEDGED SECURITIES
<TABLE>
<CAPTION>
CERTIFICATE NUMBER OF
NAME OF COMPANY NAME OF PLEDGOR NUMBER SHARES
- --------------- --------------- ----------- ---------
<S> <C> <C> <C>
Metris Direct, Inc. Metris Companies Inc. 3 1,000
Metris Receivables, Inc. Metris Direct, Inc. 4 100
DMCCB, Inc. Metris Direct, Inc. 3 1,000
LIST OTHERS
</TABLE>
<PAGE>
LEASE AGREEMENT
BETWEEN
NOTTINGHAM VILLAGE, INC.
AND
METRIS DIRECT, INC.
<PAGE>
LEASE AGREEMENT
THIS AGREEMENT OF LEASE, is made as of this 28 day of March, 1997, by
NOTTINGHAM VILLAGE, INC., a corporation organized and existing under the laws
of Maryland ("Landlord"), and METRIS DIRECT, INC., a Minnesota corporation
("Tenant").
LEASE
IN CONSIDERATION of the Rents hereinafter reserved and the agreements
set forth in the General Terms and Conditions, and any and all Schedules,
Attachments and Riders hereto, Landlord hereby leases to Tenant and Tenant rents
from the Landlord the Premises, located in the Building within the Center, for
the Term. Landlord and Tenant do hereby agree as follows.
1. SUMMARY OF LEASE TERMS; DEFINED WORDS AND PHRASES; ATTACHMENTS. The
following is a summary of the Terms of this Lease. These terms shall have the
following meanings, when used in the foregoing grant and in the following
Sections, Subsections, paragraphs and Schedules, and in the attached General
Terms and Conditions of Lease, and in all the other Exhibits and Riders attached
hereto.
1.1. "BASIC RENT". For the first Lease Year of the Term the Basic
Rent shall be the annual sum equal to the product of $10.00 multiplied by the
Rentable Area of the Premises rented to Tenant under this Lease, and it shall be
payable in equal consecutive monthly installments. Commencing with the second
Lease Year and continuing each Lease Year thereafter for the remainder of the
Term, the Basic Rent shall be increased to an amount equal to the product,
rounded to the nearest cent, of (A) the per-square-foot Basic Rent rate for the
immediately preceding year multiplied by (B) 1.025; and the product of such
equation then being multiplied by (C) the Rentable Area. Tenant shall pay no
monthly installment of Basic Rent for the first calendar month of the Term.
1.2. "BUILDING". The building to be constructed by Landlord and
situate within the Center, at the intersection of Sandpiper Circle, extended,
and Corporate Drive, in the White Marsh Business Community, Baltimore, Maryland,
21236, as shown on Exhibit A, the total square footage of which is hereinafter
referred to as the "Rentable Area". Based upon the Building Plans the Rentable
Area is estimated to be 50,000 square feet.
<PAGE>
1.3. "BUILDING PLANS". The plans for the construction of the
Building to be prepared in accordance with Section 4.1.1. based upon the
preliminary plans identified in Exhibit D attached hereto.
1.4. "CENTER". As of the date of this Lease, that certain
office/industrial development owned and to be developed by Landlord within that
portion of the White Marsh Business Community, Section G, situate along the
western side of Sandpiper Circle, extended, and at the intersection of Sandpiper
Circle, extended, and Corporate Drive, containing 7.2157 acres, more or less, as
shown on Exhibit A.
1.5. "DEPOSIT". Collectively, (i) the amount of the Basic Rent due
hereunder for the second full month of the Term, together with (ii) the Letter
of Credit referred to in Section 5.6 of this Lease, all of which shall be held
by Landlord and applied as provided in Subsection 5.6 of the General Terms and
Conditions to Lease.
1.6. "LANDLORD'S NOTICE ADDRESS". Care of Nottingham Management
Company, 100 West Pennsylvania Avenue, Towson, Maryland 21204.
1.7. "LANDLORD'S RENTAL PAYMENT ADDRESS". Care of Nottingham
Management Company, 100 West Pennsylvania Avenue, Towson, Maryland 21204.
1.8. "LEASE YEAR". A period of twelve (12) consecutive full
calendar months. The first Lease Year shall begin on the date of commencement of
the Term hereof if the date of commencement shall occur on the first day of the
calendar month; if not, then the first Lease Year shall commence on the first
day of the calendar month next following the date of commencement of the Term
hereof. Each succeeding Lease Year shall commence upon the anniversary date of
the first Lease Year. The last Lease Year of the Term shall consist of the
number of months, less than twelve, remaining in the Term upon conclusion of all
prior Lease Years of 12 consecutive full calendar months.
1.9. "LEASEHOLD IMPROVEMENTS". Those improvements constructed or to
be constructed by Landlord within the Premises for Tenant as provided in Section
4 of the General Terms and Conditions to Lease.
1.10. "NAMED BROKER". CB Commercial Real Estate Group
1.11. "PERMITTED USE". The use of the Premises for a telephone call
center or for general office use.
2
<PAGE>
1.12. "PREMISES". The total net Rentable Area of the Building as
constructed on the Center.
1.13. "TENANT'S NOTICE ADDRESS". The term means 600 South Highway
169, Interchange Tower, Suite 1800, St. Louis Park, Minnesota, 55426-1222 until
the Commencement Date and, thereafter, the term means such address together with
address of the Premises.
1.14. "TERM". A period of one hundred twenty-one (121) calendar
months plus the fractional part of a calendar month (if any) commencing on the
date established pursuant to Section 3 of the General Terms and Conditions.
2. ATTACHMENTS. Exhibit A, the Site Plan; Exhibit B, the "Rules and
Regulations"; Exhibit "C", the "Form of Letter of Credit", and Exhibit D, the
schedule of "Building Plans", are attached hereto, and shall be deemed to be a
part hereof.
3. GENERAL TERMS AND CONDITIONS. The General Terms and Conditions to
Lease, numbered as Sections 1 through 40 on pages numbered 1 through 52,
attached hereto, are an integral part of this Lease and are incorporated herein
my reference.
4. "CERTAIN DEFINED WORDS AND PHRASES". In addition to the terms above
set forth, for purposes of this Lease, The General Terms and Conditions of
Lease, and any of the Exhibits, Schedules or Riders attached hereto and made a
part hereof and all agreements supplemental to this Lease, the following terms
shall have the respective meanings as set forth in the following Section,
Subsection and Schedule references found in the General Terms and Conditions:
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Additional Rent 5.2 Legal Requirements 10.4.8
Alterations 10.4 Preliminary Plans and Specifications 4.1
Appropriate Authorities 7.2.2 Rent 5.4
Bankruptcy Code 8.4 Substantial completion 3
Casualty 16.1 Successor Landlord 21
Common Area Maintenance Expenses 11.4 Superior Mortgage 21
Common Area Maintenance Expenses 11.4 Superior Mortgagee 21
Common Areas 11.1 Superior Lease 21
Common Areas 11.1 Superior Lessor 21
Default Rate 5.3 Tax Year 12.1
Environmental Laws 7.2.2 Taxes 12.1
Event of Default 23.1 Taxes 12.1
Expense Statement 11.3 Tenant 29
Expense Statement 113 Transfer 8.1
Final Plans and Specifications 4.1 Transferee 8.1
Hazardous Materials 7.2.2
Insurance Costs 15.6
Landlord 28
</TABLE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Lease, or have caused the same to be executed on their respective behalves by
their duly authorized representatives, the date and year first above written.
WITNESS: LANDLORD:
NOTTINGHAM VILLAGE, INC., a
Maryland corporation
[Illegible] By: P. Douglas Dollenberg, (SEAL)
- ----------------------------- --------------------------------
P. Douglas Dollenberg, President
WITNESS OR ATTEST: TENANT:
METRIS DIRECT, INC., a Minnesota
corporation
Sharon Berglund By: Ronald N. Zebeck (SEAL)
- ----------------------------- --------------------------------
Ronald N. Zebeck, President
4
<PAGE>
ACKNOWLEDGEMENT
STATE OF MINNESOTA, COUNTY OF HENNEPIN, to wit:
I HEREBY CERTIFY that on this 7TH day of March, 1997, before me, the
subscriber a Notary Public of the said State, personally appeared RONALD N.
ZEBECK, known to me (or satisfactorily proven) to be the duly authorized
corporate officer of METRIS DIRECT, Inc., a Minnesota corporation, and that such
person, as such officer, being duly authorized so to do, did execute the
foregoing instrument on behalf of said entity, and such person made
acknowledgement that such execution was for and on behalf of, and was the
authorized act of, such entity.
AS WITNESS my hand and Notarial Seal.
/s/ Cynthia J. Caspersen
-------------------------------
[SEAL] Notary Public
My Commission Expires: Jan. 31, 2000
5
<PAGE>
LEASE AGREEMENT
EXHIBIT A
SITE PLAN
SEE ATTACHMENTS.
<PAGE>
[SITE PLAN]
EXHIBIT TO
ACCOMPANY
LEASE AGREEMENT
BUSINESS COMMUNITY
SECTION G
#8020 CORPORATE DRIVE
<PAGE>
[SITE PLAN]
EXHIBIT TO ACCOMPANY
LEASE AGREEMENT
BUSINESS COMMUNITY
SECTION G
#8020 CORPORATE DRIVE
<PAGE>
LEASE AGREEMENT
EXHIBIT B
RULES & REGULATIONS
1. Tenant shall not obstruct in any way the sidewalks or parking areas in
the front, side, or rear of the Building nor do anything directly or indirectly
that will limit any of the ingress or egress or of the light of any other tenant
or of Landlord.
2. Tenant shall not attach awnings, antennas, pipes, wiring or other
projections to the roof or outside walls of the Building, nor shall Tenant
attach any curtains, blinds, shades, or screens shall be attached to, or hung
in, or used in connection with any window or door of the Premises which may be
visible from the exterior of the Premises without the prior written consent of
Landlord, having regard for the aesthetic impact of such installations upon the
exterior appearance of the Building.
3. No additional lock or locks shall be placed by Tenant on any door in
the Building unless Landlord shall be given additional keys therefor, so as to
permit Landlord to be able to effect entry into the Building to respond to
Building emergencies. All keys to doors shall be returned to Landlord at the
termination of the tenancy.
4. Tenant shall be responsible for storage of Tenant's trash or refuse in
proper recepticals and for removal of the same from the Premises and the Center
at Tenant's cost and expense. Dumpsters or other trash containers shall not be
allowed on the outside of the Building without Landlord's prior written consent
except as shown on the Site Plan or the Building Plans. If such consent be given
by Landlord, the type, size, and location of such containers shall be only as
approved by Landlord and shall be maintained by Tenant in a clean sanitary
manner, and in good repair at all times.
5. Tenant shall not burn any trash or garbage of any kind in or about the
Premises.
6. Tenant shall not commit any waste upon the Premises or create a
nuisance nor cause or permit objectionable odors to emanate or be dispelled from
the Premises.
7. No loudspeakers, radios, or other devices shall be used in a manner so
as to be heard outside of the Premises.
8. Tenant shall not locate or store equipment or other personal property
outside the confines of the Premises without Landlord's express written consent.
<PAGE>
9. Under no circumstances shall all or any portion of the Premises be
used at any time, however temporarily, as a dormitory or otherwise for
residential purposes.
10. The maintenance of dogs, cats, domesticated animals or any other type
of pet or animal of any kind on or about the Premises, however temporarily, is
strictly forbidden. This provision shall not restrict entry of seeing eye dogs,
or other animals used to promote mobility of disabled persons.
11. Tenant, its officers, employees, agents, contractors and invitees shall
park their vehicles only in those portions of the parking area marked for such
purpose by Landlord and shown on the site plan. Any vehicle parked in any other
location on the Center or within public road rights-of-way may be towed without
notice at the expense of the tenant responsible therefor.
12. Any breach by Tenant of any of the foregoing Rules and Regulations, or
any other rules or regulations contained in the Lease or hereafter promulgated
by Landlord pursuant to its reserved powers contained in the Lease, if not
remediated by Tenant within ten (10) days following written notice by Landlord,
will result in the imposition of a penalty for breach in the amount of
Twenty-Five Dollars ($25.00) for each day of infraction, accounting from the
date of Landlord's notice until remediation of the breach. The penalties imposed
by this section shall be in addition to all other rights and remedies inuring to
Landlord under the Lease in case of Tenant's breach, specifically including the
right of self-help as therein set forth.
<PAGE>
LEASE AGREEMENT
EXHIBIT C
FORM OF LETTER OF CREDIT
SEE ATTACHMENT.
<PAGE>
THIS IS A DRAFT FOR DISCUSSION PURPOSES ONLY. IT DOES NOT REPRESENT A LIABILITY
OF FIRST BANK NATIONAL ASSOCIATION, MINNEAPOLIS OFFICE AT THIS TIME.
FIRST BANK
First Bank National Association International Banking Division
Minneapolis Office Cable: FIRSTBANK MPS
601 Second Avenue South TELEX: 192179 FBNA ITL MPS
Minneapolis, Minnesota 55402-4302 S.W.I.F.T.: FNBMUS44
612 973-0738/0710 FAX: 612 973-0838
(ISSUE DATE)
(BENEFICIARY'S NAME) ("BENEFICIARY")
(BENEFICIARY'S ADDRESS)
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT NO. XXXXX FOR THE
ACCOUNT OF METRIS COMPANIES INC., 600 SOUTH HIGHWAY 169, SUITE 1800, ST. LOUIS
PARK, MINNESOTA 55441 ("APPLICANT") IN THE AMOUNT OF $(NUMERIC DOLLAR AMOUNT)
(DOLLAR AMOUNT IN WORDS) AND AUTHORIZE YOU TO DRAW AT SIGHT ON FIRST BANK
NATIONAL ASSOCIATION, MINNEAPOLIS OFFICE.
DRAFTS ON US AT SIGHT MUST BE ACCOMPANIED BY THE FOLLOWING:
1. A WRITTEN STATEMENT, PURPORTEDLY SIGNED BY AN OFFICER OF THE BENEFICIARY,
DULY NOTARIZED, AS TO ONE OF THE ALTERNATIVES, AS FOLLOWS:
A) "THIS LETTER OF CREDIT EXPIRES PRIOR TO THE END OF THE TERM OF THE LEASE
BETWEEN APPLICANT, AS TENANT, AND BENEFICIARY, AS LANDLORD, DATED AS OF
(INDICATE DATE); APPLICANT HAS FAILED TO PROVIDE A RENEWAL OR REPLACEMENT
OF THIS LETTER OF CREDIT, UPON THE TERMS SET FORTH IN SECTION 5.6.2. 0F
THE LEASE WITHIN 60 DAYS PRIOR TO THE EXPIRATION OF THIS LETTER OF CREDIT;
BENEFICIARY HAS GIVEN APPLICANT 15 DAYS NOTICE, WHICH THE BENEFICIARY
CERTIFIES WAS DELIVERED IN ACCORDANCE WITH THE NOTICE PROVISIONS OF THE
LEASE, TO CURE SUCH FAILURE AND APPLICANT HAS FAILED TO DO SO WITHIN SUCH
TIME; OR
B) "APPLICANT HAS DEFAULTED IN THE PERFORMANCE OF ONE OR MORE OF ITS
OBLIGATIONS UNDER THE LEASE; AND PURSUANT TO SECTION 23 OF THE LEASE
BENEFICIARY HAS GIVEN APPLICANT NOTICE, WHICH THE BENEFICIARY CERTIFIES
WAS DELIVERED IN ACCORDANCE WITH THE NOTICE PROVISIONS OF THE LEASE,
DEMANDING CURE OF SUCH DEFAULT OR DEFAULTS; AND SUCH DEFAULT OR DEFAULTS
HAVE REMAINED UNCURED FOR THE PRESCRIBED PERIOD AFTER SUCH NOTICE."
2. THE ORIGINAL OF THIS LETTER OF CREDIT.
THE AMOUNT OF ANY DRAFT(S) DRAWN UNDER THIS CREDIT ARE TO BE ENDORSED ON THE
REVERSE SIDE HEREOF. SUCH DRAFT(S) MUST BEAR THE CLAUSE "DRAWN UNDER FIRST BANK
NATIONAL ASSOCIATION, MINNEAPOLIS OFFICE CREDIT NO. XXXXX DATED (ISSUE DATE)."
<PAGE>
THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING TO YOU.
SUCH UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED OR AMPLIFIED BY
REFERENCE TO ANY DOCUMENT OR INSTRUMENT REFERRED OR RELATED TO HEREIN AND ANY
SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATED HEREIN BY REFERENCE ANY SUCH
DOCUMENT OR INSTRUMENT.
ITS IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE CONSIDERED
AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR ONE YEAR FROM THE PRESENT OR ANY
FUTURE EXPIRATION DATE UNLESS WE NOTIFY YOU IN WRITING AT LEAST SIXTY (60) DAYS
PRIOR TO ANY SUCH EXPIRATION DATE THAT THIS LETTER OF CREDIT WILL NOT BE
RENEWED. NOTWITHSTANDING ANY OTHER PROVISION HEREIN THIS LETTER OF CREDIT WILL
NOT EXTEND BEYOND SEPTEMBER 30, 2007.
IF CANCELLATION OF THIS LETTER OF CREDIT IS REQUIRED BEFORE THE EXPIRY DATE
STATED HERIN, THE ORIGINAL OF THIS LETTER OF CREDIT MUST BE RETRUNED TO US WITH
THE BENEFICIARY'S LETTER REQUESTING CANCELLATION.
WE HEREBY AGREE WITH DRAWERS THAT DRAFTS AND DOCUMENTS AS SPECIFIED ABOVE WILL
BE DULY HONORED UPON PRESENTATION TO FIRST BANK NATIONAL ASSOCIATION,
MINNEAPOLIS OFFICE, 601 SECOND AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55402-4302
IF PRESENTED ON OR BEFORE SEPTEMBER THIRTIETH 1998, OR ANY EXTENDED DATE AS
PROVIDED HERIN.
THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDIT PUBLISHED BY THE INTERNATIONAL CHAMBER OF COMMERCE, OR ANY SUBSEQUENT
REVISION THERETO.
FIRST BANK NATIONAL ASSOCIATION, MINNEAPOLIS OFFICE
- -------------------------------- -----------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
<PAGE>
LEASE AGREEMENT
EXHIBIT D
BUILDING PLANS
Schedule of Building Plans and Specifications:
Drawings A-1 through A-9, inclusive, and S-1 through S-9, inclusive, issued for
Permit February 7, 1997, as prepared by Robert T. Hoffman & Associates, Inc.,
are incorporated herein by reference.
<PAGE>
GENERAL TERMS AND CONDITIONS TO
LEASE AGREEMENT
1. GENERAL TERMS AND CONDITIONS TO LEASE. These are the General Terms and
Conditions to Agreement of Lease, numbered as Sections 1 through 40 on pages
numbered 1 through 52, and are attached to that Lease Agreement between
Nottingham Village, Inc., as Landlord, and the Tenant named therein.
2. LEASE OF PREMISES. Landlord has agreed to lease the Premises, located
in the Building within the Center, to the Tenant and Tenant has agreed to rent
and accept the same from the Landlord, subject to these General Terms and
Conditions. The Rentable Area shall be measured from the exterior surface of
exterior walls of the Building enclosing the Premises.
3. TERM.
3.1. ORIGINAL TERM. The original Term of this Lease shall commence
upon the date (the "Commencement Date"), following substantial completion of the
Building and Leasehold Improvements, on which Landlord tenders to Tenant the
keys to the Premises or other indicia of possession with respect thereto,
indicating that Tenant may enter into possession of the Premises for the Term,
or otherwise tenders delivery of the Premises to Tenant, in writing, and
terminating (unless sooner terminated pursuant to the provisions of this Lease)
on the last day of the last calendar month of the Term. The parties anticipate
that the Commencement Date shall occur September 1, 1997. The Commencement Date
shall be conclusively confirmed by Landlord to Tenant in writing; and, at the
request of either of them, the parties shall also enter into a supplementary
agreement or certificate, acknowledging that Tenant has accepted possession and
setting forth the Commencement Date and the date of termination of the Term.
"Substantial completion" means that (i) the Building has been completed in
accordance with the Building Plans, (ii) the driveways and parking areas have
been completed in accordance with the Site Plan; (iii) a certificate of use and
occupancy has been issued for the Building and the Premises; (iv) all Building
systems are installed and operable, and (v) the Leasehold Improvements to be
performed by Landlord as required by Subsection 4.1 have been substantially
completed, except for so-called punch list items, and that they are ready for
Tenant to commence the installation of its trade fixtures, equipment and
inventory, and so certified to by the Landlord or its representative. Beginning
with the execution of this Lease, but prior to the Commencement Date, Tenant
shall be subject to all of the terms and provisions of this Lease excepting only
those requiring the payment of Rent and the conduct of business.
3.2. RENEWAL OPTION. Provided no Event of Default exists and then
remains uncured, and Tenant is in possession of the Premises, Tenant shall be
entitled to renew this Lease for two (2) additional terms, each of five (5)
years, the first commencing immediately following the expiration of the original
Term, the second commencing upon the conclusion of
1
<PAGE>
the first renewal term, on the same terms and conditions of this Lease, with the
following conditions:
3.2.1. With respect to each renewal term, Tenant will give
written notification to Landlord not later than one hundred eighty (180) days
prior to the scheduled termination date of the Term of its intention to elect to
renew this Lease.
3.2.2. Within fifteen (15) days following receipt of Tenant's
notification of intent, Landlord shall send Tenant a notice specifying
Landlord's then-current Basic Rent rate for the Premises (the "Offer Rate") as
determined by the Landlord in the sole and unfettered exercise of its
discretion. The Offer Rate shall reflect a shell rental rate for the Building,
in acknowledgement of the fact that Tenant shall have paid for all Leasehold
Improvements pursuant to the terms of this Lease.
3.2.3. Tenant shall have thirty (30) days following receipt of
Landlord's notice to inform Landlord whether it will accept a renewal of the
Lease at a Basic Rent equal to the Offer Rate and shall be deemed to have
accepted the Offer Rate unless, within such thirty (30) day period, it tenders
Notice to Landlord refusing to accept such Offer Rate and requiring the Basic
Rent rate to be determined by appraisal in accordance with the following
procedure.
3.2.4. If Tenant accepts the Offer Rate and elects to lease
the Premises for the renewal term above set forth pursuant to the renewal right
granted in this Section then Landlord and Tenant shall execute a Lease Amendment
extending the Term and confirming the new Basic Rent within thirty (30) days of
receipt of an instrument of amendment from Landlord. Any improvements to the
Premises to be completed in connection with any such renewal shall be as
negotiated by Landlord and Tenant at such time.
3.2.5. If Tenant refuses to accept Landlord's Offer Rate, then
unless Landlord and Tenant otherwise agree, the Basic Rent rate for the first
Lease Year of Renewal Term in question shall be the greater of (i) 1.025 times
the annual Basic Rent for the immediately preceding Lease Year or (ii) the "Fair
Market Rent" as determined by appraisal in accordance with the following
procedure. Within thirty (30) days following the date of Tenant's notice
rejecting Landlord's proposed Offer Rate Tenant shall request, obtain (from a
qualified appraiser chosen by Tenant) and deliver to Landlord an appraisal of
the Fair Market Rent for the Premises for the proposed renewal term. The Fair
Market Rent will be based upon rates for comparable space in a shell building
comparable to the Building, without regard to the Leasehold Improvements or
other improvements paid for by Tenant, but taking into account the annual
increases in Rent as provided below. Tenant's failure to deliver the appraisal
within such thirty (30) day period shall be deemed an acceptance of the Offer
Rate.
3.2.6. Upon receipt of the results of Tenant's appraisal,
Landlord may either accept or reject such appraised determination of the Fair
Market Rent, and shall be deemed to have accepted Tenant's appraiser's
determination unless Landlord rejects the same by notice to Tenant given within
fifteen (15) days following receipt of Tenant's appraisal. If
2
<PAGE>
Landlord rejects such appraised Fair Market Rent then Landlord shall promptly
designate a second appraiser; and the two appraisers then chosen shall select a
third appraiser within fifteen (15) days following Landlord's notification as to
the identification of Landlord's choice of appraiser. The second and third
appraisers so chosen shall be instructed to produce appraisals of the Fair
Market Rent for the Premises, for the extended term, within thirty (30) days
following the date of selection of third appraiser and his acceptance of his
task. Each appraiser shall make an independent appraisal of the Fair Market
Rent, and the Fair Market Rent shall be the mean average of the two closest
valuations of the three appraisers (unless the mean and the median of the three
appraisals are equal, in which case the average or mean of the three appraisals
shall be the Fair Market Rent). The valuation of the Fair Market Rent thus
obtained shall be binding on Landlord and Tenant.
3.2.7. Landlord and Tenant shall each pay the cost of the
appraiser designated by them and shall divide equally the cost of the third
appraiser. All appraisers selected hereunder shall be M.A.I. designated and
shall be familiar with leasing of commercial properties in the Baltimore
Metropolitan area.
3.2.8. Following determination of the Fair Market Rent in
accordance with the appraisal procedure above set forth Landlord and Tenant
shall, within thirty (30) days of receipt of an instrument of amendment from
Landlord, execute a Lease Amendment extending the Term and confirming the Basic
Rent for the first Lease Year of the Renewal Term in question as the greater of
(i) 1.025 times the annual Basic Rent for the immediately preceding Lease Year
or (ii) the Fair Market Rent thus obtained, or such lesser amount as Landlord
and Tenant shall otherwise agree. Thereafter, commencing with the second Lease
Year of such Renewal Term and continuing each Lease Year thereafter for the
remainder of the Renewal Term in question, the Basic Rent shall be increased to
an amount equal to the product, rounded to the nearest cent, of (A) the Basic
Rent rate for the immediately preceding year multiplied by (B) 1.025.
3.2.9. Time shall be of the essence with respect to each of
the provisions of this Section; if Tenant fails or refuses to provide notices or
to take action as provided in this Section within the times herein set forth
then, except as otherwise set forth above, the renewal right and option herein
granted shall lapse and terminate.
3.2.10. No additional rights or options to renew shall be
deemed to be granted.
3.3. OPTION TO TERMINATE. Provided that Tenant is in possession of
the Premises and paying Rent and otherwise in compliance with its obligations
hereunder, Tenant shall have the option to terminate this Lease on a one-time
basis as of the end of the eighty-fifth (85th) full calendar month next
following the Commencement Date of the Term upon the following conditions:
3
<PAGE>
3.3.1. Tenant must give Landlord written notice of its
intention to terminate at least six (6) full calendar months prior to the
expiration of the eighty-fifth (85th) full calendar month of the Term.
3.3.2. Tenant shall pay Landlord a Lease Termination Fee equal
to three (3) months' Basic Rent, calculated at the rate applicable to the month
in which the Lease termination is to become effective. Tenant shall pay this
amount concurrently with its notice of exercise of this option.
3.3.3. In addition to the payment required under Section 3.3.2
above, for the fourth, fifth and sixth full calendar months next following the
termination date, Tenant shall pay Landlord the monthly installment of Annual
Basic Rent which would otherwise be due and payable under this Lease if, as of
the commencement of each month during such three month period, Landlord shall
not then have re-leased Premises to another tenant who shall have taken
possession of the Premises. Tenant's liability under this subsection 3.3.3 shall
not exceed three (3) months' Basic Rent, calculated at rate otherwise due and
payable under the Lease with respect to each such month. Such sums shall be
payable at time otherwise required under the Lease, as though the Lease had not
been terminated.
3.3.4. In addition, Tenant shall also reimburse Landlord for
the unamortized cost of all leasing commissions paid by Landlord to the Named
Broker hereunder in connection with this Lease transaction ($200,000.00 being
the total amount paid); such unamortized cost (based on an amortization over the
original Term, in monthly installments, together with interest at the rate of
12% per annum) shall be paid concurrently with its notice of exercise of this
option.
3.3.5. Tenant or its subtenant or assignee (as approved by
Landlord if so required) must be paying Rent, and all Rent and Obligations due
through the date of termination shall continue to be paid and performed by
Tenant to Landlord, and no Event of Default shall exist under the Lease, either
as of the date of Tenant's notice of election to terminate or thereafter, for
the remainder of the Term.
3.3.6. The Premises shall be surrendered on the termination
date in the same condition as when received, normal wear and tear, damage by
fire or casualty and other obligations of the Landlord pursuant to this Lease
excepted.
4. CONSTRUCTION OF BUILDING AND PREMISES.
4.1. COMPLETION OF BUILDING AND LEASEHOLD IMPROVEMENTS.
4.1.1. Promptly following the complete execution and delivery
of this Lease Landlord shall provide Tenant with design development drawings,
consistent with the Building Plans attached to this Lease as Exhibit D, for the
construction of the Building, for
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Tenant's review and approval, which Tenant shall not unreasonably withhold,
condition or delay. Tenant's approval shall be deemed given unless a contrary
response is given by Tenant within fifteen (15) days following Tenant's receipt
of Landlord's submission. Following such approval, Landlord shall construct on
the Center, at its cost and expense, the Building in which the Premises are to
be located, and the driveways, parking areas and other improvements shown on the
Site Plan, or cause it to be constructed as promptly as possible, subject to
conditions constituting force majeure, or other causes beyond Landlord's
reasonable control. Subject to such conditions Landlord shall use good faith
efforts to complete the Building to provide beneficial occupancy for
approximately 50,000 square feet of Premises so as to permit commencement of
this Lease by September 1, 1997. The Building shall be a single story structure,
of general rectangular shape, of brick-clad block construction, with glass on
all sides of the Building and otherwise suitable for office use, and otherwise
with architectural treatments consistent with structures erected on surrounding
properties, and consistent with the Building Plans attached to this Lease as
Exhibit D. The Building shall be designed and constructed substantially in
accordance with the Site Plan and the Building Plans. Landlord will not make any
material changes in the Building from the conditions shown by such Exhibits
without Tenant's prior written consent, which consent will not be unreasonably
withheld, conditioned or delayed. A "material change" is a change which in turn
requires an alteration to the Plans and Specifications, or which significantly
alters the exterior appearance of the Building.
4.1.2. Landlord shall also construct, at Tenant's cost and
expense, the Leasehold Improvements within the Premises for Tenant's use and
occupancy in accordance with plans and specifications provided by Tenant, in the
following manner. On or before April 1, 1997, and based upon the Building Plans,
Tenant shall provide Landlord with Final Plans and Specifications (the "Final
Plans and Specifications") prepared by a professional designer, interior
designer, or architect, approved by Landlord in advance, for the layout of the
Premises, including the dimensioned location of all partitions, interior doors,
lighting fixtures, lightpole switches, electrical outlets, telephone receptacles
or systems, together with the specifications therefor and any other improvements
Tenant desires to be made to the Premises prior to the commencement of the Term
of this Lease. If Tenant fails to submit the Final Plans and Specifications
within such period then Tenant shall be assessed a penalty equivalent to one-
thirtieth (1/30th) of the monthly installment of Basic Rent as set forth under
Lease Section 1 for each day late.
4.1.3. Within thirty (30) days following receipt of the Final
Plans and Specifications from Tenant Landlord shall provide Tenant with
Landlord's proposal for the cost of construction of Leasehold Improvements. Such
construction shall be the responsibility of Landlord's contractor, Nottingham
Construction Company, pursuant to a contract generally providing for the
completion of the Leasehold Improvements for a price equal to such contractor's
cost of Leasehold Improvements (subcontractors' prices plus general conditions,
design costs and permit fees) plus five percent (5 %) of the same. All work to
be performed shall be performed by subcontractors of Landlord's contractor under
this Section and shall be competitively bid. Tenant shall have the right to
submit subcontractors for consideration, to supervise the subcontractor
selection process and to approve the selection of each subcontractor
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and the final subcontract bid; provided, however, that Landlord shall have the
right to disapprove any subcontractor so selected if in Landlord's reasonable
judgment the competence or creditworthiness of such subcontractor is
unsatisfactory. Landlord shall obtain all permits required in connection with
such work, and shall pay all fees in connection with the issuance of such
permits.
4.1.4. Upon selection and acceptance of all subcontractors and
determination of the final construction contract cost Landlord shall cause its
general contractor to construct all of the Leasehold Improvements required by
the Final Plans and Specifications, and Tenant shall pay Landlord for the cost
of such work in accordance with the Leasehold Improvement draw schedule set
forth in Exhibit D. The following provisions shall apply with respect thereto:
4.1.4.1. Landlord will perform such work in a good and
workmanlike manner, using new and first quality materials and in compliance with
applicable laws including but not limited to the Americans with Disabilities Act
and the Accessibility Guidelines promulgated pursuant thereto.
4.1.4.2. Tenant shall make monthly payments to
Landlord on account of the Leasehold Improvements based upon the value of labor,
services and materials incorporated into the Premises and of materials stored at
the Premises up to the last day of the preceding calendar month, less the
aggregate amount of previous payments made by Tenant to Landlord. Full payment
shall be due on or before the Commencement Date.
4.1.4.3. Following commencement of construction of the
Leasehold Improvements Landlord and Tenant shall participate in monthly draw
meetings, at the Landlord's offices in Towson, Maryland, at 10:00 a.m., on the
30th day of each calendar month. Such meetings shall be adjusted as reasonably
appropriate to accommodate job requirements but corresponding payment date shall
not be adjusted if all the requirements for payment have been met.
4.1.4.4. At each such monthly draw meeting Landlord,
Tenant and Landlord's Contractor shall review such Contractor's and all
subcontractors' applications for payment as filed with Landlord or such
Contractor on or before the 26th day of such calendar month and, provided that
such requests for approval are in accordance with the terms of the applicable
contract or subcontract for construction, the same shall be approved for
payment.
4.1.4.5. Thereafter, by on or before the tenth day of
the calendar month next following such draw meeting and approval of the requests
for payment then presented, Tenant shall pay Landlord the aggregate amount of
all approved requisitions. Landlord shall thereafter pay Landlord's Contractor,
out of the amount so paid by Tenant, the amount which Landlord's Contractor is
entitled to receive in accordance with approved
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requisitions, and Landlord shall, by appropriate agreement with Landlord's
Contractor, require Landlord's Contractor to make payments to all subcontractors
in like manner.
4.1.4.6. Any payment due from Tenant to Landlord and
not paid within the time prescribed above shall bear interest at the Default
Rate from the date due until paid. Such failure to pay shall also constitute a
Default under this Lease.
4.1.5. If the actual cost of constructing the Leasehold
Improvements exceeds the agreed-upon sum due to changes requested to be made by
Tenant during construction of the Leasehold Improvements, then Landlord shall
have the right to require Tenant to pay any increase in the actual cost of
Leasehold Improvements over the parties' original agreement in one or more
installments on or before the Commencement Date. Landlord shall notify Tenant of
any such cost when changes to the Leasehold Improvements are requested,
including notice of any prospective increase in projected time for completion of
Leasehold Improvements necessitated by such change. Tenant shall have five (5)
business days to approve or disapprove such cost and any extension of time for
completion and shall be deemed to have accepted and approved the cost and
extension of time for completion unless Tenant shall have notified Landlord to
the contrary, in writing, in accordance with this Lease, within such five (5)
business day period. If Tenant fails to accept the Landlord's determination of
increased cost and any extension of time for completion due to changes made by
Tenant during construction within such five (5) business day period, then
Landlord shall not be obligated to construct such change. If, however, Tenant
accepts the increased cost and proposed extension of time, whether by express
notice of acceptance given within such five (5) business day period or by
failure to reject the same within such five (5) business day period, then Tenant
agrees to execute and acknowledge such instruments confirming such acceptance as
Landlord may from time to time require. Upon Tenant's acceptance of the
increased cost in the manner herein described, Landlord shall construct or cause
to be constructed all of the Leasehold Improvements required by the Final Plans
and Specifications, including agreed-upon changes.
4.1.6. Upon taking possession and occupying the Premises,
Tenant shall thereby be deemed to have accepted the same, with the exception of
latent defects (which shall be recognized as such only if discovered and brought
to Landlord's attention within one (1) year following the Commencement Date) and
those items contained in an agreed-upon punchlist to be prepared and delivered
to Landlord within thirty (30) days after taking possession, and to have
acknowledged that the Premises are in the condition called for hereunder and
under the Final Plans and Specifications. Under no circumstances shall Landlord
be liable to Tenant for damages for any delay in commencing or completing
construction of the Premises or for a total failure to complete or deliver the
same. Landlord shall have a reasonable time to correct all punchlist items.
4.2. DELAY IN DELIVERY OF PREMISES. Landlord will use reasonable
efforts to substantially complete the Landlord's Work on or before September 1,
1997. If Landlord's Work has not been substantially completed prior to December
31, 1997 (the "Deadline"), as the Deadline may be extended by (i) extension
occasioned by changes to the Final Plans and
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Specifications as provided in Section 4.1.5, (ii) delay caused by Tenant's
failure to provide Final Plans and Specifications within the time provided in
Section 4.1.2, or (iii) action or inaction of governmental agencies or other
conditions constituting force majeure, then Landlord shall promptly pay Tenant,
upon demand, all costs and expenses incurred by Tenant for basic rent for any
premises then occupied by Tenant in Hunt Valley, Maryland, and in which Tenant
is compelled to hold over by reason of the incompletion of the Premises, for
each day completion is delayed beyond the Deadline as extended by items (i)
through (iii) above. If the Leasehold Improvements have not been substantially
completed by May 1, 1998, as extended by items (i) through (iii) above, then
Tenant may at any time thereafter give Landlord notice of its intention to
terminate this Lease. If Landlord has not substantially completed the Leasehold
Improvements within 30 days after Tenant's notice, then this Lease will
terminate and will be of no further force or effect, in which case Landlord
shall refund or redeliver the Deposit to Tenant. But if the Lease is not
terminated, then Landlord shall continue to pay Tenant, upon demand, all costs
and expenses incurred by Tenant for basic rent for any premises then occupied by
Tenant in Hunt Valley, Maryland, and in which Tenant is compelled to hold over
by reason of the incompletion of the Premises, for each day completion is
delayed beyond the Deadline as extended by items (i) through (iii) above. If the
Commencement Date shall not have occurred within twenty-four (24) months
following the date of this Lease, then this Lease shall terminate, Landlord
shall return any Deposit previously delivered by Tenant, and all rights and
obligations of the parties shall terminate, and Landlord shall not be subject to
any liability therefor. Termination under this Section shall be Tenant's sole
remedy and Tenant shall have no other rights or claims hereunder at law or in
equity except that Landlord shall return to Tenant promptly after any
termination any Deposit previously tendered to Landlord.
4.3. ACCEPTANCE OF PREMISES. By its acceptance of the Premises as
provided in Section 4.1.6 Tenant shall be deemed to have accepted the Premises,
to have acknowledged that they are in the condition called for hereunder and to
have agreed that the obligations of Landlord imposed for the delivery of the
Premises have been fully performed, subject only to latent defects (with respect
to which no claim shall be made more than one (1) year following the
Commencement Date) and to deficiencies (if any) listed in a written notice
delivered by Tenant to Landlord not more than 60 days after the date of taking
possession, which listed items will be completed by Landlord within 60 days
after Tenant's notice, or as soon thereafter as is practicable under all the
circumstances. Within 60 days after the Commencement Date, Landlord and Tenant
will execute an agreement supplementing this Lease setting forth: (i) the
Commencement Date and expiration date of the Term and (ii) the Rentable Area of
the Premises and the Building.
5. RENT. Tenant covenants and agrees to pay to Landlord during the Term,
as Rent for the Premises, the aggregate of all Basic Rent and Additional Rent
due hereunder, as follows.
5.1. BASIC RENT. The Basic Rent shall be payable in equal Monthly
Installments of Basic Rent in advance on the first day of each full calendar
month during the Term, without any deduction or setoff whatsoever, and without
demand. The first monthly
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payment shall include any prorated Basic Rent for the period from the date of
the commencement of the Term to the first day of the next full calendar month.
5.2. ADDITIONAL RENT. Tenant's liability for the expenses described
in Subsections 11.3, 12.1 and 15.6 hereof, and together with each and every
other charge, cost, fee or expense due and payable from Tenant as set forth in
this Lease (other than Basic Rent), shall be deemed Additional Rent ("Additional
Rent") and shall be payable as provided in such Sections or Subsections or
otherwise as provided in this Lease.
5.3. LATE CHARGE FOR FAILURE TO PAY RENT AND ADDITIONAL RENT. All
sums payable as Basic Rent or Additional Rent shall be paid by Tenant to
Landlord's Rental Payment Address, or at such other address as Landlord may from
time to time designate by Notice given to Tenant care of Tenant's Notice
Address. If any check tendered by Tenant in payment of Rent is dishonored upon
presentment for payment, then Landlord, in addition to all other rights and
remedies contained in this Lease, may assess a dishonor charge of Fifty Dollars
($50.00). If Tenant fails to pay any Basic Rent or any Additional Rent within
ten (10) days after notice that it is due and payable (including deemed failure
to pay due to dishonor of Tenant's check upon presentation for payment), then
Landlord, in addition to all other rights and remedies contained in this Lease,
may assess a one-time late charge against Tenant in the amount of Five Hundred
Dollars ($500.00). Additionally, if Tenant fails to pay any Basic Rent or any
Additional Rent when due and payable, then such unpaid amounts shall bear
interest from the due date thereof to the date of payment at a rate of eighteen
percent (18 %) per annum (the "Default Rate"). This late charge is not a
penalty; it has been agreed to by Landlord and Tenant as necessary to compensate
Landlord for the Landlord's additional costs incurred in connection with late
payment of Rent. Tenant shall further be responsible for the payment of any
legal expense and management fees incurred by Landlord in collecting any
delinquent Rent due hereunder.
5.4. ALL CHARGES CONSTITUTE RENT. Notwithstanding anything in this
Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord
under this Lease, whether or not expressly denominated as Basic Rent or
Additional Rent, and including any and all advances, charges, costs or fees
incurred by Landlord in collecting any sums due from Tenant hereunder, or
otherwise in preserving the rights of Landlord hereunder or in enforcing the
rights and obligations of Landlord and Tenant hereunder, (and specifically
including legal expenses and management fees incurred by Landlord hereunder)
shall constitute and shall be referred to as "Rent" for the purposes of this
Lease as well as Section 502(ii)(6) of the Bankruptcy Code, 11 U.S.C. Section
502(ii)(6).
5.5. DEPOSIT; OTHER SECURITY FOR TENANT'S PERFORMANCE.
5.5.1. Landlord hereby acknowledges receipt from Tenant of
that portion of the cash Deposit as set forth in Section 1.4, which shall be
applied as provided in this Section and in Section 1.4.
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5.5.2. Within fifteen (15) days following the date of this
Lease Tenant shall tender to Landlord, as an additional part of its Deposit, an
irrevocable clean letter of credit in the form referred to in Exhibit C and made
a part hereof, issued by a national banking association and of Tenant's
choosing, but in any event reasonably acceptable to Landlord, in the face amount
of One Million, Five Hundred Thousand Dollars ($1,500,000.00) (the "Letter of
Credit") which shall be held by the Landlord as security for the Tenant's
performance hereunder (except as otherwise provided in Section 5.6.5 below). If
the Letter of Credit expires prior to the date scheduled for termination of this
Lease then, not later than the sixtieth (60th) day before the expiration of the
Letter of Credit, Tenant shall deliver to Landlord a renewal or replacement of
the Letter of Credit having the effect of renewing the expiring Letter of Credit
or replacing it with a new Letter of Credit on terms materially identical to
those of the expiring Letter of Credit. If Tenant fails to deliver a renewal or
replacement of the expiring Letter of Credit on or before such sixty (60) day
period then Landlord shall be entitled, following fifteen (15) days notice to
Tenant, tendered in accordance with this Lease, and Tenant's failure or refusal
to deliver such renewal or replacement within such fifteen (15) day period, to
draw under the Letter of Credit for the full amount thereof for application as
hereinafter provided The proceeds of such draw shall, upon receipt, be held by
Landlord in escrow and deposited by Landlord in a federally insured interest
bearing account and shall be held in lieu of the Letter of Credit, to be applied
as hereinafter provided. In such case the Deposit shall thereafter consist of
the original proceeds of the Letter of Credit plus all accrued interest thereon,
all of which shall be held for the account of Tenant, subject to application by
Landlord as provided herein. In such case the Tenant shall have the right, once
and only once during the Term, to tender a substitute to the Letter of Credit to
Landlord and to receive in return the cash proceeds of the original Letter of
Credit then held on deposit by Landlord. Tenant shall also pay Landlord all of
Landlord's out-of-pocket costs and expenses incurred in effecting a draw under
the original Letter of Credit. If Tenant fails to deliver a renewal or
replacement of the expiring Letter of Credit in the manner above set forth and
if, as a result, Landlord draws under the Letter of Credit as above set forth
and receives the proceeds thereof, as aforesaid, then Tenant's original failure
to deliver a renewal or replacement of the expiring Letter of Credit shall not
be deemed to be a default pursuant to Section 23 of this Lease. If Tenant fails
to deliver a renewal or replacement of the expiring Letter of Credit in the
manner above set forth and if, as a result, the Letter of Credit expires prior
to Landlord's draw thereunder then, Tenant's original failure to deliver a
renewal or replacement of the expiring Letter of Credit shall be deemed to be a
default pursuant to Section 23 of this Lease; in addition to Landlord's other
remedies for such default Landlord shall have the right, upon demand by
Landlord, to require Tenant to forthwith deliver to Landlord a substitute or
replacement for the Letter of Credit and, in addition, Tenant shall pay Landlord
an amount equal to interest at the Default Rate on the principal amount of the
Letter of Credit, accounting from the date of expiry thereof to and including
the date on which a replacement to the Letter of Credit is delivered to
Landlord.
5.5.3. In no instance shall the amount of the Deposit be
considered a measure of liquidated damages. Landlord may apply all or any part
of the Deposit in total or partial satisfaction of any default by Tenant. The
application of all or any part of the Deposit to any obligation or default of
Tenant under this Lease shall not deprive Landlord of any other
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rights or remedies Landlord may have, nor shall such application by Landlord
constitute a waiver by Landlord. If all or any part of the Deposit is applied to
an obligation of Tenant under this Agreement then Landlord shall have the right
to call upon Tenant to restore the Deposit to its original amount in cash by
giving notice to Tenant, in which case Tenant shall immediately restore the
Deposit. It is understood and agreed that should Landlord convey its interest
under this Lease, the Deposit may be turned over by Landlord to Landlord's
grantee or transferee, and upon any such delivery of the Deposit and assumption
by such transferee of Landlord's obligations under this Lease with respect to
the Deposit, Tenant hereby releases Landlord herein named of any and all
liability with respect to the Deposit, its application and return, and Tenant
agrees to look solely to such grantee or transferee. This provision shall also
apply to subsequent grantees and transferees. Landlord will return the balance
of the Deposit not previously applied as provided herein, within thirty (30)
days after expiration of the Term.
5.5.4. As further security for the obligations of Tenant under
this Lease, and at all times during the Term (except upon the conditions
hereinafter provided in Section 5.6.5 below) Tenant shall cause Metris Companies
Inc., as Guarantor of the obligations of Tenant hereunder, to maintain
availability of not less than $ 10,000.000.00 under that committed revolving
credit facility dated September, 1996, in the aggregate amount of
$300,000,000.00 (the "Facility") now in place with a syndicate of lenders the
administrative agent of which is The Chase Manhattan Bank (collectively,
"Lenders") for the benefit of such Guarantor (in being understood and agreed
that the term "Facility" shall include the existing Facility and any refinancing
of the same, with all or any number of the current participants, or with other
participants, whether or not including The Chase Manhattan Bank, so long as the
aggregate amount of the Facility shall not be less than $200,000.00.00). From
time to time during the Term, upon request of Landlord, Tenant shall provide the
certification, in the manner hereinafter set forth, for the benefit of Landlord
to the effect that (i) the Facility is in place, (ii) to the then-current
information and belief of parties making certification, that no defaults exist
thereunder on the part of Guarantor, as Borrower, and (iii) Guarantor's
availability under the Facility is not less than $10,000.000.00 nor, for the
period covered under Landlord's request, has such availability been less than
such sum. Such certification shall be given on request of Landlord, made not
more than once annually, and then within one hundred days following the close of
the Guarantor's fiscal year, by the Chief Financial Officers of Tenant and
Guarantor and, in addition, by a duly authorized representative of the
independent auditor of Guarantor.
5.5.5. Tenant's obligations, (i) to maintain the Letter of
Credit and (ii) to maintain Guarantor's availability under the Facility, as
security for Tenant's obligations under this Lease shall arise and extend so
long as Guarantor's credit rating, as established by a nationally-recognized
commercial credit reporting and rating service acceptable to Landlord, is less
than BBB-. At such time as Guarantor shall have achieved a credit rating of BBB-
or better as reported by such service and shall have maintained such rating for
two (2) consecutive calendar quarters, Tenant shall no longer be required to
maintain either the Letter of Credit or availability of Guarantor under the
Facility. If such conditions are satisfied then, upon request of Tenant made
after such time, Landlord will return the Letter of Credit to Tenant (except
that, if Landlord shall have previously negotiated the Letter of Credit and
deposited its proceeds into
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a Deposit escrow for Tenant's account as provided in Section 5.6.2 above then
Landlord shall not be required to redeliver such monies; rather, such sums shall
remain on deposit with Landlord as above provided). If Guarantor's credit rating
shall subsequently deteriorate so that it is less than BBB- then, at any time
thereafter and upon demand by Landlord, (A) Tenant shall redeliver to Landlord
the Letter of Credit (unless Landlord shall then be holding the cash proceeds of
a previous Letter of Credit, as Tenant's Deposit) and (B) Tenant shall again
provide the certification of Lender for the benefit of Landlord as to the
matters set forth in Section 5.6.4 above.
6. PERMITTED USE. The Premises shall be used and occupied for the
Permitted Use in accordance with applicable zoning regulations and for no other
use or purpose. Tenant shall not commit or suffer to be committed any waste upon
the Premises or any nuisance or other act or thing which may disturb the quiet
enjoyment of any other tenant in the Building, or in the Center, or which may
disturb the quiet enjoyment of any person outside the Building or in the Center
in contravention of such person's legal rights, or which will subject Landlord
to any liability for injury to persons or damages to property. Furthermore,
except as specifically and expressly described within the definition of the
Permitted Use, no use of the Premises shall be made or be permitted to be made
that shall result in any use of the Premises which is improper or unlawful,
specifically including the sale, storage or preparation of food, alcoholic
beverages or materials generating an odor on the Premises, or any other use
generating noises or vibrations that may disturb the Landlord or other Tenants
of the Center. Nor shall the Premises be used or be permitted to be used in any
way which may violate any certificate of occupancy or other governmental
requirements or any covenants or restrictions of record and applicable to the
Center.
7. COMPLIANCE WITH LAW.
7.1. COMPLIANCE WITH RULES, ORDINANCES, ETC. Except as provided in
Subsections 10.4.4 through 10.4.6, Tenant shall, following completion of the
Building and Leasehold Improvements and thereafter throughout the Term, at
Tenant's sole cost and expense, promptly comply with the provisions of: (i) all
laws, ordinances, notices, orders, rules, regulations and requirements of any
and all federal, state or municipal governments, and of the appropriate
departments, commissions, boards and officers thereof, including but not limited
to The Americans with Disabilities Act, 42 U.S.C. Section 12101, ET. SEQ., and
the ADA Disability Guidelines promulgated with respect thereto ("ADA"); (ii) all
Environmental Laws; (iii) all zoning and other land use matters and utility
availability regulations or directives; (iv) any direction of any public officer
or officers, pursuant to law, which shall impose any duty upon Landlord or
Tenant with respect to the use or occupation of the Premises; and (v) all
notices, orders, rules and regulations of the National Board of Fire
Underwriters, or any other body now or hereafter constituted and exercising
similar functions, relating to all or any part of the Premises, regardless of
when they became effective, except to the extent that any such matters are the
responsibility of Landlord under this Lease. Tenant shall likewise observe and
comply with the requirements imposed by any and all policies of public
liability, fire and other insurance at any time in force with respect to the
Premises or with respect to the Building, any other
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improvements upon the Premises, and/or equipment therein. Tenant shall comply
with the National Fire Code which prohibits smoking in storage areas containing
combustible products and shall install, at its expense, "No Smoking" signs in
those areas of the Premises. Tenant shall also install fire extinguishers
throughout the Premises and shall inspect such extinguishers at least once a
year and refill and maintain such extinguishers as often as necessary. Tenant
shall also maintain all exit and emergency directional signs within the
Premises. Tenant shall also comply with Landlord's rules and regulations
attached to the Lease as Exhibit B (the "Rules and Regulations").
7.2. HAZARDOUS MATERIAL.
7.2.1. LANDLORD'S AGREEMENTS. Landlord hereby makes the
following warranties to Tenant, each of which is made only to the best of
Landlord's knowledge as of the date of this Lease: (i) Landlord has not placed
or allowed to be placed on the Premises any Hazardous Materials or otherwise
violated any Environmental Laws with respect to the Premises which violation
remains unremedied; (ii) Landlord has received no notice of, nor does Landlord
have any knowledge of placement of Hazardous Materials on the Premises by third
parties; (iii) Landlord has made no environmental assessments, audits, tests or
sampling to ascertain if the Premises was previously contaminated by Hazardous
Materials or the existence of violation of Environmental Laws, nor does it have
any knowledge of the existence of any such assessments, audits, tests or
samplings; (iv) Landlord has neither filed or been required to file any reports
respecting Hazardous Materials with any Appropriate Authority; (v) Landlord has
received no notice from any Appropriate Authority respecting Hazardous Materials
on the Premises. If (i) it is determined at any time by a court of competent
jurisdiction that the representations of Landlord contained above are not
correct and that Landlord had actual knowledge of such incorrectness as of the
date of this Lease; or (ii) Landlord, its agents, employees or contractors (but
not tenants of Landlord or their agents, employees or contractors) violate any
Environmental Laws with respect to the Premises, then the following shall apply:
(1) Landlord shall be responsible for all costs incurred in complying with all
Environmental Laws which relate to the occurrence in question; and (2) Landlord
shall indemnify, defend and hold Tenant harmless from and against any and all
claims, judgements, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees) which arise during or after the Term from
or in connection with the Hazardous Materials and the occurrence in question
except for Tenant's lost profits or damages or loss to Tenant's business.
7.2.2. TENANT'S AGREEMENTS. Tenant warrants and agrees that
Tenant shall not cause or permit any Hazardous Material to be brought upon, kept
or used in or about the Premises by Tenant, its agents, employees, contractors
or invitees, without the prior written consent of Landlord (which Landlord shall
not unreasonably withhold as long as Tenant demonstrates to Landlord's
reasonable satisfaction that such Hazardous Material is necessary or useful to
Tenant's business and will be used, kept and stored in a manner that complies
with all Environmental Laws regulating any such Hazardous Material so brought
upon or used or kept in or about the Premises). Tenant shall have no obligation
under this Section 7.2 with respect
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to conditions existing on the date of this Lease or construction of the Center,
Building or Leasehold Improvements. If Tenant breaches the obligations stated in
the first sentence of this Section, or if the presence of Hazardous Material on
the Premises caused or permitted by Tenant results in contamination of the
Premises, the Building or the Center generally or if contamination of the
Premises, the Building or the Center by Hazardous Material otherwise occurs for
which Tenant is legally liable to Landlord for damage resulting therefrom, then
Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, judgements, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Premises, the
Building and the Center generally, damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Building or the Center
generally, damages arising from any adverse impact on marketing of space in the
Building, and sums paid in settlement of claims, attorneys' fees, consultant
fees and expert fees) which arise during or after the Term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work required by
any Appropriate Authority because of Hazardous Material present in the soil or
ground water on or under the Premises or the Center generally. Without limiting
the foregoing, if the presence of any Hazardous Material on the Premises caused
or permitted by Tenant results in any contamination of the Premises or the
Center generally, Tenant shall promptly take all actions at its sole expense as
are necessary to return the Premises to the condition existing prior to the
introduction of any such Hazardous Material to the Premises; provided that
Landlord's approval of such actions shall first be obtained, which approval
shall not be unreasonably withheld so long as such actions would not potentially
have any material adverse long-term or short-term effect on the Premises or the
Center generally. It shall not be unreasonable for Landlord to withhold its
consent to any proposed Transfer otherwise permitted pursuant to Section 8 of
the Lease if (i) the proposed Transferee's anticipated use of the Premises
involves the generation, storage, use, treatment or disposal of Hazardous
Material not permitted under this Lease; (ii) the proposed Transferee has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Material contaminating a property
if the contamination resulted from such Transferee's actions or use of the
property in question for the same use as proposed for the Premises; or (iii) the
proposed Transferee is subject to an enforcement order issued by any Appropriate
Authority in connection with the use, disposal or storage of a Hazardous
Material for the same use as proposed for the Premises.
7.2.3. DEFINITIONS. As used herein, the following terms have
the meanings ascribed: (i) "Appropriate Authorities" means all federal, state or
County Governments, or the departments, commissions, boards and officers thereof
having jurisdiction over the administration and enforcement of Environmental
Laws, and such public or other officials as are required to approve particular
permits, licenses, consents, waivers or other approvals needed in connection
with the use, storage or disposal of Hazardous Materials; (ii) "Environmental
Laws" means the Clean Air Act, the Resource Conservation Recovery Act of 1976,
the Hazardous Material Transportation Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Occupational Safety and
Health Act, the Consumer Product
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Safety Act, the Clean Water Act, the Federal Water Pollution Control Act, the
National Environmental Policy Act, Md. Nat. Res. Code Ann., Title 8, and Md.
Env. Code Ann., Title 7, as each of the foregoing shall be amended from time to
time, and any similar or successor laws, federal, state or local, or any rules
or regulations promulgated thereunder; and (iii) "Hazardous Materials" means and
includes asbestos; "oil, petroleum products and their by-products"; "hazardous
substances"; "hazardous wastes" or "toxic substances", as those terms are used
in Environmental Laws; or any substances or materials listed as hazardous or
toxic in the United States Department of Transportation Table, or by the
Environmental Protection Agency or any successor agency under any Environmental
Laws.
7.2.4. ANNUAL DISCLOSURE. At the commencement of this Lease,
and on January first in each Lease Year of the Term, and on January first next
following the termination of the Term, Tenant shall disclose to Landlord the
names and amounts of all Hazardous Materials, or any combination thereof, which
were stored, used, or disposed of on the Premises, or which Tenant intends to
store, use, or dispose of on the Premises.
7.2.5. RIGHT OF INSPECTION. Landlord and Landlord's Agents
shall have the right, but not the obligation, but upon reasonable prior written
notice to Tenant, to make regular annual inspections, investigations, sampling
or monitoring of the Premises and Tenant's operations therein to determine
whether Tenant is complying with the terms of this Section. If Tenant has
conducted activities which require inspection or monitoring then all sums
out-of-pocket sums reasonably disbursed by Landlord in connection therewith
shall be due and payable by Tenant to Landlord, as Additional Rent, within ten
(10) days following written demand by Landlord, accompanied by receipts for all
work performed, and, if not paid within such time, then such sum shall bear
interest thereon at the Default Rate accounting from the date of demand until
paid by Tenant.
8. ASSIGNMENT AND SUBLETTING.
8.1. TRANSFER. Tenant agrees for itself and its permitted successors
and assigns in interest hereunder that it will not (i) assign or otherwise
transfer, mortgage or otherwise encumber this Lease or any of its rights
hereunder; (ii) sublet the Premises or any part thereof or permit the occupancy
or use of the Premises or any part thereof by any person other than Tenant; or
(iii) permit the assignment or other transfer of this Lease or any of Tenant's
rights hereunder by operation of law, including any levy or sale in execution of
a judgment or any assignment or sale in bankruptcy, or insolvency, or the
appointment of a receiver or trustee by any state or federal court, without the
prior written consent of Landlord in each instance first obtained, which consent
Landlord may withhold in the unfettered exercise of its discretion. Each of the
events referred to in the foregoing clauses (i), (ii) and (iii) are hereinafter
referred to as a "Transfer"; and any transferee, assignee, mortgagee, sublessee
or occupant with respect thereto is hereinafter referred to as a "Transferee".
Any consent given to any one Transfer shall not constitute a consent to any
subsequent Transfer. Any attempted Transfer without Landlord's consent shall be
null and void and shall not confer any rights upon any purported Transferee.
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No Transfer, regardless of whether Landlord's consent has been granted or
withheld, shall be deemed to release Tenant from any of its obligations
hereunder or to alter, impair or release the obligations of any person
guaranteeing the obligations of Tenant hereunder.
8.2. CORPORATE, PARTNERSHIP TRANSFERS. If Tenant is a corporation
(except a corporation over fifty percent (50%) of the voting power of which, or
of such corporation's parent corporation, is held by fifty (50) or more
unrelated shareholders or distributed to such number of unrelated shareholders
in a public distribution of securities) and if at any time during the Term of
this Lease any part or all of the corporate shares of Tenant shall be
transferred by sale, assignment, bequest, inheritance, operation of law, or
other disposition so as to result in a change in the present effective voting
control of Tenant by the person or persons owning or controlling a majority of
the shares of Tenant on the date of this Lease (i.e., Metris Companies, Inc.)
then Tenant shall promptly notify Landlord in writing of such change, and such
change in voting control shall constitute an Transfer of this Lease for all
purposes of this Section. In the case of such deemed Transfer the recapture
provisions of Section 8.6, the excess rent provisions of Section 8.8, and the
net worth provisions of Subsection 8.3.2 and 8.5.1 shall be inapplicable.
8.3. LANDLORD'S APPROVAL OF CERTAIN TRANSFERS. Notwithstanding (and
without limiting) any other provisions of this Section 8, subsequent to the
Commencement Date, Landlord agrees not to unreasonably withhold its consent to a
Transfer of Tenant's entire interest in this Lease and the Premises provided
that:
8.3.1. At least thirty (30) days before the proposed effective
date of the Transfer Landlord receives for approval a copy of a fully executed
unconditional assignment or sublease together. with (i) reasonably detailed
information as to the character, reputation and business experience of the
proposed Transferee, and (ii) financial information and bank references on the
proposed Transferee (including, at Tenant's expense, a current Dun & Bradstreet
report and a financial statement certified as being true and correct by the
chief financial executive of the proposed Transferee);
8.3.2. The net worth of the Transferee immediately prior to
the Transfer shall not be less than Ten Million Dollars ($10,000,000.00);
8.3.3. No breach or default on Tenant's part can exist at the
time of the consent request and at the effective Transfer date;
8.3.4. Any Transfer will be upon and subject to all terms and
conditions of this Lease, including those regarding the Permitted Use of the
Premises;
8.3.5. Any assignment shall specifically state (and, if it
does not, it win be deemed to specifically state) that the assignee assumes and
agrees to be bound by all terms and conditions of this Lease; and any sublease
must specifically state (and, if it does not, it will be deemed to specifically
state) that at Landlord's election the subtenant will attorn to Landlord
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and recognize Landlord as Tenant's successor under the sublease for the balance
of the sublease term if this Lease is surrendered by Tenant or terminated by
reason of Tenant's default;
8.3.6. Upon request and as additional rent Tenant will pay to
Landlord a processing fee of $500.00, for document review and/or preparation in
connection with the proposed transaction;
8.3.7. No Transfer will be to a then-existing tenant or
occupant of all or any part of the White Marsh Business Community, nor
violate or conflict with the rights of any such party;
8.4. DENIAL OF CONSENT TO CERTAIN TRANSFERS DEEMED NOT UNREASONABLE.
Without limiting Landlord's rights, it is agreed that Landlord will not be
deemed to be unreasonable if it does not approve any Transferee which will: (i)
perform governmental or quasi-governmental functions or social welfare services;
or (ii) operate an employment service, a messenger or an answering service or
make any use of the Premises for any purpose other than as general commercial,
non-retail, office space.
8.5. CONSENT NOT REQUIRED FOR CERTAIN CORPORATE TRANSFERS. Tenant may
Transfer this Lease, at any time during the Term of this Lease, to any parent,
subsidiary or affiliate corporation of Tenant or to the surviving corporation in
connection with a merger, consolidation or acquisition between Tenant and any of
its subsidiaries or any other corporation, or in connection with the sale and
transfer of all or substantially all of the real property and assets of the
Tenant, upon thirty (30) days' prior Notice to Landlord but without the
necessity for Landlord's prior written consent, provided:
8.5.1. The net worth of the Transferee immediately prior to
the transfer shall not be less than Ten Million Dollars ($10,000,000.00);
8.5.2. Such Transferee will operate a business in the Premises
for the Permitted Use and pursuant to all of the provisions of this Lease;
8.5.3. Such Transferee shall assume in writing in a form
reasonably satisfactory to Landlord all of Tenant's obligations hereunder;
8.5.4. Landlord shall be furnished with a copy of such
assignment within (30) thirty days following execution thereof; and
8.5.5. Tenant to which the Premises were initially leased
shall continue to remain liable on this Lease for the performance of all terms
including, but not limited to, payment of all rentals and other sums due under
this Lease.
8.6. REQUEST FOR TRANSFER. If Tenant desires to Transfer this LEASE IN
whole or in part, Tenant shall submit to Landlord (i) in writing, the name and
address of the
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proposed Transferee, a reasonably detailed statement of the proposed
Transferee's business and reasonably detailed financial references and
information concerning the financial condition of the proposed Transferee; (ii)
a copy of the proposed Transfer document, the effective date of which shall be
at least thirty (30) days after the date on which Tenant shall have furnished
Landlord with all of the information required pursuant to (i) above and which
shall be conditioned on Landlord's consent thereto; and (iii) an agreement in
form and substance satisfactory to Landlord by Tenant to indemnify Landlord
against liability resulting from any claim made against Landlord by the proposed
Transferee or by any broker claiming a commission in connection with the
proposed Transfer. If (i) Tenant's proposed Transfer constitutes a Transfer of
all or substantially all of the area of the Premises, or (ii) Tenant's proposed
Transfer constitutes a Transfer of the Premises or a portion thereof for all or
substantially all of the then-remainder of the Term then, in either case,
Tenant's notice and request for Landlord's consent to Transfer shall also be
deemed to constitute Tenant's offer to reconvey to Landlord, as of the proposed
effective date of the Transfer, that portion of the Premises which is the
subject of the proposed Transfer, which offer shall contain an undertaking by
Tenant to accept, as full and adequate consideration for the reconveyance,
Landlord's release of Tenant from all future Rent and other obligations under
this Lease with respect to the Premises or the portion thereof so reconveyed.
The foregoing provision shall not apply to Transfers excepted from Landlord's
approval as provided in Subsection 8.5 above. Landlord, in the sole and
unfettered exercise of its discretion, shall accept or reject the offered
reconveyance within thirty (30) days of the offer, and, if Landlord accepts, the
reconveyance shall be evidenced by an agreement in form and substance acceptable
to Landlord. If Landlord fails to accept or reject the offer within the thirty
(30) day period then Landlord shall be deemed to have rejected the offer of
reconveyance, but no such rejection shall be deemed to be a consent to the
requested Transfer.
8.7. ASSIGNMENT IN INSOLVENCY OR BANKRUPTCY. Notwithstanding any of
the other provisions of this Lease, if a voluntary or involuntary petition in
Bankruptcy shall be entered with respect to Tenant pursuant to the provisions of
the Federal Bankruptcy Code, so that this Lease and the Tenant's interest
therein shall voluntarily or involuntarily come under the jurisdiction of the
United States Bankruptcy Code, 11 U.S.C. Section 101, ET SEQ. (the "Bankruptcy
Code") and thereafter Tenant or its trustee in bankruptcy, under the authority
of and pursuant to applicable provisions thereof, shall determine to engage in a
Transfer, then Tenant agrees that, in addition to complying with the other
provisions of this Section, (i) Tenant or its trustee will provide to Landlord
sufficient information enabling it to independently determine whether Landlord
will incur actual and substantial detriment by reason of such Transfer and (ii)
"adequate assurance of future performance" under this Lease, as that term is
generally defined under the Bankruptcy Code, will be provided to Landlord by
Tenant and its Transferee as a condition of such Transfer. If this Lease is
Transferred pursuant to the provisions of the Bankruptcy Code, then any and all
monies or other considerations payable or otherwise to be delivered in
connection with such Transfer shall be paid or delivered to Landlord, shall be
and remain the exclusive property of Landlord and shall not constitute property
of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code.
All monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and be promptly paid or delivered to Landlord.
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8.8. EXCESS RENT. In the case of any Transfer made without Landlord's
prior written consent Landlord may nevertheless collect Rent (including
Additional Rent) from the Transferee and apply the net amount collected to the
Rents herein reserved. The acceptance by Landlord of the payment of Rent
following any Transfer not expressly consented to by Landlord pursuant to this
Section shall not be deemed to be a consent by Landlord to such Transfer nor
shall the same be deemed to be a waiver of any right or remedy of Landlord
hereunder, nor constitute a release of Tenant or any guarantor of Tenant's
obligations from the further performance by Tenant and such guarantor of the
terms and provisions of this Lease and any such guaranty. Furthermore, under any
and all circumstances, in the case of any Transfer, Tenant shall pay to Landlord
monthly, as Additional Rent, the excess of the consideration received or to be
received during such month for such Transfer (whether or not denoted as rent)
over the Rent reserved for such month in this Lease applicable to such portion
of the Premises so Transferred. In the case of any approved Transfer Tenant
shall nevertheless remain fully liable for the full performance of all
obligations under this Lease to be performed by Tenant, and Tenant shall not be
released therefrom in any manner.
8.9. TRANSFER INSTRUMENT. No Transfer consented to by Landlord shall
be valid unless Tenant shall deliver to Landlord, within ten (10) days after
Landlord's written consent has been received, a duplicate original instrument of
Transfer duly executed by Tenant and the Transferee. Such instrument shall
provide that (i) the Transferee shall take subject to this Lease, (ii) the
Transferee shall also fulfill all obligations of Tenant under this Lease as they
pertain to the portion of the Premises set forth in the Transfer, and (iii) with
respect to such portion of the Premises the Transferee shall be deemed to be
Tenant under this lease.
8.10. LANDLORD'S COSTS. Tenant's request for consent to Transfer shall
be accompanied by Tenant's payment to Landlord of a Transfer review fee in the
amount of Five Hundred Dollars ($500.00), which is imposed in order to reimburse
Landlord for all of its internal costs and expenses incurred with respect to
Landlord's review of the request for the Transfer, including, without
limitation, costs incurred in connection with the review of financial materials,
meetings with representatives of Transferor and/or Transferee and preparation,
review, approval and execution of the required Transfer documentation. Tenant
further agrees to pay Landlord, as Additional Rent, all costs incurred by
Landlord in connection with any actual or proposed Transfer, including, without
limitation, the costs of making investigations as to the acceptability of a
proposed Transferee and legal costs actually incurred by Landlord in connection
with any requested consent to Transfer not to exceed $500.00. Tenant
acknowledges and agrees that the costs and expenses imposed and agreed to be
paid by Tenant under this Subsection are agreed to be paid in consideration of
the Landlord's processing of the Tenant's request for Transfer, and that they
are not intended as consideration for the consent to Transfer. Payment of such
fees and costs shall under no circumstances obligate the Landlord to consent to
any requested Transfer. Such fees and costs shall be non-refundable,
notwithstanding the failure of the Landlord to consent to the requested
Transfer.
9. ABANDONMENT OF PREMISES OR PERSONAL PROPERTY; SURRENDER OF PREMISES.
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9.1. ABANDONMENT. Tenant shall not abandon the Premises at any time
during the Term of this Lease, but if Tenant does abandon the Premises or is
dispossessed by process of law then any personal property belonging to Tenant
and left on the Premises may, at the option of the Landlord, be deemed to have
been abandoned by Tenant, in which case the provisions of Subsection 9.4 shall
apply. If Tenant vacates the Premises and continues to pay Rent and otherwise to
comply with its Lease obligations no abandonment will be deemed to have
occurred.
9.2. SURRENDER. Unless sooner terminated pursuant to the provisions
hereof, this Lease shall expire absolutely upon the expiration of the Term
without the necessity of any notice or other action from or by either party
hereto. At the expiration or earlier termination of the Term of this Lease,
Tenant shall peaceably surrender the Premises in broom clean condition and good
order and repair and otherwise in the same condition as the Premises were upon
the commencement of this Lease, except (i) ordinary wear and tear, (ii) to the
extent that the Premises is not required to be repaired or maintained by Tenant
and (iii) damage by fire or other casualty. Tenant further agrees that during
the six (6) month period preceding the expiration date of the Term, Landlord may
place upon the Premises a FOR RENT sign.
9.3. REMOVAL OF TENANT'S IMPROVEMENTS. If Landlord intends to elect
to require that any specific alterations, installations, changes, replacements,
additions or improvements made or proposed to be made by Tenant to the Premises
be removed at the termination of this Lease, then Landlord shall so state in
writing at the time Landlord gives its consent to the construction or
installation of such specific alterations, installations, changes, replacements,
additions or improvements, in which case Tenant hereby agrees to cause the same
to be removed at its sole cost and expense. Otherwise, such alterations,
installations, changes, replacements, additions or improvements shall be
permitted to remain in the Premises and not be removed as of the termination of
this Lease. If Tenant fails to remove the same, then Landlord may cause them to
be removed at Tenant's expense, and Tenant hereby agrees to reimburse Landlord
for the cost of such removal, together with all and any damages which Landlord
may suffer and sustain by reason of Tenant's failure to remove the same.
Alternatively, Landlord may elect that all or any of the alterations,
installations, changes, replacements, additions to or improvements made by
Tenant to the Premises shall remain at the termination of this Lease and not be
removed. Tenant shall surrender to Landlord all keys for the Premises at the
place then fixed for the payment of Rent and shall notify Landlord in writing of
all combinations or codes for any other locks or alarm systems, if any,
installed in the Premises. Tenant's obligations to observe and perform the
covenants set forth in this Subsection 9.3 shall survive the expiration or
earlier termination of this Lease.
9.4. REMOVAL OF PERSONAL PROPERTY. At the expiration or earlier
termination of the Term of this Lease, Tenant shall immediately remove all
personal property which it owns and is permitted to remove from the Premises
under the provisions of this Lease and, failing to do so, Landlord at its
option may either (i) cause that property to be removed at the risk and
expense of Tenant (both as to loss and damage) in which case Tenant hereby
agrees to pay all reasonable costs and expenses incurred thereby, including
sums paid to store the property
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elsewhere, together with the costs of any repairs to the Premises caused by the
removal of the property; (ii) upon fifteen (15) days written notice to Tenant,
which the parties agree is commercially reasonable, sell at public or private
sale any or all of such property, whether exempt or not from sale under
execution or attachment (such property being deemed charged with a lien in favor
of Landlord for all sums due hereunder) with the proceeds to be applied as set
forth in Subsection 24.2.2, or (iii) at Landlord's option, title shall pass to
Landlord.
9.5. TRADE FIXTURES. All trade fixtures installed by Tenant in the
Premises, other than Alterations, shall remain the property of Tenant and shall
be removable from time to time and also at the expiration of the Term of this
Lease or other termination thereof. Tenant further agrees to repair any damage
to the Premises, fair wear and tear excepted, caused by removal of such
fixtures.
10. REPAIRS AND ALTERATIONS.
10.1. REPAIRS TO BE MADE BY LANDLORD.
10.1.1. Except as otherwise provided in this Section, Landlord
shall maintain (i) the structural soundness of the Building and shall maintain
and repair the roof of the Building; (ii) the exterior walls of the Building
(excluding all doors and locks, door frames, storefronts, windows and glass
within the Premises); and (iii) the structural columns and floors (excluding
floor coverings such as carpet and floor tile) of the Premises and the Building,
provided Tenant gives Landlord written notice specifying the need for and
nature of such repairs (but failure of notice shall not constitute a waiver of
Landlord's obligations); and further provided, however, that if Landlord is
required to make any repairs to such portions of the Premises or Building by
reason, in whole or in part, of the negligent act or failure to act by Tenant or
Tenant's contractors or subcontractors or its or their agents or employees, or
by reason of any unusual use of the Premises by Tenant (whether or not such use
is contemplated within the definition of the Permitted Use) then (subject to the
limitations of Section 14.5) Landlord may collect the cost of such repairs, as
Additional Rent, upon demand.
10.1.2. If without Landlord's prior consent, Tenant performs or
permits to be performed any Alterations which affects the structural portions of
the Premises and/or the roof of the Building or which affects the structural
integrity of the Building, such action by Tenant shall release and discharge
Landlord as of the commencement of such Alteration from such repair obligation
with respect to the affected portion of the Building. Thereafter, Tenant agrees
to be solely responsible under Landlord's supervision for the maintenance,
repair, and replacement of any or all such structural portions and/or roof which
have been affected as aforesaid, and Tenant shall commence promptly after demand
by Landlord to make an such repairs and replacements and proceed diligently to
complete them. If Tenant fails in the performance of such responsibilities, to
Landlord's satisfaction, then, in addition to Landlord's other remedies under
this Lease, at law or in equity, and subject to the provisions for Notice and
cure provided in Section 23, Landlord may (but shall not be obligated to) cure
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such failure on behalf of Tenant without any liability of Landlord for damage to
Tenant's fixtures or other property or to Tenant's business by reason thereof.
In such case Tenant shall reimburse Landlord, as Additional Rent, upon demand,
for any sums paid or costs incurred in curing such failure, together with
interest at the Default Rate accounting from the date of demand until payment is
made. If Tenant performs or permits to be performed any Alterations
inconsistently with Landlord's prior consent then such work shall be deemed to
have been performed without Landlord's consent.
10.2. REPAIRS TO BE MADE BY TENANT. All repairs to the Premises or any
installations, equipment or facilities therein, other than those repairs
required to be made by Landlord pursuant to Subsections 10.1 or 16.1,
including repairs or improvements required by Applicable Laws as referred to in
Section 7, shall be made by Tenant at its expense. Tenant shall at all times at
its own expense keep and maintain the Premises in good order and repair, and in
a neat, safe, clean, and orderly condition, including, but not limited to,
reasonable periodic painting and making all nonstructural ordinary and
extraordinary, foreseen and unforeseen repairs and replacements to the Premises
under Landlord's supervision. These include, without limitation, repairs and
replacements: to the plumbing and electrical apparatus therein; to the other
mechanical installations therein; to the heating, ventilating and air
conditioning system installed in or with respect to the Premises; and to all
doors and locks, door frames, storefronts, windows and glass within the
Premises. In furtherance of Tenant's obligations hereunder, Tenant agrees to
obtain a maintenance repair and service contract on the heating, ventilating and
air conditioning system of the Premises, which contract shall be on such terms
and with such company as shall be reasonably approved by Landlord and shall be
delivered to Landlord within thirty (30) days after the commencement of the
Term. Tenant shall keep such contract in full force and effect during the Term.
Tenant shall keep all of the same in good order and repair and will make all
replacements from time to time required thereto at its expense. Tenant shall not
overload the electrical wiring serving the Premises or within the Premises, and
will install at its own expense under Landlord's supervision, but only after
obtaining Landlord's written approval, any additional electrical wiring which
may be required in connection with the Premises. Tenant shall be responsible for
storage of Tenant's trash or refuse in proper recepticals and for removal of the
same from the Premises and the Center at Tenant's cost and expense. Dumpsters or
other trash containers shall not be allowed on the outside of the Building
without Landlord's prior written consent except as shown on the Site Plan or
Building Plans. If such consent be given by Landlord, the type, size, and
location of such containers shall be only as approved by Landlord and shall be
maintained by Tenant in a clean sanitary manner, and in good repair at all
times.
10.3. DAMAGE TO PREMISES. Subject to the limitations of Section 14.5,
Tenant will repair promptly at its expense any damage to the Premises and, upon
demand, shall reimburse Landlord (as Additional Rent) for the cost of the repair
of any damage elsewhere on in the Center, caused by or arising from the
installation or removal of property or fixtures in or from the Premises,
regardless of fault or by whom such damage shall be caused (unless caused by
Landlord, its agents, employees or contractors). If Tenant fails to commence
such repairs within thirty (30) days after notice to do so, or complete such
repairs prior to the
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termination or sooner expiration of the Term, then Landlord may make or cause
the same to be made and Tenant agrees to pay to Landlord promptly upon
Landlord's demand, as Additional Rent, the cost thereof with interest thereon at
the Default Rate until paid. At Landlord's election, Tenant shall also (i)
repair or remediate promptly, and at Tenant's expense, or (ii) reimburse
Landlord (as Additional Rent) for the cost of repairs or remediation of, any
damage to or dangerous condition created within the Center, if such damage or
dangerous condition was caused or created by Tenant, its agents, employees or
contractors. If Tenant fails to commence such repair or remediation within five
(5) days after Landlord's notice to do so, or if Landlord elects to undertake
such repair or remediation for the account of Tenant, then Tenant agrees to pay
to Landlord promptly upon Landlord's demand, as Additional Rent, the cost
thereof with interest thereon at the Default Rate until paid. Tenant's
obligations for Additional Rent hereunder shall survive the termination of this
Lease.
10.4. ALTERATIONS BY TENANT.
10.4.1. Tenant will not make: (i) any alteration, modification,
substitution or other change of any nature to the structural, mechanical,
electrical, plumbing, HVAC and sprinkler systems within or serving the Premises;
nor (ii) any renovations, improvements or other installations in, on or to any
part of the Premises (including, without limitation, any alterations of the
exterior of the Premises, signs, structural alterations, or any cutting or
drilling into any part of the Premises or any securing of any fixture,
apparatus, or equipment of any kind to any part of the Premises); nor (iii) any
installation or modification of walls, partitions, counters, doors, shelves,
lighting fixtures, hardware, locks, ceiling and windows (all collectively
referred to herein as "Alterations"), unless and until Tenant shall have caused
complete plans and specifications therefor to have been prepared, at Tenant's
expense, by an architect or other duly qualified person, shall have submitted
same to Landlord and shall have obtained Landlord's written approval thereof,
which approval shall not be unreasonably withheld, conditioned or delayed. If
such approval is granted, Tenant shall cause the work described in such plans
and specifications to be performed, at its expense, promptly, efficiently,
competently and in a good and workmanlike manner by duly qualified and licensed
persons or entities, without interference with or disruption to the operations
of tenants or other occupants of the Building or the Center. All such work shall
comply with all applicable codes, rules, regulations and ordinances and shall be
performed by contractors who are approved by Landlord and who carry the
insurance coverage required in Section 15. Landlord may elect that any
Alterations be performed by Landlord or by contractors engaged by and under the
direction of Landlord, in which case such Alterations shall nevertheless be made
at Tenant's sole cost, payable by Tenant as Additional Rent; and such cost shall
include a construction management fee of ten percent (10%) of the total cost of
the work. Alterations shall only be made after Tenant has obtained any necessary
permits from governmental authorities for the Alterations. Notwithstanding the
foregoing Tenant shall be permitted to perform all emergency repairs and
replacements (to the extent not responded to by Landlord within a reasonable
time, having regard to the nature of the emergency condition), interior
decorating and refurbishment, consisting of wallpapering, painting and
recarpeting, for its own account, and without Landlord's
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prior written consent (and in such case no construction management fee shall
apply to any such Tenant work).
10.4.2. If Tenant is permitted to make Alterations following
Landlord's approval (if such approval is required), then Tenant shall notify
Landlord of the date on which work on Alterations is scheduled to begin and
shall arrange for periodic inspections by Landlord of the job progress to insure
compliance with the approved plans and specifications. As a condition for
approving any Alterations on the Premises by Tenant the cost of which exceeds
$100,000, Landlord shall have the right to require Tenant, or Tenant's
contractor, to furnish bond in an amount equal to the estimated cost of
construction with a corporate surety approved by Landlord for (i) completion of
the construction and (ii) indemnification of Landlord and Tenant, as their
interests may appear, against liens for labor and materials, which bond shall be
furnished before any work has begun or any materials delivered. Landlord shall
also have the right at any time before, during, or after the construction to
require Tenant to furnish further assurances against mechanics' liens including,
but not limited to, releases of liens signed by all contractors, subcontractors,
and suppliers, and affidavits executed by Tenant, Tenant's contractor, or
architect, that all charges for labor and materials have been paid. Tenant shall
promptly pay or bond off any lien filed against the Premises, the Building or
the Center for any construction performed by or on behalf of Tenant.
10.4.3. If Tenant makes any Alterations requiring Landlord's
consent without obtaining the prior consent of Landlord, then, in addition to
Landlord's other remedies, but subject to the provisions for Notice and cure
set forth in Section 23, Landlord may correct or remove such Alterations and
Tenant shall, on demand, pay the cost thereof (plus ten percent (10%) of such
cost as a construction management fee) as Additional Rent. If any mechanic's
lien is filed against the Premises or the Building or the Center for work or
materials furnished to Tenant (other than by Landlord, its contractor or
subcontractors) the lien shall be discharged by Tenant within thirty (30)
days thereafter, solely at Tenant's expense, by either paying off or bonding
the lien. Should Tenant fail to discharge any lien within thirty (30) days of
its filing, then, in addition to Landlord's other remedies, Landlord shall
have the right, but not the obligation, to discharge said lien at Tenant's
expense, in which case Tenant shall reimburse Landlord for the same upon
demand, as Additional Rental, together with interest accounting from the date
of demand until payment is made.
10.4.4. If any Alterations are required to be made to the
Premises, the Building or the Center due to Legal Requirements because the same
were in actual violation of any Legal Requirements on or as of the Commencement
Date, or if, as a result of Landlord undertaking any alterations, repairs,
maintenance or other activities elsewhere in the Center, Alterations are
required to be made to the Premises, the Building or the Center due to Legal
Requirements, then Landlord shall make such Alterations at its sole cost and
expense (and such expenses shall not be included within Common Area Maintenance
Expenses or Additional Rent); and Landlord shall take all reasonable steps to
minimize disruption to Tenant while making such Alterations.
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10.4.5. Subject to Landlord's obligations set forth in the
previous Subsection and in the following Subsection, if any Alterations are
required to be made to the Premises, the Building or the Center due to a change
in, or change in the interpretation of, or more stringent enforcement of, Legal
Requirements occurring on or after the Commencement Date (and not in connection
with existing environmental conditions, or alterations, repairs, maintenance or
other activities elsewhere in the Center undertaken by Landlord), then Landlord
shall make such Alterations as aforesaid, provided that the cost of such
Alterations shall be amortized over their useful life and a ratable portion of
such cost shall be included within the definition of Common Area Maintenance
Expenses in each Lease Year until such cost is fully amortized. If, as a result
of Tenant undertaking any Alterations, Alterations are required to be made to
the Premises due to Legal Requirements, then Tenant shall make such Alterations
at Tenant's sole cost and expense.
10.4.6. Except as provided in Sections 10.4.4 and 10.4.5, if
any Alterations are required to be made to the Premises or any portion thereof
at any time during the Term as a result of any Legal Requirements relating to
accessibility by persons with disabilities or otherwise pursuant to the ADA
(collectively, the "Accessibility Alterations"), including any Alterations
required because the Premises, as used by Tenant, is deemed to be a place of
public accommodation under the ADA, then all such required Alterations shall be
made by Tenant at its sole cost and expense unless Landlord shall otherwise
agree; and, if Landlord elects to make such Alterations, then such Alterations
shall be at Tenant's sole cost and expense, and payable by Tenant as Additional
Rent; and such cost shall include a construction management fee of ten percent
(10%) of the total cost of the work. Alterations shall only be made after Tenant
has obtained any necessary permits from governmental authorities for the
Alterations.
10.4.7. Within ten (10) days after receipt, Tenant shall advise
Landlord in writing, and provide Landlord with a copy of (as applicable), any
notices alleging violation of Legal Requirements relating to any portion of the
Center or of the Premises; any claims made or threatened in writing regarding
noncompliance with Legal Requirements and relating to any portion of the Center
or of the Premises; or any governmental or regulatory actions or investigations
instituted or threatened regarding noncompliance with the ADA and relating to
any portion of the Center or the Premises.
10.4.8. As used in this Subsection 10.4, "Legal Requirements"
means environmental, air quality, wetlands, shoreline, flood plan, zoning,
planning, subdivision, building, health, labor, discrimination, fire, traffic,
safety and other governmental or regulatory rules, laws, ordinances, statutes,
codes and requirements (including any administrative, judicial or similar
interpretations or rulings or legislative clarifications that may be made after
any point in time but which relate to any of the same as they exist at such
point in time), including, without limitation, the Fair Housing Act of 1968 (as
amended) and the Americans with Disabilities Act of 1990 and the Accessibility
Guidelines promulgated with respect thereto ("ADA").
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10.5. CHANGES AND ADDITIONS TO THE CENTER. Landlord reserves the right
at any time and from time to time, subject to the provisions of Section 10.7, to
(i) make or permit changes or revisions in the plan for the Center, including
additions to, subtractions from, rearrangements of, alterations, modifications
of, or supplements to, the building areas, walkways, driveways, parking areas,
or other Common Areas; (ii) construct other buildings or improvements on the
Center (including any portion of the Common Areas) and make alterations thereof
or additions thereto and build additional stories on or in any such building(s)
and build extensions adjoining same; and (iii) make or permit changes or
revisions to the Center, including additions thereto, and to convey portions of
the Center (including any portion of the Common Areas) to others for the purpose
of constructing thereon other buildings or improvements, including additions
thereto and alterations thereof. Any diminution or shutting off of light, air or
view by any structure which may be erected on lands adjacent to or near the
Building shall in no way affect this Lease or impose any liability on Landlord.
10.6. ROOF AND WALLS; EXCAVATIONS. Landlord shall have the exclusive
right, subject to the provisions of Section 10.7, to use all or any part of the
roof of the Premises for any purpose; to erect in connection with the
construction thereof temporary scaffolds and other aids to construction on the
exterior of the Premises, provided that access to the Premises shall not be
denied; and to install, maintain, use, repair and replace within the Premises
pipes, ducts, conduits, wires and all other mechanical equipment serving other
parts of the Building, the same to be in locations within the Premises as will
not unreasonably deny or adversely affect Tenant's use thereof. Landlord may
make any use it desires of the side or rear walls of the Premises, provided that
such use shall not encroach upon the interior of the Premises. If an excavation
shall be made upon land adjacent to the Premises, or shall be authorized to be
made, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter the Premises for the purpose of doing such work as
Landlord shall deem necessary to preserve the wall or the Landlord's Building of
which the Premises form a part from injury or damage and to support the same by
proper foundations, without any claim for damages or indemnification against
Landlord, for diminution or abatement of rent.
10.7. LIMITATIONS ON CHANGES AND ADDITIONS TO THE CENTER AND BUILDING.
10.7.1. Notwithstanding any provisions of Sections 10.5 or 10.6
to the contrary, if Tenant is leasing all of the Premises, the following
alterations or modifications shall require the prior written approval of Tenant:
10.7.1.1. Any items referred to in Section 10.5 except
those necessary for (i) repair or maintenance of any portion of the Center;
(ii) installation, repair or replacement of pipes, conduits, wires and
utilities which do not interfere with Tenant's use of the Premises or the
Common Areas; and (iii) alterations of the Common Areas which do not
adversely affect Tenant's parking, access or other use of the Common Areas;
or,
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10.7.1.2. Any use of the roof or walls of the Premises
for signs, satellite dishes, antennae or other structures or devices visible
from the exterior of the Premises.
10.7.2. If at any time Tenant does not lease the
entire Premises, the Landlord's rights to make the modifications or alterations
described in Section 10.5 and to use the roof and walls in the manner set forth
in Section 10.6 shall not require Tenant's approval, provided that (i) Tenant
continues to have a proportionate share of parking provided under Section 11.1
consistent with its proportionate share of the occupancy of the Center; (ii)
Tenant continues to have reasonably convenient access to the parking and to the
portion of the Premises leased by Tenant; (iii) this Lease is modified to
provide for Tenant's sharing on a rentable square foot basis of the Common Area
Maintenance Expenses and Taxes; and (iv) no new building or other new structures
block the light, air or view to or from the portion of the Premises leased by
Tenant.
11. COMMON AREAS.
11.1. USE OF COMMON AREAS. Landlord grants to Tenant and its agents,
employees and invitees, a non-exclusive license to use the Common Areas in the
Center in common with others during the Term, subject to the exclusive control
and management thereof at all times by Landlord or others and subject, further,
to the rights of Landlord set forth in Subsections 10.5, 10.6, and 11.2. "Common
Areas" means those areas and facilities which may be furnished by Landlord
within the Center, for the general common use of tenants and other occupants of
the Center, their officers, agents, employees and invitees, including (without
limitation) all parking areas, access areas (other than public streets),
employee parking areas, truckways, driveways, loading docks and areas,
sidewalks, ramps, roofs, sprinkler systems, landscaped and planted areas,
retaining walls, stairways, lighting systems and facilities, common utility and
telecommunications facilities, drainage areas, roads, the common use elements of
the Landlord's Building, and other similar areas, facilities or improvements. So
long as Tenant occupies all of the Rentable Area of the Building no portion of
the Common Areas shall be made available for parking by other persons; and no
alteration of any parking area shall diminish the number of parking spaces
available for Tenant's use to a number less than that shown on the Site Plan. At
such time as Tenant ceases to lease the entirety of the Building such
restrictions shall not apply, except that no alteration of any parking area, or
grant of additional parking rights to other persons, shall diminish the number
of parking spaces available for Tenant's use to a number less than nine and
eight-tenths (9.8) spaces per thousand (1,000) square feet of leasehold space
then let to Tenant.
11.2. MANAGEMENT AND OPERATION OF COMMON AREAS. Landlord will operate
and maintain, or will cause to be operated and maintained, the Common Areas in a
manner deemed by Landlord to be reasonable and appropriate and in the best
interests of the Center and Tenant or other occupants thereof. Landlord will
have the right (i) to establish, modify and enforce rules and regulations with
respect to the Common Areas; (ii) to enter into, modify and terminate easements
and other agreements pertaining to the use and maintenance of the Common
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Areas; (iii) to implement a parking management plan; (iv) to close all or any
portion of the Common Areas to such extent as may, in the opinion of Landlord,
be necessary to prevent a dedication thereof or the accrual of any rights to any
person or to the public therein; (v) to close temporarily any or all portions of
the Common Areas; and (vi) to do and perform such other acts in and to said
areas and improvements as, in the exercise of good business judgment, Landlord
shall determine to be advisable provided that Tenant's access to, and parking
for, the Premises will not be adversely affected (subject to the restrictions
contained in Section 11.1).
11.3. TENANT TO PAY FOR COMMON AREA MAINTENANCE EXPENSES. In each
Lease Year Tenant shall pay to Landlord, as Additional Rent, Common Area
Maintenance Expenses. Such payment shall be made by Tenant in monthly
installments in such amounts as are estimated and billed by Landlord at the
beginning of each Lease Year or other twelve (12) month period commencing and
ending on dates designated by Landlord, each installment being due on the first
day of each calendar month. At any time during each twelve (12) month period,
Landlord may re-estimate Tenant's installment payment of Common Area Maintenance
Expenses and adjust Tenant's monthly installments payable during such twelve
(12) month period to reflect more accurately Tenant's charge for Common Area
Maintenance Expenses. Within one hundred twenty (120) days (or such additional
time thereafter as is reasonable under the circumstances) after the end of each
such twelve (12) month period, Landlord shall deliver to Tenant a statement of
Common Area Maintenance Expenses (the "Expense Statement") for such twelve (12)
month period and the monthly installments paid or payable shall be adjusted
between Landlord and Tenant, and Tenant shall pay Landlord or Landlord shall
credit Tenant's account (or, if such adjustment is at the end of the Term,
Landlord shall pay Tenant), as the case may be, within fifteen (15) days of
receipt of such statement, the amount of any excess or deficiency in Tenant's
Common Area Maintenance Expenses paid by Tenant to Landlord during such twelve
(12) month period. Upon reasonable notice, Landlord shall make available for
Tenant's inspection (which inspection shall be at Tenant's sole cost and
expense) at Landlord's office, during normal business hours, Landlord's records
relating to Common Area Maintenance Expenses for such preceding twelve (12)
month period. Failure of Landlord to provide the statement called for hereunder
within the time prescribed shall not relieve Tenant of its obligations
hereunder. A dispute over the Expense Statement or any error by Landlord in
interpreting or applying the provisions of this Lease respecting Common Area
Maintenance Expenses or in calculating the amounts in the Expense Statement
shall not be a breach of this Lease by Landlord, and even if any legal
proceeding over the Expense Statement is resolved against Landlord this Lease
shall remain in full force and effect and Landlord shall not be liable for any
consequential damages, and pending the determination of such dispute, Tenant,
within fifteen (15) days of receipt of such Expense Statement, shall pay
Additional Rent in accordance with the Expense Statement, without prejudice to
Tenant's position. Anything to the contrary in the preceding sentence
notwithstanding, if the dispute shall be determined in Tenant's favor, Landlord
shall forthwith pay to Tenant the amount of Tenant's overpayment of Rent
resulting from compliance with the Expense Statement together with interest from
the time of such overpayment at the Default Rate, together with all of Tenant's
attorney fees, costs and expenses incurred in contesting the Expense Statement.
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11.4. "COMMON AREA MAINTENANCE EXPENSES" DEFINED. The term "Common
Area Maintenance Expenses" means all costs and expenses incurred by or on behalf
of Landlord in operating, managing, insuring, securing and maintaining the
Common Areas pursuant to Subsection 11.2 (excepting Insurance Costs described in
Subsection 15.6), including, without limitation, all costs and expenses of
operating, maintaining, repairing, lighting, signing, cleaning, painting,
striping, policing and security of the Common Areas (including cost of uniforms,
equipment and employment taxes); alarm and life safety systems; insurance,
excepting Insurance Costs described in Subsection 15.6, but otherwise including,
without limitation, liability insurance for personal injury, death and property
damage, insurance against loss of rents and other income, worker's compensation
insurance or similar insurance covering personnel, fidelity bonds for personnel,
insurance against liability for defamation and claims of false arrest occurring
on and about the Common Areas; cost of cleaning all exterior glass; removal of
water, snow, ice, litter and debris; regulation of traffic; costs and expenses
of inspecting and depreciation of machinery and equipment used in the operation
and maintenance of the Common Areas and personal property taxes and other
charges (including, but not limited to, leasing or rental costs) incurred in
connection with such equipment; costs and expenses incurred in making any
alterations to the Center required to be made pursuant to Legal Requirements,
consistent with the provisions of Subsection 10.4; costs and expenses of
maintenance and repair or replacement of roofs, awnings, paving, curbs,
walkways, landscaping, drainage, pipes, ducts, conduits and similar items,
signage for the Center, and lighting facilities; costs and expenses of planting,
replanting and replacing flowers, shrubbery and planters; costs of providing
energy to light, heat, ventilate and air condition areas in which the Common
Areas are located and the maintenance and repair of such equipment; cost of
water services, if any, furnished by Landlord for the non-exclusive use of all
tenants; costs and expenses of repairing and maintaining all mains and
electrical conduits necessary to provide water, electricity, telephone and sewer
service to the Center; roads and storm drainage facilities unless and until
dedicated for public purposes; Landlord's share of expenses under any
declaration, covenant, condition, restriction or other agreement recorded among
the land records of the county in which the Center is located and applicable to
the Center; and administrative costs or management fees relating to operating
and maintaining the Common Areas (but not in an amount in excess of 5% of gross
revenues from operations of the Center). Any of the foregoing expenses required
to be capitalized for federal income tax purposes shall be amortized on a
straight-line basis over a period equal to the lesser of the useful life thereof
for federal income tax purposes or ten years. The term "Common Area Maintenance
Expenses" shall not include any of the following: (a) Salaries or benefits for
Landlord's executives and employees above the grade of property manager, and for
any employee who does not devote all of his time to the Building; (b) costs or
expenses or depreciation or amortization for capital repairs and capital
replacements required to be made by Landlord pursuant to Subsection 10.1 or
capital improvements for development purposes; (c) Expenditures for which
Landlord is reimbursed by any insurance carrier, or from any other source; (d)
Cost of repairs or replacements incurred by reason of fire or other casualty or
condemnation; (e) Advertising and promotional expenditures; (f) Costs incurred
in performing work or furnishing services for any tenant (including Tenant),
whether at such Tenant's or Landlord's expense, to the extent that such work or
service is in excess of any work or service that Landlord is obligated to
furnish to Tenant at Landlord's expense; (g) Depreciation, except
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as provided above; (h) Bad debt loss, rent loss or reserves for either of them;
(i) The cost of electricity furnished to any particular tenant and paid for by
such tenant; (j) Financing costs, including points, commitment fees, broker's
fees, legal fees and Mortgage interest and amortization payments; (k) Costs
incurred in connection with the construction and initial development of the
Building; (l) Costs, expenses or expenditures relating to the duties,
liabilities or obligations of other tenants in the Building; (m) Any costs
incurred by Landlord arising out of its failure to perform or breach of any of
its covenants, agreements, representations, warranties, guarantees or
indemnities made for the benefit of Tenant under this Lease; (n) Legal fees,
space planner's fees, broker's commissions and other costs incurred by Landlord
in connection with leasing space and negotiating leases with tenants of the
Building, or legal fees in connection with disputes between Landlord and any
tenant of the Building or between Landlord and any Mortgagee; (o) Lease payments
for rented equipment, the cost of which equipment would constitute a capital
expenditure if the equipment were purchased; and any late fees, penalties,
interest charges or similar fees incurred by Landlord; (p) Costs of improving,
altering, constructing or redecorating any space leased to tenants of the
Building; (q) Any cost representing an amount paid to a person, firm,
corporation or other entity related to Landlord which is in excess of the amount
which would have been paid in the absence of such relationship; (r) Costs
incurred by Landlord to remedy any defects in the design of or materials used
in, or the defective installation of the structural steel framing, roof,
foundation and underground utility lines forming a part of or servicing the
Building; (s) Costs associated with the operation of the business of the entity
which constitutes Landlord as the same are distinguished from the costs of
operation of the Building, including, without limitation, accounting and legal
expenses, costs of selling, syndicating, financing, mortgaging or hypothecating
Landlord's interest in the Building, costs of any disputes between Landlord and
its employees, building managers or other tenants; (t) Amounts paid as ground
rental under any Superior Lease:
12. TAXES.
12.1. TENANT'S PAYMENT FOR TAXES. Landlord shall pay all Taxes levied
upon or assessed against the land and improvements comprising the Center and the
appurtenances thereto during the Term of this Lease. If the land and
improvements comprising the Center and the appurtenances are not solely the
subject of a single tax account, but are rather accounted for together with
other lands and improvements lying outside the Center, then appropriate
allocation and apportionment shall be made by Landlord and Tenant to calculate
the Taxes allocable to the Center. For this purpose the land valuation of any
Tax assessment shall be apportioned based on the area of the Center as a
proportion of the total land area of the entire Tax account; and the
improvements valuation of any Tax assessment shall be apportioned based upon the
assessment valuation of the Building as a proportion of the valuation of all
improvements covered by the Tax account. Tenant shall pay to Landlord, as
Additional Rent, such Taxes. The term "Taxes" shall be defined as (i) all real
estate and other AD VALOREM taxes, including, without limitation, real estate
rental, receipt or gross receipt tax or any other tax on Landlord (excluding
Landlord's income taxes), now or hereafter imposed by any federal, state or
local taxing authority and whether as a substitution for or in addition to the
present method of real property
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taxation currently in use; (ii) attorney's and appraiser's fees, if necessary,
incurred in connection with any negotiation, contest or appeal pursued by
Landlord in an effort to reduce taxes, and (iii) any metropolitan district water
and sewer use charges and other governmental charges (other than assessments or
charges for development related improvements) which customarily are part of the
real estate tax bill issued by governmental authorities charged with said
responsibility. Taxes shall be adjusted on a proportionate basis for any period
which shall be less than a Tax Year. The term "Tax Year" means the twelve (12)
month period beginning July 1 of each year or such other twelve (12) month
period (deemed, for the purposes of this Section, to have 365 days) established
as a real estate tax year by the taxing authorities having lawful jurisdiction
over the Center.
12.2. PAYMENT FOR TAXES. Tenant's payment for Taxes shall be paid by
Tenant, at Landlord's election (i) in advance, in equal monthly installments in
such amounts as are estimated and billed for each Tax Year by Landlord at the
commencement of the Term and at the beginning of each successive Tax Year during
the Term, each such installment being due on the first day of each calendar
month or (ii) in lump sum, following Landlord's receipt of the tax bill for the
Tax Year in question, and calculation of Tenant's payment with respect thereto.
If Landlord has elected that Tenant pay Taxes in installments, in advance, then,
at any time during a Tax Year, Landlord may re-estimate Tenant's Tax payment and
thereafter adjust Tenant's monthly installments payable during the Tax Year to
reflect more accurately Tenant's Tax payment. Within one hundred twenty (120)
days after Landlord's receipt of tax bills for each Tax Year, or such reasonable
time (in Landlord's determination) thereafter, Landlord will notify Tenant of
the amount of Taxes for the Tax Year in question. Any overpayment or deficiency
in Tenant's payment of Taxes for each Tax Year shall be adjusted between
Landlord and Tenant; Tenant shall pay Landlord or Landlord shall credit to
Tenant's account (or, if such adjustment is at the end of the Term, Landlord
shall pay Tenant), as the case may be, within fifteen (15) days of the aforesaid
notice to Tenant, such amount necessary to effect such adjustment. Landlord's
failure to provide such notice within the time prescribed above shall not
relieve Tenant of any of its obligations hereunder. Any payment or credit not
made by a party shall bear interest at the Default Rate until paid.
12.3. TAXES ON RENT. In addition to Tenant's Tax payments, Tenant
shall pay to the appropriate agency any sales, excise and other tax (not
including, however, Landlord's income taxes) levied, imposed or assessed by the
State of Maryland or any political subdivision thereof or other taxing authority
upon any Rent payable hereunder. Tenant shall also pay, prior to the time the
same shall become delinquent or payable with penalty, all taxes imposed on its
inventory, furniture, trade fixtures, apparatus, equipment, Leasehold
Improvements installed by Tenant or by Landlord on behalf of Tenant (except to
the extent such Leasehold Improvements or Alterations shall be covered by Taxes
referred to in Subsection 12.1 hereof), and any other property of Tenant.
13. UTILITIES.
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13.1. TENANT'S UTILITIES. Tenant shall promptly pay when due the
charges for all utility services rendered or furnished to or for the Premises,
including, without limitation, water (whether by meter or submeter),
electricity, telephone, cable and telecommunications services sanitary sewer
service, and any other public utility service now or hereafter provided to the
Premises, together with all taxes, levies and other charges on such utilities.
At such time or times as Tenant is the sole occupant of the Building, Tenant
shall promptly pay when due the charges for all utility services rendered or
furnished to or for the Building, including, without limitation, water (whether
by meter or submeter), electricity, telephone, cable and telecommunications
services, sanitary sewer service, and any other public utility service now or
hereafter provided to the Building, together with all taxes, levies and other
charges on such utilities. If Tenant defaults in the payment of any such charges
or taxes, Landlord may, at its option, pay the same for and on Tenant's account,
in which event Tenant shall promptly reimburse Landlord therefor. If any of such
utility charges are billed directly to Landlord then Tenant will reimburse
Landlord for such charges, as Additional Rent, promptly upon demand therefor. At
the time of the execution of this Lease utility charges for water are charged to
Tenant as an Common Area Maintenance Expense. Landlord reserves the right to
arrange at Tenant's expense for the installation of a submeter exclusively for
the Premises to measure the consumption of water by Tenant and upon the
installation of such submeter Tenant shall promptly pay when due the charges for
all water service furnished to the Premises.
13.2. DISCONTINUANCES AND INTERRUPTIONS OF UTILITY SERVICES. Landlord
shall not be in default hereunder or be liable for any damages by, or indirectly
resulting from, nor shall the Rent be abated by reason of, (i) the installation,
use or interruption of use of any equipment in connection with the furnishing of
the foregoing utilities and services; (ii) failure to furnish or delay in
furnishing any such utilities or service when such failure or delay is caused by
force majeure, or by the making of repairs or improvements to the Premises or
the Building or the Center generally; or (iii) the limitation, curtailment,
rationing or restriction by governmental action or by a public utility, on use
of water or electricity, gas or any other form of energy or any other service or
utility whatsoever serving the Premises or the Building. Neither shall the same
be deemed a termination of this Lease or an eviction of Tenant. Furthermore,
Landlord shall be entitled to cooperate voluntarily in a reasonable manner with
the efforts of national, state or local governmental agencies or utilities
suppliers in reducing energy or other resource consumption provided such
cooperation does not unreasonably interfere with Tenant's use of the Premises.
14. INDEMNIFICATIONS AND WAIVER OF CLAIMS.
14.1. INDEMNITY BY TENANT. To the maximum extent permitted by law, but
subject to the provisions of Subsection 14.5, Tenant shall and does hereby
indemnify Landlord, any Superior Lessor and any Superior Mortgagee, and agrees
to save them harmless and, at the option of any of them, defend them from and
against any and all claims, actions, damages, liabilities and expenses
(including attorneys' and other professional fees) judgments, settlement
payments, and fines paid, incurred or suffered by any of them:
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14.1.1 in connection with loss of life or personal injury, or
damage to property or to the environment, suffered by third parties, and arising
from or out of the occupancy or use by Tenant of the Premises or any part
thereof or any other part of the Property, and occasioned wholly or in part by
any act or omission of Tenant, its officers, agents, contractors, employees or
invitees; or,
14.1.2 in connection with loss of life or personal injury, or
damage to property or to the environment, suffered by third parties, or in
connection with any accident, injury or damages whatever in, at or upon the
Premises, and arising from or out of the conduct or management of the Premises
or of any business therein, or any work or thing whatsoever done, or any
condition created in or about the Premises during the Term of this Lease or
during the period of time, if any, prior to the Commencement Date that Tenant
may have been given access to the Premises; or,
14.1.3 in connection with damage to property or the
environment and arising, directly or indirectly, wholly or in part, from any
conduct, activity, act, omission, or operation involving the use, handling,
generation, treatment, storage, disposal, other management or release of any
Hazardous Material in, from or to the Premises, whether or not Tenant may have
acted negligently with respect to such Hazardous Material or
14.1.4 in connection with any claim or proceeding brought by a
third party alleging, in whole or in part, that Tenant's acts, activities,
conduct, or omissions in the Premises violate its obligations to comply with a
law, rule, order, ordinance, direction, regulation or requirement of federal,
state, county and municipal authorities imposing a duty with respect to the use,
occupation or alteration of the Premises; or,
14.1.5 in connection with any breach or default by Tenant in
the full and prompt payment and performance of Tenant's obligations under this
Lease.
14.2. INDEMNITY BY LANDLORD. To the maximum extent permitted by law,
but subject to the provisions of Subsection 14.5, Landlord shall and does hereby
indemnify Tenant and agrees to defend Tenant and save it harmless from and
against any and all claims, actions, damages, liabilities and expenses
(including attorneys' and other professional fees) in connection with loss of
life, personal injury and/or damage to property suffered by third parties
arising from or out of the use of any portion of the Common Areas by Landlord,
occasioned wholly or in part by any act or omission of Landlord, its officers,
agents, contractors or employees.
14.3. SURVIVAL OF INDEMNITIES. Landlord's and Tenant's obligations
pursuant to Subsections 14.1 and 14.2 shall survive any termination of this
Lease with respect to any act, omission or occurrence which took place prior to
such termination.
14.4. LIMITATION ON LANDLORD'S LIABILITY FOR LOSS, DAMAGE AND INJURY.
To the maximum extent permitted by law, Tenant shall occupy and use the
Premises, the Building
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and the Common Areas at Tenant's own risk. All property of Tenant, its
employees, agents or invitees, or of any other person located in or on the
Premises or the Building, shall be and remain at the sole risk of Tenant or such
employee, agent, invitee or other person. Tenant hereby expressly agrees that
Landlord and its agents, servants and employees shall not be liable or
responsible for, and Tenant does hereby save them harmless from, any damage or
injury to the person or property of Tenant, or its agents, servants, employees,
licensees, invitees or contractors, directly or indirectly caused by (i)
dampness or water in any part of the Premises or the Building; (ii) bursting,
leaking or overflowing of water, sewer, steam, gas or sprinkler pipes and
heating or plumbing fixtures; (iii) air-conditioning or heating failures; (iv)
interference with light, air or other incorporeal hereditaments; (v) operations
in the construction of any public or quasi-public work; (vi) theft or other
crime, whether violent or non-violent in nature; (vii) fire, accident, natural
disorder or other casualty; (viii) latent or apparent defect or change of
condition in the Premises and/or the Building; (ix) the acts or omissions of
other persons in the Building; and (x) any other source, circumstance or cause
whatsoever. The foregoing waiver and release is intended by Landlord and Tenant
to be absolute and unconditional, and without exception, and to supersede any
specific repair obligation imposed by Landlord hereunder; provided that such
waiver and release shall not apply to the omission, fault, negligence, or other
misconduct of Landlord except to the extent such omission, fault, negligence or
other misconduct is waived by Tenant after the occurrence or is waived pursuant
to Tenant's policies of fire insurance with standard broad form coverage
indorsements, which waiver Tenant is obligated to obtain and shall be liable for
failure to obtain. No representation, guaranty, assurance or warranty is made or
given by Landlord that the communications or security systems, devices or
procedures used, if any, will be effective to prevent injury to Tenant or any
other person or damage to, or loss (by theft or otherwise) of any of Tenant's
Personal Property or of the property of any other person, and Landlord reserves
the right to discontinue or modify at any time such communications or security
systems, devices or procedures without liability to Tenant.
14.5. WAIVER OF RIGHT OF RECOVERY. Except as provided in Subsection
7.2, neither party, nor its officers, directors, employees, agents or invitees,
nor, in case of Tenant, its subtenants, shall be liable to the other party or to
any insurance company (by way of subrogation or otherwise) insuring the other
party for any loss or damage to any building, structure or other tangible
property, when such loss is caused by any of the perils which are or could be
insured against under a standard policy of full replacement cost insurance for
fire, theft and all risk coverage, or losses under workers' compensation laws
and benefits, even though such loss or damage might have been occasioned by the
negligence of such party, its agents or employees (this clause shall not apply,
however, to any damage caused by intentionally wrongful actions or omissions);
provided, however, that if, by reason of the foregoing waiver, either party
shall be unable to obtain any such insurance, such waiver shall be deemed not to
have been made by either party and, provided, further, that if either party
shall be unable to obtain any such insurance without the payment of an
additional premium therefor, then, unless the party claiming the benefit of such
waiver shall agree to pay such party for the cost of such additional premium
within thirty (30) days after notice setting forth such requirement and the
amount of the additional premium, such waiver shall be of no force and effect
between such party and such
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claiming party. Each party shall use reasonable efforts to obtain such insurance
from a company that does not charge an additional premium or, if that is not
possible, one that charges the lowest additional premium. Each party shall give
the other party notice at any time when it is unable to obtain insurance with
such a waiver of subrogation without the payment of an additional premium and
the foregoing waiver shall be effective until thirty (30) days after notice is
given. Each party represents that its current insurance policies allow such
waiver. The provisions of this Section shall not limit the indemnification for
liability to third parties pursuant to Subsections 14.1 and 14.2.
15. INSURANCE
15.1. TENANT'S INSURANCE. Tenant, at its expense, shall obtain and
maintain in effect as long as this Lease remains in effect and during such other
time as Tenant occupies the Premises or any part thereof, insurance policies
providing at least the following coverage:
15.1.1. commercial general liability insurance written on an
occurrence basis with respect to the Premises and the business operated by
Tenant and any subtenants, concessionaires or licensees of Tenant, to afford
insurance against personal injury, death and property damage, and including
insurance against assumed or contractual liability under this Lease,
specifically including the liability of Tenant arising out of the indemnities
provided in Subsection 14.1, with minimum combined single limits of Two Million
Dollars ($2,000,000) per occurrence and in the aggregate;
15.1.2. all-risk property and casualty insurance, including
theft coverage, written at full replacement cost value and with full replacement
cost endorsement, covering all of Tenant's personal property in the Premises
(including, without limitation, all inventory, trade fixtures, floor coverings,
furniture and other property removable by Tenant under this Lease) and Tenant's
interest in all Alterations and all leasehold improvements and all betterments
installed in the Premises by or on behalf of Tenant (other than the Leasehold
Improvements constructed by Landlord as provided in Section 4 of this Lease);
and
15.1.3. comprehensive boiler and machinery equipment insurance,
including electrical apparatus, if applicable; and,
15.1.4. if and to the extent required by law, worker's
compensation or similar insurance in form and amounts required by law.
15.2. TENANT'S CONTRACTOR'S INSURANCE. Tenant shall require any
contractor of Tenant performing work on or about the Premises to carry and
maintain, at no expense to Landlord:
15.2.1. commercial general liability insurance written on an
occurrence basis with respect to the Premises and the business operated by
Tenant and any
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subtenants, concessionaires or licensees of Tenant, to afford insurance against
personal injury, death and property damage, and including insurance against
assumed or contractual liability under this Lease, with minimum combined single
limits of Two Million Dollars ($2,000,000) per occurrence and in the aggregate;
15.2.2. comprehensive automobile liability insurance with
limits for each occurrence of not less than One Million Dollars ($1,000,000)
with respect to personal injury or death and Five Hundred Thousand Dollars
($500,000) with respect to property damage; and
15.2.3. worker's compensation or similar insurance in form and
amounts required by law.
15.3. POLICY REQUIREMENTS. The company or companies writing any
insurance which Tenant or Tenant's contractor is required to carry and maintain
or cause to be carried or maintained pursuant to Subsections 15.1 and 15.2, as
well as the form of such insurance, shall at all times be subject to Landlord's
approval and any such company or companies shall have a rating of at B+ or
better and a financial size rating of X or larger from BEST'S KEY RATING GUIDE
AND SUPPLEMENTAL SERVICE, PROPERTY/CASUALTY (or comparable rating from a
comparable insurance rating service), and shall be licensed to do business in
the State of Maryland. Public liability and all-risk casualty insurance policies
evidencing such insurance shall name Landlord and/or its designee(s) as
additional insured, shall be primary and noncontributory, and shall also contain
a provision by which the insurer agrees that such policy shall not be canceled,
materially changed or not renewed without at least thirty (30) days advance
notice to Landlord, at Landlord's Notice Address, by certified mail, return
receipt requested, or to its designee. None of the insurance which Tenant is
required to carry and maintain or cause to be carried or maintained pursuant to
the previous Sections shall contain any deductible provisions in excess of
$50,000 except following written notice to Landlord; and none of the insurance
which Tenant is required to carry and maintain or cause to be carried or
maintained pursuant to the previous Sections shall contain any deductible
provisions in excess of $100,000 except to the extent approved by Landlord. Each
such policy, or a certificate thereof, shall be deposited with Landlord by
Tenant promptly upon commencement of Tenant's obligation to procure the same.
15.4. TENANT'S FAILURE TO INSURE. If Tenant fails to obtain insurance
as required under this Section then, subject to the provisions for Notice and
cure provided in Section 23, Landlord may, but shall not be obligated to, obtain
such insurance, and in such event, Tenant agrees to pay, as Additional Rent, the
premium for such insurance upon demand by Landlord.
15.5. INCREASE IN INSURANCE PREMIUMS. Tenant will not do or suffer to
be done, or keep or suffer to be kept, anything in, upon or about the Premises
which will violate Landlord's policies of hazard or liability insurance or which
will prevent Landlord from procuring such policies in companies acceptable to
Landlord. Landlord acknowledges that the
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Permitted Use will result in no such increase. If anything done, omitted to be
done or suffered by Tenant to be kept in, upon or about the Premises shall cause
the rate of fire or other insurance on the Premises or on other property of
Landlord or others within the Property to be increased beyond the minimum rate
from time to time applicable to the Premises or to any such property for the use
or uses made thereof, then Tenant will pay, as Additional Rent, the amount of
any such increase upon Landlord's demand.
15.6. LANDLORD'S INSURANCE; TENANT TO PAY INSURANCE COSTS. During each
calendar year or other 12-month period as determined by Landlord, Landlord shall
maintain in force, under one or more policies, insurance coverage with respect
to the Building and the Center generally, including, without limitation,
insurance against fire, all-risk coverage including earthquake and flood, theft
or other casualties and such other insurance deemed appropriate by Landlord with
such coverage limits, deductible amounts and companies as Landlord may
determine. Landlord shall pay all costs of maintaining such insurance (the
"Insurance Costs") in the first instance. Tenant will pay Landlord, as
Additional Rent, all Insurance Costs incurred by Landlord. Such payments shall
be made by Tenant in monthly installments in such amounts as are estimated and
billed by Landlord during each twelve (12) month period commencing and ending on
dates designated by Landlord, each installment being due on the first day of
each calendar month. Within one hundred twenty (120) days, or such reasonable
time (in Landlord's determination) after the end of each such twelve (12) month
period, Landlord shall deliver to Tenant a statement of Insurance Costs and
allocation thereof for such twelve (12) month period. Any overpayment or
deficiency in Tenant's payment of Insurance Costs shall be adjusted between
Landlord and Tenant, and Tenant shall pay Landlord or Landlord shall credit
Tenant's account (or, if such adjustment is at the end of the Term, Landlord
shall pay Tenant), as the case may be, within fifteen (15) days of receipt of
such statement, such amounts as may be necessary to effect such adjustment. Upon
reasonable notice, Landlord shall make available for Tenant's inspection (which
inspection shall be at Tenant's sole cost and expense) at Landlord's office,
during normal business hours, Landlord's records relating to Insurance Costs for
such preceding twelve (12) month period. Landlord's failure to provide the
statement called for hereunder within the time prescribed shall not relieve
Tenant of its obligations hereunder.
16. DAMAGE AND DESTRUCTION.
16.1. LANDLORD'S OBLIGATION TO REPAIR AND RECONSTRUCT. If the Premises
or Common Areas shall be damaged by fire, the elements, accident or other
casualty (any of such causes being referred to herein as a "Casualty"), but the
Premises shall not be thereby rendered wholly or partially untenantable, then
Landlord shall promptly cause such damage to be repaired and there shall be no
abatement of Rent. If, as the result of such Casualty, the Premises shall be
rendered wholly or partially untenantable, then, subject to the provisions of
Subsection 16.2, Landlord shall cause such damage to be repaired and all Rent
(other than any Additional Rent due Landlord because of Tenant's failure to
perform any of its obligations hereunder) shall be abated proportionately as to
the portion of the Premises rendered untenantable during the period of such
untenantability. All such repairs shall be made at the expense of Landlord, but
Landlord shall not be required to perform any work within the Premises beyond
that described in Section
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4 and which were constructed by Landlord as Leasehold Improvements. Landlord
shall not be liable for interruption to Tenant's business or for damage to or
replacement or repair of Tenant's personal property (including, without
limitation, inventory, trade fixtures, floor coverings, furniture and other
property removable by Tenant under the provisions of this Lease) or to any
Alterations installed in the Premises by or on behalf of Tenant pursuant to
Subsection 10.4 or otherwise, all of which damage, replacement or repair shall
be undertaken and completed by Tenant promptly.
16.2. LANDLORD'S, TENANT'S OPTIONS TO TERMINATE LEASE. If (i) the
Premises are (A) rendered wholly untenantable by a Casualty, or (B) damaged as a
result of any cause which is not covered by Landlord's insurance, or (C) damaged
or destroyed in whole or in part during the last two (2) years of the Term
(after giving effect to any then-existing right of renewal provided under this
Lease (and, for purposes of this Section, the Tenant shall be permitted the
early exercise any right of renewal so as to avoid the operation of this
termination provision); or (ii) the Building is damaged to the extent of fifty
(50%) or more the gross area thereof; or (iii) the Building shall be so
substantially damaged that it is reasonably necessary, in Landlord's sole
judgment, to demolish such Building for the purpose of reconstruction, then, in
any of such events, Landlord may elect to terminate this Lease by giving Tenant
notice of such election within ninety (90) days after the occurrence of such
event. If such notice is given, the rights and obligations of the parties shall
cease as of the date of such notice, and Rent, as abated under Subsection 16.1
(other than any Additional Rent due Landlord by reason of Tenant's failure to
perform any of its obligations hereunder) shall be adjusted as of the date of
such termination.
If, within the 90 day period set forth above, Landlord shall not have made
an election to rebuild or to terminate this Lease as provided in the preceding
paragraph, then Tenant may elect to terminate this Lease by giving to Tenant
notice of such election within thirty (30) days following the expiration of such
ninety (90) period. If the Premises have not been fully restored within 180 days
following the occurrence of a Casualty then Tenant may elect to terminate this
Lease by giving to Tenant notice of such election within thirty (30) days
following the expiration of such 180 day period. In either case, if such notice
is given, the rights and obligations of the parties shall cease as of the date
set forth in such notice, and the Basic Rent, as abated under Subsection 16.1,
and Additional Rent (other than any Additional Rent due Landlord either by
reason of Tenant's failure to perform any of its obligations hereunder or by
reason of Landlord's having provided Tenant with additional services hereunder)
shall be adjusted as of the date of such termination.
16.3. INSURANCE PROCEEDS. If Landlord does not elect to terminate this
Lease pursuant to Subsection 16.2, Landlord shall, subject to the prior rights
of any Superior Mortgagee or Superior Lessor, disburse and apply any insurance
proceeds received by Landlord to the restoration and rebuilding of the Building
in accordance with Subsection 16.1 hereof. All insurance proceeds payable with
respect to the Premises (excluding proceeds payable to Tenant pursuant to
Subsection 15.1), shall belong to and shall be payable to Landlord.
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17. SIGNS. Tenant shall be permitted to have and maintain one (1) exterior
Building sign and one (1) monument-type entrance sign, of a size, dimension and
location subject to Landlord's prior approval and, in addition, subject to
approval under all applicable architectural control covenants to which the
Center is subject, and further subject to the provisions of applicable zoning
and sign ordinances. Tenant shall neither erect, maintain or replace any sign
within the Premises visible from outside the Building, nor erect or maintain any
sign upon the exterior of the Building or anywhere else upon the Center, without
first obtaining Landlord's written approval as to the size, design, location,
type of composition or material and lighting thereof. Design shall be in
accordance with the guidelines established by Landlord from time to time and all
applicable laws and regulations. Any such sign shall be inscribed, painted or
affixed by Landlord, or a company approved by Landlord, but the entire cost
thereof shall be borne by Tenant. Tenant shall maintain any such sign or signs
in good condition and repair at all times, and pay any taxes imposed thereon.
18. CONDEMNATION. If the whole or any part of the Premises is taken under
the power of eminent domain then this Lease shall terminate as to the part so
taken on the date Tenant is required to yield possession thereof to the
condemning authority. Landlord shall make necessary repairs and alterations to
restore the part not taken to useful condition and the Basic Rent shall be
reduced proportionately as to the portion of the Premises so taken. If the
amount of the Premises so taken substantially impairs the usefulness of the
Premises for the Permitted Use, then either party may terminate this Lease as of
the date when Tenant is required to yield possession. All compensation awarded
for any taking of the fee and the leasehold shall belong to and be the property
of Landlord; provided, however, that Tenant, and not Landlord, shall be entitled
to any portion of the award which does not serve to reduce Landlord's award and
is made directly to Tenant in reimbursement for Tenant's cost of removal of its
stock, trade fixtures, moving and relocation costs.
19. RIGHT OF ENTRY. Landlord and its representatives shall have the right
at all reasonable times during normal business hours with prior oral or written
notice to enter the Premises for the purposes of inspecting them and exhibiting
them for sale or financing, or for lease during the last six (6) months of the
term; and Landlord shall not be liable in any manner for any entry into the
Premises for such purposes. Landlord shall act so as to minimize interference
with Tenant's business operations in the Premises. Landlord reserves and shall
at all times have the right to re-enter the Premises upon 24 hours prior notice
to Tenant (except in an emergency) to maintain, repair and replace the Premises
and any portion of the Building of which the Premises are a part, without
abatement of Rent. Landlord may for the purpose of such work erect, use and
maintain scaffolding, pipes, conduits and other necessary structures in and
through the Premises where reasonably required by the character of the work to
be performed, provided that entrance to the Premises shall not be blocked.
Tenant waives any claim for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises and
any other loss occasioned by any such maintenance, repair or replacement work.
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20. CURING THE TENANT'S DEFAULTS. If Tenant defaults in the performance of
any of its obligations under this Lease then, in addition to any other rights it
may have in law or equity, and after written notice to Tenant except in the case
of emergency, Landlord shall be entitled (but shall not be obligated) to cure
such default, and Tenant shall reimburse Landlord for any sums paid or costs
incurred by Landlord, including reasonable attorney's fees, in curing such
default, plus interest thereon at the Default Rate which sums, costs, and
interest shall be deemed to be Additional Rent hereunder and shall be payable by
Tenant upon demand by Landlord.
21. SUBORDINATION AND ATTORNMENT. This Lease and all rights of Tenant
hereunder are and shall be subject and subordinate in all respects to: (i) all
present and future ground leases, operating leases, superior leases, overriding
leases and underlying leases and grants of term of the Center and the Building
or any portion thereof (collectively, including the applicable items set forth
in Subdivision (iv) of this Section, the "Superior Lease", and the party then
exercising the rights of landlord thereunder being referred to herein as the
"Superior Lessor"); (ii) all mortgages and building loan agreements, including
leasehold mortgages and spreader and consolidation agreements, which may now or
hereafter affect the Center, the Building or the Superior Lease (collectively,
including the applicable items set forth in Subdivisions (iii) and (iv) of this
Section, the "Superior Mortgage", and the party then exercising the rights of
mortgagee, beneficiary or secured party thereunder being referred to herein as
the "Superior Mortgagee") whether or not the Superior Mortgage shall also cover
other lands or buildings or leases except that a mortgage on the Center only
shall not be a Superior Mortgage so long as there is in effect a Superior Lease
which is not subordinate to such mortgage: (iii) each advance made or to be made
under the Superior Mortgage; and (iv) all renewals, modifications, replacements,
supplements, substitutions and extensions of the Superior Lease and the Superior
Mortgage and all spreaders and consolidations of the Superior Mortgage. The
provisions of this Section shall be self-operative and no further instrument of
subordination shall be required; provided, however, that the forgoing provisions
are subject to the provisions respecting nondisturbance hereinafter set forth.
In confirmation of such subordination, Tenant shall promptly execute and
deliver, at its own cost and expense, any instrument, in recordable form if
requested, that Landlord, the Superior Lessor or the Superior Mortgagee may
reasonably request to evidence such subordination; and if Tenant fails to
execute, acknowledge or deliver any such instrument within 10 days after request
therefor, then such failure shall be deemed an Event of Default hereunder. The
Superior Mortgagee may elect that this Lease shall have priority over its
Superior Mortgage and, upon notification by the Superior Mortgagee to Tenant,
this Lease shall be deemed to have priority over such Superior Mortgage, whether
this Lease is dated prior to or subsequent to the date of such Superior
Mortgage. If, at any time prior to the termination of this Lease, the Superior
Lessor or the Superior Mortgagee or any person, or the Superior Lessor's or
Superior Mortgagee's or such person's successors or assigns (the Superior
Lessor, Superior Mortgagee and any such person or successor or assign being
herein collectively referred to as "Successor Landlord") shall succeed to the
rights of Landlord under this Lease through possession or foreclosure or
delivery of a new lease or deed or otherwise, then Tenant shall fully and
completely attorn to and recognize any such Successor Landlord, as Tenant's
landlord under this Lease upon the then-executory terms of this Lease; and, in
such event, and so long as no default exists, nor any event has occurred, which
has continued to exist
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for such period of time (after notice, if any, required by the Lease) as would
entitle Successor Landlord to terminate the Lease or would cause, without any
further action of Successor Landlord, the termination of the Lease, or would
entitle Landlord to dispossess Tenant, the Lease shall not be terminated by
Successor Landlord, nor shall Tenant's use, possession, or enjoyment of the
Premises be interfered with or disturbed by Successor Landlord, nor shall the
leasehold estate granted by the Lease be affected by Successor Landlord in any
other manner, in any foreclosure or any action or proceeding instituted under or
in connection with the Superior Mortgage or Superior Lease, or in case Successor
Landlord takes possession of the Premises pursuant to any provision of the
Superior Mortgage or Superior Lease. The foregoing provisions of this Section
shall: (i) inure to the benefit of any such Successor Landlord; (ii) apply
notwithstanding that, as a matter of law, this Lease may terminate upon the
termination of the Superior Lease; (iii) be self-operative upon any such demand;
and (iv) require no further instrument to give effect to said provisions.
Tenant, however, upon demand of any such Successor Landlord agrees to execute,
from time to time, instruments to evidence and confirm the foregoing provisions
of this Section, satisfactory to any such Successor Landlord, acknowledging such
attornment and setting forth the terms and conditions, of its tenancy. Upon such
attornment this Lease shall continue in full force and effect as a direct lease
between such Successor Landlord and Tenant upon all of the then-executory terms
of this Lease except that such Successor Landlord shall not be: (i) liable for
any previous act or omission or negligence of Landlord under this Lease; (ii)
subject to any counterclaim, defense or offset, not expressly provided for in
this Lease and asserted with reasonable promptness, which theretofore shall have
accrued to Tenant against Landlord; (iii) obligated after the Commencement Date
to perform any Leasehold Improvements or other work with respect to the
Premises; (iv) bound by any previous modification or amendment of this Lease or
by any previous prepayment of more than one month's Rent, unless such
modification or prepayment shall have been approved in writing by the Superior
Lessor or the Superior Mortgagee through or by reason of which the Successor
Landlord shall have succeeded to the rights of Landlord under this Lease; (v)
obligated to repair the Premises or the Building or any part thereof, in the
event of total or substantial total damage beyond such repair as can reasonably
be accomplished from the net proceeds of insurance actually made available to
Successor Landlord; or (vi) obligated to repair the Premises or the Building or
any part thereof, in the event of partial condemnation beyond such repair as can
reasonably be accomplished from the net proceeds of any award actually made
available to Successor Landlord, as consequential damages allocable to the part
of the Premises or the Building not taken. Nothing contained in this Section
shall be construed to impair any right otherwise exercisable by any such owner,
holder or lessee.
22. MODIFICATIONS TO LEASE; RIGHTS OF SUPERIOR MORTGAGEE, SUPERIOR LESSOR.
Landlord hereby notifies Tenant that this Lease may not be cancelled or
surrendered, or modified or amended so as to reduce the Rent, shorten the Term
or adversely affect in any other respect to any material extent the rights of
Landlord hereunder and that Landlord may not accept prepayments of any
installments of Rent except for prepayments in the nature of security for the
performance of Tenant's obligations hereunder without the consent of the
Superior Lessor and the Superior Mortgagee in each instance, except that said
consent shall not be required to the institution or prosecution of any action or
proceedings against Tenant by reason of an Event of
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Default. Tenant shall not do or suffer or permit anything to be done which
would constitute a default under the Superior Mortgage or the Superior Lease
or cause the Superior Lease to be terminated or forfeited by virtue of any
rights of termination or forfeiture reserved or vested in the Superior
Lessor. If any act or omission by Landlord would give Tenant the right,
immediately or after lapse of time, to cancel or terminate this Lease or to
claim a partial or total eviction, Tenant will not exercise any such right
until: (i) it has given written notice of such act or omission to each
Superior Mortgagee and each Superior Lessor, whose name and address shall
have previously been furnished to Tenant, by delivering notice of such act or
omission addressed to each such party at its last address so furnished; and
(ii) a reasonable period for remedying such act or omission shall have
elapsed following such giving of notice and following the time when such
Superior Mortgagee or Superior Lessor shall have become entitled under such
Superior Mortgage or Superior Lease, as the case may be, to remedy the same
(which shall in no event be neither less nor more than the period to which
Landlord would be entitled under this Lease to effect such remedy) provided
such Superior Mortgagee or Superior Lessor shall, with reasonable diligence,
give Tenant notice of intention to, and commence and continue to, remedy such
act or omission or to cause the same to be remedied.
23. DEFAULTS BY THE TENANT.
23.1. EVENTS OF DEFAULT DEFINED. Each of the following shall be deemed
an "Event of Default" under this Lease:
23.1.1. failure by Tenant to pay Basic Rent, Additional Rent,
or any other sum required to be paid under the terms of this Lease, when and as
due hereunder which continues more than ten (10) days following notice thereof
from Landlord;
23.1.2. failure by Tenant to perform or observe any other term,
covenant, agreement or condition of this Lease on the part of Tenant to be
performed, for a period of thirty (30) days after notice thereof from Landlord;
23.1.3. Tenant or any guarantor of any of Tenant's obligations
hereunder shall make or deliver to Landlord any financial report or statement,
certificate, representation or warranty (including, without limitation, any
representation or warranty made by Tenant herein) which proves to have been
false or misleading in any material respect as of the time at which the facts
therein set forth were stated or certified, or if any such financial report or
statement has omitted any material contingent or unliquidated liability or claim
against Tenant or any such guarantor of any of Tenant's obligations hereunder;
23.1.4. Tenant or any guarantor of any of Tenant's obligations
hereunder shall cease doing business as a going concern, make an assignment for
the benefit of creditors, generally not pay its debts as they become due or
admit in writing its inability to pay its debts when they become due, be
adjudicated an insolvent, file a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law, rule or regulation, or
file an answer
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admitting the material allegations of a petition filed against it in any such
proceeding, or consent to the filing of such a petition or acquiesce in the
appointment of a trustee, receiver, custodian or other similar official for it
of all or any substantial part of its assets or properties, or take any action
looking to its dissolution or liquidation; file a voluntary or involuntary
petition proposing the adjudication of Tenant or any guarantor of Tenant's
obligations hereunder as a debtor under the Bankruptcy Code, or the
reorganization of Tenant or any such guarantor under the Bankruptcy Code, unless
such a petition is filed by a party other than Tenant or any such guarantor and
is withdrawn or dismissed within sixty (60) days after the date of filing;
23.1.5. the sale or other transfer of Tenant's interest in the
Premises under attachment, execution or similar legal process or the assignment,
mortgage, encumbrance or sublease of the Premises by Tenant in violation of the
prohibition contained in Section 8;
23.1.6. the abandonment of the Premises by Tenant at any time
during the term of this Lease;
23.1.7. the failure of Tenant to vacate the Premises upon the
expiration of the Term, or earlier termination thereof pursuant to other
provisions of this Lease.
23.2. LANDLORD'S REMEDIES FOR DEFAULT. Upon the occurrence of an Event
of Default, Landlord shall have the right, at its election, immediately upon
such Event of Default or at any time thereafter and while any such Event of
Default shall continue, to exercise one or more of the following remedies.
23.2.1. Landlord may terminate this Lease, as well as all
right, title and interest of Tenant hereunder, by giving written notice of
Landlord's intention to terminate this Lease on the date of such given notice or
on any later date specified therein, whereupon, on the date specified in such
notice, Tenant's right to possession of the Premises shall cease and this Lease
shall thereupon be terminated, except as to Tenant's liability for damages as
hereafter set forth, as if the expiration of the term fixed in such notice were
the end of the Term originally set forth in this Lease.
23.2.2. Landlord may re-enter the Premises, with or without
legal process and using such force for such purposes as may be reasonably
necessary, without being liable for prosecution thereof, and without being
deemed guilty of any manner of trespass, and without prejudice to any remedies
for arrears of Rent or preceding breach of covenants or conditions and, upon
such reentry, Landlord may: (i) remove any and all of Tenant's property at the
Premises; (ii) store Tenant's property in a public warehouse or elsewhere at the
cost, risk and expense of Tenant without Landlord's being deemed guilty of
trespass or liable for any loss or damage which may occur to Tenant's property;
and (iii) upon fifteen (15) days written notice to Tenant, which Landlord and
Tenant agree is commercially reasonable, to sell at public or private sale any
or all said property, whether exempt or not from sale under execution or
attachment (such property being deemed charged with a lien in favor of Landlord
for all Rent due hereunder), with the proceeds of sale to be applied: first, to
the cost and expenses of
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retaking, or removal, storage, preparing for sale and sale of Tenant's property
(including reasonable attorneys' fees); and second, to the payment of any sum
due hereunder to Landlord (including Basic Rent, Additional Rent, and any other
charges and damages theretofore and thereafter accruing); and third, any surplus
to Tenant.
23.2.3. Landlord may exercise any other remedy available to it
at law, in equity, by statute or otherwise; and, for such purposes, Landlord
shall be entitled to the benefit of all provisions of applicable city or county
ordinances and public local laws and of the public general laws of the State of
Maryland dealing with the speedy recovery of lands and tenements held over by
tenants or proceedings in forcible entry and detainer.
23.3. LANDLORD'S RIGHT TO RELET PREMISES. Upon any entry or re-entry
by Landlord, with or without legal process, Landlord shall also have the right
(but not the obligation) to relet all or any part of the Premises, from time to
time, at the risk and expense of Tenant. No re-entry by Landlord with or without
a declaration of termination shall be deemed to be an acceptance or a surrender
of this Lease or as a release of Tenant's liability for damages under the
provisions of this Section. Landlord shall have the right to let or relet the
Premises for a longer or shorter term than that remaining after Tenant's
default, to lease more or less area than that contained in the Premises, to
lease the Premises together with other premises or property owned or controlled
by Landlord, and to change the character or use of the Premises. Landlord shall
be entitled to deduct from any amounts received from any such letting or
reletting all reasonable costs and expenses incurred in connection with Tenant's
default, including, but not limited to, the cost to repair, restore, renovate or
decorate the Premises for a new tenant, together with reasonable attorneys'
fees, real estate commissions, the cost of any legal actions brought against
Tenant and any other costs reasonably incurred. No entry or re-entry by
Landlord, whether resulting from summary proceedings or otherwise, nor any
letting or reletting shall absolve or discharge Tenant from liability hereunder.
Tenant's liability hereunder, even if there be no letting or reletting, shall
survive the issuance of any dispossess warrant, order of court terminating this
Lease or any other termination based upon Tenant's default. The words "enter",
"re-enter", and "re-entry" as used in this Section 23 and elsewhere in this
Lease are not restricted to their technical legal meanings.
23.4. DAMAGES. Tenant further agrees (i) notwithstanding re-entry by
Landlord with or without termination pursuant to the provisions of Subsection
23.2, or (ii) if this Lease is otherwise terminated by reason of Tenant's
default, or (iii) if Landlord retakes possession with or without process of law,
or re-enters with or without a declaration of termination or (iv) if Landlord
following any of the foregoing events, elects to let or relet the Premises as
provided in Subsection 23.3, then Tenant shall, nevertheless, in each instance,
be and remain obligated to, and shall pay to Landlord as damages, upon demand,
all expenses (including attorneys' fees) of any proceedings instituted by
Landlord to recover possession of the Premises or otherwise in connection with
Tenant's breach of this Lease, and the expenses of releasing the Premises,
including but not limited to, any leasing commissions paid in Connection
therewith, plus, at the election of the Landlord, either:
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23.4.1. liquidated damages determined as of the date of
termination of the Lease, in an amount equal to the excess, if any, of the sum
of the aggregate Basic Rent and the aggregate Additional Rent which would have
been paid over the remaining Term had this Lease not been terminated, discounted
to present worth, over the then-current rental value of the Premises, for such
remaining Term, as determined by Landlord, discounted to present worth, and in
determining such liquidated damages, the Additional Rent for each year of such
remaining Term shall be assumed to equal the Additional Rent payable for the
Lease Year immediately preceding the Lease Year in which the default occurs,
annualized in the event that such preceding Lease Year is less than twelve (12)
months, and in determining present worth, a discount rate equal to one
percentage point above the discount rate then in effect at the Federal Reserve
Bank in Baltimore shall be used; or
23.4.2. damages (payable in monthly installments, in advance,
on the first day of each calendar month following such termination and
continuing until the date originally fixed herein for the expiration of the Term
of this Lease) in amounts equal to the sum of (i) an amount equal to the
installment of Basic Rent which would have been payable by Tenant for such
calendar month had this Lease not been terminated plus (ii) an amount equal to
one-twelfth (1/12) of the total Additional Rent payable for the Lease Year
immediately preceding the Lease Year in which the default occurred, annualized
to the extent that such preceding Lease Year is less than twelve (12) months,
minus the rents, if any, collected by Landlord in respect to such calendar month
pursuant either to re-leasing the Premises or portion thereof or from any
existing subleases permitted under the terms of this Lease (after deduction from
such rents of the sum of Landlord's costs and expenses as set forth in
Subsection 23.3). Landlord shall be entitled immediately to bring a separate
suit, action or proceeding to collect any amount due from Tenant under this
Subsection 23.4 for any calendar month and any such suit, action, or proceeding
shall not prejudice in any way the right of Landlord to collect such amount due
on account of any subsequent calendar month by similar proceeding. In no event
shall Landlord be required to exercise any efforts whatsoever to re-lease the
Premises.
23.4.3. Nothing in this Subsection 23.4 shall limit or
prejudice the right of Landlord to prove and to obtain, as liquidated damages by
reason of a termination arising out of the provisions of this Section, an amount
equal to the maximum allowed by any statute or any rule of law in effect as of
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to or less than the amount
of liquidated damages computed under this Subsection 23.4.
23.4.4. MITIGATION OF DAMAGES. Both Landlord and Tenant shall
each use commercially reasonable efforts to mitigate any damages resulting from
a default of the other party under this Lease. Landlord's obligation to mitigate
damages after a default by Tenant under this Lease shall be satisfied in full if
Landlord undertakes to lease the Premises to another tenant (a "Substitute
Tenant") in accordance with the following criteria: (a) Landlord shall have no
obligation to solicit or entertain negotiations with any other prospective
tenants for the Premises until Landlord obtains full and complete possession of
the Premises including, without limitation, the final and unappealable legal
right to relet the Premises free of any claim of
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Tenant; (b) Landlord shall not be obligated to offer the Premises to a
prospective tenant when other premises in the Center suitable for that
prospective tenant's use are (or soon will be) available; (c) Landlord shall not
be obligated to lease the Premises to a Substitute Tenant for a rental less than
the current fair market rental then prevailing for similar space, nor shall
Landlord be obligated to enter into a new lease under other terms and conditions
that are unacceptable to Landlord under Landlord's then current leasing policies
for comparable space in the Center; (d) Landlord shall not be required to expend
any amount of money to alter, remodel, or otherwise make the Premises suitable
for use by a proposed Substitute Tenant unless Tenant pays any such sum to
Landlord in advance of Landlord's execution of a Substitute Lease with such
tenant (which payment shall not be in lieu of any damages or other sums to which
Landlord may be entitled as a result of Tenant's default under this Lease), or
Landlord, in Landlord's sole discretion, determines that any such expenditure is
financially justified in connection with entering into any such Substitute
Lease. Upon compliance with the above criteria regarding the releasing of the
Premises after a default by Tenant, Landlord shall be deemed to have fully
satisfied Landlord's obligation to mitigate damages under this Lease and under
any law or judicial ruling in effect on the date of this Lease or at the time of
Tenant's default, and Tenant waives and releases, to the fullest extent legally
permissible, any right to assert in any action by Landlord to enforce the terms
of this Lease, any defense, counterclaim, or rights of setoff or recoupment
respecting the mitigation of damages by Landlord, unless and to the extent
Landlord maliciously or in bad faith fails to act in accordance with the
requirements of this Section. Tenant's right to seek damages from Landlord as a
result of a default by Landlord under this lease shall be conditioned on Tenant
taking all actions reasonably required, under the circumstances, to minimize any
loss or damage to Tenant's property or business, or to any of Tenant's officers,
employees, agents, invitees, or other third parties that may be caused by any
such default of Landlord.
23.5. RENT DURING HOLDOVER. If Tenant fails to vacate the Premises at
any time after termination of this Lease as provided in Subsection 23.2, then
Tenant shall be liable to pay Landlord and shall pay Landlord, upon demand, one
and one-half times (1.50%) the Basic Rent and Additional Rent otherwise
payable during such holdover period.
23.6. NO IMPLIED WAIVER OF LANDLORD'S RIGHTS. The failure of Landlord
to insist in any one or more instances upon the performance of any of the
covenants or conditions of this Lease, or to exercise any right or privilege
herein conferred shall not be construed as thereafter waiving or relinquishing
Landlord's right to the performance of any such covenants, conditions, rights or
privileges, and the same shall continue and remain in full force and effect, and
the waiver of one default or right shall not constitute waiver of any other
default, and the receipt of any Rent by Landlord from Tenant or any assignee or
subtenant of Tenant, whether the same be Rent that originally was reserved or
that which may become payable under any covenants herein contained, or of any
portion thereof, shall not operate as a waiver of Landlord's right to enforce
the payment of the Rent or of any of the other obligations of this Lease by such
remedies as may be appropriate, and shall not waive or avoid Landlord's right at
any time thereafter to elect to terminate this Lease, on account of such
assignment, subletting, transferring of this Lease or any other breach of any
covenant or condition herein
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contained, unless evidenced by Landlord's written waiver thereof. The acceptance
of Rent or any other consideration by Landlord at any time shall not be deemed
an accord and satisfaction, and Landlord shall have absolute discretion to apply
same against any sum for any period or reason due hereunder without the same
constituting a release of any other sums remaining due and unpaid.
23.7. WAIVER OF JURY TRIAL.
23.7.1. LANDLORD AND TENANT HEREBY JOINTLY AND SEVERALLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY LANDLORD OR
TENANT ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY
OF THE PREMISES AND/OR ANY CLAIM OF INJURY OR DAMAGE. THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES OTHER THAN LANDLORD OR TENANT.
23.7.2. Landlord and Tenant make this waiver knowingly,
willingly and voluntarily. Each party represents that no representations of fact
or opinion have been made by any individual to induce this mutual waiver of
trial by jury or to in any way modify or nullify its effect. If landlord
commences any summary proceeding for nonpayment of Rent or for possession of the
Premises Tenant will not interpose and hereby waives any counterclaim of
whatever nature or description in any such proceeding. Tenant further waives the
right to remove said summary proceeding to any other court or to consolidate
said summary proceeding with any other action, whether brought prior or
subsequent to such summary proceeding. This shall not, however, be construed as
a waiver of Tenant's right to assert such claims in any separate action or
actions brought by Tenant.
23.7.3. Landlord and Tenant acknowledge and declare that the
resolution of disputes by trial before a jury in the circuit courts of this
state inevitably entails considerable expense, complication and delay, and that
the prompt, economical and efficient judicial resolution of any disputes which
may arise between them will best be promoted by giving effect to the foregoing
waiver. Such waiver was a material inducement to the parties' agreement to enter
into the Lease; and, accordingly, the parties irrevocably and unalterably agree
as follows:
23.7.3.1. If, in derogation of the foregoing waiver,
either Landlord or Tenant shall pray trial by jury in any action, proceeding or
counterclaim brought by either of them on any matters whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises and/or any claim of injury or
damage, then the party making such prayer shall pay the other party, without
demand, the sum of One Thousand Dollars ($1,000.00) per week, or fraction
thereof, accounting from the date of such prayer until the actual date of
commencement of trial of the matter, whether before a jury or otherwise. The
first payment shall be made commencing on the date of prayer for jury trial, and
payments shall continue thereafter on the same day of
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the week for each successive week until commencement of trial. In addition to
the foregoing payments, such party shall also pay to the other party all of the
latter's costs, fees and expenses, including attorney's fees, incurred in
attempting to enforce the foregoing waiver. Such payments shall be paid upon
demand. Payments shall be made, if by Tenant, to Landlord's Rental Payment
Address, and if by Landlord, to Tenant's Notice Address.
23.7.3.2. The foregoing payments are expressly and
unalterably declared not to be a penalty, but as recompense for the cost,
expense and delay which the parties anticipate and agree will be incurred
because of an action of either party in derogation of the foregoing waiver. The
foregoing payments shall be due and payable without regard to the success or
failure of either parties' claims on the merits in the subject litigation.
23.7.3.3. The parties hereto irrevocably and
unalterably agree that the failure of any party to make payments as provided in
this Section shall, in all legal proceedings between them, conclusively be
deemed to constitute, and be interpreted by the court as constituting, such
party's immediate agreement for the complete and irrevocable withdrawal and
dismissal of such party's jury trial prayer and, if applicable, to the remand of
the proceeding to the forum in which the proceeding was originally filed.
24. CONSENT TO REQUESTS. If Tenant requests Landlord's consent on any
matter as to which Landlord's consent is required to be obtained under this
Lease, and Landlord fails or refuses to give such consent, then Tenant shall not
be entitled to any damages for Landlord's withholding of its consent, it being
intended that the sole and exclusive remedy for a wrongful withholding of
consent shall be an expedited arbitration of the dispute in the following
manner. The Tenant may initiate the arbitration within ten (10) days after
receiving Landlord's notice of denial of consent, by sending Landlord notice of
Tenant's demand for arbitration of the matter, referencing this Section.
Tenant's notice shall also name Tenant's proposed arbitrator, who shall be an
attorney licensed to practice law in the State of Maryland whose practice is
primarily real estate sales and leasing transactions. Within five (5) days
following receipt of Tenant's nomination Landlord shall send a responsive notice
accepting Tenant's nominee, or rejecting such nominee and proposing an alternate
arbitrator for Tenant's approval. If Landlord fails to respond within such time
then Tenant's nominee shall be deemed approved. If any alternate nominee
proposed by Landlord is in turn rejected by Tenant, so that the parties cannot
agree upon an arbitrator within five (5) business days after Landlord's
response, then the arbitrator shall be appointed, at the request of either
party, by the chief judge of the third judicial circuit of Maryland. A
prerequisite for such appointment shall be the arbitrator's commitment to
consider the matter and render a determination within thirty (30) days of the
date of the selection of the arbitrator. The jurisdiction of the arbitrator in
any such proceeding shall be limited to rendering a determination as to whether
the withholding was reasonable or unreasonable, and such determination shall be
final and binding upon the parties. Each party shall submit its position to the
arbitrator, and the losing party shall pay all of the costs of the arbitration
and the reasonable attorneys' fees and costs incurred by the prevailing party in
connection with the arbitration. Except as otherwise provided herein, the
procedures for the arbitration shall be in accordance with the rules of the
American Arbitration Association.
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25. QUIET POSSESSION. Tenant, if and so long as it pays all Rent due
hereunder, performs and observes the other terms and covenants to be performed
and kept by it as provided in this Lease, and complies with the restrictions and
easements of record, shall peaceably and quietly have, hold and enjoy the
Premises without hindrance, ejection or molestation by Landlord or any person
lawfully claiming through or under Landlord, subject nevertheless, to the
provisions of this Lease and to any Superior Lease and any Superior Mortgage.
Landlord represents and warrants that no Superior Lease or Superior Mortgage
exists as of the date of this Lease. This covenant shall be construed as a
covenant running with the land, and is not, nor shall it be construed as a
personal covenant of Landlord, except to the extent of Landlord's interest in
this Lease and only so long as such interest shall continue, and thereafter this
covenant shall be binding only upon subsequent successors in interest of
Landlord's interest in this Lease, to the extent of their respective interests,
as and when they shall acquire the same, and so long as they shall retain such
interest.
26. NOTICES. All notices required or permitted to be given hereunder shall
be in writing and shall be conclusively presumed to have been received one day
after depositing into the United States mail, if delivery is by postage paid
registered or certified mail, or by telecopier, or by FEDEX or other nationally
recognized overnight courier service. Any notice in any other manner shall be
deemed given when actually received. Any notice given by telecopier shall be
promptly sent by first class mail, postage prepaid, as well. All notices to be
sent to the Tenant shall be sent care of the Tenant's Notice Address. Notices to
Landlord shall be delivered or addressed to Landlord's Notice Address, with a
copy to any other persons designated by Landlord. Either party may, at any time,
in the manner set forth for giving notices to the other, set forth a different
address to which notices to it shall be delivered or sent.
27. TENANT'S, LANDLORD'S, CERTIFICATES. Tenant agrees at any time, and from
time to time, within ten (10) days after Landlord's written request, to execute,
acknowledge and deliver to Landlord a written instrument in recordable form
certifying or stating: (i) that this Lease is unmodified and in full force and
effect (or if there shall then have been modifications, that the same is in full
force and effect as so modified, and setting forth such modifications); (ii)
that the Premises have been completed by Landlord in accordance with Section 4
hereof (or if not so completed, stating the respects in which not completed);
(iii) that Tenant has accepted possession of the Premises, the date upon which
the Term has commenced and the date of the expiration of the Term of this Lease;
(iv) the dates to which Rent and other charges have been paid in advance, if
any; (v) whether or not, to the best knowledge of the signer of such
certificate, Landlord is then in default in the performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying in detail
each such default of which the signer may have knowledge; (vi) as to any other
matters as may be reasonably so requested; and (vii) that it is understood that
such instrument may be relied upon by any prospective purchaser, mortgagee,
assignee or lessee of Landlord's interest in this Lease, in the Center, or any
portion or part thereof.
Landlord agrees at any time, and from time to time, within ten (10) days
after Tenant's written request, to execute, acknowledge and deliver to Tenant a
written instrument certifying
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or stating: (i) that this Lease is unmodified and in full force and effect (or
if there shall then have been modifications, that the same is in full force and
effect as so modified, and setting forth such modifications); (ii) that the
Premises have been completed by Landlord in accordance with Section 4 hereof (or
if not so completed, stating the respects in which not completed); (iii) that
Tenant has accepted possession of the Premises, the date upon which the Term has
commenced and the date of the expiration of the Term of this Lease; (iv) the
dates to which Rent and other charges have been paid in advance, if any; (v)
whether or not, to the best knowledge of the signer of such certificate, Tenant
is then in default in the performance of any covenant, agreement or condition
contained in this Lease and, if so, specifying in detail each such default of
which the signer may have knowledge; (vi) as to any other matters as may be
reasonably so requested.
28. THE LANDLORD. As used herein, the term "Landlord" means the Landlord
named hereinabove as well as its successors and assigns, and any other
subsequent owner of the leasehold estate or reversion in the Center, as well as
the heirs, personal representatives, successors and assigns of any such
subsequent owner, each of whom shall have the same rights, remedies, powers,
authorities and privileges as he would have had if he had originally signed this
Lease as Landlord, but any such person, whether or not named herein, shall have
no liability hereunder after he shall cease to hold the title to or a leasehold
interest in the said real estate, except for obligations which may have
theretofore accrued. Neither Landlord nor any principal of Landlord, whether
disclosed or undisclosed, shall have any personal liability with respect to this
Lease, the Premises and the Center. After Tenant has accepted and taken
occupancy of the Premises, Tenant shall look only to Landlord's estate and
property in the Center (or the proceeds thereof) for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial process)
requiring the payment of money by Landlord in the event of any default by
Landlord hereunder, and no other property or assets of Landlord or its partners
or principals, disclosed or undisclosed shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to this Lease, the relationship of Landlord and Tenant hereunder or
Tenant's use or occupancy of the Premises.
29. THE TENANT. As used herein, the term "Tenant" means the Tenant named
in this Lease as well as its heirs, personal representatives, successors and
assigns, each of which shall be under the same obligations, liabilities, and
disabilities and have only such rights, privileges and powers as it would have
possessed had it originally signed this Lease as Tenant. However, no such
rights, privileges or powers shall inure to the benefit of any assignee of
Tenant, immediate or removed, unless the assignment to such assignee shall have
been permitted by the terms of this Lease or consented to in writing by the
Landlord, as aforesaid. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on and after the date of such assignment. Any such Assignee shall upon
demand execute and deliver unto Landlord an instrument confirming such
assumption.
30. RECORDING. Neither this Lease, nor any memorandum, affidavit, or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on
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behalf of Tenant, and the recording thereof in violation of this provision,
shall (i) be deemed an Event of Default and, (ii) at Landlord's election, make
this Lease null and void.
31. APPLICABLE LAW. This Agreement shall be given effect, and shall be
construed by application of the law of Maryland.
32. SEVERABILITY. If any term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and provisions of
this Lease shall not be affected hereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
33. ACCEPTABILITY OF THE PREMISES FOR PERMITTED USE. All the terms,
covenants, and conditions hereof are in all respects subject and subordinate to
all zoning restrictions affecting the Premises, and the Building in which they
are located, and Tenant agrees to be bound by such restrictions. Landlord
further does not warrant that any license or licenses, permit or permits, which
may be required for the business to be conducted by Tenant on the Premises will
be granted, or, if granted, will be continued in effect or renewed, and any
failure to obtain such license or licenses, permit or permits, or any revocation
thereof or failure to renew the same, shall not release the Tenant from its
obligations under this Lease Agreement.
34. BROKERAGE. Landlord and Tenant warrant, each to the other, that
neither has had no dealings with any broker or agent in connection with this
Lease other than the Named Broker, whose commission Tenant covenants and agrees
to pay in the amount agreed between Tenant and such broker or brokers. Landlord
and Tenant covenant to pay, hold harmless and indemnify the other from and
against any and all costs, expense or liability for any compensation,
commissions or charges claimed by any broker other than those stated above or
any other agent with respect to this Lease or the negotiation thereof.
35. ENTIRE AGREEMENT. The Lease, including these General Terms and
Conditions to Agreement of Lease, and the Exhibits and Schedules attached hereto
set forth all the promises, agreements, conditions and understandings between
Landlord and Tenant with respect to the Premises, and there are no promises,
agreements, conditions or understandings, either oral or written, between them
other than are herein set forth. No subsequent alteration, amendment, change or
addition to this Lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed and delivered by each of them.
36. HEADINGS. The headings of the sections and subsections hereof are
provided herein for convenience of reference only, and shall not be considered
in construing the contents of such sections or subsections.
37. FORCE MAJEURE. The obligations of the parties hereunder shall be in no
wise affected, impaired or excused, nor shall either party have any liability
whatsoever to the other, except as to Tenant's obligation to pay Rent, because:
(i) either party is unable to fulfill, or is delayed in fulfilling any of its
obligations under this Lease by reason of strike, other labor
51
<PAGE>
trouble, governmental preemption of priorities or other controls in connection
with a national or other public emergency or shortages of fuel, supplies or
labor resulting therefrom, or any other cause, whether similar or dissimilar,
beyond their reasonable control; or (ii) of any failure or defect in the supply,
quantity or character of electricity, water or other utilities furnished to the
by reason of any requirement, act or omission of the public utility or others
serving the Building with electric energy, steam, oil, gas or water, or for any
other reason whether similar or dissimilar, beyond Landlord's reasonable
control.
38. JOINT AND SEVERAL LIABILITIES. If two or more individuals,
corporations, partnerships or other business associations (or any combination of
two or more thereof) shall sign this Lease as Tenant, the liability of each such
individual corporation, partnership or other business association to pay Rent
and perform all other obligations hereunder shall be deemed to be joint and
several. In like manner, if the Tenant named in this Lease shall be a
partnership or other business association, the members of which are, by virtue
of statute or general law, subject to personal liability, the liability of each
such member shall be joint and several.
39. EFFECT OF DELIVERY. Landlord has delivered a copy of this Lease to
Tenant for Tenant's review only, and the delivery does not constitute an offer
to Tenant or an option to lease. This Lease shall not be effective until a copy
has been executed by both Landlord and Tenant.
40. TIME. Time is of the essence of this Lease.
52
<PAGE>
[SEAL]
BALTIMORE COUNTY, MARYLAND
DEPARTMENT OF PERMITS AND LICENSES
TOWSON, MARYLAND 21204
/s/ John R. Reisinger
PERMIT NO: B295587
PERMISSION IS HEREBY GRANTED TO: BUILDINGS ENGINEER
NAME: NOTTINGHAM PROPERTIES INC. METRIS
ADDRESS: 100 W PENNSYLVANIA AVE. 21204
TOWSON, MD 21204
TO USE AND OCCUPY THE LAND AND/OR BUILDINGS DESCRIBED AND LOCATED AS FOLLOWS ON
PERMIT NO B295587
LOCATION OF PROPERTY: 8020 CORPORATE DR
DIST: 14 LOT NO: 1 BLOCK NO.
SUBDIVISION: WHITE MARSH BUS COMM
DATE: 08/29/97 ISSUED BY THE BUILDINGS ENGINEER
FEE PAID: 1,427.00
/s/ J Reisinger
-----------------------------------
<PAGE>
GUARANTY OF LEASE
THIS GUARANTY OF LEASE is made as of this 31 day of March, 1997, by METRIS
COMPANIES INC. ("Guarantor") to NOTTINGHAM VILLAGE, INC., a Maryland
corporation, its successors and assigns ("Landlord").
EXPLANATORY STATEMENT
A. METRIS DIRECT, INC., ("Tenant") and Landlord have agreed to enter into
a lease (the "Lease") for the use and occupancy of certain office space
containing approximately 51,600 square feet (the "Premises") located at 8020
Corporate Drive, in the White Marsh Business Community (the "Center", as defined
in the Lease) in Baltimore County, Maryland.
B. The Landlord has refused to enter into the Lease with Tenant unless
the Guarantor guarantees the obligations of Tenant under the Lease in the manner
hereinafter set forth.
C. To induce the Landlord to enter into the Lease, which is made a part
hereof and which is dated, executed and delivered, or intended to be dated,
executed and delivered simultaneously herewith and as a part hereof, Guarantor
hereby agrees as follows.
GUARANTY
1. GUARANTY. The Guarantor hereby unconditionally and irrevocably
guarantees to the Landlord: (a) the due and punctual payment in full (and not
merely the collectibility) of as Rent, whether Basic Rent, Additional Rent or
otherwise, in each case when due and payable, whether on any installment payment
date or at the stated or accelerated maturity, all according to the terms of the
Lease; (b) the due and punctual payment in full (and not merely the
collectibility) of all other sums and charges which may at any time be due and
payable in accordance with the Lease, whether or not the same be designated as
rent and (c) the due and punctual performance of all of the other terms,
covenants and conditions contained in the Lease on the part of the Tenant.
2. GUARANTY UNCONDITIONAL. The Guarantor expressly agrees that the
Landlord may, in its sole and absolute discretion, without notice to or further
assent of the Guarantor and without in any way releasing, affecting or impairing
the obligations and liabilities of the Guarantor hereunder: (a) waive
compliance with, or any defaults under, or grant any other indulgences with
respect to, the Lease; (b) modify, amend, change or terminate any provisions of
the Lease; (c) grant extensions or renewals of or with respect to the Lease to
the extent contemplated by Section 3 of the Lease; (d) effect any release,
subordination, compromise or settlement in connection with the Lease; (e) agree
to the substitution, exchange, release or other
<PAGE>
disposition of all or any part of the Deposit, if any, or any other security for
the performance of Tenant's obligations under the Lease; (f) make advances for
the purpose of performing any term or covenant contained in the Lease with
respect to which the Tenant shall be in default; (g) assign or otherwise
transfer the Lease or this Agreement or any interest therein or herein; (h) deal
in all respects with the Tenant or the then occupant of the Premises as if this
Agreement were not in effect. The obligations of the Guarantor under this
Agreement shall be unconditional, irrespective of the enforceability of the
Lease or any Deposit or other security given for the performance of Tenant's
obligations thereunder or in connection therewith, or any other circumstances
which might otherwise constitute a legal or equitable discharge of a surety or
guarantor.
3. GUARANTY PRIMARY. The obligations and liability of the Guarantor
under this Agreement shall be primary, direct and immediate; shall not be
conditional or contingent upon pursuit by the Landlord of any remedies it may
have against the Tenant with respect to the Lease, whether pursuant to the terms
thereof or by law; and shall not be subject to any counterclaim, recoupment,
set-off, reduction or defense based upon any claim that the Guarantor may have
against the Tenant or the Landlord. Without limiting the generality of the
foregoing, the Landlord shall not be required to make any demand on the Tenant
and/or the then occupant of the Premises, or to pursue or exhaust its remedies
against the Premises, any Deposit or other security given for Tenant's
performance and/or against the Tenant or the then occupant of the Premises,
before, simultaneously with or after enforcing its rights and remedies hereunder
against the Guarantor. Any one or more successive and/or concurrent actions may
be brought hereon against the Guarantor either in the same action, if any,
brought against the Tenant and/or the then occupant of the Premises or in
separate actions, as often as the Landlord may deem advisable.
4. WAIVERS BY GUARANTOR. The Guarantor hereby unconditionally and
irrevocably waives: (a) presentment and demand for payment of any sums due from
Tenant under the Lease, whether or not denominated as Rent, and protest of
non-payment; (b) notice of acceptance of this Agreement and of presentment,
demand and protest; (c) notice of any default under this Agreement or the Lease
and notice of all indulgences; (d) demand for observance, performance, or
enforcement of any terms or provisions of this Agreement or the Lease; (e) any
right or claim of right to cause a marshalling of the assets of the Tenant; and
(f) all other notices and demands otherwise required by law which the Guarantor
may lawfully waive.
5. REIMBURSEMENT FOR EXPENSES. If, after Notice to Guarantor, the
Landlord shall commence any action or proceeding for the enforcement of this
Agreement, the Guarantor shall reimburse the Landlord promptly upon demand, for
all expenses incurred in connection therewith, including, without limitation,
reasonable attorneys' fees.
6. SUBORDINATION, SUBROGATION. If the Guarantor shall advance any
sums to the Tenant or if the Tenant shall hereafter become indebted to
Guarantor, such sums and indebtedness shall be subordinate in all respects to
the amounts then or thereafter due and owing
2
<PAGE>
to the Landlord under the Lease. Nothing herein contained shall be construed to
give the Guarantor any right of subrogation in and to the Lease or all or any
part of the Landlord's interest therein. If the Guarantor is or becomes an
"insider" (as defined from time to time in Section 101 of the United States
Bankruptcy Code) with respect to the Tenant, then such Guarantor irrevocably and
absolutely waives any and all rights of subrogation, contribution,
indemnification, reimbursement or any similar rights against the Tenant with
respect to this Agreement, whether such rights arise under an express or implied
contract or by operation of law. It is the intention of the parties hereto that
any such Guarantor shall not be deemed to be a "creditor" (as defined in Section
101 of the United States Bankruptcy Code) of the Tenant by reason of the
existence of this Agreement in the event that the Tenant becomes a debtor in any
proceeding under the Federal Bankruptcy Code.
7. REPRESENTATIONS AND WARRANTIES. The Guarantor represents and
warrants that it has a financial interest in the Tenant, that it has been given
a copy of and has examined or has had an opportunity to examine the Lease, that
it has full power, authority and legal right to execute and deliver this
Agreement, and that this Agreement is a binding legal obligation of the
Guarantor.
9. GOVERNING LAW. The provisions of this Agreement shall be
construed, interpreted and enforced in accordance with the laws of the State of
Maryland as the same may be in effect from time to time.
10. CONSENT TO JURISDICTION. The Guarantor irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of Maryland over
any suit, action, or proceeding arising out of or relating to this Agreement.
The Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in any such court and any claim that
any such suit, action, or proceeding brought in any such court has been brought
in an inconvenient forum. Final judgment in any such suit, action, or proceeding
brought in any such court shall be conclusive and binding upon the Guarantor and
may be enforced in any court to whose jurisdiction the Guarantor is subject, by
a suit upon such judgment provided that service of process is effected upon the
Guarantor in a manner specified in this Agreement or as otherwise permitted by
applicable law.
11. SERVICE OF PROCESS. The Guarantor hereby consents to process
being served in any suit, action, or proceeding instituted in connection with
this Agreement by (a) the mailing of a copy thereof by certified mail, postage
prepaid, return receipt requested, to it at its address designated herein and
(b) serving a copy thereof upon the Tenant, the agent hereby designated and
appointed by the Guarantor as the Guarantor's agent for service of process. The
Guarantor irrevocably agrees that such service shall be deemed in every respect
to be effective service of process in any such suit, action, or proceeding.
Nothing in this Agreement shall affect the right of the Landlord to serve
process in any manner otherwise permitted by law and nothing in this Agreement
will limit the right of the Landlord otherwise to bring proceedings against the
Guarantor in the courts of any other appropriate jurisdiction or jurisdictions.
3
<PAGE>
12. WAIVER OF JURY TRIAL. THE GUARANTOR, AND, BY ITS ACCEPTANCE OF
THIS GUARANTY, THE LANDLORD, HEREBY JOINTLY AND SEVERALLY, WAIVE TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO WHICH ANY OF THEM MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO THIS AGREEMENT OR THE LEASE. It is agreed and
understood that this waiver constitutes a waiver of trial by jury of all claims
against all parties to such actions or proceedings, including claims against
parties who are not parties to this Agreement. This waiver is knowingly,
willingly and voluntarily made by the Guarantor, and the Guarantor hereby
represents and warrants that no representations of fact or opinion have been
made by any individual to induce this waiver of trial by jury or to in any way
modify or nullify its effect. The Guarantor further represents and warrants that
it has been represented in the signing of this Agreement and in the making of
this waiver by legal counsel, selected of its own free will, and that it has had
the opportunity to discuss this waiver with counsel.
13. VOIDABLE PREFERENCE: FRAUDULENT CONVEYANCE. If at any time any
payment, or portion thereof, made by, or for the account of the Guarantor on
account of any of the obligations and liabilities hereunder is set aside by any
court or trustee having jurisdiction as a voidable preference or fraudulent
conveyance or must otherwise be restored or returned by the Landlord under any
insolvency, bankruptcy or other federal and/or state laws or as a result of any
dissolution, liquidation or reorganization of the Tenant or upon, or as a result
of, the appointment of any receiver, intervenor or conservator of, or trustee or
similar officer for, the Tenant or any substantial part of its properties or
assets, the Guarantor hereby agrees that this Agreement shall continue and
remain in full force and effect or be reinstated, as the case may be, all as
though such payment(s) had not been made.
14. NOTICES. Notice, demand, request or other communication which
either party may desire to give to the other with respect to this Agreement,
shall be deemed to have been properly given if in writing and delivered by hand,
sent by overnight courier or mailed by certified mail, postage prepaid,
addressed as follows: if to the Landlord, then at the Landlord's Notice Address
set forth in the Lease: if to the Guarantor, then at the addresses set forth
below its signature in this Agreement. Any of the parties hereto may designate a
change of address by notice in writing to the other parties. Whenever in this
Agreement the giving of notice by mail or otherwise is required, the giving of
such notice may be waived in writing by the person or persons entitled to
receive such notice.
15. REMEDIES CUMULATIVE. All rights and remedies afforded to the
Landlord by reason of this Agreement, the Lease, or by law are separate and
cumulative and the exercise of one shall not in any way limit or prejudice the
exercise of any other such rights or remedies. Every right, power and remedy
given by this Agreement to the Landlord shall be concurrent and may be pursued
separately, successively or together against the Guarantor; and each such right,
power and remedy may be exercised from time to time as often as the Landlord may
deem expedient. No delay or omission by the Landlord in exercising any such
right or remedy shall operate as a waiver thereof. No waiver of any rights and
remedies hereunder, and no modification or amendment hereof, shall be deemed
made by the Landlord unless in writing and
4
<PAGE>
duly signed by the Landlord. Any such written waiver shall apply only to the
particular instance specified therein and shall not impair the further exercise
of such right or remedy or of any other right or remedy of the Landlord and no
single or partial exercise of any right or remedy hereunder shall preclude any
other or further exercise thereof or any other right or remedy.
16. SEVERABILITY. If any provision (or any part of any provision)
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision (or remaining part of the affected
provision) of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision (or part thereof) had never been
contained herein but only to the extent it is invalid, illegal or unenforceable.
17. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be enforceable by, the Landlord and its successors and assigns as
Landlord under the Lease, and shall be binding upon, and enforceable against,
the Guarantor and its successors and assigns.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original for all purposes,
but all such counterparts shall together constitute one and the same instrument.
WITNESS the signature and seal of the Guarantor as of the day and year
first above written.
GUARANTOR:
METRIS COMPANIES INC.
Jill B. Barclift By: /s/ Jill B. Barclift (seal)
- ----------------------- -----------------------
Address:
600 South Highway 169, Interchange Tower, Suite
1800, St. Louis Park, Minnesota, 55426-1222
5
<PAGE>
ACKNOWLEDGMENTS
STATE OF MINNESOTA, COUNTY OF HENNEPIN, TO WIT:
I HEREBY CERTIFY that on this 28TH day of March, 1997, before me, the
undersigned authority, personally appeared JILL B. BARCLIFT, and such person
made acknowledgment to be the duly authorized officer of METRIS COMPANIES INC.,
the within named Guarantor, and that such person, as such officer or official,
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the Guarantor as such officer or
official.
WITNESS my hand and official seal.
[SEAL]
/s/ Katrina M. Ganz
---------------------------------
Notary Public
My Commission Expires: 1-31-2000
6
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT is made as of this 15 day of
October, 1997, by NOTTINGHAM VILLAGE, INC., a corporation organized and existing
under the laws of Maryland ("Landlord"), and METRIS DIRECT, INC., a Minnesota
corporation ("Tenant") and METRIS COMPANIES, INC. ("Guarantor").
EXPLANATORY STATEMENT
A. Landlord and Tenant are parties to that Agreement of Lease dated
March 28, 1997 (the "Lease") respecting certain premises containing 51,600
square feet of space in Landlord's Building located at 8020 Corporate Drive, in
the White Marsh Business Community, in Baltimore County, Maryland (the
"Premises"). Guarantor has guaranteed the obligations of Tenant under the Lease
pursuant to the terms of a Guaranty of Lease dated March 31, 1997 (the
"Guaranty").
B. The size of the Premises has been determined, and Landlord and Tenant
desire to amend the Lease to reflect that fact, and to make certain other
amendments as hereinafter set forth. Guarantor joins herein for the purpose of
acknowledging such amendments and confirming the continued force and effect of
the Guaranty.
C. The effective date of this Agreement shall be the date above set
forth.
AGREEMENT
NOW THEREFORE, the parties agree that the Lease shall be amended as follows.
IN CONSIDERATION of the Rents hereinafter reserved and the agreements
set forth in the General Terms and Conditions, and any and all Schedules,
Attachments and Riders hereto, Landlord hereby leases to Tenant and Tenant rents
from the Landlord the Premises, located in the Building within the Center, for
the Term. Landlord and Tenant do hereby agree as follows.
1. AMENDMENT OF CERTAIN LEASE TERMS.
1. 1. "BASIC RENT". Section 1. 1 of the Lease is deleted in its
entirety and the following provision is substituted:
For the First Lease Year of the Term the Basic Rent shall be the
annual sum of $516,000.00 payable in equal consecutive monthly installments
of $43,000.00. Commencing with the second Lease Year and continuing each
Lease
<PAGE>
Year thereafter for the remainder of the Term, the Basic Rent shall be
increased to an amount equal to the product, rounded to the nearest cent,
of (A) the per-square-foot Basic Rent rate for the immediately preceding
year multiplied by (B) 1.025; and the product of such equation then being
multiplied by (C) the Rentable Area. Tenant shall pay no monthly
installment of Basic Rent for the first calendar month of the Term.
1.2. "BUILDING". Section 1.2 of the Lease is deleted in its entirety
and the following provision is substituted:
The building to be constructed by Landlord and situate within the
Center, at the intersection of Sandpiper Circle, extended, and Corporate
Drive, in the White Marsh Business Community, Baltimore, Maryland, 21236,
as shown on Exhibit A, the total square footage of which is 51,600 square
feet, and is hereinafter referred to as the "Rentable Area".
1.3. "TERM" . Section 1.14 of the Lease is amended to confirm that the
Commencement Date of the Lease was September 1, 1997.
2. REPAIRS TO BE MADE BY LANDLORD; REPAIRS TO BE MADE BY TENANT; COMMON
AREAS; MANAGEMENT AND OPERATION of COMMON AREAS; TENANT TO PAY FOR COMMON AREA
MAINTENANCE EXPENSES. Landlord and Tenant acknowledge that they have entered
into, or shall shortly hereafter enter into, a Project Management Agreement with
Nottingham Management Company, as Agent, pursuant to which such Agent shall
perform the management, general maintenance and repair obligations of Landlord
and Tenant with respect to the Premises and the Building and Center generally,
all as set forth in Sections 10 and 11 of the Lease. All costs and expenses of
such work, including such Agent's management fee, shall be paid by Tenant in
accordance with a mutually approved budget and otherwise as provided in such
Agreement. Accordingly, Landlord and Tenant agree that, so long as such
Agreement shall remain in force and effect to provide for the performance of the
parties' respective obligations under such Sections, Tenant's payments under the
Agreement shall be made in lieu of its payments of its Proportionate Share of
Common Area Maintenance Expenses under the Lease.
3. LEASE, GUARANTY OTHERWISE TO REMAIN IN FULL FORCE AND EFFECT. Except
as otherwise specifically set forth in this Agreement, each of the other terms,
covenants and conditions set forth in the Lease shall be and remain in full
force and effect. Guarantor joins herein for the purpose of acknowledging the
foregoing amendments and agrees that the Guaranty is and shall remain in full
force and effect and unimpaired by these amendments.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement of Lease, or have caused the same to be executed on their respective
behalves by their duly authorized representatives, the date and year first above
written.
WITNESS: LANDLORD:
NOTTINGHAM VILLAGE, INC., a
Maryland corporation
(ILLEGIBLE) By: /s/ P. Douglas Dollenberg (SEAL)
- -------------------------- --------------------------
P. Douglas Dollenberg, President
WITNESS OR ATTEST: TENANT:
METRIS DIRECT, INC., a Minnesota
corporation
Cynthia J. Burda By: /s/ Ronald N. Zebeck (SEAL)
- -------------------------- -----------------------
Ronald N. Zebeck, President
WITNESS OR ATTEST: GUARANTOR:
METRIS COMPANIES, INC., a Minnesota
corporation
By: /s/ Jill B. Barclift (SEAL)
- -------------------------- -----------------------
Jill B. Barclift
3
<PAGE>
ACKNOWLEDGMENTS
STATE OF MINNESOTA, COUNTY OF HENNEPIN, to wit:
I HEREBY CERTIFY that on this 15TH day of October, 1997, before me, the
subscriber a Notary Public of the said State, personally appeared RONALD N.
ZEBECK, known to me (or satisfactorily proven) to be the duly authorized
corporate officer of METRIS DIRECT, INC., a Minnesota corporation, and that such
person, as such officer, being duly authorized so to do, did execute the
foregoing instrument on behalf of said entity, and such person made
acknowledgment that such execution was for and on behalf of, and was the
authorized act of, such entity.
AS WITNESS my hand and Notarial Seal.
[SEAL]
/s/ Cythia J. Burda
------------------------------------
Notary Public
My Commission Expires: Jan. 31, 2000
-------------
STATE OF MINNESOTA, COUNTY OF HENNEPIN, to wit:
I HEREBY CERTIFY that on this 15TH day of October, 1997, before me, the
subscriber a Notary Public of the said State, personally appeared JILL B.
BARCLIFT, known to me (or satisfactorily proven) to be the duly authorized
corporate officer of METRIS COMPANIES, INC., a Minnesota corporation, and that
such person, as such officer, being duly authorized so to do, did execute the
foregoing instrument on behalf of said entity, and such person made
acknowledgment that such execution was for and on behalf of, and was the
authorized act of, such entity.
AS WITNESS my hand and Notarial Seal.
[SEAL]
/s/ Katrina M. Ganz
------------------------------------
Notary Public
My Commission Expires: Jan. 31, 2000
-------------
4
<PAGE>
LEASE
between
THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES NY, NY
Landlord
and
Tenant FINGERHUT FINANCIAL SERVICES
CORPORATION, a Minnesota corporation
Dated: Aug 11, 1995
Premises: Interchange Tower
Suite 1800
17,859 rentable square feet
Property No. IRE-1310
<PAGE>
LEASE
LANDLORD: THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
TENANT: FINGERHUT FINANCIAL SERVICES CORPORATION
DATE: _______________, 1995
CONTENTS
<TABLE>
<S> <C> <C>
1. Premises and Term 1
2. Rent 1
3. Adjustments 1
4. Use 3
5. Services 4
6. Possession 5
7. Condition of Premises 6
8. Repairs 6
9. Alterations 6
10. Damage or Destruction 8
11. Insurance 9
12. Condemnation 10
13. Waiver of Claims and Indemnity 11
14. Waivers 11
15. Defaults and Remedies 12
16. Surrender of Possession 13
17. Holding Over 14
18. Costs, Expenses and Attorneys' Fees 14
19. Compliance with Laws 14
20. Rights Reserved By Landlord 14
21. Estoppel Certificates 15
22. Rules and Regulations 16
23. Relocation 16
24. Assignment and Subletting 16
25. Notice 18
26. Conveyance by Landlord 19
27. Subordination 19
28. Brokers 20
29. Security Deposit 20
30. Miscellaneous 20
31. Exculpation 21
32 Common Areas 22
Rider to Lease Agreement
Exhibit A Premises
Exhibit B Description of Land
Exhibit C Rules and Regulations
Exhibit D Approved Plans
Exhibit E Janitorial Specifications
</TABLE>
<PAGE>
LEASE
This Lease is made and entered into as of ________, 19__, between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation
("Landlord"), and FINGERHUT FINANCIAL SERVICES CORPORATION, a Minnesota
corporation ("Tenant").
1. PREMISES AND TERM.
Landlord leases to Tenant, and Tenant leases from Landlord the space known as
Suite 1800 and shown hatched on the drawing attached to this Lease as Exhibit
A (the "Premises"), consisting of approximately 17,859 rentable square feet
and located on the 18th floor(s) in the building known as Interchange Tower,
located at 600 South Highway 169, St. Louis Park, Minnesota 55426 (the
"Building"), which is one of the two buildings (together referred to as
"Tower/South") located on the land in Hennepin County, Minnesota legally
described on the attached Exhibit B (the "Land"), for a term commencing on
September 1, 1995 and ending on November 30, 2000 (the "Term"), unless sooner
terminated as provided in this Lease, subject to all of the terms, covenants
and agreements contained in this Lease.
2. RENT.
Tenant shall pay to Landlord at COMPASS Management and Leasing, Interchange
Tower, 600 South Highway 169, Suite 1585, St. Louis Park, MN 55426, or at
such other place as Landlord may from time to time designate, annual base
rent (the "Base Rent") of SEE RIDER in equal monthly installments of SEE
RIDER each in advance on the first day of each calendar month during the
Term. If the Term commences on a day other than the first day of a month, or
ends on a day other than the last day of a month, then the Base Rent for such
fractional month will be prorated on the basis of 1/365th of the annual Base
Rent for each day of the fractional month. Base Rent shall be payable without
any prior demand and without any deductions or setoffs, except as
specifically provided herein.
3. ADJUSTMENTS.
The Base Rent of SEE RIDER per rentable square foot includes Landlord's
estimate of the 1995 ("Base Year") Taxes (as hereinafter defined) in the
amount of $2.74 per rentable square foot ("Base Year Taxes") and Operating
Expenses (as hereinafter defined) in the amount of $5.58 per rentable square
foot ("Base Year Operating Expenses").
Tenant shall pay to Landlord as additional rent per rentable square foot in
the Premises the amount by which all taxes and assessments assessed, levied
or imposed on, or allocated to, the Land and Tower/South, including interest
on deferred assessments, and all attorneys' fees, witness fees, court costs
and other expenses of Landlord in contesting such taxes and assessments (all
of which are herein referred to as "Taxes") per rentable square foot exceed
the Base Year Taxes.
<PAGE>
Tenant shall pay to Landlord as additional rent per rentable square foot in
the Premises the amount by which the Operating Expenses for each calendar
year of the Term per rentable square foot exceed the Base Year Operating
Expenses.
Operating Expenses shall mean all costs, charges and expenses incurred by
Landlord, and not paid directly or separately by Tenant, in connection with
ownership, operation, security, maintenance and repair of the Land,
Tower/South, other improvements on the Land, appurtenances to the
Tower/South, parking driveways, landscaping, lighting, sidewalks, and common
or public areas, including but not limited to real estate taxes and insurance
on common areas, interior and exterior maintenance, insurance, utilities,
fees or expenses for management by Landlord or any other party, and
amortization of capital expenditures made to reduce Operating Expenses or to
comply with the requirements of any federal, state or local law or
regulation, or for repairs to Tower/South or purchase of equipment, except
amortization of capital improvements to the Premises made by Landlord
pursuant to clause (i) of paragraph 2 of Rider to Lease Agreement attached
hereto (the "Rider").
Operating Expenses shall not include direct out-of-pocket costs of the
following:
a. Expenses incurred in connection with work performed for other
tenant space or the enforcement and negotiation of leases;
b. Debt service or financing costs for the Premises;
c. Expenses relating to the Premises for which Landlord obtains
reimbursement through warranty or insurance;
d. Duplication of any charges;
e. Costs of remediating any Hazardous Materials (as defined in
Section 4 below) placed in the Premises by Landlord which are
classified as Hazardous Materials on the date of their introduction
into the Premises;
f. Acquisition costs of land or buildings in the Premises or
depreciation of any building in the Premises;
g. Costs classified as capital improvements or repairs under
generally accepted accounting principles except to the extent
specifically included above;
h. Landlord's executive salaries above the level of property
manager; and
i. Management fees in excess of the prevailing market rate for
management fees in similar office buildings in the Minneapolis
western suburban areas as reasonably determined by Landlord.
If during any calendar year of the Term, less than 95% of the Building's
rentable area is occupied by tenants, the variable Operating Expenses for
that year will be equitably adjusted to reflect Operating Expenses as though
Tower/South had been 95% occupied throughout the year. In no event shall
Landlord collect from tenants more than 100% of the Operating Expenses
actually incurred with respect to any year.
To provide for current payments for Taxes and Operating Expenses during the
Term, Tenant shall pay monthly, as additional rent together with the Base
Rent, Landlord's estimated from time to time of the Taxes and Operating
Expenses per rentable square feet in the Premises for each calendar year in
excess of the respective Base Year Taxes and Base Year
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Operating Expenses. Landlord will keep books and records showing the
Operating Expenses, and will deliver to Tenant within 180 days after the
close of each calendar year (including the calendar year in which this Lease
terminates), a statement setting forth the actual Taxes and Operating
Expenses for the year, the estimated amounts paid by Tenant and the amount
owed by Tenant or to be credited to Tenant, as the case may be. Within 10
days after receipt of the statement Tenant shall pay to Landlord the amount
of any underpayment, or Landlord shall credit Tenant for the amount of any
overpayment. No decrease in Taxes and/or Operating Expenses shall reduce the
amount of Base Rent, and no increase or decrease shall change the amounts of
the Base Year Taxes and Base Year Operating Expenses set forth in the first
paragraph of this Section. Operating Expenses and Taxes shall at all times be
computed separately.
The obligation of Tenant for payment of Base Rent and rent adjustments shall
survive the expiration or termination of this Lease. If Tenant does not give
Landlord written notice within one year after receiving Landlord's statement
that Tenant disagrees with the statement and specifying the amounts in
dispute, Tenant will be deemed to have waived the right to contest the
statement. Tenant will file no petition in Tax Court regarding the Taxes
without Landlord's prior written consent. The portion of Taxes and Operating
Expenses to be paid by Tenant for the years in which the Term begins and ends
will be prorated by multiplying the actual portion of Taxes and Operating
Expenses to be paid by Tenant, with respect to the applicable full calendar
year, by a fraction, the numerator of which is the number of days of that
year in the Term and the denominator of which is 365.
Although Landlord treats Tower/South as one building for purposes of
computing and allocating Operating Expenses and Taxes, Landlord shall have
the right, after at least 30 days prior written notice to Tenant, to compute
Operating Expenses and Taxes with respect to only the building in which
Tenant is located and to separately allocate the Operating Expenses and Taxes
for the Tower Building and the South Building and those portions of the Land
on which each is located, as described in Exhibit B.
4. USE.
Tenant shall use and occupy the Premises for general office purposes and for
incidental purposes related thereto and for no other purpose. Tenant shall
not use or permit upon the Premises anything that will invalidate or increase
the cost of any policies of insurance now or hereafter carried on the
Premises or the Building. Tenant will pay all extra insurance premiums which
may be caused by the use which Tenant shall make of the Premises. Tenant will
not use or permit upon the Premises anything that may be dangerous to life or
limb. Tenant will not in any manner deface or injure the Building or any part
thereof or overload the floors of the Premises. Tenant will not do anything
or permit anything to be done upon the Premises in any way tending to create
a nuisance, or tending to disturb any other tenant in the Building or the
occupants of neighboring property or tending to injure the reputation of the
Building. Tenant will promptly and fully comply with all governmental, health
and police requirements and regulations respecting the Premises. Tenant will
not use the Premises for lodging or sleeping purposes or for any immoral or
illegal purposes. Tenant shall not conduct nor permit to be conducted on the
Premises any business which is contrary to any local, state or federal laws,
ordinances or regulations.
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Tenant shall not use, handle, generate, treat, store or dispose of, or permit
the handling, generation, treatment, storage or disposal of any Hazardous
Materials in, on, under, around or above the Premises, except for immaterial
quantities of Hazardous Materials used in the ordinary and normal course of
general office use so long as Tenant uses such materials in accordance with
all rules, laws, regulations and statutes applicable thereto and no permit is
required for such use. Tenant will indemnify, defend and save Landlord
harmless from any actions, proceedings, claims, costs, expenses and losses of
any kind, including, but not limited to, those arising from injury to any
person, including death, damage to or loss of use or value of real or
personal property, and costs of investigation and cleanup with respect to any
breach by Tenant of the preceding sentence. Landlord will indemnify, defend
and save Tenant harmless from any actions, proceedings, claims, costs,
expenses and losses of any kind, including, but not limited to, those arising
from injury to any person including death, damage to or loss of use or value
of real or personal property, and costs of investigation and clean up with
respect to any Hazardous Materials placed in or under the Building or Land by
Landlord to the extent that they are classified as Hazardous Materials on the
date of their introduction into the Building or Land. The term "Hazardous
Materials", when used herein, shall include, but shall not be limited to, any
substances, materials or wastes to the extent quantities thereof are
regulated by any local, state or federal governmental authority, because of
toxic, flammable, explosive, corrosive, reactive, radioactive or other
properties that may be hazardous to human health or the environment,
including asbestos and including any materials or substances that are listed
in the United States Department of Transportation Hazardous Materials Table,
as amended, 49 C.F.R. 172.101, or in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. subsections
9601 et seq., or the Resources Conservation and Recovery Act, as amended, 42
U.S.C. subsections 6901 et seq., or any other applicable governmental
regulation imposing liability or standards of conduct concerning any
hazardous, toxic or dangerous substances, waste or material, now or hereafter
in effect. Landlord's and Tenant's obligations and liabilities under this
Section shall survive the expiration of the Term.
Tenant shall not at any time manufacture, sell, or give away, and shall not
at any time permit the manufacture, sale, use or gift of, any spirituous,
intoxicating or alcoholic liquors or controlled substances on the Premises,
except that the foregoing shall not be deemed to prohibit the occasional use
of alcoholic beverages for entertainment purposes, so long as Tenant has in
full force and effect a policy of host liquor liability or dram-shop
insurance in form and amounts at all times satisfactory to Landlord and has
delivered to Landlord a certificate of insurance with respect thereto.
5. SERVICES.
Landlord shall provide reasonable janitor service and elevator service for
the Premises. Janitorial services shall be provided in accordance with the
specifications attached hereto as Exhibit E or modifications thereof from
time to time so long as consistent with the standards of a similar class
office building. Landlord shall also provide heating, ventilating and air
conditioning during the periods from 8:00 a.m. to 5:00 p.m. (Saturdays to
1:00 p.m.), Sundays and holidays excepted ("Normal Business Hours") to
provide reasonably comfortable occupancy in accordance with the standards of
similar office buildings in the Minneapolis western suburban area. Landlord
shall provide electricity in reasonable amounts for ordinary office purposes.
The cost of all such services will be a part of the Operating Expenses.
Neither Landlord nor any agent or contractor of Landlord will be liable for
any loss or damage resulting from any temporary interruption of these
services due to repairs, alterations or improvements, or any variation,
interruption or failure of these services due to governmental controls,
unavailability of
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energy, or any other cause beyond Landlord's control. No such interruption or
failure of these services will be deemed an eviction of Tenant or will
relieve Tenant from any of its obligations under this Lease; provided,
however, that in the event any failure or cessation of utilities renders the
Premises unusable for the regular conduct of Tenant's business for more than
72 consecutive hours and Tenant in fact does not occupy and use the Premises
for the regular conduct of Tenant's business during such period, then rent
shall abate during the period following such 72 hour period until the
Premises are again tenantable. Further, if any such failure or cessation
renders the Premises untenantable and Tenant does in fact occupy the
Premises during such period and the foregoing conditions continue for more
than 120 consecutive days after notice from Tenant, Tenant may at its option
terminate this Lease by notice to Landlord given prior to the earlier of (i)
10 days after the expiration of said 120 (or 210, as provided below) day
period, and (ii) the restoration of said utilities; provided, however, that
if any mortgagee with respect to the Building and/or Land gives notice
during said 120 day period that it intends to use all reasonable efforts to
cure the default, then Tenant's right to terminate shall be suspended for a
reasonable time (not to exceed 210 days from said failure of utilities) so
long as said mortgagee continues to use all reasonable efforts to cure the
default. Notwithstanding the foregoing, Tenant's termination right hereunder
shall not apply any failure or cessation of utilities occurring in connection
with a casualty to or taking of the Premises, Building and/or Land. Except
for payment of Tenant's Share of Operating Expenses, Tenant will not be
required to pay for these services for ordinary office purposes, but Tenant
will pay to Landlord any charges Landlord establishes for utilities or
services provided outside Normal Business Hours at Tenant's request, or
provided because of uses other than ordinary office uses. Whenever
heat-generating machines or equipment installed by Tenant affect the
temperature otherwise maintained by Landlord in the Premises, or whenever the
occupancy or electrical load exceeds usual and customary office standards,
Landlord reserves the right to require Tenant to discontinue use of such
heat-generating machines or equipment, or install supplementary air
conditioning units in the Premises, the costs of installation, operation and
maintenance of which shall be paid by Tenant. Tenant will cooperate with
Landlord and abide by all reasonable regulations and requirements which
Landlord may prescribe for the proper functioning of the ventilating and air
conditioning systems. Tenant shall not waste or permit the waste of water.
All charges for any such services shall be deemed rent payable at the same
time as the installment of rent with which they are billed, or, if billed
separately, within 10 days after billing.
6. POSSESSION.
If the premises are not completed and ready for occupancy on the first day of
the Term, this Lease shall nevertheless continue in full force and effect,
and no liability shall arise against Landlord out of any such delay beyond
the abatement of rent until the Premises are ready for occupancy; provided,
however, there shall be no abatement of rent if the space is not ready for
occupancy because of failure to complete the installation of special
equipment, fixtures or materials ordered by Tenant and not included in the
Approved Plans, or due to Tenant's failure or inability to complete plans for
any leasehold improvements in the Premises prior to a date agreed upon by
Landlord and Tenant, or due to any act, failure to act, or fault of Tenant,
its employees or agents. The Premises shall not be deemed incomplete or not
ready for occupancy if only insubstantial details of construction, decoration
or mechanical adjustments remain to be done. The determination of Landlord's
architect or interior space planner for the Building shall be conclusive as
to whether the Premises are complete and ready for occupancy. Tenant agrees
upon request of Landlord to promptly acknowledge in writing the date of
substantial completion of the Premises. If Tenant shall enter into possession
of all or any part of the Premises prior to
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the first day of the Term, all of the covenants and conditions of this Lease
will apply as of the date of such possession and Tenant shall pay to Landlord
as rent for the period prior to the first day of the Term of this Lease a
proportionate amount of the rent set forth in Section 2.
7. CONDITION OF PREMISES.
Tenant's occupancy of the Premises shall be deemed acceptance of the
Premises, except as to latent defects (which exception shall be effective for
one year) and so called "punchlist" items to be completed after occupancy. No
promise of the Landlord to alter, remodel, repair or improve the Premises or
the Building and no representations respecting the condition of the Premises
or the Building have been made by Landlord to Tenant, other than as may be
contained herein or in any Exhibit to this Lease.
8. REPAIRS.
Except as otherwise provided in Section 10 of this Lease, and subject to the
provisions of Section 9 of this Lease, Tenant shall, at its sole cost and
expense, keep the Premises in good order, repair and tenantable condition at
all times during the Term. Tenant shall promptly arrange with Landlord at
Tenant's sole cost and expense for the repair of all damages to the Premises
and for the replacement or repair of all damaged or broken glass, fixtures
and appurtenances, except for exterior window glass broken through no fault
of Tenant or its employees, agents, invitees or guests. If Tenant does not
promptly make such arrangements, Landlord may, upon ten (10) days notice to
Tenant (except where Landlord in good faith determines that notice is not
prudent, but need not, make such repairs and replacements and the costs paid
or incurred by Landlord for such repairs and replacements (including
Landlord's overhead and profit, and the cost of general conditions) shall be
deemed additional rent due and payable within 10 days after receipt of a
statement from Landlord. Landlord may enter the Premises at all reasonable
times upon oral or written notice to Tenant (except where Landlord in good
faith determines that notice is not prudent) to make any repairs,
alterations, improvements or additions, including, but not limited to, ducts
and all other facilities for heating and air conditioning service, as
Landlord shall desire or deem necessary for the safety, maintenance, repair,
preservation or improvement of the Building, or as Landlord may be required
or requested to do by governmental authorities. Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's use of the Premises. Such
work and any resultant interruption of services and facilities shall not be
deemed an eviction of Tenant, and the rent shall in no way abate, and Tenant
shall not be entitled to any setoff or damages, except only as provided in
Section 5 above with respect to interruptions in utilities. Landlord, as an
Operating Expense (except where specifically excluded under Section 3 above)
shall keep in good order, repair and condition the elevators, roof, exterior
walls, foundations, gutters, heating, cooling and air conditioning (except
any such equipment exclusively serving the Premises), electrical lines and
plumbing (except those installed by Tenant with Landlord's approval) and all
common areas of the Building and the Land, including parking areas which
shall be reasonably free of snow and debris. Notwithstanding the foregoing,
Tenant shall pay all costs of such repair caused in any way by the negligence
or intentional acts of Tenant, its contractors, agents, or employees.
9. ALTERATIONS.
Tenant shall not make any alterations, improvements or additions
("Alterations") to the Premises without the prior written consent of
Landlord. Landlord shall
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not unreasonably withhold its consent to any proposed alteration, improvement
or addition where such alteration, improvement or addition will not affect
any structural components of the Building or any Building systems. In
requesting such consent and prior to commencing any such work, Tenant shall
at its sole cost and expense:
(a) Submit to Landlord for review plans and specifications showing such
work in reasonable detail and pay to Landlord all costs incurred by Landlord
in connection with such review.
(b) Furnish Landlord with the names and addresses of all contractors
and copies of all contracts.
(c) If required by Landlord policy, use union labor for the work,
excluding cabling work performed by Tenant's employees.
(d) Provide Landlord with such security as Landlord reasonably may
require to assure timely, lien free completion, as well as all necessary
permits evidencing compliance with all applicable laws, ordinances and
regulations.
(e) Provide Landlord with certificates of insurance in forms and
amounts reasonably satisfactory to Landlord naming Landlord as an additional
insured when required by Landlord.
(f) Comply with such other requests as Landlord may reasonably make in
connection with such work.
Landlord may condition its consent on fulfillment of the foregoing
requirements.
All such work shall, at Landlord's election, be subject to supervision by
Landlord, in which case Tenant shall promptly pay to Landlord a supervision
fee equal to 12% of the cost of the work. If Landlord elects to provide such
supervision, there will not be a separate fee for reviewing plans and
specifications under Section 9(a) above.
Tenant shall protect, defend, indemnify and hold Landlord, the Building and
other tenants of the Building harmless from and against any liabilities which
may arise out of or in connection with the Alterations conducted by or on
behalf of Tenant.
Upon completing any Alterations, Tenant shall furnish Landlord with
contractors' affidavits, sworn statements and full and final waivers of lien
and receipted bills covering all labor and material expended and used. All
Alterations shall comply with all insurance requirements and with all
applicable laws, ordinances and regulations. All Alterations shall be
completed in a good and workmanlike manner and only good grades of materials
shall be used. Once commenced, Tenant shall pursue the construction of
Alterations diligently to completion in accordance with all of the foregoing
requirements and all applicable plans and specifications or shall promptly
restore the Premises to its pre-Alteration condition.
All Alterations, whether temporary or permanent in character, including,
without limitation, wall coverings, carpeting and other floor coverings,
special lighting installations, built-in or attached shelving, cabinetry and
mirrors, installed by Landlord or Tenant in the Premises shall become
Landlord's property and shall remain in the Premises at the
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expiration or termination of this Lease without compensation to Tenant,
except for Tenant's movable office furniture, trade fixtures and office
equipment. Landlord shall have the right to require Tenant to remove
Alterations at Tenant's sole cost and expense in accordance with the
provisions of Section 16 of this Lease provided that Landlord specifically
reserves such right when giving its consent with respect to the applicable
Alteration.
Nothing contained in this Lease shall authorize or empower Tenant to do
anything to encumber Landlord's title to the Building, Land or Premises, nor
in any way subject Landlord's title to any claims of lien or encumbrance
whether claimed by operation of law or by virtue of any expressed or implied
contract of Tenant. If Tenant has not removed any such lien or encumbrance
within 15 days after written notice to Tenant by Landlord, Landlord may, but
shall not be obligated to, pay the amount necessary to remove the lien or
encumbrance, without being responsible for making any investigation as to the
validity or accuracy thereof, and the amount so paid, together with all costs
and expenses (including reasonable attorneys' fees) incurred by Landlord in
connection therewith, shall be deemed additional rent due and payable within
10 days after receipt of a statement from Landlord. Tenant may obtain removal
of such lien or encumbrance as required hereunder by the deposit procedure
set forth in Minnesota Statutes 514.10.
10. DAMAGE OR DESTRUCTION.
(a) If the Premises or any part of the Building is damaged by fire or
other casualty and if such damage does not render all or a substantial
portion of the Premises or the Building untenantable, then Landlord shall
proceed to repair and restore the same to its prior existing condition with
reasonable promptness, subject to reasonable delays for insurance adjustments
and delays caused by matters beyond Landlord's control. If any such damage
renders all or a substantial portion of the Premises or the Building
untenantable, Landlord shall, with reasonable promptness after the occurrence
of such damage and in good faith, estimate the length of time that will be
required to substantially complete the repair and restoration of such damage
and shall by notice advise Tenant of such estimate. If it is so estimated
that the amount of time required to substantially complete such repair and
restoration will exceed 195 days from the date such damage occurred, then
either Landlord or Tenant shall have the right to terminate this Lease as of
the date of such damage upon giving notice to the other at any time within 20
days after Landlord gives Tenant the notice containing said estimate (it
being understood that Landlord may, if it elects to do so, also give such
notice of termination together with the notice containing said estimate).
Unless this Lease is terminated as provided in the preceding sentence,
Landlord shall proceed with reasonable promptness and all due diligence to
repair and restore the Premises, subject to reasonable delays for insurance
adjustments and delays caused by matters beyond Landlord's control, and also
subject to zoning laws and building codes then in effect. Landlord shall have
no liability to Tenant, and Tenant shall not be entitled to terminate this
Lease (except as hereinafter provided) if such repairs and restoration are
not in fact completed within the time period estimated by Landlord, as
aforesaid, or within said 195 days, so long as Landlord shall proceed with
reasonable promptness and due diligence; provided, however, that if Landlord
shall fail to comply with the obligations of the preceding sentence, Tenant
may terminate this Lease by prompt written notice given to Landlord before
restoration is complete. Notwithstanding anything to the contrary herein set
forth: (i) if any such damage rendering all or a substantial portion of the
Premises or Building untenantable shall occur during the last year of the
Term, then Landlord or Tenant shall have the option to
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terminate this Lease by written notice to Tenant or Landlord, as the case may
be, within 30 days after the date such damage occurred, and if such option is
so exercised, this Lease shall terminate as of the date of such damage; (ii)
Landlord shall have no duty to repair or restore any Alterations made by or
on behalf of Tenant in the Premises or improvements which are not then
building standard improvements; (iii) Landlord shall not be obligated (but
may, at its option, so elect) to repair or restore the Premises or Building
if any mortgagee applies proceeds of insurance to reduce its loan balance,
and the remaining proceeds, if any, available to Landlord are not sufficient
to pay for such repair or restoration, provided that if Landlord so elects
not to restore, Landlord shall terminate this Lease effective as of the date
of the damage by notice given to Tenant; and (iv) Tenant shall not have the
right to terminate this Lease pursuant to this Section if the damage or
destruction was caused by the intentional or negligent act of Tenant, its
agents or employees.
(b) In the event any such fire or casualty renders the Premises or any
material portion thereof untenantable and Tenant is not occupying the
Premises or said portion thereof, and this Lease is not terminated, then rent
with respect to the untenantable portion of the Premises shall abate
beginning with the date of such damage and ending with the date when Landlord
substantially completes its repair and restoration work. Such abatement shall
be in an amount bearing the same ratio to the total amount of rent for such
period as the portion of the Premises being repaired and restored by Landlord
bears to the entire Premises. In the event of termination of this Lease
pursuant to this Section, rent shall be apportioned on a per diem basis and
be paid to the date of such fire or other casualty.
(c) In the event of any such fire or other casualty, and if this Lease
is not terminated, Tenant shall repair and restore any portion of Alterations
made by or on behalf of Tenant in the Premises (but not any leasehold
improvements which are the property of Landlord), and during any such Period
of Tenant's repair and restoration following substantial completion of
Landlord's repair and restoration work, rent shall be payable as if said fire
or other casualty had not occurred.
11. INSURANCE.
Tenant, at its sole cost and expense, shall purchase and keep and maintain in
force and effect during the Term, insurance under policies issued by insurers
of recognized responsibility on its personal property, trade fixtures,
furnishings and equipment (but excluding leasehold improvements which are the
property of Landlord) protecting Tenant from damage or other loss caused by
fire or other casualty including, but not limited to, vandalism and malicious
mischief, perils covered by all risk and extended coverage, theft, sprinkler
leakage, water damage (however caused), explosion, malfunction or failure of
heating and cooling or other apparatus, and other similar risks in amounts
not less than the full insurable replacement value of such property. Such
insurance shall provide that it is specific and not contributory and shall
contain a replacement cost
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endorsement and a clause pursuant to which the insurance carriers waive all
rights of subrogation against the Landlord with respect to losses payable
under such policies. At Landlords's request, Tenant shall deliver certificates
of insurance evidencing such coverage upon execution hereof and thereafter not
less than two business days prior to the expiration date of any such policy.
Landlord shall maintain insurance on the Building against fire and such
other risks as may be included in extended coverage insurance from
time-to-time available in an amount not less than the greater of 80% of the
full insurable value of the Building or the amount sufficient to prevent
Landlord from becoming a co-insurer under the terms of the applicable
policies. Such policies shall contain a replacement cost endorsement and a
clause pursuant to which the insurance carriers waive all rights of
subrogation against the Tenant with respect to losses payable under such
policies.
By this Section, Landlord and Tenant intend that the risk of loss or damage
referred to in this Section be borne by responsible insurance carriers to the
extent above provided, and Landlord and Tenant hereby release each other and
agree to look solely to, and to seek recovery only from, their respective
insurance carriers in the event of a loss of a type referred to in this
Section to the extent that coverage is to be provided under this Section. For
this purpose, any applicable deductible amount shall be treated as though it
were recoverable under such policies. Landlord and Tenant agree that
applicable portions of all monies collected from such insurance shall be used
toward the full compliance of the obligations of Landlord and Tenant under
this Lease in connection with loss or damage referred to in this Section.
Tenant shall, at Tenant's expense, maintain during the Term comprehensive
public liability insurance, contractual liability insurance and property
damage insurance, under policies issued by insurers of recognized
responsibility, with limits of not less than either (i) $1,000,000 for
personal injury, bodily injury, sickness, disease or death and $500,000 for
damage or injury to or destruction of property (including the loss of use
thereof) for any one occurrence together with umbrella liability limits of
$2,000,000 per occurrence; or (ii) $1,000,000 combined single limit for
personal injury, bodily injury, sickness, disease or death and damage or
injury to or destruction of property (including the loss of use thereof) for
any one occurrence together with umbrella liability limits of $2,000,000 per
occurrence. Tenant's policies shall name Landlord as additional insureds. At
Landlord's request, Tenant shall deliver certificates of insurance evidencing
such coverage upon execution hereof and thereafter not less than two business
days prior to the expiration date of any such policy.
12. CONDEMNATION.
If all or part to the Premises, Building or Land is taken or condemned by any
competent authority for any public or quasi-public use or purpose or if any
adjacent property or street is condemned or improved in such manner as to
require the use of any part of the Premises or of the Building (including
without limitation, accomplishment of the foregoing through a deed in lieu of
condemnation), the Term, at the option of Landlord, shall end upon the date
when the possession of the part so taken shall be required for such use or
purpose and Landlord shall be entitled to receive the entire award without
any payment to Tenant (except as specifically
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provided below), the Tenant hereby assigning to the Landlord the Tenant's
interest therein, if any, except for amounts specifically awarded for Tenant's
trade fixtures or as a relocation payment or allowance or, to the extent it
does not reduce Landlord's award, for loss of business. Current rent shall be
apportioned as of the date of such termination. If all or part of the
Premises is so taken or part of the Land and Building other than the Premises
shall be so taken that Tenant in the exercise of its reasonable business
judgment, determines that it no longer will be able to conduct its business
from the Premises, Tenant may cancel this Lease and the Term and estate hereby
granted by notifying Landlord of such termination within 60 days following
the vesting of title; provided, however, that Tenant may not terminate this
Lease for loss of parking if Landlord provides comparable and convenient
alternate parking. In the event Tenant gives timely notice of termination
hereunder, this Lease and the Term and estate hereby granted shall expire on
the date specified in the notice of termination, not less than 60 days after
the giving of such notice, as fully and completely as if such date were the
date hereinbefore set for the expiration of the Term of this Lease, and the
rent hereunder shall be apportioned as of such date. In the event of
condemnation of all or part of the Premises, whether or not this Lease is
terminated pursuant to this Section 12, rent shall be partially abated based
on the number of square feet of the Premises so taken from the date of
taking.
13. WAIVER OF CLAIMS AND INDEMNITY.
Tenant agrees that, to the extent not expressly prohibited by law, Landlord
and its officers agents, servants and employees shall not be be liable for
(nor shall rent abate as a result of) any direct or consequential damage
(including damage claimed for actual or constructive eviction) either to
person or property sustained by Tenant, its employees, agents, invitees or
guests due to the Building or any part thereof or any appurtenances thereof
becoming out of repair, or due to the happening of any accident in or about
the Building, or due to any act or neglect of any tenant or occupant of the
Building or of any other person, unless caused by Landlord's intentional
misconduct. This provision shall apply particularly (but not exclusively) to
damage caused by water, snow, frost, steam, sewage, gas, electricity, sewer
gas or odors or by the bursting, leaking or dripping of pipes, faucets and
plumbing fixtures and windows, and shall apply without distinction as to the
person whose act or neglect was responsible for the damage and whether the
damage was due to any of the causes specifically enumerated above or to some
other cause of an entirely different kind, unless caused by Landlord's
intentional misconduct. Tenant further agrees that all of Tenant's personal
property in the Premises or the Building shall be at the risk of Tenant only
and that Landlord shall not be liable for any loss or damage thereto or theft
thereof. Tenant shall protect, indemnify and save Landlord and its officers,
agents and employees harmless from and against any and all obligations
liabilities, costs, damages, claims and expenses of whatever nature arising
from injury to persons or damage to property on the Premises or in or about
the Building arising out of or in connection with Tenant's use or occupancy
of the Premises or Tenant's activities in the Building, or arising from any
act or negligence of Tenant, or its agents, contractors, servants, employees,
or invitees.
14. WAIVERS.
No waiver of any provision of this Lease shall be implied by Landlord's
failure to enforce any remedy, and no express waiver shall affect any
provision other than the one specified in such waiver and that one only for
the time and in the manner specifically stated. No receipt of moneys by
Landlord from Tenant after expiration or termination of the Term or of
Tenant's right of possession shall reinstate, continue or extend the Term or
affect any notice given to Tenant prior to the receipt of such moneys.
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Except as provided in Section 15 hereof, Tenant hereby expressly waives the
service of any notice of intention to terminate this Lease or to re-enter the
Premises and waives the service of any demand for payment of rent or for
possession and waives the service of any other notice or demand prescribed by
any statute or other law.
15. DEFAULTS AND REMEDIES.
If (a) Tenant defaults in the payment of rent or any other sum to be paid by
Tenant under this Lease, and (with respect to the first two of such defaults
in any 12-month period) such default continues for 10 days after written
notice to Tenant, or (b) Tenant defaults in the full and prompt performance
of any other obligations of Tenant under this Lease and such default
continues for 30 days after written notice to Tenant (or (i) such additional
time as is reasonably required to effect such performance, provided that
Tenant commences to cure such default within said 30 day period and
thereafter proceeds diligently to cure such default within a reasonable
period of time, or (ii) immediately upon notice to Tenant if such default
involves a hazardous condition), or (c) if the interest of Tenant in this
Lease is levied on under execution or other legal process, or (d) if any
petition is filed by or against Tenant to declare Tenant a bankrupt or to
delay, reduce or modify Tenant's debts or obligations, or (e) if any petition
or answer or legal action is filed to reorganize or modify Tenant's capital
structure, if Tenant be a corporation or other entity, or (f) if Tenant is
declared insolvent according to law or if any assignment of Tenant's property
is made for the benefit of creditors, or (g) if a receiver or trustee is
appointed for Tenant or its property, (h) if Tenant abandons the Premises
during the Term, then Landlord may treat the occurrence of any one or more of
the foregoing events as a breach of this Lease, and may, without notice or
demand of any kind to Tenant or any other person, have any one or more of the
following described remedies in addition to all other rights and remedies
provided at law or in equity:
(a) Landlord may terminate this Lease and the Term, repossess the
Premises and recover damages equal to the value of the Base Rent and rent
adjustments for the balance of the Term, less the fair rental value of the
Premises for said period, plus any other sums or damages owed by tenant to
Landlord.
(b) Landlord may terminate Tenant's right of possession and repossess
the Premises without terminating this Lease, in which event Landlord may, but
shall not be obligated to, relet all or any part of the Premises, for such
rent and upon such terms as shall be satisfactory to Landlord.
Notwithstanding the foregoing, where Landlord decides not to pursue its
remedy under (a) above, Landlord agrees to exercise reasonable efforts to
relet the Premises following repossession, provided that Landlord shall be
under no obligation to attempt to place tenants in the Premises to the extent
that there is other space available in (i) the Building, (ii) in any other
building owned or managed by Landlord or its affiliates (including without
limitation Equitable Life Assurance Society of the United States and
Equitable Real Estate Company) or (iii) in any other building in which
Landlord or its affiliates (including without limitation Equitable Life
Assurance Society of the United States and Equitable Real Estate Company)
have been appointed as receiver. Landlord may relet all or a part of the
Premises for a term greater or lesser than the remaining Term for the same or
a different use, and may decorate to make repairs, changes, alterations or
additions. If Landlord does not relet the Premises, or if the Premises are
relet and a sufficient amount is not received
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by Landlord after paying all costs and expenses of decorations, repairs,
changes, alterations and additions and expenses of reletting and collection
of rent to satisfy all amounts to be paid under this Lease, Tenant shall pay
to Landlord as damages a sum equal to the amount of the Base Rent and rent
adjustments, or if the Premises have been relet, any such deficiency, upon
demand. Landlord may sue to recover any sums due under this paragraph and any
other sums due under this Lease from time to time. No suit or recovery of any
portion due Landlord shall be any defense to any subsequent action brought
for any amount not previously reduced to judgment in favor of Landlord.
Any repossession pursuant to this Section 15 shall be accomplished in
accordance with law.
If Landlord fails to perform its maintenance and repair obligations under
Section 8 above and such failure continues for more than 60 days after
written notice to Landlord (or if the nature of such default is such that the
same cannot reasonably be cured within such 60 day period, then such
additional time as is reasonable so long as Landlord commences to cure within
such 60 day period and thereafter diligently prosecutes the same to
completion) then Tenant may perform such repair or maintenance or provide
such services and charge the reasonable and actual costs thereof to Landlord.
Landlord shall reimburse Tenant for such costs within 30 days after Tenant
notifies Landlord in writing of the amount thereof, and the amount reimbursed
shall, to the extent it constitutes reimbursement for costs which would be
Operating Expenses if paid by Landlord, constitute Operating Expenses.
If Landlord does not reimburse Tenant within said 30 day period, interest
shall thereafter begin to accrue on such amount at the Interest Rate, and
Tenant may setoff the actual costs of such maintenance and repair together
with interest as above specified against monthly installments of Base Rent
next coming due under the terms of this Lease, provided that the maximum amount
that may be setoff during any given month shall not exceed 10% of the Base
Rent otherwise due from Tenant with respect to such month. Any such setoff
shall, to the extent it represents recoupment of costs which would be
Operating Expenses if paid by Landlord, constitute Operating Expenses. Upon
request by Landlord, Tenant shall provide Landlord with copies of all
contracts, receipts, vouchers and other documentation in connection with such
expenditures. Any such cure by Tenant shall be done at the sole risk of
Tenant, and Tenant shall indemnify, protect and hold Landlord harmless from
any claim, loss, cost or expense arising from injury or death to individuals
and/or damage to property growing out of or resulting from Tenant's
negligence in undertaking such cure.
16. SURRENDER OF POSSESSION.
(a) Before the date the Term expires or Tenant's right of possession
otherwise terminates, Tenant shall (i) restore the Premises to the same
condition as they were in at the beginning of the Term (except as otherwise
provided in Section 9 and 10), ordinary wear and tear excepted, and remove
those alterations, improvements or additions installed for or during
Tenant's occupancy, whether installed by Landlord or Tenant, which Landlord
shall request Tenant to remove pursuant to the provisions of Section 9;
(ii) remove all of Tenant's personal property; and (iii) surrender possession
of the Premises to Landlord in a clean condition free of all rubbish and
debris.
(b) If Tenant does not comply with paragraph (a) of this Section,
Landlord may enter the Premises, put the Premises in such condition, and
recover from Tenant Landlord's cost of doing so.
Any property left in the Premises after expiration or termination of this
Lease or after the Premises have been vacated by Tenant will become the
property of Landlord to dispose of as Landlord chooses.
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17. HOLDING OVER.
Tenant shall pay to Landlord one and one-half times the Base Rent plus one
and one-half times the rent adjustments then applicable for each month or
portion thereof Tenant shall retain possession of the Premises or any part
thereof after the termination of this Lease, whether by lapse of time or
otherwise, and also shall pay all damages sustained by Landlord, whether
direct or consequential, on account thereof. At the option of Landlord,
expressed in a written notice to Tenant and not otherwise, such holding over
shall constitute a renewal of this Lease at the rental rates then prevailing
for similar space in the Building for a period of one month. The provisions
of this Section shall not operate as a waiver by Landlord of any right of
re-entry.
18. COSTS, EXPENSES AND ATTORNEYS' FEES.
If any action or proceeding is brought by Landlord or Tenant to interpret or
enforce the provisions hereof, the prevailing party shall be entitled to
recover from the unsuccessful party therein, in addition to all other
remedies, all costs incurred by the prevailing party in such action or
proceeding, including reasonable attorneys' fees to be fixed by the court
having jurisdiction thereof.
19. COMPLIANCE WITH LAWS.
Tenant will, at its expense, promptly comply with all laws, ordinances,
rules, orders, regulations and other requirements of governmental authorities
now or subsequently pertaining to the Premises, except that the Tenant shall
not hereby be under any obligation (i) to comply with any law, ordinance,
rule or regulation requiring any structural alteration of or in connection
with the Premises, unless such alteration is required by reason of Tenant's
specific use, a condition which has been created by, or at the instance of,
the Tenant, or is required by reason of a breach of any of the Tenant's
covenants and agreements hereunder or (ii) to make the modifications
described in clause (i) of Paragraph 2 of the Rider. Tenant will pay any
taxes or other charges by any governmental authority on Tenant's property or
trade fixtures in the Premises or relating to Tenant's use of the Premises.
20. RIGHTS RESERVED BY LANDLORD.
Landlord shall have the following rights, exercisable without notice and
without liability to Tenant for damage, eviction, disturbance of Tenant's use
or possession, or abatement of rent:
(a) To name the Building and to change the Building's name or street
address.
(b) To install, affix and maintain any and all signs on the exterior
and interior of the Building.
(c) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, and other similar equipment, and to control
all internal lighting that may be visible from the exterior of the Building.
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(d) On reasonable prior notice to Tenant, to show the Premises to
prospective tenants at reasonable hours during the last 12 months of the
Term and, if vacated during such period to decorate, remodel, repair or
otherwise prepare the Premises for re-occupancy without affecting Tenant's
obligation to pay rent.
(e) To retain at all times, and to use in appropriate instances, keys to
all doors within and into the Premises. No locks shall be changed without the
prior written consent of Landlord.
(f) To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building,
enter the Premises, temporarily close doors, entryways, public space and
corridors, and upon prior oral or written notice to Tenant (except where
Landlord in good faith determines that notice is not prudent), temporarily
interrupt Building services and facilities, all without abatement of rent or
affecting any of Tenant's obligations, so long as the Premises are reasonably
accessible.
(g) To have and retain a paramount title to the Premises free and clear of
any act of Tenant purporting to burden or encumber it.
(h) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building, if it does not exclude Tenant's
permitted use of the Premises.
(i) To approve the weight, size and location of safes and other heavy
equipment and bulky articles in and about the Premises and the Building (so
as not to overload the floors of the Premises), and to require all such items
and furniture and similar items to be moved into and out of the Building and
Premises only at such times and in such manner as Landlord shall reasonably
direct. Any damages done to the Building or Premises or to other tenants in
the Building by taking in or putting out safes, furniture and other items, or
from overloading the floor in any way, shall be paid by Tenant. Furniture,
boxes, merchandise or other bulky articles shall be transported within the
Building only upon or by vehicles equipped with rubber tires and shall be
carried only in the freight elevators and at such times as the management of
the Building shall require. Movements of Tenant's property into or out of the
Building and within the Building are entirely at the risk and responsibility
of Tenant.
21. ESTOPPEL CERTIFICATES.
Tenant agrees that from time to time upon not less than 10 days' prior
request by Landlord, Tenant shall deliver to Landlord a statement provided by
Landlord certifying (a) that this Lease is unmodified and in full force and
effect (or if there have been modifications that the Lease as modified is in
full force and effect); (b) the dates to which the rent and other
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charges have been paid; (c) that neither Landlord nor Tenant is in default
under any provision of this Lease, or, if in default, the nature thereof in
detail; and (d) that there are no offsets or defenses to the payment of Base
Rent, additional rent or any other sums payable under this Lease or, if there
are any such offsets or defenses, specifying such in detail.
22. RULES AND REGULATIONS.
Tenant shall observe and comply with the rules and regulations set forth in
Exhibit C attached to this Lease, and with such reasonable modifications and
additions as Landlord may make for the safety, care and cleanliness of the
Building and Premises and for the preservation of good order. Landlord shall
not be liable to Tenant for violations of such rules and regulations by any
other tenant and any other person.
23. RELOCATION. INTENTIONALLY OMITTED
24. ASSIGNMENT AND SUBLETTING.
Tenant shall not, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, (i) assign, convey, mortgage,
pledge or otherwise transfer this Lease, or any part thereof, or any interest
hereunder; (ii) permit any assignment of this Lease, or any part thereof, by
operation of law; (iii) sublet the Premises or any part thereof; or (iv)
permit the use of the Premises, or any part thereof, by any parties other than
Tenant, its agents and employees. Tenant shall, by notice in writing, advise
Landlord of any intention to assign this Lease or to sublet all or any part
of the Premises. Tenant's notice shall include all of the terms of, and
consideration for, the proposed assignment or sublease, the proposed
effective date, the name and address of the proposed assignee or subtenant
and a true and complete copy of the proposed assignment or sublease and any
other related agreements.
The parties have agreed that the following shall be Landlord's exclusive
reasonable grounds for withholding such consent:
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(a) the proposed transferee is not in keeping with the caliber
and mix of other tenants in the Building or,
(b) The net worth and financial standing of the proposed transferee is
not at least as strong as the greater of (1) Tenant's net worth and
financial standing at the date of this Lease and (2) Tenant's net
worth and financial standing at the date of such assignment or
subletting, and Landlord is not otherwise reasonably satisfied with
the net worth and financial standing of such proposed tenant.
Any change in the ownership of Tenant, by sale, assignment, operation of law
or otherwise, resulting in a change in the present control of such
corporation, shall be deemed to be an assignment within the meaning of this
Section, except (i) where such change in control occurs as the result of a
public stock offering or (ii) Fingerhut Companies, Inc. and/or its Affiliates
control Tenant following the change. For purposes hereof, the word "control"
shall mean ownership of 50% or more of the voting interests in such entity.
Notwithstanding the above provisions of this Section 24, Tenant may, upon
prior written notice to Landlord (which notice shall include the terms of the
proposed assignment or sublease and the indemnity of the proposed assignee or
sublessee), but without the consent of Landlord, assign or sublease the
Premises to an Affiliate (as hereinafter defined) of Fingerhut Companies,
Inc., except where any such Affiliate:
(a) is a government agency or other governmental entity (or
subdivision or agency thereof);
(b) is a civic or charitable organization or entity; or
(c) will be involved in any of the following type of office uses:
(i) hair care;
(ii) medical dental chiropractic, counseling or similar types of
disciplines or practices; or
(iii) other office uses which include the providing of services and/or
products to customers who visit the Premises to obtain such
services and/or products, specifically excluding insurance,
accounting and legal services.
"Affiliate" means any entity controlled by, controlling or under
common control with another entity. For purposes hereof the words
"control", "controlled by" and "under common control with" shall mean
the ownership of fifty percent or more of the voting interests in such
entity.
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No subletting or assignment shall release or discharge Tenant of or from any
liability, whether past, present or future, under this Lease, and Tenant
shall continue fully liable. Without limitation of the foregoing and
notwithstanding any one or more assignments of this Lease or subletting of
the Premises, (i) Fingerhut Financial Services Corporation shall remain
liable under this Lease and all of the terms and provisions hereof,
including, without limitation, the obligations to pay Base Rent, Taxes and
Operating Expenses, damages and all amounts payable pursuant to Section 15
above, and all obligations which survive termination of this Lease, (ii)
notwithstanding the continuing liability of Fingerhut Financial Services
Corporation hereunder, Landlord may deal exclusively with Tenant from time to
time, and no notice to, consent of or other action shall be required with
respect to Fingerhut Financial Services Corporation, except that Landlord
agrees to send Fingerhut Financial Services Corporation a copy of any notice
of tenant default required to be given to Tenant hereunder where Fingerhut
Financial Services Corporation has provided Landlord with written notice of
Fingerhut Financial Services Corporation's current address and Fingerhut
Financial Services Corporation shall have the same cure rights as Tenant
hereunder with respect to such default, and (iii) no action, omission,
forbearance, amendment, agreement, occurrence or thing which, but for this
provision, would release or discharge Fingerhut Financial Services
Corporation from any liability or obligation imposed by this Lease shall
effect such a release or discharge. If after assignment of this Lease by
Fingerhut Financial Services Corporation, Landlord and Tenant amend this
Lease, Fingerhut Financial Services Corporation shall not be liable under any
amendment to this Lease to the extent it imposes any obligation or liability
beyond those imposed by this Lease at the time of the assignment by Fingerhut
Financial Services Corporation. If after any assignment of this Lease, this
Lease is terminated or Tenant is dispossessed pursuant to the default and
termination provisions of this Lease, Fingerhut Financial Services
Corporation shall remain liable for all obligations under this Lease (except
to the extent above provided with respect to amendment) following its
termination or the dispossession of Tenant, or both. If this Lease is
rejected or any rental or other obligation hereunder is discharged or reduced
in any bankruptcy or insolvency proceedings involving any Tenant other than
Fingerhut Financial Services Corporation, then notwithstanding such
rejection, discharge or reduction, Fingerhut Financial Services Corporation
shall be obligated under this Lease to the same extent as it would have been
liable if this Lease had been in effect until the date of such rejection,
discharge or reduction, and had, on that date, been terminated in accordance
with Section 15 above. Tenant may not enter into any assignment or sublease
if Tenant is then in default under the terms of this Lease. Any subtenant or
assignee shall agree in a form satisfactory to Landlord to comply with and be
bound by all provisions of this Lease to the extent of the space sublet or
assigned, and any such assignee also shall have the continuing liability
imposed hereunder with respect to Fingerhut Financial Services Corporation.
Tenant shall deliver such agreement to Landlord promptly after execution,
together with an executed copy of such sublease or assignment. Tenant shall
pay to Landlord, on demand, all reasonable costs incurred by Landlord
(including fees paid to consultants and attorneys) in connection with any
request by Tenant for Landlord to consent to any assignment or subletting by
Tenant. Any sale, assignment, mortgage, transfer, or subletting of this Lease
not in compliance with this Section shall be void.
25. NOTICE.
All notices, demands, approvals and consents which may or are required to be
given by one party to the other under this Lease shall be in writing and
shall be delivered personally or by a nationally-recognized air courier
service or mailed by United States certified mail, postage prepaid, (a) if
for the Tenant, addressed to the Tenant at the Premises or at such other
place as Tenant may from time to time designate by notice to Landlord, or (b)
if for the Landlord, addressed to:
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The Equitable Life Assurance Society of the United States
c/o Equitable Real Estate Investment Management, Inc.
455 Cityfront Plaza Drive, Suite 3200
Chicago, Illinois 60611
Attention: Regional Vice President - Asset Management
With a copy to:
Equitable Real Estate Investment COMPASS Management and
Management, Inc. Leasing, Inc.
3414 Peachtree Road, N.E. 600 So Hwy 169, Suite 1585
Atlanta, Georgia 30326 St. Louis Park, MN 55426
or at such other place as Landlord may from time to time designate by notice
to Tenant. Mailed notices shall be deemed given upon posting in the United
States mails.
26. CONVEYANCE BY LANDLORD.
If Landlord or any successor owner of the Premises shall convey or otherwise
transfer the Premises to another party, the other party shall become Landlord
under this Lease and shall assume all liabilities and obligations of this
Lease to be performed by Landlord which first arise after the date of
conveyance or transfer, and the conveying or transferring Landlord shall,
from and after the date of conveyance, be free of all liabilities and
obligations relating to the period after said date.
27. SUBORDINATION OF LEASE.
The rights of the Tenant under this Lease shall be and are subject and
subordinate at all times to all ground leases and underlying leases, if any,
now or hereafter in force against the Property, and to the lien of any
mortgages now or hereafter in force against such leases, the Land or the
Building, or all of them, and to all advances made or hereafter to be made,
and to all renewals, modifications, amendments, consolidations, replacements
and extensions thereof, provided that Tenant shall not be disturbed in its
possession of the Premises and its other rights hereunder as long as Tenant
is not in default under this Lease. This Section is self-operative and no
further instrument of subordination shall be required. Any mortgagee may,
however, elect to have this Lease be superior to its mortgage. At Landlord's
request, Tenant shall execute a document in recordable form confirming that
this Lease is subordinate (or at the mortgagee's election, superior) to any
mortgage, provided that such document provides that Tenant shall not be
disturbed in its possession of the Premises and its other rights under this
Lease so long as Tenant is not in default thereunder. Tenant hereby
irrevocably appoints Landlord as attorney-in-fact for Tenant with full power
and authority to execute and deliver in the name of Tenant any such documents
where Tenant fails to execute any such documents within 10 days after
request. Tenant, at the option of any mortgagee, agrees to attorn to such
mortgagee in the event of a foreclosure sale or deed in lieu thereof.
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28. BROKERS.
Tenant and Landlord each represent and warrant to each other that neither it
nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker other than COMPASS Management and Leasing, Inc. and CB
Commercial Real Estate Group, Inc. in the negotiation or making of this
Lease, and Tenant and Landlord agree to indemnify and hold harmless the other
from the claim or claims of any other broker or brokers claiming a commission
or other form of compensation by virtue of having dealt with the indemnifying
party in connection with this lease transaction.
29. SECURITY DEPOSIT.
As additional security for the full and prompt performance by Tenant of all
Tenant's obligations under this Lease, Tenant has upon execution of this
Lease paid to Landlord (and will during the Term maintain on deposit) the
amount of $0, which sum may be used, retained or applied, in whole or in
part, by Landlord for the purpose of curing any defaults of Tenant. Landlord
shall not, unless required by law, keep the security deposit separate from
its general funds or pay interest thereon to Tenant. If Tenant has not
defaulted hereunder and if Landlord has not used, retained or applied the
security deposit to any defaults, then the security deposit or any portion
thereof not so applied by Landlord shall be paid in cash to Tenant at the
termination of this Lease or any extensions or renewals thereof. If any part
of the security deposit is used, retained or applied for the curing of any
defaults, Tenant shall within 10 days after written demand deposit with
Landlord an amount of cash sufficient to restore the original security
deposit. The use of any part of the security deposit shall not prevent
Landlord from exercising any other right or remedy provided by this Lease or
by law and shall not operate as a limitation on any recovery.
30. MISCELLANEOUS.
(a) All rights and remedies of Landlord under this Lease shall be
cumulative and none shall exclude any other rights and remedies allowed by
law.
(b) All payments due from Tenant shall be considered as rent, and if
not paid when due shall bear interest from such date until paid at the rate
of 2% per annum in excess of the corporate base rate in effect from time to
time at The First National Bank of Chicago (unless a lesser rate shall then
be the maximum rate permissible by law with respect thereto, in which event
such lesser rate shall be charged).
(c) The word "Tenant" means Tenants in all cases where there is more
than one Tenant, and the necessary grammatical changes are deemed made to
apply either to corporations, partnerships or individuals, men or women.
(d) Each of the provisions of this Lease shall extend to and shall, as
the case may require, bind or inure to the benefit, not only of Landlord and
of Tenant, but also of their respective heirs, legal representatives,
successors and assigns, provided this clause shall not permit any assignment
contrary to Section 24.
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(e) All of the representations and obligations of Landlord are contained
herein, and no modification, waiver or amendment of this Lease or of any of its
conditions or provisions shall be binding upon the Landlord unless in writing
signed by Landlord or by a duly authorized agent of Landlord empowered by a
written authority signed by Landlord.
(f) Submission of this instrument for examination shall not bind Landlord
in any manner, and no lease or obligation on Landlord shall arise until this
instrument is signed and delivered by Landlord and Tenant.
(g) No rights to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
(h) Sectional headings in this Lease are solely for convenience of
reference and shall not in any way limit or amplify the terms and provisions
hereof.
(i) The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease. The invalidity or unenforceability
of any provision of this Lease shall not offset or impair any other provision.
If any provision of this Lease is capable of two constructions, one of which
would render the provision invalid and the other of which would make the
provision valid, then the provision shall have the meaning which renders it
valid.
(j) Nothing contained in this Lease shall be deemed or construed to create
any relationship between Landlord and Tenant other than the relationship of
landlord and tenant.
(k) Landlord shall have the right to apply payments received from Tenant
pursuant to this Lease (regardless of Tenant's designation of such payments) to
satisfy any obligations of Tenant hereunder, in such order and amounts, as
Landlord in its sole discretion, may elect.
(l) All indemnities, covenants and agreements of Tenant contained herein
which inure to the benefit of Landlord shall be construed to also inure to the
benefit of Landlord's officers, shareholders, directors, partners, agents and
employees.
(m) Time is of the essence of this Agreement.
(n) Landlord covenants that it has the right to make this Lease for the
Term aforesaid and covenants that if Tenant shall pay the rent and perform all
of the covenants, terms and conditions of this Lease to be performed by Tenant,
Tenant shall, during the Term hereby created, freely, peaceably and quietly
occupy and enjoy the full possession of the Premises.
(o) Tenant covenants that it has the right to make this Lease for the Term
aforesaid.
31. EXCULPATION.
Any obligation of Landlord, or its agent, under or with respect to this
Lease or the Building shall be enforceable only against and payable out of
Landlord's interest in the Building and Land, including the rents, issues and
profits therefrom. Neither Tenant nor any other person shall have or may assert
any right, recourse or remedy to or against Landlord or its
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agent or any assets of Landlord, except to the extent (if any) of their
respective interests in the Building and Land. No officer, shareholder,
director, employee, partner, trustee or beneficiary of Landlord or its agent
assumes or shall have any personal liability of any kind whatsoever under this
Lease.
32. COMMON AREAS.
Tenant shall have the non-exclusive right to use all common areas as may
be reasonably necessary for use of the Premises including, without
limitation, to the extent that the following exist from time to time, common
parking areas, lobbies, elevators, stairways and accessways, restrooms,
loading docks, drives, plazas and the common pipes, conduits, wires and
appurtenant equipment necessary to service the Premises and all other areas
designated from time to time by Landlord for the common use of tenants of the
Building. Landlord reserves the right from time to time without unreasonable
interference with Tenant's use of the Premises to (i) make repairs and
replacements to the common areas or portions thereof, (ii) close temporarily
common areas for maintenance purposes and (iii) use common areas while
engaged in making improvements, repairs or alterations to the Building or any
portion thereof.
LANDLORD:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ Michael Lunder
-----------------------------------
MICHAEL LUNDER
--------------------------------------
PRINT NAME
INVESTMENT OFFICER
--------------------------------------
(Title)
TENANT:
FINGERHUT FINANCIAL SERVICES CORPORATION
By: /s/ Ronald N. Zebeck
-----------------------------------
Ronald N. Zebeck
-------------------------------------
PRINT NAME
President FFS
-------------------------------------
(Title)
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CERTIFICATE
(If Tenant is a corporation)
As Assistant Secretary of the Tenant named in the foregoing Lease, I
hereby certify that the officer executing the foregoing Lease on behalf of
Tenant was duly authorized to act in his/her capacity as president of the
corporation, and his/her action is the action of Tenant.
/s/ Robert C. Kieffer
-------------------------------------
Assistant Secretary
<PAGE>
RIDER TO LEASE AGREEMENT
THIS RIDER to Lease Agreement is attached to and forms a part of that
certain Lease dated________________,1995, by and between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation, ("Landlord") and
FINGERHUT FINANCIAL SERVICES CORPORATION, a Minnesota corporation, ("Tenant"),
as the same shall modify, amend, supplement or alter the terms and provisions of
said Lease Agreement and by these presents shall be incorporated therein by
reference and form a part thereof for all purposes.
In consideration of the Premises, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereto further mutually agree as follows:
1. RENT. For the period beginning September 1, 1995 and ending November 30,
1995 the Base Rent shall be a flat amount of Twelve Thousand and 00/100 Dollars
($12,000.00) per month and shall not be subject to any adjustment per Paragraph
3 of the Lease.
For the period December 1, 1995 through November 30, 2000,
Base Rent shall be:
$29,795.00 per month $357,540.00 per annum
Adjustable as described in Paragraph 3 of the Lease.
2. IMPROVEMENTS. Landlord shall make (i) such modifications to the Premises
as are required by the Americans With Disability Act of 1990 (the "Act") as of
the date of this Lease; provided, however, that Tenant shall be responsible for
any and all modifications required under the Act as the result of Tenant
alterations or improvements made as part of Tenant's Work and subsequent to the
Tenant's Work, and (ii) such modifications to the Premises as are required above
the ceiling by local and state code; provided, however, that Tenant shall be
responsible for (1) all code compliance work below the ceiling of the Premises,
other than as specified above with respect to the Act, and (2) any and all
modifications required by code as the result of Tenant alterations or
improvements made subsequent to Tenant's Work. Landlord's obligations under the
preceding sentence are hereinafter referred to as "Landlord's Work". Landlord's
Work shall be provided at Landlord's cost, without contribution by Tenant
through the Tenant Allowance (as hereinafter defined), Operating Expenses or
otherwise, subject to the other provisions of this Paragraph 2. With the
exception of Landlord's Work and the Tenant's Work to be provided pursuant to
the below provisions of this Paragraph 2, the Premises are leased to Tenant "as
is" without any obligation of Landlord to make improvements or alterations of
any kind.
Promptly after full execution of this Lease, Landlord shall obtain all permits
necessary for construction of the Tenant's Work, and thereafter shall cause
Tenant's Work (as hereinafter defined) to be constructed in a good and
workmanlike manner, lien free, and in accordance with the plans which have been
approved by Landlord and Tenant and are attached hereto as Exhibit D (the
"Approved Plans") and all legal requirements. Landlord shall exercise
reasonable efforts to cause the Tenant's Work to be completed by the
commencement of the Term, but Landlord shall not be liable for the failure to
achieve said date (beyond abatement of rent where said abatement is provided for
under
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<PAGE>
Section 6 of the Lease). "Tenant's Work" means the work contemplated by the
Approved Plans other than the Landlord's Work as described above. To the
extent required by Tenant in writing a reasonable time before subcontracts
are to be let, Landlord shall obtain competitive bids for all subcontracts
involving amounts over $5,000, and shall accept the lowest responsible bid.
Landlord shall prepare and submit to Tenant from time to time lists of the
subcontractors from whom Landlord intends to solicit bids, and such
subcontractors shall be deemed approved by Tenant except to the extent objected
to in writing by Tenant, with reasons stated, within five (5) business days
after receipt of each such list, and Landlord shall not use subcontractors to
whom Tenant makes timely objection. In addition, Landlord shall from time to
time consider the written requests of Tenant for additions to or deletions
from the list of acceptable subcontractors.
Landlord shall make monthly payments to suppliers and subcontractors for
Tenant's Work in accordance with the following procedures: At least three (3)
business days prior to making any such monthly payments, Landlord shall
provide Tenant with a written schedule specifying the names of the
subcontractors and suppliers to be paid, the amounts they are to be paid, and
the date Landlord intends to make payment. Landlord shall be entitled to make
payments in accordance with such schedule except to the extent objected to in
writing by Tenant, with reasons stated, prior to the payment date indicated
in Landlord's schedule. To the extent Landlord so withholds payments to
subcontractors or suppliers in compliance with Tenant's request, Tenant shall
defend, indemnify and hold Landlord harmless from and against any and all
claims by subcontractors or suppliers that the withholding of any such
payments was improper in whole or in part.
Tenant shall be entitled to inspect the progress of the Tenant's Work at all
reasonable times during construction in order to verify conformance with the
Approved Plans so long as Tenant does not unreasonably interfere with the
construction of Tenant's Work.
Following the fulfillment of Landlord's responsibilities under Section 7 of
the Lease, Landlord shall assign to Tenant all contract rights of Landlord
relating to Tenant's Work and all warranties of architects, engineers,
suppliers, contractors and subcontractors for Tenant's Work. Landlord makes
no warranties, express or implied, with respect to Tenant's Work.
Landlord will provide a "Tenant Allowance" of $267,885 for the Tenant's Work.
If the Tenant's Work Costs (as hereinafter defined) exceed the amount of the
Tenant Allowance, Tenant shall pay to Landlord, promptly as billed, an amount
equal to all Tenant's Work Costs in excess of the Tenant Allowance. If the
Tenant's Work Costs do not exceed the amount of the Tenant Allowance, upon
prior written notice from Tenant, Landlord agrees to apply the remainder, if
any, of such amounts, without interest, for Tenant's use in connection with
future permitted improvements to the Premises by Tenant, through November 30,
1999. At that time any unused portion shall no longer be available to Tenant.
"Tenant's Work Costs" mean the sum of (i) 12% of all amounts paid by Landlord
to subcontractors and suppliers for the Tenant Improvement plus (ii) all
other costs incurred by Landlord in constructing the Tenant's Work,
including, without limitation, permit fees, contractor's fees, demolition,
HVAC and sprinkler costs, and the costs of all materials and supplies
incorporated into the Tenant's Work, but excluding the cost of Landlord's
Work.
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<PAGE>
In implementing the foregoing procedures, the parties shall (i) deal with
each other in good faith, (ii) not unreasonably withhold or delay consents or
approvals, and (iii) proceed in knowledge that a Construction Completion Date
not later than September 1, 1995 is important to both parties.
3. OPTION TO TERMINATE. Provided that Tenant is not in default under the
covenants or provisions of the Lease, Tenant shall have the option to
terminate the Lease effective at the end of the 45th month of the Term (the
"Effective Date") by giving Landlord written notice of exercise not less than
9 months prior to the Effective Date and enclosing the Termination Charge of
$105,000. No notice of termination under this Paragraph 3 shall be effective
unless accompanied by payment of the Termination Charge. Following any
termination pursuant to this Paragraph, Landlord and Tenant shall execute an
agreement which acknowledges such termination and specifies the Effective
Date.
IN WITNESS WHEREOF, Landlord and Tenant respectively have executed this
Rider to Lease Agreement this _______________ day of _________________, 1995.
LANDLORD:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ Michael Lunder
------------------------------------
Michael Lunder
----------------------------------------
PRINT NAME
Investment Officer
----------------------------------------
(Title)
TENANT:
FINGERHUT FINANCIAL SERVICES CORPORATION
By: /s/ Ronald N. Zebeck
------------------------------------
Ronald N. Zebeck
----------------------------------------
PRINT NAME
President
----------------------------------------
(Title)
R-3
<PAGE>
EXHIBIT A
SUITE 1800
APPROXIMATELY
17,859 RENTABLE
SQUARE FEET
[FLOOR PLAN]
<PAGE>
EXHIBIT B
DESCRIPTION OF LAND ON WHICH
INTERCHANGE TOWER AND INTERCHANGE SOUTH
ARE LOCATED
LEGAL DESCRIPTION FOR INTERCHANGE TOWER/SOUTH
Parcel 1:
Lot 2, Block 7, Shelard Park, AND that part of Lot 1, Block 7, Shelard Park,
lying Easterly of a line drawn from a point on the North line of said lot
distance 64.51 feet Westerly of the Northeast corner of said Lot to a point
on the South line of said Lot distant 68.97 feet Westerly of the Southeast
corner of said Lot, according to the plat of Shelard Park on file and of
record in the office of the Register of Deeds in and for said County and
State.
Parcel 2:
Reciprocal easement in favor of Parcel 1 for pedestrian passageway and arcade
over that part of Lot 3, Block 7, Shelard Park described as follows:
Commencing at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on
an assumed bearing of North 88 degrees, 6 minutes West along the North line
of Lot 2 a distance of 180.24 feet to the point of beginning of the parcel of
land to be described; thence North 46 degrees 54 minutes East a distance of
61.46 feet; thence North 1 degree 54 minutes East a distance of 40.43 feet;
thence North 88 degrees 6 minutes West a distance of 12.17 feet; thence South
1 degree 54 minutes West a distance of 33.71 feet; thence South 46 degrees 54
minutes West a distance of 70.97 feet more or less to the North line of Lot 2,
thence Easterly to the point of beginning, as set forth in Document No.
4071903.
Parcel 3:
An easement in favor of Parcel 1 for driveway purposes over that part of Lot
4, Block 7, Shelard Park, lying Northerly of a line run from a point on the
Northwesterly line of Lot 4, distant 110 feet Southwesterly from the most
Northerly corner of said Lot 4, to a point on the Easterly line of said Lot
4, distant 105 feet Southerly from the most Northerly corner of said Lot 4,
and lying Southerly of a line run from a point on the Northwesterly line of
Lot 4, distant 69 feet Southwesterly from the most Northerly corner of said
Lot 4, to a point on the Easterly line of said Lot 4, distant 66 feet
Southerly from the most Northerly corner of said Lot 4, as set forth in
Document No. 4070549.
Parcel 4:
An easement in favor of Parcel 1 32 feet in width for driveway purposes
running in an east and west direction across Lot 4, Block 7, Shelard Park,
the Southerly line of said easement runs from a point on the Northwesterly
line of Lot 4, distant 515.2 feet Southwesterly from
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<PAGE>
the most Northerly corner of said Lot 4, to a point on the Easterly line of
said Lot 4, distant 418.5 feet Southerly from the most Northerly corner of
said Lot 4, as set forth in Document No. 4070550.
Parcel 5:
Easement in favor of Parcel 1 for purposes of construction and maintenance of
a pedestrian concourse building over the following described premises.
That part of the utility and drainage easement on Lots 2 and 3, Block 7,
Shelard Park lying within the following described parcel:
Commencing at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on
an assumed bearing of North 88 degrees 6 minutes West along the North line of
Lot 2 a distance of 180.24 feet to the point of beginning of the parcel of
land to be described; thence North 46 degrees 54 minutes East a distance of
11 feet; thence North 88 degrees 6 minutes West a distance of 18.89 feet;
thence South 46 degrees 54 minutes West a distance of 22 feet; thence South
88 degrees 6 minutes east a distance of 18.89 feet; thence North 46 degrees
54 minutes East a distance of 11 feet more or less to the point of beginning,
except that portion lying below the bottom of the footings of said buildings
constructed above said easement, as set forth in Document No. 4079834.
Parcel 6:
Lot 3, Block 7, Shelard Park.
Parcel 7:
Reciprocal easement in favor of Parcel 6 for pedestrian passageway and arcade
over that part of Lot 2, Block 7, Shelard Park described as follows:
Commencing at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on
an assumed bearing of North 88 degrees 6 minutes West along the North line of
Lot 2 a distance of 180.24 feet to the point of beginning of the parcel of
land to be described; thence South 46 degrees 54 minutes West a distance of
61.39 feet; thence South 1 degree 54 minutes West a distance of 28.29 feet;
thence North 88 degrees 6 minutes West a distance of 30.19 feet; thence South
46 degrees 54 minutes West a distance of 31.11 feet; thence North 43 degrees
6 minutes West a distance of 12.00 feet; thence North 46 degrees 54 minutes
East a distance of 120.50 feet more or less to the North line of Lot 2,
thence Easterly to the point of beginning.
Parcel 8:
Easement in favor of Parcel 6 for purposes of construction and maintenance of
a pedestrian concourse building over the following described premises:
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<PAGE>
That part of the utility and drainage easement on Lots 2 and 3, Block 7,
Shelard Park lying within the following described parcel:
Commencing at the Northeast corner of Lot 2, Block 7, Shelard Park, thence on
an assumed bearing of North 88 degrees 6 minutes West along the North line of
Lot 2 a distance of 180.24 feet to the point of beginning of the parcel of
land to be described; thence North 46 degrees 54 minutes East a distance of
11 feet; thence North 88 degrees 6 minutes West a distance of 18.89 feet;
thence South 46 degrees 54 minutes West a distance of 22 feet; thence South
88 degrees 6 minutes East a distance of 18.89 feet; thence North 46 degrees
54 minutes East a distance of 11 feet more or less to the point of beginning,
except that portion lying below the bottom of the footings of said buildings
constructed above said easement, as set forth in Document No. 4079834.
B-3
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
To the extent that there is any inconsistency between the provisions of
the Lease and these Rules and Regulations, the provisions of the Lease shall
control. For purposes of these Rules and Regulations, the term Tenant means
Tenant and the employees, agents, visitors or licensees of Tenant.
(1) The sidewalks, walks, entries, corridors, concourses, ramps, staircases,
escalators and elevators shall not be obstructed or used by Tenant for any
purpose other than ingress and egress to and from the Premises. No bicycle or
motorcycle shall be brought into the Building or kept on the Premises without
the consent of Landlord.
(2) No freight, furniture or bulky matter will be received into the Building
or carried into the elevators except as may be approved by Landlord. Any hand
trucks, carryalls, or similar appliances used for the delivery or receipt of
merchandise or equipment shall be equipped with rubber tires, side guards and
such other safeguards as Landlord shall require.
(3) Tenant shall not at any time place, leave or discard any rubbish, paper,
articles, or objects of any kind outside the doors of the Premises or in the
corridors or passageways of the Building. No animals or birds shall be
brought or kept in or about the Building except seeing-eye dogs.
(4) Tenant shall not place, or cause to be placed, any sign or lettering in
the windows of the Premises. Tenant shall not place any sign or lettering in
or about the Premises on multi-tenant floors which are visible from public
lobbies or corridors except in and at such places as may be designated by
Landlord and consented to by Landlord in writing. All lettering and graphics
on corridor doors on multi-tenant floors shall conform to the standard
prescribed by Landlord.
(5) Canvassing, soliciting or peddling in the Building is prohibited and
Tenant shall cooperate to prevent same.
(6) Any person in the Building will be subject to identification by
employees and agents of Landlord. All persons in leaving or entering the
Building shall be required to comply with the security policies of the
Building. Tenant shall keep doors to unattended areas locked and shall
otherwise exercise reasonable precautions to protect property from theft,
loss, or damage. Landlord shall not be responsible for the theft, loss,
or damage of any property.
(7) Tenant shall not do any cooking (other than microwave heating of food
for employees) or conduct any restaurant, luncheonette, automat, or
cafeteria for the sale of
C-1
<PAGE>
food, or permit the delivery of any food or beverage to the
Premises, except by such persons delivering the same as shall be
approved by Landlord and only under regulations fixed by Landlord.
(8) Tenant shall not without Landlord's prior written approval
bring or permit to be brought or kept in or on the Premises any
flammable, combustible, corrosive, caustic, poisonous, or explosive
substance, or cause or permit any odors to permeate in or emanate
from the Premises.
(9) No additional locks or bolts of any kind shall be placed on any
door in the Building or the Premises and no lock on any door
therein shall be changed or altered in any respect without the
consent of Landlord. Any additional locks or bolts shall be
consistent with Landlord's security system in the Building. If
Landlord permits Tenant to have additional locks, Tenant shall
furnish Landlord the keys and combinations of such locks. Landlord
shall furnish two keys for each lock on exterior doors to the
Premises and shall, on Tenant's request and at Tenant's expense,
provide additional duplicate keys. All keys shall be returned to
Landlord upon termination of the Lease. Landlord may at all times
keep a pass key to the Premises. All entrance doors to the Premises
shall be left closed at all times, and left locked when the
Premises are not in use.
(10) Tenant shall give immediate notice to Landlord in case of
theft, unauthorized solicitation, or accident in the Premises or in
the Building or of defects therein or in any fixtures or equipment,
or of any known emergency in the Building.
(11) The requirements of Tenant will be attended to only upon
application at the office of Landlord in the Building. Employees of
Landlord shall not perform any work or do anything outside of their
regular duties, unless under special instructions from the office
of Landlord.
(12) No awnings, draperies, shutters, or other interior or exterior
window coverings that are visible from the exterior of the Building
or from the exterior of the Premises within the Building may be
installed by Tenant except as otherwise provided for therein.
(13) Tenant shall not make excessive noises, cause disturbances or
vibrations or use or operate any electrical or mechanical devices
that emit excessive sound or other waves or disturbances or create
obnoxious odors, any of which may be offensive to the other tenants
and occupants of the Building, and shall not place or install any
projections, antennas, aerials or similar devices inside or outside
of the Premises or on the Building other than in accordance with a
written agreement of Landlord and Tenant.
(14) The water and wash closets, drinking fountains and other
plumbing fixtures shall not be used for any purpose other than
those for which they were constructed, and no sweepings, rubbish,
rags, coffee grounds or other substances shall be thrown therein.
All damages resulting from any misuse of the fixtures by Tenant
shall be borne by Tenant. No person shall waste water by
interfering or tampering with the faucets or otherwise.
C-2
<PAGE>
(15) Tenant shall, when using the parking facilities in and around
the Building, observe and obey all signs regarding fire lanes and
no parking zones, and when parking always park between the
designated lines. Landlord reserves the right to tow away, at the
expense of the owner, any vehicle which is improperly parked or
parked in a no parking zone. All vehicles shall be parked at the
sole risk of the owner, and Landlord assumes no responsibility for
any damage to or loss of vehicles.
(16) Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's opinion, tends to impair the reputation
of the Building or its desirability for offices, and, upon written
notice from Landlord, Tenant will refrain from or discontinue such
advertising. In no event shall Tenant, without the prior written
consent of Landlord, use the name of the Building or use pictures
or illustrations of the Building.
(17) Except in connection with the Tenant's Work or any other
leasehold improvements which have been approved by Landlord under
the Lease, Tenant shall not mark, paint, drill into, or in any way
deface any part of the Building or Premises. No coring, boring,
driving of nails or screws, cutting, or stringing of wires shall
be permitted, except with the prior written consent of Landlord,
and as Landlord may direct. Tenant shall not install any resilient
tile or similar floor covering in the Premises except with the
prior approval of Landlord.
(18) Tenant shall not use the Premises or permit the Premises to be
used for photographic, multilith or multigraph reproductions,
except in connection with its own business and not as a service for
others, without Landlord's prior permission.
(19) Tenant shall not use or permit any portion of the Premises to
be used as an office for a public stenographer or typist, offset
printing, the sale of liquor or tobacco, a barber or manicure shop,
an employment bureau, a labor union office, a doctor's or dentist's
office, a dance or music studio, any type of school, or for any use
other than those specifically granted in this Lease.
(20) Tenant shall not advertise for laborers giving the Premises as
an address, nor pay such laborers at a location in the Premises.
(21) Tenant shall at all times keep the Premises neat and orderly.
(22) All telegraph, telephone, and electric connections which
Tenant may desire shall be first approved by Landlord in writing,
by contractors approved by Landlord and subject to the direction of
Landlord. Landlord reserves the right to control access to
telephone cabinets and limit access to vendors or contractors
specified by Landlord. Tenant shall pay all costs in connection
with installation of telephone cables and related wiring in the
Premises, including, without limitation, any hook-up, access and
maintenance fees. Upon expiration of the Term hereof, by lapse of
time or otherwise, Tenant shall, if requested by Landlord, remove
all telephone cables and related wiring installed by Tenant for and
during Tenant's occupancy.
<PAGE>
EXHIBIT D
APPROVED PLANS
<PAGE>
STAIRS
Police stairs removing litter Daily
Dust rails and ledges, spot clean walls, and damp mop Weekly
RESTROOMS
Clean and sanitize fixtures, mirrors, counters; polish
chrome; mop floors; refill dispensers; empty trash Daily
Dust and clean all return air vents Weekly
Wash all restroom partitions on both sides Weekly
Wash all ceramic tile walls by hand 6 X Year
Machine scrub all restroom floors using a germicidal
disinfectant 6 X Year
CAFETERIA
Empty all waste receptacles and remove trash to
designated area Daily
Fully vacuum all carpet from wall to wall Daily
Wet mop entire hard surface area Daily
Using push brooms, sweep all open areas Daily
Clean inside and out of all refrigerators and
microwave ovens Daily
Damp wipe all cafeteria and lunch room tables Daily
Damp wipe all cafeteria and lunch room chairs Daily
SUPERVISION
Non-working supervisor Daily
GENERAL OFFICE
Empty all waste receptacles and remove trash to designated
area Daily
Damp wipe wastebaskets Weekly
Empty and damp wipe ashtrays Daily
Brush all upholstered furniture Weekly
Dust and spot clean all furniture, fixtures, equipment,
and accessories Daily
Dust high and low areas (pictures, clocks, partition
tops, etc.) Weekly
Spot clean all walls, light switches, and doors Daily
Spot clean partitions and door glass Daily
Dust wipe all telephones, including ear and mouth pieces Weekly
Vacuum carpeted floors, spot clean and edge as required Daily
Dust and/or vacuum venetian blinds Monthly
Clean and sanitize all sinks and wipe dry Daily
Interior window cleaning Annually
Exterior window cleaning Semi-Annually
<PAGE>
AMENDMENT NUMBER ONE TO LEASE
THIS AMENDMENT TO LEASE AGREEMENT ("Amendment") is made and entered into
as of the 1st day of August, 1996 by and between THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES, a New York corporation, as Landlord
("Landlord"), and FINGERHUT FINANCIAL SERVICES CORPORATION, a Minnesota
corporation, as Tenant ("Tenant").
WITNESSETH
WHEREAS, by Lease Agreement dated August 11, 1995, hereinafter called
the Lease, Landlord leased to Tenant space known as Suite 1800 in a building
known as Interchange Tower and located at 600 South Highway 169, St. Louis
Park, Minnesota 55426, as more particularly described in the Lease, herein
called the Demised Premises; and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
provided below.
NOW, THEREFORE, in consideration of the above recitals, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby amend and supplement the Lease, effective as of the
date hereof, as follows:
1) Effective August 1, 1996 and continuing through the Term of the Lease,
the Premises as described in the Lease as Suite 1800, consisting of
approximately 17,859 rentable square feet, is amended to include Suite
400, consisting of approximately 18,137 rentable square feet. The
Premises shall be described as Suite 1800, located on the eighteenth
(18th) floor, and Suite 400, located on the fourth (4th) floor,
consisting of approximately 35,996 total rentable square feet.
2) Effective for the month of August, 1996 no rents shall be due Landlord by
Tenant for the approximately 18,137 rentable square feet on the 4th floor
only, and rents to be paid by Tenant to Landlord for approximately 17,859
rentable square feet on the 18th floor are those described in the Lease
dated August 11, 1995, including all adjustments as described in
Paragraph 3 of said Lease.
3) Effective for the months of September and October, 1996, rents to be paid
by Tenant to Landlord are Twelve Thousand Six Hundred Ninety Six and
00/100 Dollars ($12,696.000) for the approximately 18,137 rentable square
feet on the 4th floor, plus the rents described in the Lease dated August
1, 1995, including all adjustments as described in Paragraph 3 of said
Lease, for approximately 17,859 rentable square feet on the 18th floor.
4) Effective November 1, 1996 and thereafter, the annual Base Rent to be
paid by Tenant to Landlord shall be Three Hundred Fifty Thousand Seven
Hundred Seventy
<PAGE>
Two and 00/100 Dollars ($350,772.00) in equal monthly installments of
Twenty Nine Thousand Two Hundred Thirty One and 00/100 Dollars
($29,231.00) for the approximately 18,137 rentable square feet on the 4th
floor. The above stated Base Rent per rentable square foot includes
Landlord's estimate of the 1996 ("Base Year") Taxes in the amount of
$2.97 per rentable square foot ("Base Year Taxes") and Operating Expenses
in the amount of $5.17 per rentable square foot ("Base Year Operating
Expenses"), all of which are adjustable as described in Paragraph 3 of
the Lease. In addition, Tenant shall pay to Landlord for the
approximately 17,859 rentable square feet on the 18th floor, those rents
as described in the Lease dated August 11, 1995 including all adjustments
as described in Paragraph 3 of said Lease.
5) Landlord will provide an additional "Tenant Allowance" of $217,644.00 for
Tenant Work, to be used as described in Paragraph 2 IMPROVEMENTS of Rider
to Lease Agreement attached to the Lease, dated August 11, 1995, except
that "Approved Plans" shall mean any plans approved in writing by
Landlord and that Tenant may use a part, or all of the Tenant Allowance
in conjunction with the relocation of Donnelley Marketing, Inc. computer
room, from the 4th floor to the 5th floor of the Interchange Tower
building. Said use of such allowance shall be for improvements within the
space and for no other purpose.
6) Tenant shall be granted the Right to First Opportunity to lease space on
the 3rd and 5th floors of the Building. Said right is subordinate to the
existing tenant's rights, including, but not limited to their rights and
desires to renew. Said right shall be for the entire space that is
available at the time of the offer and shall be on the same terms and
conditions as the Lease except for the "Base Rent" and any other rent
concessions and "Tenant Allowance" which shall be governed by fair market
terms as negotiated by Landlord and Tenant.
7) Landlord hereby grants to Tenant one option to extend the Term of this
Lease (the "Renewal Option") with respect to the entire Premises
Including, without limitation, any Expansion Space or Right of First
Opportunity Space where the option with respect to such space has been
exercised pursuant to Paragraph 6 of this Amendment, for one additional
period of five (5) years (the "Renewal Term"), subject to and upon the
following terms and conditions.
a) The Renewal Term shall commence as of the expiration of the Initial
Term;
b) Tenant shall give written notice of exercise not less than nine (9)
months prior to the commencement of the Renewal Term, time being of
the essence;
c) The terms and conditions of the Renewal Term including, without
limitation, base rent shall be governed by fair market terms and
conditions for the Premises at the time of such renewal, as
negotiated by Landlord and Tenant;
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<PAGE>
d) At the commencement of the Renewal Term, Tenant shall not be in
default under this Lease beyond the applicable grace period, if any;
provided, however, that Landlord at its option may waive this
condition;
e) This Lease may not be extended for the Renewal Term if this Lease has
been surrendered or terminated prior to the commencement of such
Renewal Term; and
f) The Renewal Option may not be severed from this Lease or separately
sold, assigned or otherwise transferred.
Upon request of either party, the other party will, at any time after the
expiration of the Initial Term or any Renewal Term, execute and deliver
either an amendment to this Lease stating that this Lease has been
extended and setting forth the annual base rent for the Renewal Term, or
a certificate affirming that this Lease has not been extended.
8) Paragraph 3. OPTION TO TERMINATE in the Rider to Lease Agreement attached
to the Lease dated August 11, 1995 is deleted from the Lease and shall
have no further force or effect.
Except as hereinabove amended, this Lease shall remain in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
FINGERHUT FINANCIAL THE EQUITABLE LIFE ASSURANCE
SERVICES CORPORATION SOCIETY OF THE UNITED STATES
By: /s/ Ronald Zebeck By: /s/ Michael A. Lunder
----------------------------------- -----------------------------
Ronald Zebeck Michael A. Lunder
- -------------------------------------- -----------------------------
PRINT NAME PRINT NAME
President - Fingerhut Financial Services Investment Officer
- -------------------------------------- ---------------------------------
(Title) (Title)
-3-
<PAGE>
ADDITIONAL LEASE GUARANTY
The undersigned ("Guarantor") in consideration of, and in order to
induce Landlord to enter into the attached Amendment Number One to Lease dated
August 1, 1996 with Fingerhut Financial Services Corporation ("Tenant") does
hereby unconditionally guarantee the payment of rent and the performance of
all obligations expressed as to be performed by Tenant under the terms and
provisions of the Amendment including payment of damages for any breach of
the Lease (collectively the "Lease Obligations") up to, but not in excess of,
the amount of the Unamortized Landlord Costs (as hereinafter defined). The
"Unamortized Landlord Costs" means the principal which would remain on the
date of enforcement of this Guaranty if a principal amount equal to
$299,261.00 were fully amortized, in consecutive equal monthly amounts of
principal and interest, with interest at the rate of ten percent (10%) per
annum, over the period commencing on September 1, 1996 and continuing through
November 30, 2000 with payments in arrears due on the first day of each and
every month commencing on October 1, 1996, and with all payments first
applied to accrued interest. Guarantor's obligation under this Guaranty shall
extend through the initial Term of the Lease, and shall be binding upon
Guarantor's heirs, successors and assigns.
Whether or not any existing relationship between the Guarantor and
Tenant has been changed or ended and whether or not this Guaranty has been
revoked, Landlord may, but shall not be obligated to, enter into
transactions resulting in the creation or continuance of Lease Obligations,
without any consent or approval by Guarantor and without any notice to
Guarantor. The liability of Guarantor shall not be affected or impaired by
any of the following acts or things (which Landlord is expressly authorized
to do, omit or suffer from time to time, both before and after revocation of
this Guaranty): (i) any one or more extensions or renewals of the Lease
Obligations (whether or not for longer than the original period) or any
modification of the contractual terms applicable to the Lease Obligations;
(ii) any waiver or indulgence granted to Tenant, any delay or lack of
diligence in the enforcement of the Lease Obligations, or any failure to
institute proceedings, file a claim, give any required notices or otherwise
protect any other person liable in respect of any of the Lease Obligations;
(iii) the assertion by Landlord of any right or remedy available under the
Lease, including without limitation the termination thereof; (iv) any full or
partial release of, settlement with, or agreement not to sue, Tenant or any
other guarantor or other person liable in respect of any of the Lease
Obligations; or (v) any release or discharge of Tenant in any creditors',
receivership, bankruptcy or other proceeding; the impairment, limitation or
modification of any liability of Tenant or remedy against Tenant in any such
proceeding; or the rejection, disaffirmance, disallowance or the like of the
Lease or this Guaranty in any such proceeding.
<PAGE>
Additional Lease Guaranty
Guarantor hereby waives notice of acceptance hereof, or any action
taken or omitted in reliance hereof, or of any default of Tenant under the
Lease. Guarantor hereby further waives any requirement that Landlord first
exhaust or pursue Landlord's remedies available under the Lease or any other
guaranty or security for Tenant's obligations under the Lease before Landlord
proceeds directly, and recovers, against the Guarantor.
Guarantor will not exercise or enforce any right of contribution,
reimbursement, recourse or subrogation available to Guarantor against Tenant,
its successors and assigns, or as to any collateral security therefor, unless
and until all of the Lease Obligations shall have been fully paid and
discharged.
In addition to the Lease Obligations, Guarantor jointly and severally
agrees to pay all costs and expenses, including reasonable attorney's fees,
incurred by Landlord in connection with the protection, defense or
enforcement of this Guaranty, but excluding the cost of preparation of any
initial demand letter for late payments or any initial demand letter for
other Lease defaults.
Notwithstanding the foregoing, Guarantor or Tenant shall have the right
at any time, to replace this Guaranty with an unconditional or irrevocable
letter of credit issued by an issuer acceptable to Landlord, in its sole
discretion (the "LC Issue") and in a form either (a) permitting draws by
Landlord on the letter of credit solely upon Landlord stating in writing to
the issuer of the letter of credit that Landlord has the right to draw on the
letter of credit hereunder or (b) otherwise satisfactory to Landlord in its
sole discretion. Said letter of credit, as it may from time to time be
extended or replaced, is hereinafter referred to as the "Letter of Credit".
The Letter of Credit shall be provided effective as of the first day or any
month (the "Effective Date") and shall be in the amount of the Unamortized
Landlord Costs as of such Effective Date. The Letter of Credit shall provide
that on the first day of the month immediately following the Effective Date
and on the first day of each succeeding month thereafter it shall be reduced
to an amount equal to the Unamortized Landlord Costs on said date. Guarantor
or Tenant, as applicable, may from time to time extend the expiry date of the
Letter of Credit by extending amendment or by replacement letter of credit of
the same tenor from the LC Issuer. Landlord may draw on the Letter of Credit
if (i) Tenant fails timely to pay rent or perform any other Lease Obligations
or (ii) the Letter of Credit is within thirty (30) days of the expiry date
thereof during the term of the Lease. If Landlord draws on the Letter of
Credit, the amount drawn shall be applied against base rent payable hereunder
in inverse order of payment, except that, if the Lease is terminated or
Tenant dispossessed, or both, pursuant to Paragraph 15 of the Lease, any
amounts drawn which have not previously been applied to base rents shall be
applied to base rents and other amounts payable by Tenant to Landlord
hereunder through the date of termination or eviction, and then to amounts
payable by Tenant pursuant to Paragraph 15 of the Lease in direct order of
maturity (such order of application for draw proceeds is called herein the
"Agreed Order of Application"). Under no
-2-
<PAGE>
Additional Lease Guaranty
circumstances shall Landlord have any obligation to refund any amount drawn
on the Letter of Credit unless and except to the extent such amounts drawn
exceed the amounts payable by Tenant to Landlord in the Agreed Order of
Application. Any such excess shall be refunded to Tenant.
Upon issuance of the Letter of Credit, this Guaranty shall without
further act or notice, automatically become null and void, except only for
the immediately proceeding paragraph regarding the Letter of Credit. If the
Letter of Credit has not been drawn upon on or before the expiration of the
term of the Lease, then Landlord shall return the Letter of Credit upon said
expiration.
FINGERHUT COMPANIES, INC.
By: Peter B. Michielutti
----------------------------------
Its: Chief Financial Officer
---------------------------------
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<PAGE>
AMENDMENT NUMBER TWO TO LEASE
THIS AMENDMENT NUMBER TWO TO LEASE ("Amendment") is made and entered
into as of the 16th day of January, 1997 by and between WHIOP REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership as Landlord ("Landlord"),
and METRIS DIRECT, INC., a Minnesota corporation (formerly named Fingerhut
Financial Services Corporation), as Tenant ("Tenant").
WITNESSETH
WHEREAS, Fingerhut Financial Services Corporation, as tenant, and The
Equitable Life Assurance Society of the United States ("Equitable"), as
landlord, entered into a lease dated August 11, 1995, as amended by Amendment
Number One to Lease dated August 1, 1996 (together referred to as the "Lease")
under which Equitable leased to Tenant certain space known as Suite 1800 and 400
in a building known as Interchange Tower (the "Building") and located at 600
South Highway 169, St. Louis Park, Minnesota 55426, as more particularly
described in the Lease, herein called the Premises; and
WHEREAS, Landlord is now the owner of the Building and has succeeded to the
rights and interests of Equitable as the landlord under the Lease.
WHEREAS, Landlord and Tenant desire to further amend the Lease as provided
below.
NOW, THEREFORE, in consideration of the above recitals, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby amend and supplement the Lease, effective as of the date
hereof, as follows:
1) Effective March 1, 1997 and continuing through the Term of the Lease, the
Premises as described in the Lease as previously amended as Suite 1800
consisting of approximately 17,859 rentable square feet and Suite 400
consisting of approximately 18,137 rentable square feet, totaling
approximately 35,996 rentable square feet, is further amended to include
Suite 300, consisting of approximately 18,134 rentable square feet. The
Premises shall be described as Suite 1800, located on the eighteenth (18th)
floor, Suite 400, located on the fourth (4th) floor and Suite 300 located
on the third (3rd) floor, consisting of approximately 54,130 total rentable
square feet.
2) Effective for the month of March 1997 no rents shall be paid by Tenant to
Landlord for approximately 18,134 rentable square feet on the 3rd floor
only, and rents to be paid by Tenant to Landlord are as described in the
Lease dated August 1, 1995, as
<PAGE>
previously amended, including all adjustments as described in Paragraph 3
of said Lease, for approximately 35,996 rentable square feet on the 18th
and 4th floors.
3) Effective April 1, 1997 and thereafter, the annual Base Rent to be paid by
Tenant to Landlord shall be Three Hundred Fifty Thousand Seven Hundred
Twelve and 00/100 Dollars ($350,712.00) in equal monthly installments of
Twenty Nine Thousand Two Hundred Twenty Six and 00/100 Dollars ($29,226.00)
for the approximately 18,134 rentable square feet on the 3rd floor. The
above stated Base Rent per rentable square foot includes Landlord's
estimate of the 1996 ("Base Year") Taxes in the amount of $2.97 per
rentable square foot ("Base Year Taxes') and Operating Expenses in the
amount of $5.17 per rentable square foot ("Base Year Operating Expenses"),
all of which are adjustable as described in Paragraph 3 of the Lease. In
addition, Tenant shall pay to Landlord for the approximately 35,996
rentable square feet on the 18th and 4th floors those rents as described in
the Lease dated August 11, 1995 as previously amended including all
adjustments as described in Paragraph 3 of said Lease.
4) Landlord will provide an additional "Tenant Allowance" of $199,474.00 for
Tenant Work, to be used as described in Paragraph 2 Improvements of Rider
to Lease Agreement attached to the Lease, dated August 11, 1995, except
that "Approved Plans" shall mean any plans approved in writing by Landlord.
Except as hereinabove amended, this Lease shall remain in full force and
effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
METRIS DIRECT, INC. WHIOP REAL ESTATE LIMITED PARTNERSHIP
BY: WHIOP GEN-PAR, INC.
A DELAWARE CORPORATION, GENERAL PARTNER
By: /s/ Ronald N. Zebeck By: /s/ John F. Markey
------------------------------ -----------------------------------
Ronald N. Zebeck John F. Markey
- ----------------------------------- ----------------------------------------
(Print Name) (Print Name)
President & CEO Senior Vice President - East
- ----------------------------------- ----------------------------------------
(Title) (Title)
<PAGE>
ADDITIONAL LEASE GUARANTY
The undersigned ("Guarantor") in consideration of, and in order to
induce WHIOP Real Estate Limited Partnership ("Landlord") to enter into the
attached Amendment Number Two to Lease dated January 16, 1997 with Metris
Direct, Inc. ("Tenant") does hereby unconditionally guarantee the payment of
rent and the performance of all obligations expressed as to be performed by
Tenant under the terms and provisions of the Amendment including payment of
damages for any breach of the Lease (collectively the "Lease Obligations") up
to, but not in excess of, the amount of the Unamortized Landlord Costs (as
hereinafter defined). The "Unamortized Landlord Costs" means the principal
which would remain on the date of enforcement of this Guaranty if a principal
amount equal to $298,002.00 were fully amortized, in consecutive equal
monthly amounts of principal and interest, with interest at the rate of ten
percent (10%) per annum, over the period commencing on March 1, 1997 and
continuing through November 30, 2000 with payments in arrears due on the
first day of each and every month commencing on April 1, 1997 and with all
payments first applied to accrued interest. Guarantor's obligation under this
Guaranty shall extend through the initial Term of the Lease, and shall be
binding upon Guarantor's heirs, successors and assigns.
Whether or not any existing relationship between the Guarantor and Tenant has
been changed or ended and whether or not this Guaranty has been revoked,
Landlord may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Lease Obligations, without any
consent or approval by Guarantor and without any notice to Guarantor. The
liability of Guarantor shall not be affected or impaired by any of the
following acts or things (which Landlord is expressly authorized to do, omit
or suffer from time to time, both before and after revocation of this
Guaranty): (i) any one or more extensions or renewals of the Lease
Obligations (whether or not for longer than the original period) or any
modification of the contractual terms applicable to the Lease Obligations;
(ii) any waiver or indulgence granted to Tenant, any delay or lack of
diligence in the enforcement of the Lease Obligations, or any failure to
institute proceedings, file a claim, give any required notices or otherwise
protect any other person liable in respect of any of the Lease Obligations;
(iii) the assertion by Landlord of any right or remedy available under the
Lease, including without limitation the termination thereof; (iv) any full or
partial release of, settlement with, or agreement not to sue, Tenant or any
other guarantor or other person liable in respect of any of the Lease
Obligations; or (v) any release or discharge of Tenant in any creditors',
receivership, bankruptcy or other proceeding; the impairment, limitation or
modification of any liability of Tenant or remedy against Tenant in any such
proceeding; or the rejection, disaffirmance, disallowance or the like of the
Lease or this Guaranty in any such proceeding.
<PAGE>
Additional Lease Guaranty
Guarantor hereby waives notice of acceptance hereof, or any action taken
or omitted in reliance hereof, or of any default of Tenant under the Lease.
Guarantor hereby further waives any requirement that Landlord first exhaust
or pursue Landlord's remedies available under the Lease or any other guaranty
or security for Tenant's obligations under the Lease before Landlord proceeds
directly, and recovers, against the Guarantor.
Guarantor will not exercise or enforce any right of contribution,
reimbursement, recourse or subrogration available to Guarantor against
Tenant, its successors and assigns, or as to any collateral security
therefore, unless and until all of the Lease Obligations shall have been
fully paid and discharged.
In addition to the Lease Obligations, Guarantor jointly and severally
agrees to pay all costs and expenses, including reasonable attorney's fees,
incurred by Landlord in connection with the protection, defense or
enforcement of this Guaranty, but excluding the cost of preparation of any
initial demand letter for late payments or any initial demand letter for
other Lease defaults.
Notwithstanding the foregoing, Guarantor or Tenant shall have the right
at any time, to replace this Guaranty with an unconditional and irrevocable
letter of credit issued by an issuer acceptable to Landlord, in its sole
discretion (the "LC Issue") and in a form either (a) permitting draws by
Landlord on the letter of credit solely upon Landlord stating in writing to
the issuer of the letter of credit that Landlord has the right to draw on the
letter of credit hereunder or (b) otherwise satisfactory to Landlord in its
sole discretion. Said letter of credit, as it may from time to time be
extended or replaced, is hereinafter referred to as the "Letter of Credit".
The Letter of Credit shall be provided effective as of the first day or any
month (the "Effective Date") and shall be in the amount of the Unamortized
Landlord Costs as of such Effective Date. The Letter of Credit shall provide
that on the first day of the month immediately following the Effective Date
and on the first day of each succeeding month thereafter it shall be reduced
to an amount equal to the Unamortized Landlord Costs on said date. Guarantor
or Tenant, as applicable, may from time to time extend the expiry date of the
Letter of Credit by extending amendment or by replacement letter of credit of
the same tenor from the LC Issuer. Landlord may draw on the Letter of Credit
if (i) Tenant fails timely to pay rent or perform any other Lease Obligations
or (ii) the Letter of Credit is within thirty (30) days of the expiry date
thereof during the Term of the Lease. If Landlord draws on the Letter of
Credit, the amount drawn shall be applied against base rent payable hereunder
in inverse order of payment, except that, if the Lease is terminated or
Tenant dispossessed, or both, pursuant to Paragraph 15 of the Lease, any
amounts drawn which have not previously been
<PAGE>
Additional Lease Guaranty
applied to base rents shall be applied to base rents and other amounts
payable by Tenant to Landlord hereunder through the day of termination or
eviction, and then to amounts payable by Tenant pursuant to Paragraph 15 of
the Lease in direct order of maturity (such order of application for draw
proceeds is called herein the "Agreed Order of Application"). Under no
circumstance shall Landlord have any obligation to refund any amount drawn on
the Letter of Credit unless and except to the extent such amounts drawn
exceed the amounts payable by Tenant to Landlord in the Agreed Order of
Application. Any such excess shall be refunded to Tenant.
Upon issuance of the Letter of Credit, this Guaranty shall without
further act or notice, automatically become null and void, except only for
the immediately proceeding paragraph regarding the Letter of Credit. If the
Letter of Credit has not been drawn upon on or before the expiration of the
term of the Lease, then Landlord shall return the Letter of Credit upon said
expiration.
METRIS DIRECT, INC.
By: Peter G. Michielutti
--------------------------------
Its: CFO
-------------------------------
<PAGE>
AMENDMENT NUMBER THREE TO LEASE
THIS AMENDMENT NUMBER THREE TO LEASE ("AMENDMENT"), for reference
purposes, is dated December 4, 1997, but shall not become effective until
executed by each of WHIOP REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership ("LANDLORD"), and METRIS DIRECT, INC., a Minnesota corporation
(formerly named Fingerhut Financial Services Corporation)("TENANT")
WITNESSETH
WHEREAS, Fingerhut Financial Services Corporation, as tenant, and The
Equitable Life Assurance Society of the United States ("EQUITABLE"), as
landlord entered into a lease dated August 11, 1995, as amended by Amendment
Number One to Lease ("FIRST AMENDMENT") dated August 1, 1996, as further
amended by Amendment Number Two to Lease dated January 16, 1997 between
Landlord and Tenant ("SECOND AMENDMENT")(collectively referred to as the
"LEASE") under which certain space known as Suites 1800, 400 and 300 were
leased to Tenant in a building known as Interchange Tower (the "BUILDING")
and located at 600 South Highway 169, St. Louis Park, Minnesota 55426, as
more particularly described in the Lease, herein called the "PREMISES"; and
WHEREAS, Landlord has succeeded to the rights and interest of Equitable
as the landlord under the Lease and as the owner of the Building.
WHEREAS, Landlord and Tenant desire to further amend the Lease as
provided below.
NOW, THEREFORE, in consideration of the above recitals, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby amend and supplement the Lease, as follows:
1. DEFINED TERMS. All defined terms or phrases as utilized herein (and
identified by the use of initial capitalized letters) shall have the meanings
ascribed to them in the Lease, unless otherwise defined herein.
2. SUITE 500. As of "Effective Date" (as defined below), the Premises
as described in the Lease, as previously amended, as Suite 1800 consisting of
approximately 17,859 rentable square feet, Suite 400 consisting of
approximately 18,137 rentable square feet and Suite 300, consisting of
approximately 18,134 rentable square feet totaling approximately 54,130
rentable square feet, is further amended to include Suite 500, consisting of
approximately 17,911 rentable square feet (hereafter referred to as "SUITE
500"). From and after the Effective Date, the Premises shall be described as
Suite 1800, located on the eighteenth (18th) floor, Suite 400, located on the
fourth (4th) floor, Suite 300 located on the third (3rd) floor and Suite
500 located on the fifth (5th) floor, consisting of approximately 72,041
total rentable square feet.
<PAGE>
3. IMPROVEMENTS. Tenant agrees to take possession of Suite 500 in the
present "AS IS" condition; provided only that the "Existing Tenant" (as
defined below) shall have removed its personal property and trade fixtures
therefrom. In the event Tenant desires to make any alterations or other
improvements to Suite 500, then Tenant agrees to provide Landlord plans of
the Leasehold Improvements ("IMPROVEMENTS") it so desires. Said plans shall
be subject to Landlord's approval, which approval shall not be unreasonably
withheld or delayed, provided said plans:
a. provide for building standard grade of materials;
b. provide for an "office space" to "open space" ratio similar to
that of the currently existing Premises: and
c. provide for HVAC, electrical and fire/health/safety systems
similar to that currently existing in the Premises.
In the event of any objections to said plans by Landlord, Landlord shall so
notify Tenant promptly, so as to resolve such objections in an expeditious
and timely manner. When all such objections have been satisfied, Landlord
shall approve said plans. Upon approval, said plans shall become the "Final
Plans."
4. TENANT IMPROVEMENT ALLOWANCE. The Improvements shall be constructed,
in a good and workmanlike manner, pursuant to the Final Plans. The cost of
said Improvements shall be borne by Tenant, provided however, if such costs
are incurred prior to December 31, 1998 (the "ALLOWANCE CUT OFF DATE"),
Landlord agrees to reimburse Tenant for such costs up to the amount of
$116,421.50 (the "T.I. ALLOWANCE"). If the T.I. Allowance is not utilized
prior to the Allowance Cut Off Date any portion of the T.I. Allowance not so
utilized shall no longer be available to Tenant, whether for Improvements or
otherwise. For purposes of the foregoing the T.I. Allowance shall be deemed
utilized (whether or not actual disbursement of the T.I. Allowance to Tenant
pursuant to Exhibit A has occurred) to the extent that costs for Improvements
pursuant to approved Final Plans have actually been incurred by Tenant prior
to the Allowance Cut Off Date, provided construction of the Improvements have
been commenced and continues to substantial completion. The construction of
the Improvements and the payment of the T.I. Allowance shall be subject to
and governed by Exhibit A, attached hereto and incorporated herein by this
reference. The cost of the Improvements subject to reimbursement out of the
T.I. Allowance shall include architect's and/or space planning fees for the
Final Plans (whether said costs were incurred by Landlord or Tenant); actual
costs of construction for the Improvements; and construction
supervision/administration costs of Landlord, consisting of three percent
(3%) of said actual construction costs. Tenant's personal property,
equipment, moveable partitions, cabling/wiring of telecommunications and
computer equipment and other costs related to such items shall not be
reimbursable out of the T.I. Allowance.
5. EFFECTIVE DATE. Landlord agrees to use due diligence in delivering
Suite 500 on or about May 1, 1998; provided however, Tenant agrees that
Landlord shall have the
-2-
<PAGE>
opportunity to relocate the "Existing Tenant" (as defined below) to other
space within the Building and if the Existing Tenant so agrees to be
relocated, said May 1, 1998 date shall be no later than August 1, 1998. The
date of actual delivery of Suite 500 to Tenant shall be referred to herein as
the "EFFECTIVE DATE". The Effective Date shall not be extended by any delays
by Tenant in finalizing the Final Plans; but shall be extended by any
hold-over of the existing occupant of Suite 500 ("EXISTING TENANT") or any
other cause beyond Landlord's control.
6. RENT COMMENCEMENT DATE. The earlier of: i) 30 days subsequent to the
Effective Date; or ii) substantial completion of the Improvements shall be
deemed the "RENT COMMENCEMENT DATE". On or after the Rent Commencement Date,
Tenant may move its furniture, equipment and other personal property into
Suite 500. Tenant's taking possession of the Suite 500 shall be deemed
exclusive acceptance of said Suite 500 and an acknowledgment by Tenant that
said Suite 500 is in the condition required by this Amendment.
7. BASE RENTS. As of the Rent Commencement Date and continuing until
the first anniversary of the Rent Commencement Date, the annual Base Rent,
with respect to Suite 500, to be paid by Tenant to Landlord shall be $394,400
in equal monthly installments of $32,866.67. As of the first anniversary of
the Rent Commencement Date and continuing until the second anniversary of the
Rent Commencement Date, the annual Base Rent, with respect to Suite 500, to
be paid by Tenant to Landlord shall be $412,311 in equal monthly installments
of $34,359.27. As of the second anniversary of the Rent Commencement Date and
continuing until the third anniversary of the Rent Commencement Date, the
annual Base Rent, with respect to Suite 500, to be paid by Tenant to Landlord
shall be $430,222 in equal monthly installments of $35,851.85. The above
stated Base Rent per rentable square foot includes Landlord's estimate of the
1998 ("BASE YEAR") Taxes in the amount of $4.26 per rentable square foot
("BASE YEAR TAXES") and Operating Expenses in the amount of $5.76 per
rentable square foot ("BASE YEAR OPERATING EXPENSES"), all of which are
adjustable as described in Paragraph 3 of the Lease. In addition, Tenant
shall pay Landlord for the approximately 54,130 rentable square feet on the
18th, 4th and 3rd floors those rents as described in the Lease dated August
11, 1995 as previously amended by the First Amendment and the Second
Amendment, including all adjustments as described in Paragraph 3 of said
Lease.
8. TERM. The parties acknowledge and agree that the Term of the Lease
as set forth in Paragraph 1 of the Lease shall be extended, WITH RESPECT TO
SUITE 500, AND SUITE 500 ONLY, from November 30, 2000 to the earlier of May
31, 2001 or the third anniversary of the Rent Commencement Date (the "SUITE
500 EXTENDED TERM EXPIRATION DATE").
9. RENEWAL RIGHT. Provided the Lease is in full force and effect and
Tenant is not in default beyond any applicable cure period under any of the
other terms and conditions of the Lease at the time of either notification of
renewal or commencement of the Renewal Term, then Tenant shall have one
option to renew this Lease, for a term of five years, WITH RESPECT TO SUITE
500, AND SUITE 500 ONLY, commencing on the Suite 500 Extended Term Expiration
Date, and on the same terms and conditions set forth in the Lease, except as
modified by the terms, convenants and conditions as set forth below:
-3-
<PAGE>
a. If Tenant elects to exercise said option, then Tenant shall
provide Landlord with written notice no earlier than the second
anniversary of the Rent Commencement Date, but no later than a date
which is 270 days prior to the Suite 500 Extended Term Expiration Date,
time being of the essence. If Tenant fails to provide such notice,
Tenant shall have no right or additional right to extend or renew the
Term of the Lease. The notice shall be given in the manner provided in
the Lease for the giving of notices to Landlord.
b. The Base Rent and Monthly Installment of Base Rent in effect at
the Suite 500 Extended Term Expiration Date shall be increased to reflect
the net Annual Base Rent rate Landlord is then receiving for new leases
of similar space within the Building.
c. the option set forth in this Article is not transferable; the
parties hereto acknowledge and agree that the option to renew as set
forth in this Section shall be "personal" to the Tenant executing this
Lease and that in no event will any assignee or sublessee have any rights
to exercise any rights set forth in this Section.
NOTWITHSTANDING ANYTHING CONTAINED IN THE LEASE TO THE CONTRARY, THE "RENEWAL
OPTION" (AS DEFINED IN PARAGRAPH 7 OF THE FIRST AMENDMENT) SHALL NOT BE
APPLICABLE TO SUITE 500.
10. MISCELLANEOUS. The parties acknowledge and agree that the "Right
of First Opportunity" as set forth in Paragraph 6 of the First Amendment, is
now moot and of no further force or effect.
11. BROKERS. The parties acknowledge that Kurt L. Knoff of CB/Madison
("CB/MADISON") is representing Tenant in connection with this amendment and
David J. Marschinke of CB Commercial Real Estate Group, Inc. ("CB
Commercial") is representing Landlord in connection with this Amendment. The
parties acknowledge that they are aware that CB/Madison is a division of CB
Commercial and further ratify and confirm the consents previously given
regarding the dual agency arrangement of CB/Madison representing Tenant and
CB Commercial representing Landlord with respect to this Amendment,
notwithstanding the conflicting interests of the broker involved.
12. SUBMISSION. The submission of an unexecuted copy of this document
for review by Tenant shall not constitute an offer by Landlord. The execution
of this document by Tenant and the submission to Landlord shall constitute an
offer to Landlord which may be accepted only by Landlord executing and
delivering a fully executed counterpart hereof to Tenant. This Amendment may
be executed in counterparts, each evidencing, however, the single agreement
between the parties.
13. RATIFICATION. Except as is explicitly inconsistent, modified,
supplemented or amended by the express terms hereof, the Lease is hereby
ratified and confirmed.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
METRIS DIRECT, INC. WHIOP REAL ESTATE LIMITED PARTNERSHIP
BY: WHIOP GEN-PAR, INC.
A DELAWARE CORPORATION, GENERAL PARTNER
By: /s/ Ronald N. Zebeck By: /s/ John F. Markey
-------------------------------- ------------------------------------
Ronald N. Zebeck John F. Markey
-------------------------------- ------------------------------------
(Print Name) (Print Name)
President & CEO Senior Vice President - East
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(Title) (Title)
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EXHIBIT A
TENANT'S WORK AND T.I. ALLOWANCE
Attached to and made a part of Lease Amendment Number Three to Lease
bearing the Reference Date of December 4, 1997 between WHIOP REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and METRIS
DIRECT, INC., a Minnesota corporation (formerly named Fingerhut Financial
Services Corporation) ("TENANT").
Plans and/or a description of improvements and/or modifications to Suite
500 when approved pursuant to Paragraph 3 of the Amendment are to be attached
hereto as Exhibit B-1 and by this reference incorporated herein (hereinafter
called the "Final Plans"). The parties acknowledge that the Final Plans are
to modify Suite 500 to accommodate Tenant's intended use. Tenant shall be
responsible for constructing the improvements as shown on the Final Plans
(hereafter called "TENANT IMPROVEMENTS") for and on behalf of Tenant.
Tenant shall not commence construction of the Tenant Improvements (the
"TENANT'S WORK") until Tenant has secured Landlord's written approval, which
approval shall not be unreasonably withheld, of all contractors to be used in
performing Tenant's Work. Tenant's Work shall be coordinated with Landlord's
Work and/or other tenants of Landlord to such a degree that such Tenant's
Work will not interfere with nor delay the completion of Work by Landlord
and/or other tenants of Landlord.
Tenant's Work shall be performed in a first-class workmanlike manner and
shall be in good and usable condition at the date of completion thereof.
During the course of construction of the Tenant Improvements, Tenant may
perform its cabling, computer set up and telecommunications, provided, if
Landlord's agents are in any way involved in the Tenant's Work, such cabling
and set up shall be coordinated with the doing of the Tenant's Work.
All Tenant's work shall conform to applicable governmental statutes,
ordinances, regulations, and codes. Landlord's approval of plans and
specifications shall not constitute an acknowledgment that Tenant's Work done
in conformity therewith will so conform, and Tenant shall be solely
responsible for corrections in Tenant's Work required by any governmental
agency. Tenant shall secure its own building and occupancy permits. Landlord
shall have the right to inspect and/or supervise, to the extent Landlord
deems reasonably advisable; but Landlord shall not by reason of any such
inspection or supervision assume or have any responsibility to Tenant or any
entity for either the quality of any Tenant's Work or any loss, injury or
damage suffered by anyone by reason of the quality or performance of any
Tenant's Work. Landlord reserve the right to require changes in Tenant's Work
when necessary by reason of code requirements or directives of governmental
authorities having jurisdiction over Suite 500.
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Tenant shall save, protect, indemnify and hold harmless Landlord, Suite
500 and the building and land of which the Premises are a part, from and
against all claims in the nature of mechanics' liens arising out of either
any contracts entered into, or any services, labor or materials rendered,
with respect to the Tenant's Work or the Tenant Improvements.
Prior to commencement of Tenant's Work and until completion thereof, or
commencement of the Term of the Lease, whichever is the last to occur, Tenant
shall maintain, or cause to be maintained, casualty insurance in builder's
risk form, covering Landlord, Landlord's agents and beneficiaries, Landlord's
architect, Landlord's contractor or subcontractors, Tenant and Tenant's
contractors as their interests may appear, against loss or damage by fire,
vandalism and malicious mischief, and such other risks as are customarily
covered by the so-called "extended coverage endorsement non-reporting form"
upon all Tenant's Work-in-Place, and all materials stored at the site of
Tenant's Work and all materials, equipment, supplies and temporary structures
of all kinds incident to Tenant's Work and builder's machinery, all while
forming a part of, or contained in, such improvements or temporary structures
while on the demised premises or when adjacent thereto while on malls,
drives, sidewalks, streets or alleys, all in the full insurable value thereof
at all times. In addition, Tenant agrees to require all contractors and
subcontractors engaged in the performance of Tenant's Work to effect and
maintain and deliver to Tenant and Landlord certificates evidencing the
existence of, prior to the commencement of Tenant's Work and until completion
thereof, the following minimum insurance coverages:
a. Workmen's Compensation Insurance - In accordance with the laws of
the State of Minnesota, including Employer's Liability Insurance, to
the limit of $100,000 each accident.
b. Comprehensive General Liability Insurance against bodily injury,
including death resulting therefrom, to the combined aggregate
limits of $500,000.
c. Automobile insurance, including "non-owned" automobiles against
bodily injury, including death resulting therefrom, to the combined
aggregate limit of $500,000 for personal injury, and against
property damage to the combined aggregate limit of $100,000.
d. Contractors must carry all insurance. Said insurance policy of such
contractors must name building owner and the Property Manager,
Grubb & Ellis, as additional insureds.
Prior to the commencement of Tenant's Work, Tenant shall deliver to
Landlord's Representative certificates of all required insurance, and
evidence of the payment of premiums thereon (and certificates of renewal).
All such insurance shall provide, and certificates thereof shall state, that
the same is non-cancelable and non-amendable without ten (10) days prior
written notice to Landlord.
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Landlord and Tenant have agreed that the costs of the Tenant Improvements
shall be paid by Tenant, although Landlord shall provide Tenant the T.I.
Allowance as set forth in Paragraph 4 of the Amendment to be utilized toward
the cost of the Tenant Improvements, so long as such T.I. Allowance is
utilized prior to the Allowance Cut Off Date as set forth in said Paragraph
4. The T.I. Allowance shall be used only for payment of costs relating to
construction of the Tenant Improvements (including the costs of preparing the
Final Plans, demolition of any existing improvements, construction
inspections and construction supervision).
Upon Tenant's commencement of its business operations within Suite 500
and within ten (10) days of delivery to Landlord of: i) a certificate by
Tenant's general construction contractor to the effect that Tenant has
finally completed all of the Tenant Improvements, including all "punch list"
items, which certificate and the Tenant Improvements shall be approved by
Landlord's property manager; ii) a sworn construction statement from Tenant's
contractor identifying all subcontractors, material suppliers and other
persons who contributed to completion of the Tenant Improvements, showing the
dollar amounts of each such persons contribution; iii) final lien waivers for
any and all labor, services, materials, supplies and equipment furnished to
or for the Tenant Improvements; and iv) a sworn cost statement by Tenant to
all costs of the Tenant Improvements; then Landlord shall pay to Tenant the
lesser of such costs as identified on the Sworn Construction Statement and
sworn cost statement; or the T.I. Allowance. At the option of Landlord,
Landlord may pay directly to those parties furnishing labor, services,
materials and supplies and equipment to or for the Tenant Improvements, and
deduct such payments from the T.I. Allowance.
Notwithstanding the foregoing, upon at least 10 days prior written
request by Tenant, but not sooner than the date Tenant commences its business
operations within Suite 500, Landlord agrees to advance to Tenant (or at
Landlord's sole option to Tenant's contractor, or to specific
subcontractors), the lesser of either one half (1/2) the T.I. Allowance, or
the amount as certified by Tenant and Tenant's contractor to be currently
payable under contractor's construction contract, which amount so advanced
shall be credited against and deducted from the T.I. Allowance; provided
however, those items set forth in clauses i) through iv) of the previous
paragraph shall be supplied to Landlord prior to its making such advance
(albeit, the certification as to completion as required by clause i) need
only be for "substantial completion" and not for "final completion"; and the
lien waivers as required by clause iii) need only equal or exceed the amount
of the advance).
Any improvements to Suite 500, other than as shown on the Final Plans,
and the furnishing of Suite 500, shall be made by Tenant at the sole cost and
expense of Tenant, subject to all other provisions of the Lease, including
compliance with all applicable governmental laws, ordinances and regulations.
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AMENDMENT NUMBER FOUR TO LEASE
THIS AMENDMENT NUMBER FOUR TO LEASE ("AMENDMENT"), for reference
purposes, is dated January 29, 1997, but shall not become effective until
executed by each of WHIOP REAL ESTATE LIMITED PARTNERSHIP, a Delaware limited
partnership ("LANDLORD"), and METRIS DIRECT, INC., a Minnesota corporation
(formerly named Fingerhut Financial Services Corporation) ("TENANT").
WITNESSETH
WHEREAS, Fingerhut Financial Services Corporation, as tenant, and The
Equitable Life Assurance Society of the United States ("EQUITABLE"), as
landlord entered into a lease dated August 11, 1995, as amended by Amendment
Number One to Lease ("FIRST AMENDMENT") dated August 1, 1996, as further
amended by Amendment Number Two to Lease dated January 16, 1997 between
Landlord and Tenant ("SECOND AMENDMENT") (collectively referred to as the
"LEASE") under which certain space known as Suites 1800, 400 and 300 were
leased to Tenant in a building known as Interchange Tower (the "BUILDING")
and located at 600 South Highway 169, St. Louis Park, Minnesota 55426, as
more particularly described in the Lease, herein called the "PREMISES"; and
WHEREAS, Landlord has succeeded to the rights and interest of Equitable
as the landlord under the Lease and as the owner of the Building; and
WHEREAS, Landlord and Tenant entered into an Amendment Number Three to
Lease dated December 4, 1997 ("THIRD AMENDMENT"), which the parties wish to
terminate and replace with this Amendment; and
WHEREAS, the Building is part of an office building complex known as
Interchange Office Park ("OFFICE COMPLEX"), which also includes the building
known as Interchange West ("WEST BUILDING") located at 435 Ford Road, St.
Louis Park, Minnesota 55426; and
WHEREAS, Landlord and Tenant desire to further amend the Lease as
provided below.
NOW, THEREFORE, in consideration of the above recitals, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby amend and supplement the Lease, as follows:
1. DEFINED TERMS. All defined terms or phrases as utilized herein (and
identified by the use of initial capitalized letters) shall have the meanings
ascribed to them in the Lease, unless otherwise defined herein.
2. TERMINATION OF THE THIRD AMENDMENT. The Third Amendment is hereby
terminated and is null, void and shall have no further force or effect, the
same as if it had never been entered into.
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3. SUITE 500. The Premises as described in the Lease, as amended by the
First and Second Amendments, consists of the following suites in the
Building: Suite 1800 consisting of approximately 17,859 rentable square feet,
Suite 400 consisting of approximately 18,137 rentable square fee and Suite
300, consisting of approximately 18,134 rentable square feet totaling
approximately 54,130 rentable square feet. As of the "Effective Date" (as
defined below), the following Suite in the West Building: Suite 500,
consisting of the entire fifth (5th) floor and consisting of approximately
20,927 rentable square feet (hereafter referred to as "SUITE 500") shall be
added to the Premises. From and after the Effective Date, the Premises shall
thus be described as the following Building suites: Suite 1800, located on
the eighteenth (18th) floor, Suite 400, located on the fourth (4th) floor,
Suite 300 located on the third (3rd) floor, together with the following West
Building suite: Suite 500 consisting of the entire fifth (5th) floor. The
Premises shall then consist of approximately 75,057 total rentable square
feet. As of the Effective Date, references in the Lease to the "Building"
shall include the West Building to the extent relating to Suite 500, except
as set forth in Paragraph 11, below.
4. IMPROVEMENTS. Tenant agrees to take possession of Suite 500 in the
present "AS IS" condition. In the event Tenant desires to make any
alterations or other improvements to Suite 500, then Tenant agrees to provide
Landlord plans of the Leasehold Improvements ("IMPROVEMENTS") it so desires.
Said plans shall be subject to Landlord's approval, which approval shall not
be unreasonable withheld or delayed, provided said plans:
a. provide for building standard grade of materials;
b. provide for an "office space" to "open space" ratio similar to
that of the currently existing Premises; and
c. provide for HVAC, electrical and fire/health/safety systems similar
to that currently existing in the Premises.
In the event of any objections to said plans by Landlord, Landlord shall so
notify Tenant promptly, so as to resolve such objections in an expeditious
and timely manner. When all such objections have been satisfied, Landlord
shall approve said plans. Upon approval, said plans shall become the "Final
Plans."
5. TENANT IMPROVEMENT ALLOWANCE. The Improvements shall be constructed,
in a good and workmanlike manner, pursuant to the Final Plans. The cost of
said Improvements shall be borne by Tenant, provided however, if such costs
are incurred prior to December 31, 1998 (the "ALLOWANCE CUT OFF DATE"),
Landlord agrees to reimburse Tenant for such costs up to the amount of
$136,025.50 (the "T.I. ALLOWANCE"). If the T.I. Allowance is not utilized
prior to the Allowance Cut Off Date any portion of the T.I. Allowance not so
utilized shall no longer be available to Tenant, whether for Improvements or
otherwise. For purposes of the foregoing the T.I. Allowance shall be deemed
utilized (whether or not actual disbursement of the T.I. Allowance to Tenant
pursuant to EXHIBIT A has occurred) to the extent that costs for Improvements
pursuant to approved Final Plans have actually been incurred by Tenant prior to
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the Allowance Cut Off Date, provided construction of the Improvements have
been commenced and continues to substantial completion. The construction of
the Improvements and the payment of the T.I. Allowance shall be subject to
and governed by EXHIBIT A, attached hereto and incorporated herein by this
reference. The cost of the Improvements subject to reimbursement out of the
T.I. Allowance shall include architect's and/or space planning fees for the
Final Plans (whether said costs were incurred by Landlord or Tenant); actual
costs of construction for the Improvements; and construction
supervision/administration costs of Landlord, consisting of three percent
(3%) of said actual construction costs. Tenant's personal property,
equipment, moveable partitions, cabling/wiring of telecommunications and
computer equipment and all other costs related to such items shall not be
reimbursable out of the T.I. Allowance.
6. EFFECTIVE DATE. Landlord agrees to use due diligence in delivering
Suite 500 on or about February 4, 1998. The date of actual delivery of Suite
500 to Tenant shall be referred to herein as the "EFFECTIVE DATE". The
Effective Date shall not be extended by any delays by Tenant in finalizing the
Final Plans; but shall be extended by any cause beyond Landlord's control.
7. RENT COMMENCEMENT DATE. The earlier of: i) 45 days subsequent to the
Effective Date; or ii) substantial completion of the Improvements shall be
deemed the "RENT COMMENCEMENT DATE". On or after the Rent Commencement Date,
Tenant may move its furniture, equipment and other personal property into
Suite 500. Tenant's taking possession of Suite 500 shall be deemed exclusive
acceptance of said Suite 500 and an acknowledgment by Tenant that said Suite
500 is in the condition required by this Amendment.
8. BASE RENTS. As of the Rent Commencement Date and continuing until the
first anniversary of the Rent Commencement Date, the annual Base Rent, with
respect to Suite 500, to be paid by Tenant to Landlord shall be $403,891.10
in equal monthly installments of $33,657.59. As of the first anniversary of
the Rent Commencement Date and continuing until the second anniversary of the
Rent Commencement Date, the annual Base Rent, with respect to Suite 500, to
be paid by Tenant to Landlord shall be $414,354.60 in equal monthly
installments of $34,529.55. As of the second anniversary of the Rent
Commencement Date and continuing through November, 2000, the annual Base
Rent, with respect to Suite 500, to be paid by Tenant to Landlord shall be
$424,818.10 in equal monthly installments of $35,401.51. The above stated
Base Rent per rentable square foot for Suite 500 includes Landlord's estimate
of the 1998 ("BASE YEAR") Taxes in the amount of $2.54 per rentable square
foot ("BASE YEAR TAXES") and Operating Expenses in the amount of $5.76 per
rentable square foot ("BASE YEAR OPERATING EXPENSES"), all of which are
adjustable as described in Paragraph 3 of the Lease. In addition, Tenant
shall pay to Landlord for the approximately 54,130 rentable square feet on
the 18th, 4th and 3rd floors of the Building those rents as described in the
Lease dated August 11, 1995 as previously amended by the First Amendment and
the Second Amendment, including all adjustments as described in Paragraph 3
of said Lease.
9. TERM. The parties acknowledge and agree that the Term of the Lease as
set forth in Paragraph 1 of the Lease shall not be extended from November 30,
2000.
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10. RENEWAL RIGHT. If Tenant exercises its right to renew the Lease as
set forth in paragraph 7 of the First Amendment, such renewal must be for the
entire Premises, which includes Suite 500.
11. ADJUSTMENTS. The parties acknowledge that the two buildings
referenced in the Lease as "Tower/South" are also within the Interchange
Office Park. For purposes of this Amendment, with respect to references in
the Lease to the "Tower/South" and/or the "Land" and "Tower/South" when
referring, subsequent to the Effective Date, to Suite 500, shall mean the
West Building and/or the land upon which the West Building is located, or
both, as the content requires. The foregoing shall be construed so as to
enable Landlord to continue to treat the West Building as a separate property
than the Tower/South for purposes of computing and allocating Operating
Expenses and Taxes. The legal description of the land upon which the West
Building is located and is a part, is set forth on EXHIBIT B to this
Amendment.
12. MISCELLANEOUS. The parties acknowledge and agree that the "Right
of First Opportunity" as set forth in Paragraph 6 of the First Amendment, is
now moot and of no further force or effect.
13. BROKERS. The parties acknowledge that Kurt L. Knoff of CB/Madison
("CB/MADISON") is representing Tenant in connection with this Amendment and
David J. Marschinke of CB Commercial Real Estate Group, Inc. ("CB
COMMERCIAL") is representing Landlord in connection with this Amendment. The
parties acknowledge that they are aware that CB/Madison is a division of CB
Commercial and further ratify and confirm the consents previously given
regarding the dual agency arrangement of CB/Madison representing Tenant and
CB Commercial representing Landlord with respect to this Amendment,
notwithstanding the conflicting interests of the broker involved.
14. SUBMISSION. The submission of an unexecuted copy of this document
for review by Tenant shall not constitute an offer by Landlord. The execution
of this document by Tenant and the submission to Landlord shall constitute an
offer to Landlord which may be accepted only by Landlord executing and
delivering a fully executed counterpart hereof to Tenant. This Amendment may
be executed in counterparts, each evidencing, however, the single agreement
between the parties.
15. RATIFICATION. Except as is explicitly inconsistent, modified,
supplemented or amended by the express terms hereof, the Lease is hereby
ratified and confirmed.
16. CONTINGENT EXPANSION OPTION. Provided Tenant has not been in
default under the Lease and subject to the provisions set forth below, Tenant
shall have the option to lease additional space within either the West
Building or the (Tower) Building. The terms for said expansion space shall be
upon the same terms and conditions of this Lease, except: i) for this option
to expand or terminate; ii) that the Annual Base Rent shall be increased to
account for the then market rates (as set forth below) and for the additional
square footage being demised as a result of the exercise of this expansion
option; and iii) the term for such expansion space
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shall be agreed to between Landlord and Tenant. The increase in Annual Base
Rent shall be at the then current market rate for similar space in similar
properties in the Southwest metropolitan suburban market, but no less than
the per square foot rate then being charged under this Lease for the then
existing Premises (said market rate shall be determined on a net basis and
increased by the Base Year Taxes and Base Year Operating Expenses). Tenant's
right to exercise this expansion option is subject to the following
conditions:
a. Tenant shall notify Landlord of its additional square footage space needs
("TENANT'S REQUEST") in writing. Tenant's Request shall be for not less than
10,000 rentable square feet.
b. From and after the date of receipt of Tenant's Request Landlord shall
advise Tenant of the location of additional space within the Building
(either the West Building or the Tower Building) which shall meet
Tenant's additional space requirements as set forth in Tenant's
Request or is of 10,000 square feet or more and which is available for
leasing. Space shall not be deemed available for leasing if it is subject
to other options, expansion or similar rights of other tenants of the
Office Complex, including any other tenants which may have given a
previous request similar to the Tenant's Request (unless those rights
are waived by the benefitted tenant or the previous request is no longer
effective). Space shall also not be deemed available for leasing if it
is space occupied by a tenant, regardless if the tenant has an option
to renew or not, until such time as the tenant has affirmatively indicated
to Landlord that it intends to surrender the space at the end of its term.
c. If Tenant has given Landlord its Tenant's Request for expansion and
Landlord notifies Tenant of available space pursuant to paragraph B above,
the parties shall then negotiate in good faith for up to thirty (30) days
on the market rental rate, total square feet and length of the term for
such available space (subject to the requirements set forth above). If the
parties cannot so agree within such time, or if Tenant is no longer
interested in such expansion, then the space shall be deemed unavailable
for leasing with respect to Tenant, until Tenant again makes a Tenant's
Request (which Tenant may not make for a period of 30 days thereafter) at
which time the space may or may not still then be available for leasing.
If the parties do agree on the market rate and length of term, then they
shall execute an addendum to memorialize the new Annual Base Rent, Term
for the expansion space and any other provisions necessitated by said
expansion. All relocation, moving and leasehold improvements to effectuate
Tenant's expansion shall be made and accomplished in accordance with this
Lease and at Tenant's sole cost and expense. Landlord shall work with and
cooperate with Tenant to effectuate the maximum cost savings with respect
to relocation and space planning needs of Tenant.
d. If space is not available at the time of Tenant's Request, Tenant's
Request shall remain effective until such space becomes available
(pursuant to the requirements set forth above) or until Tenant withdraws
its Tenant's Request. Tenant agrees to withdraw its Tenant's Request
at such time as it no longer needs expansion space.
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17. CONTINGENCY. Notwithstanding anything contained herein to the
contrary, this Amendment is contingent upon Landlord obtaining prior to
February 2, 1998, an agreement in form satisfactory to Landlord, from the
holder of the lessee's interest of the existing lease for Suite 500
("EXISTING LEASE") allowing access to Suite 500 for all purposes contemplated
hereby. The Existing Lease expires by its own terms on March 31, 1998.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
METRIS DIRECT, INC. WHIOP REAL ESTATE LIMITED PARTNERSHIP
BY: WHIOP GEN-PAR, INC.
A DELAWARE CORPORATION, GENERAL PARTNER
By: /s/ Ronald N. Zebeck By: /s/ John F. Markey
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Ronald N. Zebeck John F. Markey
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(Print Name) (Print Name)
President & CEO Senior Vice President - East
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(Title) (Title)
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EXHIBIT A
TENANT'S WORK AND T.I. ALLOWANCE
Attached to and made a part of a Lease Amendment Number Three to Lease
bearing the Reference Date of January 29, 1998 between WHIOP REAL ESTATE
LIMITED PARTNERSHIP, a Delaware limited partnership ("LANDLORD"), and METRIS
DIRECT, INC., a Minnesota corporation (formerly named Fingerhut Financial
Services Corporation) ("TENANT").
Plans and/or a description of improvements and/or modifications to Suite
500 when approved pursuant to Paragraph 4 of the Amendment are to be attached
hereto as Exhibit A-1 and by this reference incorporated herein (hereafter
called the "Final Plans"). The parties acknowledge that the Final Plans are
to modify Suite 500 to accommodate Tenant's intended use. Tenant shall be
responsible for constructing the improvements as shown on the Final Plans
(hereafter called "TENANT IMPROVEMENTS") for and on behalf of Tenant.
Tenant shall not commence construction of the Tenant Improvements (the
"TENANT'S WORK") until Tenant has secured Landlord's written approval, which
approval shall not be unreasonably withheld, of all contractors to be used in
performing Tenant's Work. Tenant's Work shall be coordinated with Landlord's
Work and/or other tenants of Landlord to such a degree that such Tenant's
Work will not interfere with nor delay the completion of Work by Landlord
and/or other tenants of Landlord.
Tenant's Work shall be performed in a first-class workmanlike manner and
shall be in good and usable condition at the date of completion thereof.
During the course of construction of the Tenant Improvements, Tenant may
perform its cabling, computer set up and telecommunications, provided, if
Landlord's agents are in any way involved in the Tenant's Work, such cabling
and set up shall be coordinated with the doing of the Tenant's Work.
All Tenant's Work shall conform to applicable governmental statutes,
ordinances, regulations, and codes. Landlord's approval of plans and
specifications shall not constitute an acknowledgement that Tenant's Work
done in conformity therewith will so conform, and Tenant shall be solely
responsible for corrections in Tenant's Work required by any governmental
agency. Tenant shall secure its own building and occupancy permits. Landlord
shall have the right to inspect and/or supervise, to the extent Landlord
deems reasonably advisable; but Landlord shall not by reason of any such
inspection or supervision assume or have any responsibility to Tenant or any
entity for either the quality of any Tenant's Work or any loss, injury or
damage suffered by anyone by reason of the quality or performance of any
Tenant's Work. Landlord reserves the right to require changes in Tenant's
Work when necessary by reason of code requirements or directives of
governmental authorities having jurisdiction over Suite 500.
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Tenant shall save, protect, indemnify and hold harmless Landlord, Suite
500 and the building and land of which the Premises are a part, from and
against all claims in the nature of mechanics' liens arising out of either
any contracts entered into, or any services, labor or materials rendered,
with respect to the Tenant's Work or the Tenant Improvements.
Prior to commencement of Tenant's Work and until completion thereof, or
commencement of the Term of the Lease, whichever is the last to occur, Tenant
shall maintain, or cause to be maintained, casualty insurance in builder's
risk form, covering Landlord, Landlord's agents and beneficiaries, Landlord's
architect, Landlord's contractor or subcontractors, Tenant and Tenant's
contractors as their interests may appear, against loss or damage by fire,
vandalism and malicious mischief, and such other risks as are customarily
covered by the so-called "extended coverage endorsement non-reporting form"
upon all Tenant's Work-in-Place, and all materials stored at the site of
Tenant's Work and all materials, equipment, supplies and temporary structures
of all kinds incident to Tenant's Work and builder's machinery, all while
forming a part of, or contained in, such improvements or temporary structures
while on the demised premises or when adjacent thereto while on malls,
drives, sidewalks, streets or alleys, all in the full insurable value thereof
at all times. In addition, Tenant agrees to require all contractors and
subcontractors engaged in the performance of Tenant's Work to effect and
maintain and deliver to Tenant and Landlord certificates evidencing the
existence of, prior to the commencement of Tenant's work and until completion
thereof, the following minimum insurance coverages:
a. Workmen's Compensation Insurance - In accordance with the laws of
the State of Minnesota, including Employer's Liability Insurance, to
the limit of $100,000 each accident.
b. Comprehensive General Liability Insurance against bodily injury,
including death resulting therefrom, to the combined aggregate limits
of $500,000.
c. Automobile insurance, including "non-owned" automobiles against
bodily injury, including death resulting therefrom, to the combined
aggregate limit of $500,000 for personal injury, and against property
damage to the combined aggregate limit of $100,000.
d. Contractors must carry all insurance. Said insurance policy of such
contractors must name building owner and the Property Manager, Grubb &
Ellis, as additional insureds.
Prior to the commencement of Tenant's Work, Tenant shall deliver to
Landlord's Representative certificates of all required insurance, and
evidence of the payment of premiums thereon (and certificates of renewal).
All such insurance shall provide, and certificates thereof shall state, that
the same is non-cancelable and non-amendable without ten (10) days prior
written notice to Landlord.
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Landlord and Tenant have agreed that the costs of the Tenant
Improvements shall be paid by Tenant, although Landlord shall provide Tenant
the T.I. Allowance as set forth in Paragraph 5 of the Amendment to be
utilized toward the cost of the Tenant Improvements, so long as such T.I.
Allowance is utilized prior to the Allowance Cut Off Date as set forth in
said Paragraph 5. The T.I. Allowance shall be used only for payment of costs
relating to construction of the Tenant Improvements (including the costs of
preparing the Final Plans, demolition of any existing improvements,
construction inspections and construction supervision).
Upon Tenant's commencement of its business operations within Suite 500
and within ten (10) days of delivery to Landlord of: i) a certificate by
Tenant's general construction contractor to the effect that Tenant has
finally completed all of the Tenant Improvements, including all "punch list"
items, which certificate and the Tenant Improvements shall be approved by
Landlord's property manager; ii) a sworn construction statement from Tenant's
contractor identifying all subcontractors, material suppliers and other
persons who contributed to completion of the Tenant Improvements, showing the
dollar amounts of each such persons contribution; iii) final lien waivers for
any and all labor, services, materials, supplies and equipment furnished to
or for the Tenant Improvements; and iv) a sworn cost statement by Tenant to
all costs of the Tenant Improvements; then Landlord shall pay to Tenant the
lesser of such costs as identified on the Sworn Construction Statement and
sworn cost statement; or the T.I. Allowance. At the option of Landlord,
Landlord may pay directly to those parties furnishing labor, services,
materials and supplies and equipment to or for the Tenant Improvements, and
deduct such payments from the T.I. Allowance.
Notwithstanding the foregoing, upon at least 10 days prior written
request by Tenant, but not sooner than the date Tenant commences its business
operations within Suite 500, Landlord agrees to advance to Tenant (or at
Landlord's sole option to Tenant's contractor, or to specific
subcontractors), the lesser of either one half (1/2) the T.I. Allowance, or
the amount as certified by Tenant and Tenant's contractor to be currently
payable under contractor's construction contract, which amount so advanced
shall be credited against and deducted from the T.I. Allowance; provided
however, those items set forth in clauses i) through iv) of the previous
paragraph shall be supplied to Landlord prior to its making such advance
(albeit, the certification as to completion as required by clause i) need
only be for "substantial completion" and not for "final completion"; and the
lien waivers as required by clause iii) need only equal or exceed the amount
of the advance).
Any improvements to Suite 500, other than as shown on the Final Plans,
and the furnishing of Suite 500, shall be made by Tenant at the sole cost and
expense of Tenant, subject to all other provisions of the Lease, including
compliance with all applicable governmental laws, ordinances and regulations.
-9-
<PAGE>
TENANT ESTOPPEL CERTIFICATE
Metris Direct, Inc., f/k/a
TENANT: Fingerhut Financial Services, Inc. - name change only 8/16/96
Lee Stastny, Manager
TO: WCB Properties Limited Partnership
Or other purchaser for value of Interchange Office Park
RE: Interchange Tower, Suite 400 and 1800
THIS IS TO CERTIFY THAT:
1. The undersigned is the "Tenant" under that certain Lease for Suite
1800 dated August 11, 1995, and amended by Amendment Number 1 dated August 1,
1996 (the "Lease") between Tenant and The Equitable Life Assurance Society of
the United States ("Landlord"), covering the premises described above (the
"Premises").
2. The Lease constitutes the entire agreement between Landlord and Tenant
and has not been modified, assigned, supplemented or amended in any respect,
except as indicated above, and the Lease is valid and in full force and effect
on the date hereof.
3. Tenant has accepted and now occupies the Premises. The Lease term
commenced on September 1, 1995 and will expire on November 30, 2000. Any
improvements to be constructed on the Premises by Landlord have been completed
and accepted by Tenant and any tenant construction allowances payable directly
to Tenant by Landlord have been paid. Tenant has one option to renew the
initial term of the Lease for a period of 5 years.
4. Tenant has paid rent for the premises for a period up to and including
November 30, 1996. The rent payable by Tenant presently is $59,368.00 per
month. No such rent has been paid more than one (1) month in advance of its due
date except as follows: none. Tenant's security deposit is $00.00. Tenant has
paid in full all other sums presently due and payable under the Lease.
5. As of this date, no breach exists on the part of Tenant under the
Lease nor has any event occurred that, with the giving of notice or the mere
passage of time or both, would constitute a breach on the part Tenant under the
Lease, and, to the best knowledge of Tenant, no breach exists on the part of
Landlord under the Lease nor has any event occurred that, with the giving of
notice or the mere passage of time or both, would constitute a breach on the
part of Landlord under the Lease.
6. Tenant has no right or option whatsoever to purchase or otherwise
acquire the Premises or any portion thereof.
<PAGE>
7. There are no actions, whether voluntary or involuntary, pending
against Tenant under any insolvency, bankruptcy or other debtor relief laws of
the United States of America or any State thereof.
Tenant METRIS DIRECT, INC.
------------------------------
By: /s/ R.C. Kieffer
---------------------------
R. C. Kieffer
------------------------------
PRINT NAME
Its: Assistant Secretary
----------------------------
(Title)
<PAGE>
LEASE SUMMARY SHEET
1. LANDLORD: 1991 EXCHANGE LIMITED PARTNERSHIP
210 WEST 5TH STREET
SUITE 400
TULSA, OK 74103
2. TENANT: Fingerhut Financial Services Corp.
3. TENANT'S ADDRESS: 4500 SOUTH GARNETT, SUITE 300
TULSA, OKLAHOMA 74146
4. PREMISES: Suite 300
5. TERM OF LEASE: 3 YEARS
BEGINNING: 1-1-96
ENDING: 12-31-98
OPTIONS TO RENEW: (3) Three
FOR 1 YEAR EACH
6. RENT: MINIMUM (BASE) MONTHLY RENT: $14291.88
ADDITIONAL RENT: $-0- PER MONTH
ESCALATION: -0-
7. SECURITY DEPOSIT: -0-
1
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. TERMS 4
2. COMMENCEMENT AND EXPIRATION DATES 5
3. PAYMENT OF RENT 6
4. RENT INCREASES 6
5. SECURITY DEPOSIT 6
6. USES 7
7. LATE CHARGES 7
8. SERVICES AND UTILITIES 8
9. COST OF SERVICES AND UTILITIES 9
10. PROPERTY TAXES 12
11. LIABILITY INSURANCE 13
12. FIRE INSURANCE - FIXTURES AND EQUIPMENT 14
13. ALTERATIONS AND ADDITIONS; REMOVAL OF FIXTURES 14
14. ACCEPTANCE OF PREMISES 15
15. SPECIAL IMPROVEMENTS 15
16. ACCESS 16
17. DAMAGE OR DESTRUCTION 16
18. WAIVER OF SUBROGATION 17
19. INDEMNIFICATION 17
20. ASSIGNMENT AND SUBLETTING 17
21. ADVERTISING 18
22. LIENS AND INSOLVENCY 18
23. DEFAULTS 18
24. SUBORDINATION 19
25. SURRENDER OF POSSESSION 19
26. NON-WAIVER 19
27. HOLDOVER 20
28. CONDEMNATION 20
29. NOTICES 20
30. MORTGAGE PROTECTION 21
31. COSTS AND ATTORNEY'S FEES 21
2
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32. BROKERS 21
33. LANDLORD'S LIABILITY 21
34. ESTOPPEL CERTIFICATES 22
35. TRANSFER OF LANDLORD'S INTEREST 22
36. RIGHT TO PERFORM 22
37. SUBSTITUTED PREMISES 23
38. SALES AND AUCTIONS 23
39. NO ACCESS TO ROOF 23
40. SECURITY 23
41. AUTHORITY OF TENANT 24
42. NO ACCORD OR SATISFACTION 24
43. GENERAL PROVISIONS 24
44. CERTAIN RIGHTS RESERVED BY LANDLORD 25
3
<PAGE>
LEASE
THIS LEASE made this 31 day of October, 1995, by and between 1991 EXCHANGE
LIMITED PARTNERSHIP, ("Landlord") of 201 W. 5th, Suite 400, Tulsa, Oklahoma
74103, and FINGERHUT FINANCIAL SERVICES, CORP., a Minnesota Corporation
("Tenant") of Minnetonka, Minnesota.
W I T N E S S E T H:
That Landlord, for and in consideration of the rents and all other charges
and payments hereinafter reserved and payable by Tenant, and of the
covenants, agreements, terms, provisions and conditions to be kept and
performed hereunder by Tenant, does hereby demise and lease to Tenant, and
Tenant does hereby hire and take from Landlord, the premises described below
("Premises"), subject to all matters hereinafter set forth and upon and
subject to the covenants, agreements, terms, provisions and conditions of
this Lease for the term hereinafter stated.
1. TERMS. Landlord and Tenant agree to the following; unless otherwise
specifically modified by provisions of this Lease:
1.1. PREMISES: The Premises demised by this Lease are approximately
17590 square feet located in the 4500 Exchange Tower ("Building") at 4500 S.
Garnett, together with a nonexclusive right to use parking and other common
areas. The location and dimensions of the Premises are shown on Exhibit "A",
which is attached hereto and incorporated herein by reference. No easement for
light or air is incorporated in the Premises.
1.2 AGREED AREAS:
Total rentable area of the Building: 155306 sq. ft.;
Area of Premises: 17590 square feet;
Tenant's percentage of the Building: 11.33%.
1.3 LEASEHOLD IMPROVEMENT PLAN DELIVERY DATE: 12-15-95.
1.4 LEASE COMMENCEMENT DATE: JANUARY 1, 1996 or such other date as
provided in Section 2 hereof ("Commencement Date").
1.5 LEASE EXPIRATION DATE: DECEMBER 31, 1998.
1.6 RENT: The gross rent ("Rent") is $14291.88 per month.
1.7 NOTICES AND PAYMENTS ADRESSES:
If to Landlord: 1991 Exchange Limited Partnership
Coury Properties, Inc., Agent
201 W. 5th Street, Suite 400
Tulsa, OK 74103
If to Tenant: Fingerhut Financial Services Corporation
Attn: Doug McCoy
4500 S. Garnett
Tulsa, OK 74146
With a Copy To: Fingerhut Companies, Inc.
Attn: General Counsel
4400 Baker Road
Minnetonka, MN 55343
4
<PAGE>
2. COMMENCEMENT AND EXPIRATION DATES.
2.1 LEASE COMMENCEMENT DATE: The Lease Commencement Date shall
be: As shown in Section 1.4
2.1.1 The date specified in Section 1.4 unless notice is
delivered pursuant to subsection 2.1.2 or unless Tenant occupies earlier,
pursuant to subsection 2.1.3.
2.1.2 Such date as is specified in a notice delivered to
Tenant at least thirty (30) days before such date upon which the Premises,
together with the common facilities for access and service thereto, have been
completed; or
2.1.3 If Tenant occupies the Premises for Permitted Uses
prior to the date specified in subsection 1.4 or in the notice provided under
subsection 2.1.2, the date of such early occupancy.
2.2 TENANT OBLIGATIONS: If Tenant's improvements are not
completed on the Lease Commencement Date, due to the failure of Tenant to
fulfill any obligation under this Lease or any exhibit hereto, including
without limitation Tenant's failure to comply with the Leasehold Improvement
Plan Delivery Date, the Lease shall be deemed to have commenced upon the
Lease Commencement Date specified in Section 1.4 or as provided in subsection
2.1.2 above, as applicable.
2.3 TENANT'S TERMINATION RIGHTS: If a Lease Commencement Date as
provided in subsection 2.1.2 above does not occur within fourteen (14) days
following the Lease Commencement Date specified in Section 1.4, Tenant may
terminate this Lease by written notice to Landlord; provided that such
fourteen (14) day period may at Landlord's sole option be extended by any
period, not to exceed one (1) month from the Lease Commencement Date
specified in Section 1.4, for delays due to casualties, acts of God, strikes,
shortages of labor or materials or other causes beyond the reasonable control
of Landlord. If the Lease Commencement Date has not occurred within such one
(1) month period, all obligations of the parties shall terminate. Termination
under this subsection 2.3 shall be Tenant's sole remedy and Tenant shall have
no other rights or claims hereunder at law or in equity.
2.4 CONFIRMATION OF COMMENCEMENT DATE: When a Lease Commencement
Date as provided in subsection 2.1.2 and 2.1.3 above has been established as
a date other than the Lease Commencement Date provided in Section 1.4 hereof,
Landlord and Tenant shall confirm the same in writing.
2.5 EXPIRATION DATE: The Lease shall expire on the date specified
in Section 1.5.
3. PAYMENT OF RENT. Tenant shall pay Landlord the Rent and Additional
Rent (as defined in Section 8.2, below) and any other payments under this
Lease without deduction or offset, in lawful money of the United States in
advance on or before the first day of each month at the address noted in
Section 1.7 hereof, or to such other party or at such other place as Landlord
may hereafter from time to time designate in writing. Rent for any partial
month at the beginning or end of the lease term shall be prorated.
4.
5
<PAGE>
5. SECURITY DEPOSIT. As security for its full and faithful performance
of this Lease, Tenant agrees to pay Landlord a security deposit of -0-
DOLLARS ($-0-). If Tenant shall default with respect to any covenant or
condition of this Lease, including but not limited to the payment of Rent,
Additional Rent or any other payment due under this Lease, Landlord may apply
all or any part of the security deposit to the payment of any sum in default
or any other sum which Landlord may be required or deem necessary to spend or
incur by reason of Tenant's default. In such event, Tenant shall, upon
demand, deposit with Landlord the amount so applied to replenish said
securitiy deposit. If Tenant shall have fully complied with all of the
covenants and conditions of this Lease, but not otherwise, the amount of the
security deposit then held by Landlord shall be repaid to Tenant within
thirty (30) days after the expiration or sooner termination of this Lease.
Landlord may, in the event the security deposit is depleted, at Landlord's
election, apply any Rent or Additional Rent prepaid by Tenant to replenish
the deposit. Landlord shall not be required to keep this security deposit
separate from its other funds, and (unless required by law) Tenant shall not
be entitled to interest on such deposit.
6. USES. The Premises are to be used only for general office purposes
("Permitted Uses") and for no other business or purpose without the written
consent of Landlord. No act shall be done in or about the Premises that is
unlawful or that will increase the existing rate of insurance on the
Building; in the event of a breach of this covenant, Tenant shall pay to
Landlord any and all increases in insurance premiums resulting from such
breach. Tenant shall not commit or allow to be committed any waste upon the
Premises, or any public or private nuisance or other act or thing which
disturbs the quiet enjoyment of any other tenant in the Building. If any of
Tenant's office machines or equipment disturb any other tenant in the
Building, then Tenant shall provide adequate insulation, or take such other
action as may be necessary to eliminate the noise or disturbance.
Tenant shall comply with all laws relating to its use or occupancy of the
Premises and shall observe such reasonable rules and regulations as may be
adopted and made available to Tenant by Landlord from time to time for
safety, care and cleanliness of the Premises or the Building and for the
preservation of good order therein.
7. LATE CHARGES. Tenant hereby acknowledges that late payment to
Landlord of Rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. If any Rent or other sum due from Tenant is
not received by Landlord or Landlord's designated agent within ten (10) days
after its due date, then Tenant shall pay to Landlord a late charge equal to
the lesser of the maximum amount permitted by law, or ten (10) percent of
such overdue amount, plus any attorney's fees incurred by Landlord by reason
of Tenant's failure to pay Rent and/or other charges when due hereunder. The
parties hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of Tenant's late
payment.
6
<PAGE>
8. SERVICES AND UTILITIES. Landlord shall maintain, or cause to be
maintained, the Premises and the public and common areas of the Building,
such as lobbies, elevators, stairs, corridors, and restrooms, in reasonably
good order and condition except for damage occasioned by any act or omission
of Tenant or Tenant's employees, guests, or invitees, the repair of which
damage shall be paid for by Tenant.
Landlord agrees to keep in good repair the structural portions of the roof,
foundations, and exterior walls of the Premises and underground utility and
sewer pipes outside the exterior walls of the Building. Landlord gives to
Tenant exclusive control of the Premises. Tenant shall promptly report in
writing to Landlord any defective condition known to it which Landlord is
required to repair, and failure to so report such defects shall make Tenant
responsible to Landlord for any additional liability incurred by Landlord by
reason of such conditions.
8.1 HOURS OF SERVICE: From 7:00 a.m. to 11:00 p.m. on weekdays
("Normal Business Hours") and from 7:00 a.m. to 5:00 p.m. on Saturday
("Saturday Mornings") (excluding legal holidays), Landlord shall furnish the
Premises with electricity for lighting and operation of standard power usage
office machines; water, heat and air conditioning, and elevator service.
During all other hours, Landlord shall furnish such service except for heat
and air conditioning.
8.2 ADDITIONAL SERVICES: If requested by Tenant, Landlord shall
furnish heat and air conditioning at times other than Normal Business Hours
and Saturday Mornings and the cost of such services as established by
Landlord shall be paid by Tenant as Additional Rent, payable as provided in
Section 3*. Landlord shall also provide toilet room suppliers, window washing
at reasonable intervals, and customary building janitorial service. No
janitorial service shall be provided Saturdays, Sundays, or legal holidays.
The costs of any janitorial service or other types of services provided or
caused to be provided by Landlord to Tenant which are in addition to the
services ordinarily provided Building tenants shall be payable as provided in
Section 3 of this Lease.
8.3 DISCLAIMER: Landlord shall not be liable for any loss,
injury, or damage to property caused by or resulting from any variation,
interruption, or failure of such services due to any cause whatsoever, or
from failure to make any repairs or perform any maintenance. No temporary
interruption or failure of such services incident to the making of repairs,
alterations, or improvements, or due to accident, strike, or conditions or
events beyond Landlord's reasonable control shall be deemed an eviction of
Tenant or relieve Tenant from any of Tenant's obligations hereunder.
In no event shall Landlord be liable to Tenant for any damage to the Premises
or for any loss, damage or injury to any property therein or thereon
occasioned by bursting, rupture, leakage or overflow of any plumbing of other
pipes (including, without limitation, water, steam, and/or refrigerant
lines), sprinklers, tanks, drains, drinking fountains or washstands, or other
similar cause in, above, upon or about the Premises or the Building.
8.4 HEAT PRODUCING EQUIPMENT: Before installing any equipment or
lights which generate an undue amount of heat in the Premises requiring
installation of supplementary air conditioning capacity or if Tenant uses any
high-power usage equipment in the Premises requiring installation of
supplementary electrical capacity, Tenant shall obtain the written permission
of Landlord. Landlord may refuse to grant such permission unless Tenant agrees
7
* such cost to be $40.00 per hour
<PAGE>
to pay the costs of Landlord for installation of supplementary air
conditioning capacity or electrical systems necessitated by such equipment.
In addition, Tenant shall in advance, on the first day of each month during
the Lease term, pay Landlord the reasonable amount estimated by Landlord as
the cost of furnishing electricity for the operation of such high-power usage
equipment and the cost of operation and maintenance of supplementary air
conditioning units necessitated by Tenant's use of equipment which generates
an undue amount of heat. Landlord shall be entitled to install and operate at
Tenant's cost a monitoring/metering system in the Premises to measure the
added demands on electricity, heating, ventilation, and air conditioning
system resulting from Tenant's heat generating or high power equipment usage,
and after-hours service requirements.
[9 and 10 intentionally omitted.]
8
<PAGE>
11. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and
keep in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability or
arising out of the ownership, use, occupancy or maintenance of the Premises.
Such insurance shall be in the amount of not less than One Million Dollars
($1,000,000) for injury or death of a person in any one accident or
occurrence and in the amount of not less than One Million Dollars
($1,000,000) for injury or death of more than one person in any one accident
or occurrence. Such insurance shall further insure Landlord and Tenant
against contractual liability or property damage of at least One Million
Dollars ($1,000,000). The limit of any such insurance shall not limit the
liability of the Tenant hereunder. Tenant may provide this insurance under a
blanket policy. Insurance required here under shall be in companies rated
A:XIII or better in "Best's Key Rating Guide". Tenant shall deliver to
Landlord certificates of liability insurance required herein.
12. FIRE INSURANCE - FIXTURES AND EQUIPMENT. Tenant shall maintain in
full force and effect on all of its fixtures and equipment on the Premises a
policy(ies) of fire and extended coverage insurance with standard coverage
endorsement to the extent of at least eighty percent (80%) of their insurable
value. Landlord shall have no interest in the insurance upon Tenant's
equipment and fixtures and will sign all documents reasonably necessary or
proper in connection with the settlement of any claim or loss by Tenant.
Landlord will not carry insurance on Tenant's possessions. Tenant shall
furnish Landlord with a certificate evidencing such policy(ies) and whenever
required shall satisfy Landlord that such policy is in full force and effect.
13. ALTERATIONS AND ADDITIONS; REMOVAL OF FIXTURES. Tenant shall not
make or allow to be made alterations, additions or
9
<PAGE>
improvements to or on the Premises without first obtaining the written
consent of Landlord and any such alterations, additions or improvements made,
including, but not limited to, wall covering, paneling and built-in cabinet
work, but excepting movable furniture and trade fixtures, shall be made at
Tenant's sole expense, shall at once become a part of the realty and shall be
surrendered with the Premises. Upon the expiration or sooner termination of
the term hereof, Tenant shall, at Tenant's sole expense, with due diligence,
remove any alterations, additions, or improvements made by Tenant, designated
by Landlord to require removal as a condition of Landlord's original
approval of such alterations, additions or improvements, and Tenant shall, at
its sole expense, repair any damage to the Premises caused by such removal.
Tenant shall remove all of its movable property and trade fixtures which can
be removed without damage to the Premises at the termination of this Lease,
either by expiration of the term or other cause, and shall pay Landlord any
damages for injury to the Premises or Building resulting from such removal.
If Tenant shall fail to remove any of its property at any nature whatsoever
from the Premises or the Building at the termination of this Lease or when
Landlord has the right of reentry, Landlord may, in accordance with the
provisions of applicable statutes governing commercial landlord and tenant
matters, remove and store said property without liability for loss thereof or
damage thereto, such storage to be for the account and at the expense of
Tenant. If Tenant shall not pay the cost of storing any such property after
it has been stored for a period of thirty (30) days or more, Landlord may, at
its options, sell, or permit to be sold, any or all such property at public
or private sale, in such manner and at such times and places as Landlord in
its sole discretion may deem proper, without notice to Tenant, unless notice
is required under applicable statutes, and shall apply the proceeds of such
sale: first, to the cost and expense of such sale, including reasonable
attorney's fees actually incurred; second, to the payment of the costs or
charges for storing any such property; third, to the payment of any other
sums of money which may then be or thereafter become due Landlord from Tenant
under any of the terms hereof; and fourth, the balance, if any, to Tenant.
14. ACCEPTANCE OF PREMISES. If this Lease is entered into prior to the
completion of construction of the Building or of Tenant improvements in the
Premises, the acceptance of the Premises by Tenant shall be deferred until
receipt by the Tenant of an architect's certificate of readiness certifying
that the Premises are ready for occupancy. Within five (5) days after the
architect gives such notice, Tenant shall make such inspection of the Premises
as Tenant deems appropriate, and, except as otherwise notified by Tenant in
writing to Landlord within such period, Tenant shall be deemed to have
accepted the Premises in their then conditions. If, as a result of such
inspection, Tenant discovers minor deviations or variations from the plans
and specifications for Tenant's improvements of a nature commonly found on a
"punch list" (as that term is used in the construction industry), Tenant
shall promptly notify Landlord of such deviations. The existence of such punch
list items shall not postpone the Commencement Date of this Lease nor the
obligation of Tenant to pay Rent.
15. SPECIAL IMPROVEMENTS. Tenant shall reimburse Landlord for
Landlord's cost of making all special improvements requested by Tenant
including, but not limited to counters, partitioning, electrical and
telephone outlets and plumbing connections other than as shown on Exhibit "B"
or other attachments hereto, provided that Tenant shall not be obligated to
pay for the cost of any such special improvements made without a written
request therefor by Tenant to Landlord.
16. ACCESS. Tenant shall permit Landlord and its agents to
10
<PAGE>
enter the Premises at all reasonable times after giving written notice to
Tenant, except in cases of emergency and routine janitorial services, for the
purposes of inspecting the same, showing the Premises to prospective tenants,
exercising its rights under Section 44, or for cleaning, repairing, altering
or improving the Premises or the Building. Subject to the provisions of
Section 17.1, when reasonably necessary Landlord may temporarily close
entrances, doors, corridors, elevators or other facilities without liability
to Tenant by reason of such closure and without such action by Landlord being
construed as an eviction of Tenant or a release of Tenant from the duty of
observing and performing any of the provisions of this Lease.
17. DAMAGE OR DESTRUCTION.
17.1 DAMAGE REPAIR: If the Premises or the common areas of the
building shall be destroyed or damaged such that the premises are rendered
untenantable, either wholly, or in part, by fire or other casualty, and such
damage can be repaired within sixty-five (65) days Landlord shall, restore
the Premises to their previous condition, and in the meantime the Rent shall
be abated in the same proportion as the untenantable portion of the Premises
bears to the whole thereof, and this Lease shall continue in full force and
effect. If the damage cannot be repaired within sixty-five (65) days, the
Tenant may at its option, terminate this Lease as of the date of such damage.
If the damage is due, directly or indirectly, to the fault or neglect of
Tenant, or its officers, contractors, licensees, agents, servants, employees,
guests, invitees or visitors, there shall be no abatement of Rent, except to
the extent Landlord receives proceeds from any applicable insurance policy to
compensate Landlord for loss of Rent.
17.2 TERMINATION FOR MATERIAL OR UNINSURED DAMAGES: If the
Building shall be destroyed or damaged by fire or other casualty insured
against under Landlord's fire and extended coverage insurance policy to the
extent that more than fifty (50) percent thereof if rendered untenantable, or
if the Building shall be materially destroyed or damaged by any other
casualty other than those covered by such insurance policy, notwithstanding
that the Premises may be unaffected directly by such destruction or damage,
Landlord, may at its election, terminate this Lease by notice in writing to
Tenant within sixty (60) days after such destruction or damage. Such notice
shall be effective thirty (30) days after receipt thereof by Tenant.
17.3 BUSINESS INTERRUPTION: Other than rental abatement provided
in Section 17.1, no damages, compensation or claim shall be payable by
Landlord for inconvenience or loss of business arising from interruption of
business, repair or restoration of the Building or Premises. Landlord shall
use its best efforts to effect repairs and restoration in a prompt manner.
17.4 REPAIRS: Landlord shall not be obligated to repair any damage
or replace any property of Tenant as defined in subsection 10.4.
18. WAIVER OF SUBROGATION. Whether the loss or damage is due to the
negligence of Tenant or Tenant's agents or employees, or any other cause,
Tenant hereby releases Landlord and Landlord's agents and employees from
responsibility for and waives its entire claim of recovery for (i) any loss
or damage to the real or personal property of Tenant located in the Building,
including the Building itself, arising out of any of the perils which are
covered by Tenant's fire insurance policy(ies), with extended coverage
endorsements, or (ii) loss resulting from business interruption at the
Premises or loss of rental income from the Building, arising out of any of
the perils which may be covered by the business interruption insurance policy
and by the loss of rental income insurance policy held by Tenant. Tenant
shall cause its insurance carrier(s) to consent to such waiver of all rights
of subrogation
11
<PAGE>
against Landlord. Notwithstanding the foregoing, no such release shall be
effective unless the aforesaid insurance policy(ies) shall expressly permit
such a release or contain a waiver of the carrier's right to be subrogated.
19. INDEMNIFICATION. Tenant shall indemnify Landlord and save it
harmless from and against any and all uninsured liability, damages, costs or
expenses, including reasonable attorney's fees, arising from any act,
omission, or negligence of Tenant or its officers, contractors, licensees,
agents, servants, employees, guests, invitees, or visitors in or about the
Building or arising from any breach or default under this Lease by Tenant,
or arising from any accident, injury, or damage, howsoever and by whomsoever
caused, to any person or property, occurring in or about the Building or
Premises. This provision shall not be construed to make Tenant responsible
for loss, damage, liability or expense resulting from injuries to itself or
third parties caused by the negligence or intensional acts of Landlord, or
its officers, contractors, licensees, agents, employees, or invitees, for
which Landlord shall indemnify Tenant.
20. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, assign this Lease or sublet all or any part of
the Premises to any unaffiliated entity, or permit the use of the Premises by
any party other than Tenant. Upon receipt by Landlord of Tenant's request for
Landlord's consent to any proposed assignment or subletting, Landlord shall
have the right to cancel and terminate this Lease upon thirty (30) calendar
days' written notice to Tenant. Landlord may exercise said right in writing
within thirty (30) days after its receipt from Tenant of such request, and in
each case such cancellation or termination shall occur as of the date set
forth in Landlord's notice in exercise of such option, which shall not be
less than twenty (20) nor more than ninety (90) days following the giving of
such notice. Consent to any assignment or sublease (which shall not be
unreasonably withheld unless Landlord exercises its right to cancel this
Lease) shall not destroy this provision, and all later assignments or
subleases may be made only with the prior written consent of Landlord. An
assignee of Tenant, at option of Landlord, shall become directly liable to
Landlord for all obligations of Tenant hereunder, but no sublease or
assignment by Tenant shall relieve Tenant of any liability hereunder.
21. ADVERTISING. Tenant shall not display any sign, graphics, notice,
picture, or poster, or any advertising matter whatsoever, anywhere in or
about the Premises or the Building at places visible from anywhere outside or
at the entrance to the Premises without first obtaining Landlord's written
consent thereto, such consent to be at Landlord's sole discretion. Any such
consent by Landlord shall be upon the understanding and condition that Tenant
will remove the same at the expiration or sooner termination of this Lease
and Tenant shall repair any damage to the Premises of the Building caused
thereby.
22. LIENS AND INSOLVENCY. Tenant shall keep the Premises and the
Building free from any liens arising out of any work performed, materials
ordered or obligations incurred by or on behalf of Tenant, and Tenant hereby
agrees to indemnify and hold Landlord harmless from any liability for such
liens, excluding without limitation, liens arising from work performed
pursuant to Exhibit "B" and any other work performed, materials ordered or
obligations incurred on behalf of Landlord. If Tenant becomes insolvent,
voluntarily or involuntarily bankrupt, or if a receiver or assignee or other
liquidating officer is appointed for the business of Tenant, then Landlord
may terminate this Lease and Tenant's right of possession under this Lease,
and in no event shall this Lease of any rights or privileges hereunder be an
asset of Tenant under any bankruptcy, insolvency or reorganization
proceedings.
23. DEFAULTS. Time is of the essence hereof, and it shall be
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or perform any covenant, agreement, term or condition of this Lease,
including without limitation Tenant's obligation to make any and all payments
due under this Lease, whether or not such payments are defined as Rent or
Additional Rent. If such default or violation shall continue or shall not be
remedied within ten (10) days after notice in writing thereof is given by
Landlord to Tenant, specifying the matter claimed to be in default, Landlord,
at its option, may immediately declare this Lease terminated, and all
Tenant's rights hereunder shall be terminated. Landlord may reenter the
Premises using such force as may be necessary, and repossess itself thereof,
and remove all persons and property from the Premises. Notwithstanding any
such reentry, the liability of Tenant for the Rent, Additional Rent and other
payments provided for herein shall not be extinguished for the balance of
this Lease, and Tenant shall make good to Landlord any deficiency arising
from such reletting of the Premises, plus the costs and expenses of
renovating, altering and reletting the Premises, including attorneys' or
brokers' fees incident to Landlord's reentry or reletting. Tenant shall pay
any such deficiency each month as the amount thereof is ascertained by
Landlord or, at Landlord's option, Landlord may recover, in addition to any
other sums, the amount at the time of judgment by which the unpaid Rent,
Additional Rent and other payments for the balance the term after judgment
exceeds the amount thereof which Tenant proves could be reasonably avoided,
discounted at the rate of seven (7) percent. In reletting the Premises,
Landlord may grant rent concessions and Tenant shall not be credited
therefor. Under no circumstances, however, shall Tenant's total liability
pursuant to this Section exceed the unpaid rent plus the costs and expenses
incident to Landlord's reentry, including reasonable attorney's fees, and the
cost of any repairs necessary to put the Premises in the condition required
under Section 25.
Nothing herein shall be deemed to affect the right of Landlord to recover for
indemnification under Section 19 herein arising prior to the termination of
this Lease. In addition to the remedies for Tenant default provided herein,
Landlord shall have any and all other rights at law or in equity in the event
of Tenant's default.
24. SUBORDINATION. Upon request of Landlord, Tenant will in writing
subordinate its rights hereunder to the lien of any mortgage or deed of trust
now or hereafter in force against the Premises, and to all advances made or
hereafter to be made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the event of
the exercise of the power of sale under any mortgage or deed of trust made by
the Landlord covering the Premises, Tenant shall attorn to the purchaser upon
any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease.
The provisions of this Article to the contrary, notwithstanding, and so long
as Tenant is not in default hereunder, this Lease shall remain in full force
and effect for the full term hereof.
25. SURRENDER OF POSSESSION. Upon expiration of the term of this Lease,
Tenant shall promptly and peacefully surrender the Premises to Landlord in as
good condition as when received by Tenant from Landlord or as thereafter
improved, reasonable use and wear and tear expected.
26. NON-WAIVER. Waiver by Landlord of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of such
term, covenant, or condition(s); or of any subsequent breach of the same or
any other term, covenant, or condition of this Lease.
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27. HOLDOVER. If Tenant shall, without the written consent of
Landlord, hold over after the expiration of the term of this Lease, such
tenancy shall be deemed a month-to-month tenancy, which tenancy may be
terminated as provided by applicable state law. During such tenancy, Tenant
agrees to (a) pay to Landlord, each month, the greater of the fair market
rental value for the premises or one hundred twenty (120) percent of the Rent
and Additional Rent payable by Tenant for the last month of the term of this
Lease and (b) be bound by all of the terms, covenants and conditions herein
specified, so far as applicable.
28. CONDEMNATION.
28.1 SUBSTANTIAL TAKING. If twenty (20) percent or more of the
Premises or of such portions of the Building as may be required for the
reasonable use of the Premises, are taken by eminent domain or sale under
threat of condemnation by eminent domain, this Lease shall automatically
terminate as of the date title vests in the condemning authority, and all
Rent, Additional Rent, and other payments shall be paid to that date.
28.2 PARTIAL TAKING. In case of a taking of less than twenty (20)
percent of the Premises, or a portion of the Building not required for the
reasonable use of the Premises, then this Lease shall continue in full force
and effect, and the Rent shall be equitably reduced based on the proportion
by which the floor area of the Premises is reduced, such reduction to be
effective as of the date title to such portion vests in the condemning
authority.
28.3 AWARDS AND DAMAGES. Landlord reserves all rights to damages
to the Premises for any partial or entire taking by eminent domain, and
Tenant hereby assigns to Landlord any right Tenant may have to such damages
or award, and Tenant shall make no claim against Landlord or the condemning
authority for damages for termination of the leasehold interest. Tenant shall
have the right to claim and recover from the condemning authority
compensation for any loss to which Tenant may be put for Tenant's moving
expenses, business interruption or taking of Tenant's personal property (not
including Tenant's leasehold interest), provided that such damages may be
claimed only if they are awarded separately in the eminent domain proceedings
and not out of or as part of the damages recoverable by Landlord.
29. NOTICES. All notices and demands which may be required or permitted
to be given to either party by the other hereunder shall be in writing, and
shall be sent by United States mail, postage prepaid. All notices and demands
shall be sent in the manner above stated to the addresses set out in Section
1.7, and to such other person or place as each party may from time to time
designated in a notice to the others.
30. MORTGAGEE PROTECTION. Tenant agrees to give any mortgagee(s) and/or
trust deed holder(s), by registered mail, a copy of any notice of default
served upon the Landlord, provided that prior to such notice Tenant has been
notified in writing (by way of notice of assignment of rents and leases, or
otherwise), of the addresses of such mortgagee(s) and/or trust deed
holder(s). Tenant further agrees that if Landlord shall have failed to cure
such default within the time provided for in this Lease, then the
mortgagee(s) and/or trust deed holder(s) shall have an additional thirty (30)
days within which to cure such default or if such default cannot be cured
within that time, then such additional time as may be necessary if within
such thirty (30) days any mortgagee and/or trust deed holder(s) has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being so diligently pursued.
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be terminated while such remedies are being so diligently pursued.
31. COSTS AND ATTORNEY'S FEES. If Tenant or Landlord shall bring any
action for any relief against the other, declaratory or otherwise, arising
out of this Lease, including any suit by Landlord for the recovery of Rent,
Additional Rent or other payments hereunder, or possession of the Premises,
the losing party shall pay the prevailing party a reasonable sum for
attorney's fees in such suit, at trial and on appeal, and such attorney's
fees shall be deemed to have accrued on the commencement of such action.
32. BROKERS. Tenant represents and warrants to Landlord that neither it
nor its officers or agents nor anyone acting on its behalf has dealt with any
real estate broker other than Coury Properties, Inc., and CB Commercial Real
Estate Group, Inc. in the negotiating or making of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any claim or claims, of
any other broker or brokers claiming to have interested Tenant in the
Building or Premises or claiming to have caused Tenant to enter into this
Lease.
33. LANDLORD'S LIABILITY. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the
part of Landlord are made and intended not for the purpose of binding
Landlord personally or the assets of Landlord but are made and intended to bind
only the Landlord's interest in the Premises and Building, as the same may,
form time to time, be encumbered and no personal liability shall at any time
be asserted or enforceable against Landlord or its stockholders, officers or
partners or their respective heirs, legal representatives, successors and
assigns on account of the Lease or on account of any covenant, undertaking or
agreement of Landlord in this Lease contained.
34. ESTOPPEL CERTIFICATES. Tenant shall, from time to time, upon written
request of Landlord, execute, acknowledge and deliver to Landlord or its
designee a written statement stating to the extent true: the date this Lease
was executed and the date it expires; the date Tenant entered into occupancy
of the Premises; the amount of minimum monthly rent and the date to which
such rent has been paid; that this Lease is in full force and effect and has
not been assigned, modified, supplemented or amended in any way (or
specifying the date and terms of any agreement so affecting this Lease); that
this Lease represents the the entire agreement between the parties as to this
leasing; that all conditions under this Lease to be performed by the Landlord
have been satisfied; that all required contributions by Landlord to Tenant on
account of Tenant's improvement have been received; that on this date there
are no existing defenses or offsets which the Tenant has against the
enforcement of this Lease by the Landlord; that no rent has been paid more
than one (1) month in advance, and that no security has been deposited with
Landlord (or, if so, the amount thereof). It is intended that any such
statement delivered pursuant to this paragraph may be relied upon by a
prospective purchaser of Landlord's interest or a mortgagee of Landlord's
interest or assignee of any mortgage upon Landlord's interest in the
Building. If Tenant shall fail to respond within ten (10) days of receipt by
Tenant of a written request by Landlord as herein above provided, Landlord
shall provide (1) one additional notice allowing tenant (2) two additional,
business days, if Tenant does not respond within the additional time period
then Tenant shall be deemed to have given such certificate as above provided
without modification and shall be deemed to have admitted the accuracy of any
information supplied by Landlord to a prospective purchaser or mortgagee.
35. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer(s) of
Landlord's interest in the Premises or the Building, other than a transfer
for security purposes only, the transferor shall be automatically relieved of
any and all obligations and liabilities on the part of Landlord accruing from
and after the
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36. RIGHT TO PERFORM. If Tenant shall fail to pay any sum of money,
other than Rent and Additional Rent, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder,
and such failure shall continue for ten (10) days after written notice to
Tenant from Landlord informing it of such failure, Landlord may, but shall
not be obligated so to do, and without waiving or releasing Tenant from any
obligations of Tenant, make any such payment or perform any such other act on
Tenant's part to be made or performed as provided in this Lease. Landlord
shall have (in addition to any other right or remedy of Landlord) the same
rights and remedies in the event of the nonpayment of sums due under this
Section as in the case of default by Tenant in the payment of Rent.
37. SUBSTITUTED PREMISES. If the Premises contains an area of 2,000
square feet or less, Landlord shall have the right at any time prior to the
commencement of construction of Tenant's improvements in the Premises, upon
giving Tenant not less than thirty (30) days' notice in writing, to provide
and furnish Tenant with space elsewhere in the Building of approximately the
same size as the Premises and to place Tenant in such space. Should Tenant
refuse to permit Landlord to move Tenant to such new space by the end of said
thirty (30) day period, Landlord in such event shall have the right to
forthwith cancel and terminate this Lease. If Landlord moves Tenant to such
new space, this Lease and each and all of its terms, covenants and conditions
shall remain in full force and effect and be deemed applicable to such new
space, and such new space shall thereafter be deemed to be the "Premises".
38. SALES AND AUCTIONS. Tenant may not display or sell merchandise
outside the exterior walls and doorways of the Premises and may not use such
areas for storage. Tenant further agrees not to install any exterior
lighting, amplifiers or similar devices or use in or about the Premises an
advertising medium which may be heard or seen outside the Premises, such as
flashing lights, searchlights, loudspeakers, phonographs or radio broadcasts.
Tenant shall not conduct or permit to be conducted any sale by auction in,
upon or from the Premises whether said auction be voluntary, involuntary,
pursuant to any assignment for the payment of creditors or pursuant to any
bankruptcy or other insolvency proceeding.
39. NO ACCESS TO ROOF. Tenant shall have no right of access to the roof
of the Premises or the Building and shall not install, repair or replace any
aerial, fan, air conditioner or other device on the roof of the Premises or
the Building without the prior written consent of Landlord. And aerial, fan,
air conditioner or device installed without such written consent shall be
subject to removal, at Tenant's expense, without notice, at any time.
40. SECURITY. Tenant hereby agrees to the exercise by Landlord and its
agents and employees, within their sole discretion, of such security measures
as, but not limited to, the search of all persons entering or leaving the
Building, the evacuation of the Building for cause, suspected cause or for
drill purposes, the denial of any access to the Building and other similarly
related actions that it deems necessary to prevent any threat of property
damages or bodily injury. The exercise of such security measures by Landlord,
its beneficiaries and their agents and employees, and the resulting
interruption of service and cessation of Tenant's business, if any, shall not
be deemed an eviction or disturbance of Tenant's use and possession of the
Premises, or any part thereof, or render Landlord, its beneficiaries and
their agents and employees, liable to Tenant for any resulting damages or
relieve Tenant from Tenant's obligations under this Lease.
41. AUTHORITY OF TENANT. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of said corporation or partnership
represents and warrants that he is duly
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authorized to execute and deliver this Lease on behalf of said corporation or
partnership, and that this Lease is binding upon said corporation or
partnership.
42. NO ACCORD OR SATISFACTION. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent and other sums due
hereunder shall be deemed to be other than on account of the earliest rent or
other sums due, nor shall any endorsement or statement on any check or
accompanying any check or payment be deemed an accord and satisfaction; and
Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or other sum or pursue any other
remedy provided in this Lease.
43. GENERAL PROVISIONS.
(a) JOINT OBLIGATION. If there be more than one Tenant, the
obligations hereunder imposed shall be joint and several.
(b) MARGINAL HEADINGS, ETC. The marginal headings, Table of
Contents, lease summary sheet and titles to the articles of this Lease are
not a part of the Lease and shall have no effect upon the construction or
interpretation of any part hereof.
(c) CHOICE OF LAW. This Lease shall be governed by and construed
in accordance with the laws of the State in which the Premises are located.
(d) SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, incur to and bind the
heirs, successors, executors, administrators and assigns of the parties
hereto.
(e) RECORDATION. Neither Landlord nor Tenant shall record this
Lease, but a short-form memorandum hereof may be recorded at the request of
Landlord.
(f) QUIET POSSESSION. Upon Tenant's paying the rent reserved
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant's part to be observed and performed hereunder, Tenant
shall have quiet possession of the Premises for the entire term hereof,
subject to all the provisions of this Lease.
(g) INABILITY TO PERFORM. Except as specifically provided herein,
this Lease and the obligations of the Tenant hereunder shall not be affected
or impaired because the Landlord is unable to fulfill any of its obligations
hereunder or is delayed in doing so, if such inability or delay is caused by
reason of strike, labor troubles, acts of God, or any other cause beyond the
reasonable control of the Landlord.
(h) PARTIAL INVALIDITY. Any provision of the Lease which shall
prove to be invalid, void, or illegal shall in no way affect, impair or
invalidate any other provision hereof and such other provision(s) shall
remain in full force and effect.
(i) CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
(j) ENTIRE AGREEMENT. This Lease contains the entire agreement of
the parties hereto and no representations, inducements, promises or
agreements, oral or otherwise, between the parties, not embodied herein,
shall be of any force or effect.
44. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall have the
following rights exercisable without notice and without liability to Tenant
of damage or injury to property, person or business and without effecting an
eviction, constructive or actual,
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or disturbance of Tenant's use or possession of giving rise to any claim or
set-off or abatement of rent;
(a) To change the Building's name or street address or to change
the room number of numbers of the Premises.
(b) To install, affix and maintain any and all signs on the
exterior and interior of the Building.
(c) To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, window ventilators, and other similar
equipment, and to control all lighting within the Premises that may be
visible from the exterior of the Building.
(d) To designate, restrict and control all sources from which
Tenant may obtain ice, drinking water, towels, toilet supplies, shoe
shining, catering, food and beverages, or like or other services on the
premises, and in general, to reserve to Landlord the exclusive right to
designate, limit, restrict and control any business or any service in or to
the Building and its tenants, provided that the charges therefor are
reasonable.
(e) To grant to anyone the exclusive right to conduct any business
or render any service in or to the Building, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted herein,
or from using such vendors and service providers in connection with its
business as Tenant shall in its sole discretion chose.
(f) To prohibit the placing of vending or dispensing machines of
any kind in or about the Premises without the prior written permission of the
Landlord which permission shall not be unreasonably withheld, so long as
machines are for Tenant's personal use and not for commercial use of other
Tenants in the building.
(g) To show the Premises to prospective tenants at reasonable
hours during the last twelve (12) months of the Term and, if vacated during
such period, to prepare the Premises for reoccupancy.
(h) To approve the weight, size and location of safes and other
heavy equipment and bulky articles in and about the Premises and the Building
and to require all such items, including furniture and other similar items,
to be moved into or out of the Building and Premises only at such times and
in such manner as Landlord shall direct in writing. Any damages done to the
Building or Premises or to other tenants in the Building by taking in or
putting out safes, furniture or other articles, or from overloading the floor
in any way, shall be paid by Tenant. Movement of Tenant's property into or
out of the Building and within the Building are entirely at the risk and
responsibility of Tenant.
(i) To retain at all times, and to use in appropriate instances,
keys to all doors within and into the Premises. No lock shall be changed or
additional locks installed without the prior written consent of Landlord.
After giving advance written notice to Tenant, Landlord may enter the
Premises to make inspections, repairs, alterations or additions in or to the
Premises or Building at reasonable times, and at any time in the event of
emergency, and to perform any acts related to the safety, protection,
preservation, sale or improvement of the Premises or Building. Upon
termination of this Lease or of Tenant's possession, Tenant shall surrender
all keys to the Premises and shall make known to Landlord the combination
locks on all safes, cabinets and vaults that may be located in the Premises.
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(j) To have access for Landlord and other tenants of the Building
to any mail chutes located on or in the Premises according to the rules of
the United States Postal Service.
(k) To close the Building after Normal Business Hours and Saturday
Mornings, Sundays and holidays, subject to Tenant's right to admittance under
such regulations as Landlord may prescribe from time to time.
(l) To reduce, increase, enclose or otherwise change at any time
and from time to time the size, number, location, lay-out and nature of the
common areas and facilities and other tenancies, premises and buildings and
to create additional rentable areas through use or enclosure of common areas,
provided, however, that no such changes shall cause the ratio of available
exclusive parking spaces to fall below (4) four spaces per one thousand
(1000) square feet of rentable space in the premises or the ratio of total
available parking spaces for the premises fall below 6 spaces per 1000 sq ft.
of rentable space in the building, or have a materially adverse affect on
Tenant's access to, or use of, the premises.
IN WITNESS WHEREOF, the parties herein have hereunder set their hands and
seals, in triplicate, the day and year first above written.
Attest: Landlord:
1991 EXCHANGE LIMITED PARTNERSHIP
- ------------------------- By: Paul Coury, President LaSalle Street Corp.
------------------------------------------
Its General Partner
-----------------------------------------
Attest: Tenant:
Fingerhut Financial Services, Corporation
- ------------------------- By: Ronald N. Zebeck
-----------------------------------------
Its President
----------------------------------------
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
On this the 31st day of October, 1995, before me, Rebecca L. Moody, the
undersigned officer, personally appeared Ronald N. Zebeck who acknowledged
himself to be the President of Fingerhut Financial Corp., being authorized so
to do, executed the foregoing instrument for the purposes therein contained
as his and its free act and deed, by signing the name of the corporation by
himself as President.
In witness whereof I hereunto set my hand.
Rebecca L. Moody
-----------------------------
Notary Public
[SEAL]
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ADDENDUM TO LEASE
This ADDENDUM shall be fully, incorporated into that certain Lease Agreement
dated Oct 31, 1995 by and between 1991 Exchange Limited Partnership
("Landlord") and Fingerhut Financial Services, Corporation, ("Tenant").
WITNESSETH:
In consideration of the premises and other terms and conditions of the Lease,
Landlord and Tenant mutually agree to the following modifications;
1.) FIRST RIGHT OF REFUSAL: Tenant shall be given an on going
first right of refusal to lease any
space on the 5th floor that Landlord
receives an offer on during the primary
lease term and any extension/renewal
thereof of the lease. The terms and
conditions shall be the same as the
primary lease term except the term
shall be coterminous with the current
lease and the Tenant finish allowance
shall be based on the primary lease
term and prorated for the remaining
term of the lease. Tenant shall have
(5) five business days to exercise its
Right of First Refusal following
receipt of Landlord's written notice.
2.) OPTION TO RENEW: Tenant shall have (3) three (1) one
year renewal options at $10.50 per
rentable square feet. Landlord shall
provide a $2.00 per R.S.F. Tenant
finish allowance for the first renewal
to be used for improvements to the
premises. Tenant's base year shall be
adjusted for each renewal option to
the calendar year the renewal option
commences. The terms and conditions
other than the rental rate and, Tenant
finish allowance and escalation shall
be the same as the primary lease term.
3.) TENANT FINISH
ALLOWANCE: Landlord shall provide Tenant a Tenant
Finish Allowance of $8.00 per R.S.F.
This allowance shall be used first by
Landlord to offset actual Tenant
finish costs, and second to offset
related costs incurred by Tenant, such
as design, moving or installation of
data/voice wiring. Any portions of the
Tenant Finish Allowance remaining
shall be retained by the Landlord.
4.) SIGNAGE: Landlord at its expense shall install
building standard lobby and entrance
door signage. Tenant shall have the
right to place its company logo on the
existing Tenant monument sign or any
similar/comparable sign
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should Landlord modify the existing
sign. The Landlord shall have the
right to approve final specifications
of the sign. The cost of the sign
shall be paid from the Tenant Finish
Allowance.
5.) LEGAL ISSUES: Landlord shall be responsible to meet
all applicable laws, codes, and
regulations (e.g. zoning, life safety
and ADA) for operation and permitting
the premises for Tenant's proposed
use. Landlord certifies to the best of
its knowledge that there are no
hazardous waste, asbestos, or toxic
materials in amounts which exceed state,
local or federal regulator guidelines
or which violate any state, local or
federal law or regulation.
6.) PARKING: Landlord shall designate a parking
area as shown or attached Exhibit "C".
Tenants employees shall park in the
designated area with such designated
area not to be smaller than a 4 to
1000 rentable square feet leased
ratio. Additional parking requirements
for the use of Tenant shall be in the
Building's general parking area on a
non-reserved non-exclusive basis.
Agreed to and Accepted
Landlord: 1991 Exchange Limited Partnership
By: /s/ [ILLEGIBLE] Date 11-1-95
---------------------- -----------------
Tenant: Fingerhut Financial Services, Corporation
By: /s/ Ronald N. Zebeck Date Oct 31, 1995
---------------------- -----------------
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CORPORATE GUARANTY
The undersigned party, Fingerhut Companies, Inc. a Minnesota Corporation
agrees to personally comply with all of the above and foregoing lease
including the payment of all sums due thereunder.
Fingerhut Companies, Inc., a Minnesota Corporation hereby affixes its
signature in an individual capacity and as personal guarantor of all said
obligations.
Fingerhut Companies, Inc.
By: /s/ Robert W. Oberrender
-------------------------------------------
Title: Vice President, Treasurer Date 10/31/95
----------------------------------------
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LANDLORD
STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
Before me, a Notary Public in and for said county and state on the 1 day of
November, 1995, personally appeared Paul Coury to me known to be the identical
person who executed the within and foregoing instrument and acknowledged to me
that he executed the same as his free and voluntary act and deed for the uses
and purposes therein set forth.
/s/ Bertha Jones
------------------------------
Notary Public
My Commission Expires:
3/24/98
- -------------------------
TENANT, IF CORPORATION
STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
Before me, a Notary Public in and for said County and State on the
_______ day of ___________, 19__, personally appeared _______________________
and to me known to be the identical persons who subscribed the name of
__________________ to the foregoing instrument as its _________________
President and _________________ Secretary, respectively, and acknowledged to
me that they executed the same as their free and voluntary act and deed and
as the free and voluntary act and deed of such corporation, for the uses and
purposes therein set forth.
------------------------------
Notary Public
My Commission Expires:
- -------------------------
TENANT, IF INDIVIDUAL
STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
Before me, a Notary Public in and for said County and State on the
_______ day of ___________, 19__, personally appeared _______________________
and _______________________ to me known to be the identical person(s) who
executed the within and foregoing instrument and acknowledged to me that
_________ executed the same as __________ free and voluntary act for the uses
and purposes therein set forth.
------------------------------
Notary Public
My Commission Expires:
- -------------------------
TENANT, IF PARTNERSHIP
STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
The foregoing instrument was acknowledged before me this ___________ day
of ____________, 19__, by ________________________ and ___________________
for and on behalf of, a _______________________ Partnership.
------------------------------
Notary Public
My Commission Expires:
- -------------------------
<PAGE>
EXHIBIT "A"
FOR DELINEATION ONLY, NOT FOR CONSTRUCTION
[FLOOR PLAN]
<PAGE>
[FLOOR PLAN]
EXHIBIT "A-1"
LIMITS OF FIRST RIGHT OF REFUSAL AREA
<PAGE>
[FLOOR PLAN]
EXHIBIT B
<PAGE>
EXHIBIT "C"
TENANT'S DESIGNATED PARKING AREAS
[SITE PLAN]
<PAGE>
FIRST AMENDMENT TO LEASE
This Agreement is made and entered into as of the 14 day of February, 1996 by
and between 1991 EXCHANGE LIMITED PARTNERSHIP ("Landlord") and FINGERHUT
FINANCIAL SERVICES CORPORATION ("Tenant").
WITNESSETH:
Whereas, Landlord demised to Tenant and Tenant leased from Landlord certain
premises located in the building known as 4500 Exchange Tower, located at 4500
South Garnett, Tulsa, Oklahoma as more fully described in that certain Lease
dated October 31, 1995 which shall expire December 31, 1998.
Now, Therefore, in consideration of the premises and the mutual covenants and
conditions contained herein, Landlord and Tenant wish to make the following
modifications:
1.) EXPANSION OF PREMISES: The Premises shall be expanded by approximately
17,120 rentable square feet, as shown on attached
Exhibit "A" making up the entirety of the 5th
floor. Tenants total square footage shall now be
approximately 34,710 rentable square feet.
2.) RENTAL RATE: Tenants base monthly rental shall now be
$28,201.88.
3.) EFFECTIVE DATE: Shall be April 1, 1996.
4.) TENANT FINISH
ALLOWANCE: Landlord shall provide $125,660.80 towards the
build-out of the expanded premises. Any
additional costs shall be paid by Tenant.
Unless specifically modified herein, all of the terms and conditions of the
Leases shall remain in full force and effect.
Agreed to and Accepted
Landlord: 1991 Exchange Limited Partnership
By: /s/ Paul Coury Date 2-16-96 /s/ [Illegible]
------------------------------------- ------------------------------
Witness
Tenant: Fingerhut Financial Services Corporation
By: /s/ Ronald N. Zebeck Date 2-15-96 /s/ Jane Lorenz
------------------------------------- ------------------------------
Witness
<PAGE>
[FLOOR PLAN]
EXHIBIT "A"
FOR DELINEATION ONLY
<PAGE>
TENANT ESTOPPLE CERTIFICATE
TO: EAGLE I INVESTMENTS LIMITED LIABILITY COMPANY AND BANK ONE, OKLAHOMA CITY
AND 1991 EXCHANGE LIMITED PARTNERSHIP
RE: PROPERTY ADDRESS: 4500 SOUTH GARNETT ROAD, 4500 EXCHANGE TOWER, TULSA, OK
LEASE DATE: October 31, 1995
------------------------
BETWEEN: 1991 Exchange Limited Partnership (Landlord)
-------------------------------------
and Fingerhut Financial Services Corporation (Tenant)
------------------------------------------
SQUARE FOOTAGE LEASED: 17,590
-------------
SUITE NUMBER: 300
-------------
FLOOR: Third
-------------
The undersigned Tenant under the above-referenced lease ("Lease"), certifies to
Eagle I Investment Limited Liability Company and Bank One, Oklahoma City, and
the 1991 Exchange Limited Partnership the following:
1. The Lease has not been canceled, modified or amended except as follows:
None
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2. Rent has been paid to the current month and additional rent has been paid
and collected in a current manner. There is no prepaid rent, and the
amount of the security deposit is $ -0-.
3. We took possession of the leased premises on December 15, 1995 and
commenced to pay rent on December 15, 1995. Rent is currently payable in
the amount of $14,201.88 monthly.
4. The Lease terminates on December 31, 1998. And we have the following
renewal option (if any):
Three options to renew for additional periods of one year each.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
5. All work to be performed for us under the Lease has been performed as
required and has been accepted by us, except:
None
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<PAGE>
6. To the best of Tenant's knowledge as of the date of this statement, the
Lease is: (a) in full force and effect; (b) free from default; and (c) we
have no claims against the Landlord or offsets against rent.
7. The undersigned has received no notice of prior sale, transfer or
assignment, hypothecation or pledge of the Lease or the rents received
therein, except:
None
---------------------------------------------------------------------------
---------------------------------------------------------------------------
8. The undersigned has not assigned or sublet the Lease nor does the
undersigned hold the leased premises under assignment or sublease, except:
None
---------------------------------------------------------------------------
---------------------------------------------------------------------------
9. The base year for the operating expenses and real estate taxes, as defined
in the Lease, is 19__. N/A
10. The undersigned has no other interest in any other part of the building of
which the leased premises form a part or to any personal property
appurtenant thereto or used in connection therewith except:
Tenant has right of first refusal to lease 5th floor.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
11. The undersigned has no right or option pursuant to the Lease or otherwise
to purchase all or any part of the leased premises or the building of which
the leased premises are a part.
12. There are no other agreements, written or oral, between the undersigned and
the Landlord with respect to the Lease and/or the leased premises and
building.
13. The statements contained herein may be relied upon only by the Landlord
under the Lease and by the prospective purchasers of the fee of the leased
premises identified above.
If we are a corporation, the undersigned is duly appointed officer of the
corporation signing this certificate and is the incumbent in the office
indicated under this name.
In any event, the undersigned individual is duly authorized to execute this
certificate.
Dated this _______Day of January, 1996.
--------------------------------
By: [illegible]
--------------------------------
Its:
--------------------------------
<PAGE>
KOGER
LEASE
THIS LEASE AGREEMENT, dated 11 December 96 by and between Koger Equity, Inc.,
a Florida Corporation ("Landlord") with its principal office at 3986
Boulevard Center Dr., Jacksonville, FL 32207, and METRIS DIRECT, INC., a
corporation organized and existing under the laws of the State of Delaware,
("Tenant") with its principal office at 4400 Baker Road, Minnetonka, MN 55343.
1. BASIC LEASE PROVISIONS
<TABLE>
<S> <C>
A. DESCRIPTION OF PREMISES: D. ADDRESS FOR PAYMENT OF RENT AND SECURITY DEPOSITS:
Suite Number: 200 Payee: Koger Equity, Inc.
Building Name: Miles Address: P.O. Box D860533
Address: 4135 South 100th East Ave. City/State/Zip: Orlando, FL 32886-0533
County: Tulsa Tenant Account# 933 (note on remittance)
City: Tulsa
State/Zip: OK 74146 E. ADDRESSES FOR NOTICES
Center: Tulsa Tenant: Metris Direct, Inc.
4400 Baker Road
B. PRINCIPAL LEASE TERMS: Minnetonka, MN 55343
Lease Term (Months) twenty-five (25) ATT: Facilities Manager
Commencement Date: 01 December 96 Tenant Fed I.D./SSN: 41-1111974
Expiration Date: 31 December 98
Landlord: Koger Equity, Inc.
Monthly Base Rent: $12083.63 See paragraph 36B 9726 East 42nd Street
Sales or Use Taxes: $0.00 Suite 100
Total: $12083.63 Tulsa, OK 74146
Landlord Fed I.D.: 59-2898045
Security Deposit: $0.00
With a copy to: Koger Equity, Inc.
C. LEASED AREA Attn: President
Approximately 12609 rentable square feet. See 3986 Blvd. Center Drive
paragraph 36B (Includes Tenant's share of common area.) Jacksonville, FL 32207
</TABLE>
The provisions contained in Sections 2 through 36, inclusive, which
appear after the signature lines below, are a part of this Lease and are
incorporated in this Lease by reference. The Tenant and the Landlord have
executed or caused to be executed this Lease on the dates shown below their
signatures, to be effective as of the date set forth above.
Tenant: METRIS DIRECT, INC. Landlord: Koger Equity, Inc.
By: /s/ Ronald Zebeck (SEAL) By: /s/ J. Velma Keen, II (SEAL)
-------------------------------- ------------------------------
Print Name: Ronald Zebeck Print Name: J. Velma Keen, II
------------------------ ----------------------
Title: President & CEO Title: Vice President
----------------------------- ---------------------------
Attest: /s/ Lee Stastny Attest: /s/ Mary Sue Wakeman
---------------------------- --------------------------
Print Name: Lee Stastny Print Name: Mary Sue Wakeman
------------------------ ----------------------
Title: Title:
----------------------------- ---------------------------
(Corporate Seal)
Date: Date: DEC 24 1996
------------------------------ ----------------------------
Signed in the presence of: Signed and sealed in the presence of:
(1) (1)
-------------------------------- ------------------------------
Print Name: Print Name:
------------------------ ----------------------
(2) (2)
-------------------------------- ------------------------------
Print Name: Print Name:
------------------------ ----------------------
As to Tenant As to Landlord
1 of 8
<PAGE>
LEASE PROVISIONS INCORPORATED BY REFERENCE
2. LEASE OF PREMISES: The Landlord hereby leases to the Tenant and the
Tenant hereby takes from the Landlord the premises (the "Premises") which
include the Suite(s) shown and described on Exhibit "A", together with any
other parts of the Building used exclusively by Tenant, which Premises are or
will be contained in the office building (the "Building") located at the
address stated in Section 1A, upon the terms and conditions contained in this
Lease. For the purposes of this lease, "Property" shall mean the property
referred to at the street address in Section 1A which is more specifically
described in the legal description maintained in the Landlord's records. For
the purposes of this lease, "Center" shall mean The Koger Center referred to
in Section 1A.
3. TERM: The term of this Lease (the "Term") shall commence on the date
(the "Commencement Date") which is the earlier to occur of: the date stated
in Section 1B, or the date the Tenant first occupies all or part of the
Premises. The Term shall expire on the date (the "Expiration Date") stated in
Section 1B unless sooner terminated as otherwise provided in this Lease or
unless extended pursuant to Section 27 or other extension provisions
contained herein.
4. USE AND POSSESSION: The Tenant covenants and agrees that the Premises
are to be used by the Tenant for general office purposes and for no other
purposes without the prior written consent of the Landlord. The Tenant shall
not occupy or use the Premises or permit the use or occupancy of the Premises
for any purpose or in any manner which: (a) is unlawful or is in violation of
any applicable legal, governmental or quasi-governmental requirement,
ordinance, rule or code, (b) may be dangerous to persons or property, (c) may
invalidate any usual and customary insurance policy held by the Landlord, (d)
may create a nuisance or disturb any other tenant of the Building or the
occupants of neighboring Property or injure the reputation of the Building or
the Center; and (e) violates the "Rules and Regulations" of the Building as
may from time to time be adopted by Landlord, or any restriction of record.
The Tenant agrees that Tenant shall be responsible for any costs incurred by
Landlord by reason of Tenant's misuse of the Premises or the Building and
common areas, including without limitation any damages incurred by Tenant in
moving into or out of the Premises. If any costs are so incurred by Landlord,
the Tenant shall pay the Landlord such costs on demand as Additional Rent.
The Landlord agrees to have the Premises substantially completed and
ready for possession on or before the Commencement Date, subject to delays
caused or occasioned by strikes, insurrections, Acts of God, labor unrest,
shortage of materials, civil disturbances and other casualties or unforeseen
causes or events beyond the control of the Landlord ("Unforeseen Causes").
The Tenant agrees to accept possession of the Premises within ten (10) days
after the receipt of notice by the Landlord of substantial completion (if
after the date specified in Section 1B).
5. RENT: Tenant agrees to pay to Landlord at the address specified in
Section 1D, or at such other place designated in writing by Landlord, the
Monthly Rent, and any Additional Rent, plus any sales or use taxes
(collectively called "Rent"). "Monthly Rent" shall mean the initial monthly
base rent stated in Section 1B. Rent shall be paid without any prior notice
or demand and without any deduction whatsoever. Monthly Rent shall be due in
advance on the first day of each month of the Term. The first installment of
Monthly Rent shall be paid by Tenant to Landlord upon execution of this
Lease. Rent for any partial lease month shall be prorated. All delinquent
Rent shall bear interest at the maximum rate permitted by applicable law or
18% per annum, whichever is less, from the date due until paid. Rent shall be
considered delinquent after the 10th day following the date it is due. If
Tenant fails to pay Rent or any other charge when considered delinquent under
this Lease, then Tenant shall pay and Landlord shall be entitled to receive a
late payment service charge, in addition to any interest charge due
hereunder, covering administrative and overhead expenses incurred by Landlord
caused by such late payment, which the parties stipulate and agree are hereby
liquidated and shall be equal to five percent of the overdue amount. Tenant
shall pay a charge for any checks written to Landlord which are returned for
insufficient funds equal to $25.00 per returned check or the amount to which
Landlord is entitled under State law, whichever is greater.
6. REAL ESTATE TAX INCREASES:
SEE RIDER #36I
2 of 8
<PAGE>
7. RENT ADJUSTMENT:
SEE RIDER 36A & 36F
8. SALES AND USE TAX: In addition to the Rent and other amounts due to the
Landlord under this Lease, the Tenant shall pay to the Landlord and the
Landlord shall remit to the appropriate governmental authorities any sales,
use, or other tax, excluding Federal or State income taxes, now or hereafter
imposed upon rents and other amounts due to the Landlord under this Lease,
notwithstanding the fact that any statute, ordinance, or regulation may
impose any of those types of taxes on the Landlord.
9. NOTICES: For the purpose of any notice or demand under this Lease, the
respective parties shall be served by overnight delivery, personal delivery
or certified or registered mail, return receipt requested, addressed to the
Tenant at the address as set forth in Section 1E and to the Landlord at the
addresses set forth in Section 1E or other such addresses designated in
writing by Landlord. Any notice shall be effective when delivered.
10. ORDINANCES AND REGULATIONS: The Tenant shall comply promptly, at the
Tenant's sole cost and expense, with all present and future laws, codes,
ordinances, rules and regulations of any municipal, county, state, federal or
other governmental authority, including environmental laws, and by any bureau
or department thereof, and of the Board of Fire Underwriters or any other
body exercising similar functions, which may be applicable to Tenant's use or
occupancy of the Premises. The Tenant agrees for itself and for its
subtenants, employees, agents, and invitees to comply with the Rules and
Regulations, promulgated from time to time with respect to the Premises,
Building, Property and Center, a copy of which is available in the management
office in the Center.
Tenant covenants and agrees that Tenant shall not at any time maintain
on, or dispose or discharge from, the Property or the Premises any "Hazardous
Materials", as defined below, except Tenant may use and store minor
quantities of Hazardous Materials for cleaning purposes only or in connection
with the use of office equipment so long as the quantities and use are exempt
from applicable governmental regulation and such Hazardous Materials are
disposed of in accordance with all applicable laws. The failure to comply
with all applicable laws regarding Hazardous Materials and this covenant
shall constitute an Event of Default by the Tenant under this Lease and shall
entitle the Landlord to all rights and remedies provided in this Lease, at
law or in equity. The term "Hazardous Materials" as used herein shall mean
collectively, any hazardous substances, any pollutant or contaminant, all as
defined by 42 USC Section 9601, and any toxic substances, petroleum products,
other hazardous materials, or other chemicals or substances regulated by any
environmental laws of any county, state or federal government or any other
governmental entity. Tenant's obligations as set forth in this paragraph
shall survive termination of this Lease.
11. SIGNS: The Tenant shall not place any signs or other advertising matter
or materials on the exterior or on the interior of the Building or at any
other location on the Property or Center, without the prior written consent
from the Landlord. Any lettering or signs placed on the interior of the
Building shall be for directional purposes only, and such signs and lettering
shall be of a type, kind, character, location and description which have been
approved by the Landlord in writing. Directional and identification signage
provided by the Landlord shall be limited to the tenant directory of the
Building.
12. SERVICES: The Landlord shall provide the following: heat and air
conditioning in the Premises, during normal business hours (Monday through
Friday, 8:00 a.m. to 5:00 p.m., excluding national holidays), to the extent
necessary for the comfortable occupancy of the Premises, which shall be 68-75
degrees F in winter and 72-78 degrees F in summer, under normal business
operations and in the absence of the use of machines, equipment, or devices
which affect the temperature otherwise maintained in the Premises; water from
the regular Building fixtures for drinking, lavatory, and toilet purposes;
customary cleaning and
3 of 8
<PAGE>
janitorial services in the Premises Monday through Friday, excluding national
holidays: customary cleaning, mowing, grounds keeping, and trash removal in
the Common Areas: Landlord's customary security services for the Property:
and electricity for normal business usage according to Landlord's standard.
Additional capacity or usage shall be provided at the option of the Landlord
(reasonably exercised) and at the sole cost and expense of the Tenant as
Additional Rent. The Landlord shall provide Landlord's standard amount of
free non-exclusive parking for the employees and visitors of the Tenant.
SEE RIDER #36H
The services to be provided by Landlord at its cost under the terms of
this Lease shall not include any maintenance or replacement of non-standard
building items such as kitchen or breakroom fixtures and appliances including
but not limited to sinks, disposals, dishwashers, water heaters,
refrigerators, icemakers, special air conditioning or heating units, and
card access systems or special facilities such as showers. All cost for the
maintenance or replacement of such items shall be the obligation of the
Tenant.
The Tenant agrees that the Landlord shall not be liable for damages for
failure to furnish or delay in furnishing any service if attributable to any
of the causes described in Sections 16 and 17 or as a result of unforeseen
causes. No failure or delay resulting from the foregoing reasons shall be
considered to be an eviction or disturbance of the Tenant's quiet enjoyment,
use, or possession of the Premises. If the Tenant shall require electrical
current to operate equipment or machines, including heating, refrigeration,
computer(s), data processing, or other machines or equipment using electrical
current or maintain office hours that will increase the amount of the
electricity usually furnished by the Landlord for use in general office
space, the Tenant will obtain the prior written approval of the Landlord and
pay to the Landlord the additional direct expense incurred, including any
installation or maintenance cost, as additional Rent. Landlord reserves the
right to install a submeter for such service.
13. ALTERATIONS: The Tenant, by occupancy hereunder, accepts the Premises as
being in good repair and condition and suitable for Tenant's intended use of
the Premises. The Tenant shall maintain the Premises and every part thereof
in good repair and condition, reasonable use, wear and tear excepted. The
Tenant shall not make or suffer to be made any alterations, additions or
improvements to or of the Premises or any part thereof without Landlord's
prior written consent. The Tenant shall not permit any lien or claim for lien
of a mechanic, laborer, or supplier or any other lien to be filed against the
Center, the Property containing the Building, the Premises, or any part of
such property, arising out of work performed, or alleged to have been
performed by, or at the direction of, or on behalf of the Tenant.
The interest of Landlord in the Property or any part thereof shall not
be subject to liens for improvements made by Tenant or by persons claiming
by, through or under Tenant, and Tenant agrees that Tenant shall notify any
person making any improvements on behalf of Tenant of this provision. Upon
request of Landlord, Tenant will execute a short form of this Lease which
states that the terms of this Lease expressly prohibits any liability to
Landlord or the Landlord's property for any improvements made by, through or
under Tenant which may be recorded by Landlord.
14. QUIET ENJOYMENT. Subject to the provisions of this Lease, the Tenant
shall be entitled to peaceful and quiet enjoyment of the Premises, so long as
the Tenant is not in default under this Lease.
15. LANDLORD'S RIGHTS:
SEE RIDER #36L
16. DESTRUCTION OF PREMISES: If the Premises, the Building, or the Property
is rendered substantially untenantable by fire or other casualty, the
Landlord may elect, by giving the Tenant written notice within sixty (60)
days after the date of the fire or casualty, either to: (a) terminate this
Lease as of the date of the fire or other casualty; or (b) proceed to repair
or restore the Premises, the Building, or the Property (other than the
leasehold improvements and personal property installed by the Tenant), to
substantially the same condition as existed immediately prior to fire or
other casualty.
If the Landlord elects to proceed pursuant to 16(b) above, the
Landlord's notice shall contain the Landlord's reasonable estimate of the
time required to substantially complete the repair or restoration. If the
estimate indicates that the time so required will exceed one hundred twenty
(120) days from the date of the casualty and the Landlord does not make
available to the Tenant for its use and occupancy other office space,
substantially similar to the Premises and located in the Property or in the
Center, if any, pursuant to Section 23, then the Tenant shall have the right
to terminate this Lease as of the date of such casualty by giving written
notice to the Landlord not later than ten (10) days after the date of the
Landlord's notice. If the Landlord's estimate indicates that the repair or
restoration can be substantially completed within one hundred twenty (120)
days, or if the Tenant fails to exercise its right to terminate this Lease,
this Lease shall remain in force and effect.
If the Premises are damaged by fire or other casualty but the Premises
are not rendered substantially untenantable, then the Landlord shall
diligently proceed to repair and restore the damaged portions thereof (other
than the leasehold improvements and personal property installed by the
Tenant), to substantially the same condition as existed immediately prior to
such fire or other casualty, unless such damage occurs during the last twelve
(12) months of the Term, in which event the Landlord shall have the right to
terminate this Lease as of the date of such fire or
4 of 8
<PAGE>
other casualty by giving written notice to the Tenant within thirty (30)
days after the date of such fire or other casualty.
If all or any part of the Premises are damaged by fire or other casualty
and this Lease is not terminated, the Rent shall abate for that part of the
Premises which are untenantable on a per diem and proportionate area basis
from three (3) days after the date of the fire or other casualty until the
Landlord has substantially completed the repair and restoration work in the
Premises which it is required to perform, provided, that as result of such
fire or other casualty, the Tenant does not occupy the portion of the
Premises which are untenantable during such period.
17. CONDEMNATION: If all or part of the Premises, Building or Property is
taken or condemned by any authority for any public use or purpose (including
a deed given in lieu of condemnation), which renders the Premises
substantially untenantable, this Lease shall terminate as of the date title
vests in such authority, and the Rent shall be apportioned as of such date.
If any part of the Premises, Building, or Property is taken or condemned
but the Premises are not rendered substantially untenantable (including a deed
given in lieu of condemnation), this Lease shall not terminate. If the taking
reduces the rentable square feet in the Premises, Rent shall be equitably
reduced for the period of such taking by an amount which bears the same ratio
to the Rent then in effect as the number of square feet so taken or condemned
bears to the Leased Area set forth in Section 1C. The Landlord, upon receipt
and to the extent of the award in condemnation or proceeds of sale, shall
make necessary repairs and restorations (exclusive of leasehold improvements
and personal property installed by the Tenant) to restore the Premises
remaining to as near its former condition as circumstances will permit, and
to the Building and the Property to the extent necessary to constitute the
portion of same not so taken or condemned as complete.
The Landlord shall be entitled to receive the entire price or award from
any sale, taking or condemnation without any payment to the tenant and the
Tenant hereby assigns to the Landlord the Tenant's interest, if any, in such
award. However, the Tenant shall have the right separately to pursue against
the condemning authority an award in respect to the loss, if any, to
leasehold improvements paid by the Tenant without any credit or allowance for
the Landlord and for any loss for injury, damage, or destruction of the
Tenant's business resulting from such taking. Under no circumstances shall
the Tenant seek or be entitled to any compensation for the value of its
leasehold estate which Tenant hereby assigns to Landlord.
18. ASSIGNMENT AND SUBLEASE: Without the prior written consent of the
Landlord which will not be unreasonably withheld, the Tenant shall not
sublease the Premises, or assign, mortgage, pledge, hypothecate or otherwise
transfer or permit the transfer of this Lease or the interest of the Tenant
in this Lease, in whole or in part, by operation of law, court decree or
otherwise. Landlord may grant, deny or withhold consent or impose conditions
on the granting of consent, in Landlord's reasonable discretion. If the
Tenant desires to assign this Lease or to enter into any sublease of the
Premises, the Tenant shall deliver written notice of such intent to the
Landlord, together with a copy of the proposed assignment or sublease at
least thirty (30) days prior to the effective date of the proposed assignment
or commencement date of the term of the proposed sublease. Any approved
sublease shall be expressly subject to the terms and conditions of this
Lease. In the event of any approved sublease or assignment, the Tenant shall
not be released or discharged from any liability, whether past, present or
future, under this Lease, including any renewal term of this Lease. For
purposes of this Section 18, an assignment shall be considered to include a
change in the majority ownership or control of Tenant if Tenant is a
corporation whose shares of stock are not traded publicly, or, if the Tenant
is a partnership, a change in the general partner of the partnership or a
change in the persons holding more than 50% interest in the partnership, or a
change in majority ownership or control of any general partner of the
partnership.
19. HOLDING OVER: If the Tenant, or any assignee or sublessee of the Tenant,
shall continue to occupy the Premises after the termination or expiration of
this Lease (including a termination by notice under Section 24 or a
termination or expiration under Section 27), without the prior written
consent of the Landlord, such tenancy shall be a Tenancy at Sufferance.
During the period of any hold over tenancy by the Tenant, or any assignee or
sublessee, the Landlord, by notice to the Tenant, may adjust the Rent to an
amount equal to one hundred and fifty percent of the Rent of the last month of
the Term in which Rent was payable. Acceptance by the Landlord of any Rent
after termination shall not constitute a renewal of this Lease or a consent
to such hold over occupancy nor shall it waive the Landlord's right of
re-entry or any other right contained in this Lease or provided by law.
20. SUBORDINATION AND ATTORNMENT: This Lease and the right of the Tenant
hereunder are expressly subject and subordinate to the lien and provisions of
any mortgage, deed of trust, deed to secure debt, ground lease, assignment of
leases, or other security instrument operating agreement (collectively a
"Security Instrument") now or hereafter encumbering the Premises, the
Building, the Property, or any part thereof, and all amendments, renewals,
modifications and extensions of and to any such Security Instrument and to
all advances made or hereafter to be made upon such Security Instrument. The
Tenant agrees to execute and deliver such further instruments, in such form
as may be required by Landlord or any holder of a proposed or existing
Security Instrument, subordinating this Lease to the lien of any such
Security Instrument as may be requested in writing by the Landlord or holder
from time to time.
5 of 8
<PAGE>
In the event of the foreclosure of any Security Instrument by voluntary
agreement or otherwise, or the commencement of any judicial action seeking
such foreclosure, the Tenant, at the request of the then Landlord, shall
attorn to and recognize such mortgagee or purchaser in foreclosure as the
Tenant's landlord under this Lease. The Tenant agrees to execute and deliver
at any time upon request of such mortgagee, purchaser, or their successors,
any instrument to further evidence such attornment.
The Tenant shall from time to time, upon not less than seven (7) days'
prior written request by the Landlord, deliver to the Landlord a statement in
writing certifying that this Lease is unmodified and in full force and
effect, or, if there have been modifications, that this Lease, as modified,
is in full force and effect; providing a true, correct and complete copy of
the Lease and any and all modifications of the Lease; the amount of each item
of the Rent then payable under this Lease and the date to which the Rent has
been paid; that the Landlord is not in default under this Lease or, if in
default, a detailed description of such default; that the Tenant is or is not
in possession of the Premises, as the case may be; and containing such other
information and agreements as may be reasonably requested.
21. WAIVER AND INDEMNIFICATION: To the full extent permitted by law, the
Tenant hereby releases and waives all claims against the Landlord and its
agents, employees, officers, directors, and independent contractors, for
injury or damage to person, property or business sustained in or about the
Property, the Building, or the Premises by the Tenant, its agents or
employees other than damage proximately and solely caused by the gross
negligence of the Landlord or its agents or employees.
The Tenant agrees to indemnify and hold harmless the Landlord and its
agents and employees, from and against any and all liabilities, claims,
demands, costs, and expenses of every kind and nature, including those
arising from any injury or damage to any person (including death) or property
sustained in the Premises, or resulting from the failure of the Tenant to
perform its obligations under this Lease: provided, however, the Tenant's
obligations under this section shall not apply to injury or damage resulting
from the negligence or willful act of the Landlord or its agents or employees.
The Landlord agrees to indemnify and hold harmless the Tenant, and its
respective agents and employees, from and against any and all liabilities,
claims, demands, costs and expenses of every kind and nature, arising from
any injury or damage to any person (including death) or property sustained in
or about the Building proximately caused by the gross negligence or willful
act or omission of the Landlord; provided, however, the Landlord's
obligations under this section shall not apply to injury or damage resulting
from the negligence or willful act or omission of the Tenant, or its agents or
employees.
The Landlord shall not be responsible or liable to the Tenant for any
event, act or omission to the extent covered by insurance required to be
maintained by the Tenant with respect to the Premises and its use and
occupancy thereof (whether or not such insurance is actually obtained or
maintained). At the request of the Landlord, the Tenant shall from time to
time cause its insurers to provide effective waivers of subrogation for the
benefit of the Landlord, and its agents or employees and insurers, in a form
satisfactory to the Landlord.
22. SURRENDER OF PREMISES: Upon the expiration or termination of this Lease
or the termination of the Tenant's right of possession of the Premises, the
Tenant shall surrender and vacate the Premises immediately and deliver
possession thereof to the Landlord in a clean, good, and tenantable
condition, except for a) damages beyond the control of the Tenant; b)
reasonable use; c) ordinary wear and tear. Any movable trade fixtures and
personal property that may be removed from the Premises by the Tenant at the
end of the Lease term, but which are not so removed, shall be conclusively
presumed to have been abandoned by the Tenant and title to such property
shall pass to the Landlord without any payment or credit: or, the Landlord
may, at its option, either store or dispose of such trade fixtures and
personal property at the Tenant's expense. Tenant agrees that it shall not
remove any of the personal property from the Premises without Landlord's
consent so long as any Rent or Additional Rent, or other sums owed to
Landlord, remain unpaid.
23. RELOCATION OF TENANT:
24. EVENTS OF DEFAULT: Each of the following shall constitute an event of
default by the Tenant under this Lease: (1) the Tenant fails to pay any
installment of Rent or Additional Rent within ten (10) days after the date on
which the installment of Rent or Additional Rent first becomes due: (2) the
Tenant fails to observe or perform its obligations under sub-section (d) of
Section 4 above and such violation continues for more than 24 hours after
such notice or Tenant fails to observe or perform any of the other covenants,
conditions or provisions of this Lease other than the payment of any
installment of Rent or Additional Rent, and fails to cure such default within
fifteen (15) days after written notice from the Landlord to the Tenant: (3)
the Tenant fails a second time to observe or perform any of the other
covenants, conditions or provisions of this Lease other than the payment of
any installment of Rent or Additional Rent after prior written notice of the
failure: (4) a petition is filed by or against the Tenant or any
6 of 8
<PAGE>
Guarantor to declare the Tenant or the Guarantor, as the case may be,
bankrupt or to seek relief for such Tenant or Guarantor under any chapter of
the Bankruptcy Code, as amended, or under any other law imposing a moratorium
on, or granting debtor's relief with respect to, the rights of creditors; (5)
the Tenant or any Guarantor becomes or is declared insolvent by law or Tenant
or any Guarantor makes an assignment for the benefit of creditors; (6) a
receiver is appointed for the Tenant or the Tenant's property or for any
Guarantor or any of Guarantor's property; (7) the Tenant abandons or vacates
the Premises; or, (8) the interest of the Tenant in this Lease is levied upon
under execution or other legal process.
Upon the occurrence of an event of default by the Tenant under this
Lease, the Landlord at its option, without further notice or demand to the
Tenant, may in addition to all other rights and remedies provided in this
Lease, at law or in equity:
A. Terminate this Lease and the Tenant's right of possession of the
Premises, and recover all damages to which the Landlord is entitled under
this Lease, at law and in equity, specifically including, without limitation,
all the Landlord's expenses of reletting (including repairs, legal fees and
unamortized brokerage commissions).
B. Terminate the Tenant's right of possession of the Premises without
terminating this Lease, in which event the Landlord may, but shall not be
obligated to, relet the Premises, or any part thereof for the account of the
Tenant, for such rent and such term and upon such terms and conditions as are
acceptable to the Landlord. For purposes of any reletting of the Premises,
the Landlord is authorized to redecorate, repair, alter and improve the
Premises to the extent necessary or desirable in the Landlord's judgement.
For any period during which the Premises have not been relet, Tenant shall
pay Landlord monthly on the first day of each month during the period that
Tenant's right of possession is terminated, a sum equal to the amount of Rent
due under this Lease for such month. If and when the Premises are relet and a
sufficient sum is not realized from such reletting after payment of all the
Landlord's expenses of reletting (including repairs, alterations,
improvements, additions, decorations, legal fees and brokerage commissions)
to satisfy the payment of Rent due under this Lease for any month, the Tenant
shall pay to the Landlord any such deficiency monthly upon demand. The Tenant
agrees that the Landlord may file suit to recover any sums due to the
Landlord under this section and that such suit or recovery of any amount due
the Landlord shall not be any defense to any subsequent action brought for
any amount not previously reduced by judgement in favor of the Landlord. If
the Landlord elects to terminate the Tenant's right to possession only
without terminating this Lease, the Landlord may, at its option, enter into
the Premises, removing the Tenant's signs and other evidences of tenancy, and
take and hold possession thereof; provided, however, that such entry and
possession shall not terminate this Lease or release the Tenant, in whole or
in part, from the Tenant's obligation to pay the Rent reserved hereunder for
the full Term or from any other obligation of the Tenant under this Lease.
SEE RIDER #36J
25. SUCCESSOR AND ASSIGNS: This Lease shall bind and inure to the benefit
of the successors, assigns, heirs, executors, administrators, and legal
representatives of the parties hereto. In the event of the sale, assignment,
or transfer by the Landlord of its interest in the Building or in this Lease
(other than a collateral assignment to secure a debt of the Landlord prior to
enforcement) to a successor in interest who expressly assumes the obligations
of the Landlord hereunder, the Landlord shall thereupon be released or
discharged from all of its covenants and obligations hereunder, except such
obligations as the Landlord shall have accrued prior to any such sale,
assignment or transfer; and the Tenant agrees to look solely to such
successor of the Landlord for performance of such obligations. Any securities
or funds given by the Tenant to the Landlord to secure performance by the
Tenant of its obligations hereunder may be assigned by the Landlord to such
successor of the Landlord and, upon acknowledgement by such successor or
receipt of such security and its assumption of the obligation to account for
such security in accordance with the terms of the Lease, the Landlord shall
be discharged of any further obligation relating thereto. The Landlord's
assignment of the Lease or of any or all of its rights herein shall in no
manner affect the Tenant's obligations hereunder. The Landlord shall have the
right to freely sell, assign or otherwise transfer its interest in the
Building and/or this Lease.
26. NON-WAIVER: No waiver of any covenant or condition of this Lease by
either party shall be deemed to imply or constitute a further waiver of any
other covenant or condition of this Lease.
27. AUTOMATIC RENEWAL:
7 of 8
<PAGE>
28. SECURITY DEPOSIT:
29. LIMITATION OF THE LANDLORD'S LIABILITY: As used in this Lease, the term
"Landlord" shall mean the entity herein named as such, and its successors and
assigns. No person holding the Landlord's interest under the Lease (whether
or not such person is named as the "Landlord") shall have any liability
hereunder after such person ceases to hold such interest, except for any
liability accruing hereunder while such person held such interest. No
principal, officer, employee, or partner (general or limited) of the Landlord
shall have any personal liability under any provision of this Lease. If the
Landlord defaults in the performance of any of its obligations under this
Lease or otherwise, the Tenant shall look solely to the Landlord's interest
in the Building and not to the other assets of Landlord or the assets,
interest, or rights of any principal, officer, employee, or partner (general
or limited) for satisfaction of the Tenant's remedies on account thereof.
30. COMMON AREAS: For purposes of this Lease "Common Areas" shall mean all
areas, improvements, space, and equipment (owned or controlled by the
Landlord) in or at the Property, provided by the Landlord for the common or
joint use and benefit of tenants, customers and other invitees.
31. MISCELLANEOUS: This Lease, the Exhibits, the Riders and Addendums
contained herein or attached hereto contain the entire agreement between the
Landlord and the Tenant and there are no other agreements, either oral or
written. This Lease shall not be modified or amended except by a written
document signed by the Landlord and the Tenant which specifically refers to
this Lease. The captions in this Lease are for convenience only and in no way
define, limit, construe or describe the scope or intent of the provisions of
this Lease. This Lease shall be construed in accordance with the laws of the
state in which the Building is located. If any provision of this Lease or any
amendment hereof is invalid or unenforceable in any instance, such invalidity
or unenforceability shall not affect the validity or enforceability of any
other provision, or such provision in any circumstance not controlled by such
determination.
32. TENANT'S INSURANCE: Tenant shall obtain and keep in force during the
Term of this Lease, including any extension and renewal, comprehensive
general liability insurance insuring Landlord as an additional insured,
including contractual liability coverage, and Tenant against any liability
arising out of the ownership, use, occupancy or maintenance of the Premises,
and all areas appurtenant thereto. Such policy shall provide minimum limits
of $1,000,000 for damage to property or for death or injury to any one person
in any one accident. Tenant shall deliver to Landlord, prior to occupancy of
the Premises, a certificate of insurance and shall deliver a new certificate
as and when the policy is renewed or replaced. Said policy shall contain a
waiver of subrogation clause and provide that it will not be subject to
cancellation, non-renewal, reduction or other change except after at least
ten (10) days prior written notice to Landlord. If Tenant fails to comply
with such requirements, Landlord may obtain such insurance and keep the same
in effect and Tenant shall pay Landlord, as Additional Rent due hereunder,
the premium cost thereof upon demand.
SEE RIDER #36K
33. NO RECORDING: NEITHER THIS LEASE NOR ANY MEMORANDUM OF THIS LEASE MAY
BE RECORDED OR FILED FOR RECORD IN ANY PUBLIC RECORDS WITHOUT THE SEPARATE
EXPRESS WRITTEN CONSENT, IN RECORDABLE FORM, OF THE LANDLORD.
34. ENCUMBRANCES ON LANDLORD'S TITLE: Upon request of Landlord, Tenant will
promptly release or modify, or cause to be released or modified, any
financing statement given by Tenant to a third party, any notice of
commencement filed by Tenant with respect to work on the Premises, or any
other recorded document filed by or on account of Tenant ("Document"), which
adversely affects, clouds, or otherwise encumbers Landlord's title to the
Center or any part thereof, so that the Document shall not encumber any
portion of the Center, Building, or Property other than the Tenant's
leasehold interest in the Premises. Tenant's obligations as set forth in this
Section 34 shall survive termination of this Lease.
35. RADON DISCLOSURE FOR FLORIDA LEASES: Radon is a naturally occuring
radioactive gas which, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are exposed to it over
time. Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding radon and
radon testing may be obtained from your county public health unit. Tenant
acknowledges this disclosure by signing this Lease.
36. RIDERS & ADDENDUMS: All riders and addendums contained herein or
attached hereto shall be deemed to be a part hereof and hereby incorporated
in this Lease by reference.
8 of 8
<PAGE>
KOGER
LEASE RIDER
This Rider is attached to and made a part of the Lease dated December 11,
1996, by and between Koger Equity, Inc., a Florida Corporation ("Landlord")
with its principal office at 3986 Boulevard Center Drive, Jacksonville,
Florida, 32207, and Metris Direct, Inc., a Corporation organizing and
existing under the laws of the State of Delaware, ("Tenant") with its
principal office at 4400 Baker Road, Minnetonka, MN 55343.
36A. Tenant's rental rate during the initial term of this Lease, December 1,
1996 - December 31, 1998 shall be fixed at $11.50 per rentable square foot,
net of electricity.
36B. Prior to the commencement of this Lease, the actual square footage in
Phase I shall be determined by a mutually agreed upon floor plan which shall
be signed by both Landlord and Tenant and is subject to change. The square
footage to be reflected in Paragraph 1C of this Lease shall include an
additional 12% over the actual square footage to reflect tenant's share of
the building's common area. Therefore, Tenant's monthly rent during Phase I
(December 1, 1996 - June 30, 1996) shall be based upon the aggregate of the
actual square footage plus 12% x $11.50 p/rsf - 12 months = monthly rent.
36C. Tenant shall be granted an allowance of $4.00 per square foot (less the
12%) in Phase I for improvement to the leased premises.
36D. Not later than July 1, 1997, Tenant shall lease and begin rental
payments on the balance of the second floor (Phase II). Rent for both Phase I
and Phase II shall be based on the BOMA rentable area of the second floor
(16,682 rsf) + BOMA share of the first floor (1,090 rsf) = 17,772 rsf X
$11.50 p/rsf = $204,378 DIVIDED BY 12 months = $17,031.50 per month.
36E. Tenant shall be granted an allowance of $3.50 per net square foot of
the Phase II area for improvement to the leased premises.
36F. With written notice not later than June 30, 1998 to the addresses noted
in Paragraph 1E, Tenant may extend this lease for one additional year
(January 1, 1999 - December 31, 1999) for $13.00 per rentable square foot,
net of electricity.
36G. Due to the Miles Building's unoccupied status, Landlord has operated
the building in a "closed down" mode, utilizing the minimum amounts of
utilities and HVAC that are required to protect and maintain the integrity of
the building and its systems. While Tenant will only be occupying the second
floor, Landlord will have to make available the building's basic services on
the ground floor lobby and restrooms. The Landlord's average monthly
electrical costs for maintaining this "closed down" mode are $421.68
(documents for verification on file). Therefore, while Tenant is the sole
occupant of the building, Tenant shall be responsible for all monthly
electric charges incurred through consumption LESS $421.68 per month. (Note:
The leasable areas on the first floor will remain in this "closed down" mode
until such time all or part of the area becomes leased.) At such time that
all, or any portion of the first floor comes under lease, Tenant's second
floor area shall be put on a submeter and they shall pay electric cost on
that area only plus tenant's proportionate BOMA share of the first floor
lobby and restrooms.
36H. Approximately 109 free parking spaces shall be reserved for Tenant as
illustrated on Exhibit B in the color orange. An additional 36 free parking
spaces shall be made available to Tenant in the area indicated on Exhibit B
in the color blue. In any event, Landlord reserves the right, employing an
unbiased and totally objective format, to adjust the assigned areas based on
changes in occupancy levels and numbers of employees in a given building(s).
Landlord recognizes the desirability of Tenant's parking spaces being in as
close proximity to Tenant's Building as is reasonably possible.
1
<PAGE>
36I. REAL ESTATE TAX INCREASES: Tenant agrees to pay to Landlord as
Additional Rent, Tenant's pro rata share of any and all increases in real
estate taxes and assessments levied against the Property in which the
Premises are located over the real estate taxes and assessments due and
payable on the Property assessed for the 1997 calendar year. Tenant's
pro-rata share shall be based on the rentable square footage in the Premises
compared to the rentable square footage in the Building or Buildings subject
to the applicable assessment. Payment of Tenant's pro rata share will be due
to Landlord upon 30 days written notice from Landlord specifying the amount
of taxes assessed for the 1997 calendar year, the amount of taxes for the
current year, Tenant's rentable square footage, and the rentable square
footage within the Building or Buildings subject to the applicable tax
assessment. If, for any reason, the amount of rentable square footage
included within a tax assessment is reduced or increased, the Tenant's pro
rata share will be adjusted in like manner to reflect the rentable square
footage subject to assessment.
36J. EVENTS OF DEFAULT - PARAGRAPH 24 - ATTORNEYS FEES FOR PREVAILING PARTY:
If there is a breach of any covenant, warranty or condition of this Lease,
the Prevailing Party (as defined below) shall be entitled to recover its cost
and expenses (including attorneys fees) from the other party if:
(a) The Prevailing Party retains legal counsel by reason of the breach
but no action or proceeding is filed in connection with the breach;
or
(b) A non-jury action or proceeding is brought by either party against
the other by reason of the breach, whether or not the action or
proceeding is compromised, settled or reduced to judgement, or
appealed.
The term "Prevailing Party" shall mean the party who obtains substantially
all of the relief sought by such party. In the event both parties obtain
substantially all of the relief sought by such party, each party shall bear
its own costs and expenses. If the Prevailing Party has requested or demanded
trial by jury, the Prevailing Party shall bear its own costs and expenses.
36K. WAIVER OF SUBROGATION: Lessor shall cause each insurance policy carried
by Lessor insuring the Demised Premises against loss by fire and causes
covered by standard extended coverage, and Lessee shall cause each insurance
policy carried by Lessee insuring the Demised Premises and its fixtures and
contents against loss by fire and causes covered by standard extended
coverage, to be written in a manner so as to provide that the insurance
company waives all right of recovery by way of subrogation against Lessor or
Lessee in connection with any loss or damage covered by any such policies.
Neither party shall be liable to the other for any loss or damage caused by
fire or any of the risks enumerated in standard extended coverage insurance.
36L. LANDLORD'S RIGHTS: Landlord and its agents shall have the right, at all
reasonable times during the Term of this Lease, to enter the Premises for the
purpose of inspecting the Premises and of making any repairs and alterations
as the Landlord shall deem necessary. The Landlord and its agents shall also
have the right to enter the Premises at all reasonable hours for the purpose
of displaying the Premises to prospective tenants during the ninety (90) day
period prior to the Expiration Date of this Lease. Landlord and its agents
shall have the right at all times to alter, renovate, and repair portions of
the Building which do not include the Premises, notwithstanding any temporary
inconvenience or disturbance to Tenant caused by such repairs, renovations,
or alterations. Provided that Tenant's use of the Premises is not
unreasonably interfered with, the Landlord reserves the right at all times to
enter the Premises and Building in order to make emergency repairs when the
safety of individuals or the Building is threatened.
2
<PAGE>
- -------------------------------------------------------------------------------
THE KOGER CENTER
Serving The Office Space Tulsa, Oklahoma
Needs of Corporate America
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MILES BUILDING EXHIBIT A
METRIS DIRECT, INC.
[FLOOR PLAN]
Leasing and Management Office: 9726 East 42nd Street,
Tulsa, Oklahoma 74146 (918) 628-0810
<PAGE>
EXHIBIT B
[SITE PLAN]
<PAGE>
KOGER
- -----
- -----
LEASE AMENDMENT
THIS LEASE AMENDMENT, dated 6/27/97 by and between KOGER EQUITY, INC., a
Florida Corporation (Landlord) with its principal office at 3986 Boulevard
Center Drive, Jacksonville, Florida, 32207, and METRIS DIRECT, INC., a
corporation organized and existing under the laws of the State of DELAWARE,
(Tenant) with its principal office at 4400 BAKER ROAD, MINNETONKA, MN 55343.
The Landlord and Tenant executed a Lease Agreement dated 12/11/96 for space
designated as SUITE 200, comprising approximately 12,609 square feet (as
shown on Exhibit A attached), located at 4135 SOUTH 100TH EAST AVENUE, TULSA,
OKLAHOMA 74146. The parties hereto desire to alter and modify said Lease
Agreement, effective JULY 1, 1997, as follows:
As per Paragraph 36D of Rider to Lease Agreement dated December 11, 1996,
METRIS Direct, Inc., Tenant, will expand as follows:
1. By changing square footage from 12,609 rsf to read 17,772 rsf.
2. By changing monthly rent from $12,083.63 to read $17,031.50.
Except as specifically amended and modified by this Lease Amendment, all other
terms of the Lease and the Exhibits attached thereto remain in full force and
effect.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed or caused to be
executed this Amendment on the dates shown below their signatures to be
effective as of the date set forth above.
Tenant: METRIS DIRECT, INC. Landlord: KOGER EQUITY, INC.
BY: /s/ Douglas B. McCoy BY: /s/ J. Welma Keen, II
---------------------------------- -------------------------
Print Name: DOUGLAS B. McCOY J. WELMA KEEN, II
-------------------------- Vice President
Title: Sr. Vice President
-------------------------------
ATTEST: /s/ L. Gwyn Lessen ATTEST: /s/ Mary Sue Wakeman
----------------------------- ---------------------
Print Name: L. GWYN LESSEN Print Name: MARY SUE WAKEMAN
------------------------- -----------------
Date: July 9, 1997 Date: JUL 24 1997
------------------------------- -----------------------
<PAGE>
- -------------------------------------------------------------------------------
THE KOGER CENTER
[FLOOR PLAN]
Serving The Office Space TULSA, OKLAHOMA
Needs of Corporate America
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXHIBIT A
MILES BUILDING
METRIS
Suite 200
17,772 RSF
SECOND FLOOR PLAN
FIRST FLOOR PLAN
- -------------------------------------------------------------------------------
Leasing and Management Office: 9726 East 42nd Street, Tulsa, Oklahoma 74146
(918)628-0810
<PAGE>
KOGER
- -----
- -----
LEASE AMENDMENT
THIS LEASE AMENDMENT, dated 10/15/97 by and between KOGER EQUITY, INC., a
Florida Corporation (Landlord) with its principal office at 3986 Boulevard
Center Drive, Jacksonville, Florida, 32207, and METRIS DIRECT, INC., a
CORPORATION organized and existing under the State of DELAWARE, (Tenant) with
its principal office at 4400 BAKER ROAD, MINNETONKA, MN 55343. The Landlord
and Tenant executed a Lease Agreement dated 12/11/96, and amended 6/27/97,
for space designated as SUITE 200, comprising approximately 17,772 square
feet (as shown on Exhibit A attached), located at 4135 SOUTH 100TH EAST
AVENUE, TULSA, OKLAHOMA. The parties hereto desire to alter and modify said
Lease Agreement, effective DECEMBER 1, 1997, as follows:
1. By changing square footage from 17,772 rsf to read 25,787 rsf.
2. By changing monthly rent from $17,031.50 to read $24,712.54.
3. PARKING: Landlord shall make available an additional ninety-nine (99)
parking spaces over and above the 109 + 36 (145) spaces currently assigned to
Tenant. Spaces shall be assigned under the intent and "spirit" outlined in
Paragraph 36H of the document dated December 11, 1996.
Except as specifically amended and modified by this Lease Amendment, all other
terms of the Lease and the Exhibits attached thereto remain in full force and
effect.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed or caused to be
executed this Amendment on the dates shown below their signatures to be
effective as of the date set forth above.
Tenant: METRIS DIRECT, INC. Landlord: KOGER EQUITY, INC.
BY: /s/ Doug B. McCoy BY: /s/ J. Velma Keen, II
---------------------------------- -------------------------
Print Name: DOUG B. McCOY J. VELMA KEEN, II
-------------------------- Vice President
Title: SVP
-------------------------------
ATTEST: /s/ L. Gwyn Lessen ATTEST: /s/ Mary Sue Wakeman
----------------------------- ---------------------
Print Name: L. GWYN LESSEN Print Name: MARY SUE WAKEMAN
------------------------- -----------------
Date: October 27, 1997 Date: NOV 06 1997
------------------------------- -----------------------
<PAGE>
- -------------------------------------------------------------------------------
THE KOGER CENTER
[FLOOR PLAN]
Serving The Office Space TULSA, OKLAHOMA
Needs of Corporate America
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXHIBIT A
MILES BUILDING
METRIS DIRECT, INC.
25,787 RSF
SECOND FLOOR PLAN
FIRST FLOOR PLAN
- -------------------------------------------------------------------------------
Leasing and Management Office: 9726 East 42nd Street, Tulsa, Oklahoma 74146
(918)628-0810
<PAGE>
LEASE
-----
THIS LEASE made this 31 day of March, 1994, between Textron Collective
Investment Trust, Inc., a Rhode Island Trust ("Lessor") in care of RREEF
America Partners, L.C. ("Agent" for Lessor) and DMCCB, Inc., a Minnesota
Corporation (Lessee), with its principal place of business to be located at
the Premises.
WITNESSETH:
Lessor hereby leases to Lessee the premises described as follows:
Approximately 11,723 square feet of finished office space on the third
floor in the building constructed on certain real property situated in
Salt Lake City, Salt Lake County, State of Utah, and more fully
described as follows:
See Exhibit "A" attached hereto and incorporated
herein by reference.
as shown and finished in accordance with the specifications detailed on
and accompanying the floor plan which has been labeled Exhibit "B",
attached hereto and incorporated herein by reference. Landlord will
provide all improvements per the plan. Landlord will initially pay for
the cost to furnish and install the designated carpet and wallcovering
per the plan. However, Landlord will only be responsible for $12.00 per
square yard of the carpeting and for the cost of installation of the
wallcovering. Tenant will be responsible for any cost over the $12.00
per square yard of carpeting and for the cost of the wallcovering
material. Tenant shall reimburse Landlord within 10 days of receiving
invoices from Landlord.
The term of this Lease shall be five (5) years, commencing on the first
day of May 1994 and terminating on April 30, 1999. Tenant shall have the
option, upon six (6) months prior written notice, to terminate this Lease on
April 30, 1997 or on April 30, 1998. The penalty paid by Lessee upon such
termination shall be equal to all then unamortized commissions paid by Lessor
to CB Commercial Real Estate Group, Inc., all then unamortized improvements
made by Lessor in accordance with the specifications provided by Lessee in
Exhibit "B", and a rent penalty if termination is exercised for May 30, 1997
of $18,024.11; if termination is exercised for May 31, 1998, a rent penalty
of $14,272.75.
The rental structure for the five year lease term shall be as follows:
<TABLE>
<S> <C>
05/01/94 - 05/31/94 $-0-
06/01/94 - 04/30/95 $10,990.31/month - $120,893.40/11 months
05/01/95 - 04/30/96 $10,990.31/month - $131,883.71/year
05/01/96 - 04/30/97 $10,990.31/month - $131,883.71/year
05/01/97 - 04/30/98 $11,478.77/month - $137,745.24/year
05/01/98 - 04/30/99 $11,478.77/month - $137,745.24/year
</TABLE>
The annual rent shall be payable in equal monthly payments in advance without
offset or demand on the first day of each calendar month throughout the lease
term.
<PAGE>
The parties hereto further covenant and agree as follows:
1. RENT PAYMENT. All rents shall be payable without prior notice or
demand at Lessor's principal office, or such other place as Lessor or Agent
may from time to time designate in writing. In the event the rent
commencement date (later of completion of improvements date, occupancy date
or June 1, 1994) occurs other than on the first day of a calendar month, the
first rental shall be prorated accordingly.
2. PAST DUE RENT AND OTHER CHARGES. If Lessee shall fail to pay, when
the same is due and payable, any rent or any amounts or charges of any
character, such unpaid amounts shall bear interest from the due date thereof
to the date of payment at the rate of fifteen percent (15%) per annum.
3. USE OF PREMISES.
a. Lessee shall use the leased premises solely for the purpose of
conducting Lessee's business thereon. Lessee shall occupy the leased premises
within thirty (30) days from the beginning of the Lease term and shall not
abandon the premises during the term of this Lease. Lessee may not display,
sell merchandise, allow carts, portable signs, devices or any other objects
to be stored or to remain, outside the defined exterior walls and permanent
doorways of the leased premises, without the express consent of Lessor.
b. Lessee shall not permit any business to be operated in or from
the leased premises by a concessionaire or licensee without the prior written
consent of Lessor, which consent shall not be unreasonably withheld. Lessee
may contract for commercial vending machine service for the convenience of
its employees without violating the provisions of this section.
c. Normal business hours shall be defined as 7:00 AM to 6:00 PM on
weekdays and 8:00 AM to 12:00 PM on Saturdays. Lessee may operate its
business twenty-four (24) hours per day, seven (7) days per week, but Lessee
shall reimburse Lessor for additional HVAC expenses incurred due to operation
outside of normal business hours.
d. Lessee agrees that Lessee, its agents, and contractors,
licensees, or invitees shall not handle, use, manufacture, store or dispose
of any flammables, explosives, radioactive materials, hazardous wastes or
materials, toxic wastes or materials, or other similar substances, petroleum
products or derivatives (collectively "Hazardous Materials") on, under, or
about the Premises, without Lessor's prior written consent (which consent may
be given or withheld in Lessor's sole discretion), provided that Lessee may
handle, store, use and dispose of products containing small quantities of
Hazardous Materials, which products are of a type customarily found in
offices, and households (such as aerosol cans containing insecticides, toner
for copies, paints, paint remover, and the like), provided further
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that Lessee shall handle, store, use and dispose of any such Hazardous
Materials in a safe and lawful manner and shall not allow such Hazardous
Materials to contaminate the Premises or the environment.
e. Without limiting the above, Lessee shall reimburse, defend,
indemnify and hold Lessor harmless from and against any and all claims,
losses, liabilities, damages, costs and expenses, including without
limitation, loss of rental income, loss due to business interruption, and
attorneys fees and costs, arising out of or in any way connected with the
prohibited use, manufacture, storage, or disposal of Hazardous Materials by
Lessee, its agents or contractors on, under or about the Premises including,
without limitation, the costs of any required or necessary investigation,
repair, cleanup or detoxification and the preparation of any closure or other
required plans in connection herewith, whether voluntary or compelled by
governmental authority. The indemnity obligations of Lessee under this clause
shall survive any termination of the Lease.
f. Notwithstanding anything set forth in this Lease, Lessee shall
only be responsible for contamination of Hazardous Materials or any cleanup
resulting directly therefrom, resulting directly from matters occurring or
Hazardous Materials deposited (other than by contractors, agents or
representatives controlled by Lessor) during the Lease term, and any other
period of time during which Lessee is in actual or constructive occupancy of
the Premises. Lessee shall take reasonable precautions to prevent the
contamination of the Premises with Hazardous Materials by third parties.
g. It shall not be unreasonable for Lessor to withhold its consent
to any proposed Assignment or Sublease if (i) the proposed Assignee's or
Sublessee's anticipated use of the premises involves the generation, storage,
use, treatment or disposal of Hazardous Materials; (ii) the proposed Assignee
or Sublessee has been required by any prior landlord, lender, or governmental
authority to take remedial action in connection with Hazardous Materials
contaminating a property if the contamination resulted from such Assignee's
or Sublessee's actions or use of the property in question; or (iii) the
proposed Assignee or Sublessee is subject to an enforcement order issued by
any governmental authority in connection with the use, disposal, or storage
of a hazardous material.
4. RIGHT TO ENTER. Lessee agrees that Lessor, its agents and other
representatives shall have the right without abatement of rent, to enter upon
the premises, or any part thereof, at all reasonable hours and upon
reasonable notice for the purpose of examining the same, or for making such
repairs and alterations to the demised premises, or the building of which
they are a part, as may be necessary for the safety and preservation thereof.
5. RIGHT TO SHOW PREMISES. Lessee agrees to permit Lessor, or the
authorized agent of Lessor, upon reasonable notice, at any reasonable time
throughout the term of this Lease, to show the premises to persons wishing to
purchase the building, and Lessee
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further agrees that on and after six (6) months preceding the expiration of
the term hereby granted, Lessor or its authorized agent, shall have the
right, upon reasonable notice, at any reasonable time, to show the premises
to persons wishing to hire the premises and to place a notice of reasonable
size on the front of the premises, or any part thereof offering the premises
"For Rent" or "For Sale".
6. RIGHT TO PERFORM BUILDING RENOVATIONS
a. Lessee understands and agrees that Lessor may, at any time or
from time to time during the term of this Lease, perform substantial
renovation work in and to the Building or the mechanical systems serving the
Building (which work may include, but need not be limited to, the repair or
replacement of the Building's exterior facade, exterior window glass,
elevators, electrical systems, air conditioning and ventilating systems,
plumbing system, common hallways, or lobby), any of which work may require
access to the same from within the Premises.
b. Lessee agrees that:
(i) Lessor shall have access to the Premises at all
reasonable times, upon reasonable notice for the purpose of performing such
work, and
(ii) Lessor shall incur no liability to Lessee, nor shall
Lessee be entitled to any abatement of rent on account of any noise,
vibration, or other disturbance to Lessee's business at the Premises
(providing that if Lessee is denied access to said Premises or that Lessee's
use of the premises is materially affected, rent shall be abated in an amount
proportionately equivalent to the extent of Lesse's displacement) which shall
arise out of said access by Lessor or by the performance, by Lessor of the
aforesaid renovations at the Building.
c. Lessor shall use reasonable efforts (which shall not include any
obligation to employ labor at overtime rates) to avoid disruption of Lessee's
business during any such entry upon the Premises by Lessor.
d. It is expressly understood and agreed by and between Lessor and
Lessee that if Lessee shall commence any action or proceeding seeking
injunctive, declaratory, or monetary relief in connection with the rights
reserved to Lessor under this provision, or if Lessor shall commence any
action or proceeding to obtain access to the Premises in accordance with this
provision, the non-prevailing party shall pay to the prevailing party, a sum
equal to all legal fees, costs, and disbursements incurred by the prevailing
party in any way related to or arising out of such action or proceeding.
7. ASSIGNMENT OF SUBLEASE. Lessee may not assign or sublet the whole
or any part of the premises without first securing the written consent of
Lessor. Said consent shall not be unreasonably withheld if
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such assignment is to another party or parties for purpose similar to the
purposes for which Lessee occupies the premises or for any other purpose not
incompatible with the general character and use of said building. The
foregoing not withstanding, Lessee shall have the absolute right to sublet
the premises or assign this Lease to any affiliated company of compatible use
upon the giving of written notice to Lessor. In the event any subletting or
assignment by Lessee, Lessee shall nevertheless remain liable for the full
performance of the covenants herein contained, and Lessee further agrees to
also remain liable to Lessor for the amount of any increase in costs or
expenses incident to the occupancy of the premises by such other party or
parties, including but not limited to any increase in Lessor's insurance
premiums. Any attempted assignment or sublease in violation of this section
shall be void and of no force or effect whatsoever.
8. FIXTURES AND ALTERATIONS.
a. All fixtures installed by Lessee shall be new or completely
reconditioned. Lessee shall not make or cause to be made any alterations,
additions or improvements or install or cause to be installed any trade
fixtures, exterior signs, floor coverings, interior or exterior lighting,
plumbing fixtures, shades or awnings or make any changes to the building
front without first obtaining Lessor's written approval and consent, which
consent shall not be unreasonably withheld. Lessee shall present to the
Lessor plans and specifications for such work at the time approval is sought.
b. It is understood that Lessee will not, without first obtaining
the written consent of Lessor, make any physical alteration in the leased
premises or any of the fixtures thereon located. Any such physical changes
and all rearrangements which are made by Lessee with the approval of Lessor
shall be made at Lessee's expense. All alterations, decorations, additions and
improvements made by the Lessee, or made by the Lessor at Lessee's request
and expense shall remain the property of the Lessee for the term of the
Lease. Such alterations, decorations, additions and improvements shall not be
removed from the premises prior to the end of the term hereof without prior
consent in writing from the Lessor. Upon expiration of this Lease, unless so
stated in written Consent of Landlord, Lessee may remove all such
alterations, decorations, additions and improvements, provided that it
restores the leased premised as provided in Section 9 hereof. If Lessee fails
to remove such alterations, decorations, additions and improvements and
restore the leased premises, then upon the expiration of this Lease and upon
Lessee's removal from the premises, all such alterations, decorations,
additions and improvements shall become the property of Lessor. The foregoing
provisions shall in no way alter or alleviate Lessee's obligation under
Section 9 hereof.
c. Lessee shall promptly pay all of its contractors and
materialmen, so as to minimize the possibility of a lien attaching to the
leased premises, and should any such lien be made or filed by reason of any
fault of Lessee, Lessee shall bond against or discharge
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the same within ten (10) days after written request by Lessor.
9. SURRENDER OF PREMISES. At the expiration of the tenancy hereby
created, Lessee shall surrender the leased premises in the same condition as
existed upon delivery of possession thereof under this Lease, reasonable wear
and tear excepted, and damage by unavoidable casualty excepted, and shall
surrender all keys for the leased premises to Lessor at the place then fixed
for the payment of rent and shall inform Lessor of all combinations of locks,
safes, and vaults, if any, in the leased premises. Lessee shall remove all
its trade fixtures, and may remove, if so stated in written Consent of
Landlord, any alterations or improvements made by Lessee before surrendering
the premises as aforesaid and shall repair any damage to the leased premises
caused thereby. Lessee's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this Lease.
10. CONTROL OF COMMON AREAS. All automobile parking areas, driveways,
entrances and exits thereto, and other facilities furnished in or near the
building shall at all times by subject to the exclusive control and
management of Lessor, and Lessor shall have the right from time to time to
establish, modify and enforce reasonable rules and regulations with respect
to all facilities and areas mentioned in this section. Lessee shall be
provided with copies of all such rules and regulations prior to their
institution. Lessor shall have the right from time to time to change the
area, level, location and arrangement of parking areas and other facilities
hereinabove referred to. The foregoing notwithstanding, Lessee shall, at all
times, have use of not less than seven (7) parking stalls per 1,000 square
feet of usable space rented, within the area delineated in yellow on Exhibit
"A", except for handicapped and visitor parking.
11. SIGNS, AWNINGS, AND CANOPIES. Lessee will not place or suffer to be
placed or maintained on any interior or exterior door, wall or window of the
leased premises any sign, awning or canopy, or advertising matter or other
thing of any kind, and will not place or maintain any decoration, lettering
or advertising matter on the glass or any window or door of the leased
premises without first obtaining Lessor's written approval and consent.
Lessee further agrees to maintain such sign, awning, canopy, decoration,
lettering, advertising matter or other thing, as may be approved, in good
condition and repair at all times. Lessor agrees to allow Lessee the right to
provide signage on the third floor, north face of the building, facing 2100
South Freeway after first receiving written consent from Landlord approving
signage, which consent shall not be unreasonably withheld or delayed.
12. WASTE OR NUISANCE. Lessee shall not commit or suffer to be
committed any waste upon the leased premises or any nuisance or other act
or thing which may disturb the quiet enjoyment of any other tenant in the
building in which the leased premises may be located, or which may disturb
the quiet enjoyment of any person within five hundred feet of the boundaries
of the premises.
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13. GOVERNMENT REGULATIONS. Lessee shall, at Lessee's sole cost and
expense, comply with all of the requirements of all county, municipal,
state, federal and other applicable governmental authorities, now in force,
or which may hereafter be in force pertaining to the said premises, and shall
faithfully observe in the use of the premises all municipal and county
ordinances and state and federal statutes now in force or which may hereafter
be in force. Landlord shall comply with all of the requirements of all
county, municipal, state, federal, and other applicable governmental
authorities, now in force, or which may hereafter be in force, pertaining to
the common areas in and adjacent to the building. Landlord warrants that all
existing restrooms in the premises are in compliance with the requirements of
the American Disability Act.
14. INDEMNIFICATION, INSURANCE, SUBROGATION WAIVER.
a. Lessor shall not be liable and Lessee hereby waives all claims
against them for any damage to any property or any injury to any person in or
about the Premises or the Building by or from any cause whatsoever (including
without limiting the foregoing, rain or water leakage of any character from
the roof, windows, walls, basement, pipes, plumbing works or appliances, the
Building not being in good condition or repair, gas, fire, oil, electricity
or theft), except to the extent caused by or arising from the gross
negligence or willful misconduct of Lessor or its agents, employees or
contractors. Lessee shall protect, indemnify and hold the Lessor harmless
from and against any and all loss, claims, liability or costs (including
court costs and attorney's fees) incurred by reason of (a) any damage to any
property (including but not limited to property of Lessor) or any injury
(including but not limited to death) to any person occurring in, on or about
the Premises or the Building to the extent that such injury or damage shall
be caused by or arise from any actual or alleged act, neglect, fault, or
omissions by or of Lessee, its agents, servants, employees, invitees, or
visitors to meet any standards imposed by any duty with respect to the injury
or damage; (b) the conduct or management of any work or thing whatsoever done
by the Lessee in or about the Premises or from transaction of the Lessee
concerning the Premises; (c) Lessee's failure to comply with any and all
governmental laws, ordinances and regulations applicable to the condition or
use of the Premises or its occupancy; or (d) any breach or default on the
part of Lessee in the performance of any covenant or agreement on the part of
the Lessee to be performed pursuant to this Lease. The provisions of this
Article shall survive the termination of this Lease with respect to any
claims or liability accruing prior to such termination.
b. Lessor and Lessee hereby waive any rights each may have against
the other on account of any loss or damage occasioned to Lessor or Lessee, as
the case may be, their respective property, the premises, or its contents or
to other portions of the building, arising from any risk generally covered by
insurance; and the parties each, on behalf of their respective insurance
companies insuring the property of either against any such loss, waive any
right of
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subrogation that it may have against the Lessor or the Lessee, as the case
may be.
c. Lessee further covenants and agrees that from and after the
date of delivery of the premises, Lessee will carry and maintain, at its sole
cost and expense, the following types of insurance, in the amounts specified
and in the form hereinafter provided for:
(i) Lessee shall keep in force through the Term: (a) a
Commercial General Liability insurance policy or policies with a limit of not
less than $1,000,000.00 per occurrence and not less than $2,000,000.00 in the
annual aggregate, covering bodily injury and property damage liability and
$1,000,000 products/completed operations aggregate; (b) Business Auto
Liability covering owned, non-owned and hired vehicles with a limit of not
less than $1,000,000 per accident; (c) insurance protecting against
liability under Worker's Compensation Laws with limits at least as required
by statute; (d) Employers Liability; (e) All Risk or Special Form coverage
protecting Lessee against loss of or damage to Lessee's alterations,
additions, improvements, carpeting, floor coverings, panelings, decorations,
fixtures, inventory and other business personal property situated in or about
the Premises to the full replacement value of the property as insured; and,
(f) Business Interruption Insurance and/or Extra Expense Insurance.
(ii) Each of the aforesaid policies shall (a) be provided at
Lessee's expense; (b) name the Lessor and building management company, if
any, as additional insureds; (c) be issued by an insurance company with a
minimum Best's rating of "A:VII" during the Term, and (d) provide that said
insurance shall not be canceled unless thirty (30) days prior written notice
(ten days for non-payment of premium) shall have been given to Lessor; and
said policy or policies or certificates thereof shall be delivered to Lessor
by Lessee upon the Commencement Date and annually thereafter.
(iii) Whenever Lessee shall undertake any alterations,
additions or improvements in, to or about the Premises ("Work") the aforesaid
insurance protection must extend to and include injuries to persons and
damage to property arising in connection with such Work.
d. Notwithstanding anything to the contrary, Lessee's obligations
to carry the insurance provided for herein may be brought within the coverage
of a so-called blanket policy or policies of insurance carried and maintained
by Lessee provided, however, that Lessor shall be named as an additional
insured thereunder as its interests may appear, in addition, Lessee's
obligations to carry insurance protecting against liability under Worker's
Compensation Laws may be satisfied by a qualified self-funded worker's
compensation plan.
e. Lessor shall at all times during the term hereof maintain in
effect a policy or policies of insurance covering the
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building of which the premises are a part, in an amount not less than one
hundred percent (100%) of full replacement cost (exclusive of the cost of
excavations, foundations and footings) from time to time during the term of
this Lease or the amount of such insurance Lessor's mortgage Lender requires
Lessor to maintain, whichever is the greater, providing protection against
any peril generally included within the classification "Fire and Extended
Coverage", together with insurance against sprinkler damage, vandalism and
malicious mischief. Lessor's obligation to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Lessor, provided that the
coverage afforded will not be reduced or diminished by reason of the use of
such blanket policy of insurance. Lessor shall also carry liability insurance
with regard to parking and other common areas only, which insurance shall be
in an amount not less than $1,000,000.00 per accident or $2,000,000.00
aggregate.
15. DAMAGE OR CASUALTY. If the demised premises are wholly or partially
damaged by fire, enemy action, riot, action of the elements, or other
casualty, and the same are repairable, then Lessor shall, as materials are
reasonably available therefor, forthwith proceed to repair the same at its
expense. Rent under this lease during the period of repair shall
proportionally abate based on usable space remaining for Lessee's use during
the period of repair. Should the building in which the premises are located
be destroyed to an extent in excess of seventy-five percent (75%) of its
value during the last three (3) years of the term of this Lease, either
Lessee or Lessor shall have the option to terminate this Lease as of the date
of such damage by giving notice to the other party within thirty (30) days of
the date of damage.
16. UTILITIES.
a. Lessor agrees that to the extent shown on the plans and
specifications, it will cause to be made available to Lessee facilities for
the delivery to and distribution within the premises of water, gas,
electricity and telephones and the removal of sewage and garbage.
b. Lessor agrees, at its own expense, to pay for all water, gas,
power, electric current, garbage removal, and all other similar utilities
used by the Lessee on the premises from and after the delivery of possession
thereof. Lessor shall not be liable for damages or otherwise for any failure
or interruption of any utility service being furnished the premises, unless
such failure or interruption is the fault of Lessor or is occasioned by
Lessor's failure to pay for such usage. No such failure or interruption shall
entitle Lessee to terminate this Lease, as long as Lessor is taking all
reasonable steps to restore such service(s), provided however, that rent
shall abate to the extent that any such failure materially affects Lessee's
use of the premises or its business for more than twenty-four (24) hours.
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17. EMINENT DOMAIN.
a. In the event the entire premises shall be appropriated or taken
under the power of eminent domain by any public or quasi-public authority,
this Lease shall terminate and expire as of the date of such taking, and the
parties shall thereupon be released from any liability thereafter occurring
hereunder.
b. In the event more than twenty-five percent (25%) of the square
footage of floor area of the premises is taken under the power of eminent
domain by any public or quasi-public authority, or if the parking lot is taken
(to an extent that Landlord is unable to provide Tenant with seven (7) stalls
per 1,000 square feet of usable square feet) under the power of eminent
domain by any public or quasi-public authority, either Lessor or Lessee shall
have the right to terminate this Lease, as of the date Lessee is required to
vacate a portion of the premises, upon giving notice in writing of such
election within thirty (30) days after receipt by Lessee of written notice
that said premises have been so appropriated or taken. In the event of such
termination, both parties shall thereupon be released from any liability
thereafter occurring hereunder. Lessor agrees to give to Lessee notice
in writing thereof immediately after learning of any appropriation or taking.
c. If this Lease is terminated in either manner hereinabove
provided, Lessor shall be entitled to the entire award or compensation in
such proceedings, but the rent and other charges for the last month of
Lessee's occupancy shall be prorated and Lessor agrees to refund to Lessee
any rent or other charges paid in advance.
d. If both parties elect not to so terminate this Lease, Lessee
shall remain in that portion of the premises which shall not have been
appropriated or taken as herein provided. Lessor agrees, at Lessor's cost and
expense, to as soon as reasonably possible restore the premises on the land
remaining to a complete unit of like quality and character as existed prior
to such appropriation or taking; and thereafter the annual rental shall be
reduced on an equitable basis, taking into account the relative value of the
portion taken as compared to the portion remaining; and Lessor shall be
entitled to receive the total award or compensation or damages for its
fixtures and personal property shall not be affected in any manner hereby.
For the purpose of this section, a voluntary sale or conveyance in lieu of
condemnation, but threat of condemnation shall be deemed an appropriation or
taking under the power of eminent domain.
18. DEFAULT
a. In the event of any failure of Lessee to pay any rental due
hereunder within ten (10) days after written notice that such payment is
overdue, or any failure to perform any other of the terms, conditions or
covenants of this Lease to be observed or performed by Lessee for more than
thirty (30) days after written notice of such default shall have been given
to Lessee, or if Lessee or any guarantor
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of this Lease (unless dismissed within thirty (30) days) shall become
bankrupt or insolvent, or file any debtor proceedings or take or have taken
against Lessee or any guarantor of this Lease in any court pursuant to any
statute either of the United States or of any state a petition in bankruptcy
or insolvency or for reorganization or for the appointment of a receiver or
trustee of all or a portion of Lessee's or any such guarantor's property, or
if Lessee or any such guarantor makes an assignment for the benefit of
creditors, or petitions for or enters into an arrangement, or if Lessee shall
abandon said premises, or suffer this Lease to be taken under a writ of
execution, Lessor besides other rights or remedies it may have, shall have
the immediate right of re-entry and may remove all persons and property from
the leased premises and such property may be removed and stored in a public
warehouse or elsewhere at a cost of, and for the account of Lessee, all
without service of notice or resort to legal process and without being deemed
guilty of trespass or becoming liable for any loss or damage which may be
occasioned thereby.
b. Should Lessor elect to re-enter, as herein provided, or should
it take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, it may either terminate this Lease or it may from time
to time without terminating this Lease, make such alterations and repairs as
may be necessary in order to relet the premises and relet said premises or
any part thereof for such term or terms (which may be for a term extending
beyond the term of this Lease) and at such rental or rentals and upon such
other terms and conditions as Lessor in its sole discretion may deem
advisable; upon each such reletting all rentals received by Lessor from such
reletting shall be applied, first, to the payment of any indebtedness other
than rent due hereunder from Lessee to Lessor; second, to the payment of any
costs and expenses of such reletting, including brokerage fees and
attorney's fees and cost of such alterations and repairs; third, to the
payment of rent due and unpaid hereunder, and the residue, if any, shall be
held by Lessor and applied in payment of future rent as the same may become
due and payable hereunder. If such rentals received from such reletting
during any month be less than that to be paid during the month by Lessee
hereunder, Lessee shall pay any such deficiency to Lessor. Such deficiency
shall be calculated and paid monthly. No such re-entry or taking possession
of said premises by Lessor shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Lessee or unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination, Lessor
may at any time thereafter elect to terminate this Lease for such previous
breach. Should Lessor at any time terminate this Lease for any breach, in
addition to any other remedies it may have, it may recover from Lessee all
damages it may incur by reason of such breach, including the cost of
recovering the leased premises, reasonable attorney's fees, and including
the worth at the time of such termination of the excess, if any, of the
amount of rent and charges equivalent to rent reserved in this Lease for the
remainder of the stated term over the then reasonable rental value of the
leased premises for the remainder of the stated term, all of which amounts
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shall be immediately due and payable from Lessee to Lessor.
c. In the event of default, all of Lessee's fixtures, furniture,
equipment, improvements, additions and alterations shall remain on the
subject premises and in that event, and continuing during the length of said
default, Lessor shall have the right to take the exclusive possession of the
same and to use the same, rent or charge free, until all defaults are cured
or, at its option, at any time during the term of this Lease, to require
Lessee to forthwith remove the same.
d. Notwithstanding any other provisions of this section, the
Lessor agrees that if the default complained of, other than for the payment
of money, is of such a nature that the same cannot be rectified or cured
within the thirty (30) day period requiring such rectification or curing as
specified in the written notice relating thereto, then such default shall be
deemed to be rectified or cured if Lessee within such period of thirty (30)
days shall have commenced the rectification and curing thereof and shall
continue thereafter with all due diligence to cause such rectification and
curing and does so complete the same with the use of such diligence as
aforesaid.
e. The remedies given to Lessor in this section shall be in
addition and supplemental to all other rights or remedies which Lessor may
have under the laws then in force.
19. JANITOR SERVICES. It is understood that the rental agreed to herein
includes necessary janitor services and exterior maintenance for the leased
premises and the related parking areas. The parties agree that Lessor will
contract for or otherwise provide such necessary services so as to properly
maintain and care for the leased premises and the related parking areas.
20. ESTOPPEL CERTIFICATE. Within ten (10) days after request therefor
by Lessor, or in the event that upon any sale, assignment or hypothecation of
the leased premises and/or the land thereunder by Lessor, an estoppel
statement shall be required from Lessee, Lessee agrees to deliver to any
proposed mortgagee or purchaser, or to Lessor, in recordable form a
certificate certifying (if such be the case) that this Lease is in full force
and effect and that there are not defenses or offsets thereto, or stating
those claimed by Lessee.
21. ATTORNMENT. Lessee shall, in the event any proceedings are brought
for the foreclosure of, or in the event of exercise of the power of sale
under any mortgage made by the Lessor covering the leased premises, attorn to
the purchaser upon any such foreclosure or sale and recognize such purchaser
as the Lessor under this Lease.
22. HOLD OVER. If, at the expiration or termination of this Lease or
any extension thereof, Lessee shall hold over for any reason, if Lessor
consents to the holding over, the tenancy of Lessee thereafter shall be from
month to month only and shall, in the absence or a written agreement to the
contrary, be subject to all the other
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terms and conditions of this Lease with the monthly rental adjusted to One
Hundred Fifty Percent (150%) of the monthly rental for the last month of the
base Lease term or subsequent Lease renewal term.
23. MAINTENANCE AND REPAIR.
a. Lessor shall keep the leased premises in good order, condition
and repair (including reasonable periodic painting and maintenance as
determined by Lessor). If Lessor is required to make repairs by reason of
Lessee's negligent acts or omission to act, Lessee shall pay Lessor's costs
for making such repairs plus fifteen percent (15%) for overhead, upon
presentation of the bill therefore.
b. Lessor's covenant of repair assumes reasonable use of the
premises by Lessee. If any repair is required as a result of Lessee's misuse
or unreasonable use of the premises, Lessor may make such repairs and upon
completion thereof, Lessee shall pay Lessor's costs for making such repairs
plus fifteen percent (15%) for overhead, upon presentation of the bill
therefore.
c. Lessor may make repairs to the premises without liability to
Lessee for any loss or damage that may accrue to Lessee's merchandise,
furniture, fixtures or other property or to Lessee's business by reason
thereof.
24. LESSEE'S PROPERTY.
Lessee shall be responsible for and shall pay before delinquency all
municipal, county or state taxes assessed during the term of this Lease
against any leasehold interest or personal property of any kind, owned by or
placed in, upon or about the leased premises by Lessee. Lessee agrees to pay
to Lessor any occupation tax, sales tax or similar governmental privilege tax
imposed upon Lessor for the privilege of leasing the premises or based upon
the rental revenues derived therefrom.
25. SUCCESSOR'S BOUND. All rights and liabilities herein given to, or
imposed upon, the respective parties hereto shall extend to and bind the
several respective heirs, executors, administrators, assigns and successors
of the said parties; and if there shall be more than one Lessee, they shall
all be bound jointly and severally by the terms, covenants and agreement
herein. No rights, however, shall inure to the benefit of any assignee
of Lessee unless the assignment to such assignee has been approved by Lessor
in writing as provided in this Lease.
26. QUIET ENJOYMENT. Upon payment by the Lessee of the rents herein
provided, and upon the observance and performance of all the covenants, terms
and conditions on Lessee's part to be observed and performed, Lessee shall
peaceably and quietly hold and enjoy the leased premises for the term hereby
demised without hindrance or interruption by Lessor or any other person or
persons lawfully or equitably claiming by, through or under Lessor, subject,
nevertheless,
13
<PAGE>
to the terms and conditions of this Lease.
27. WAIVER. The waiver by either party of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent payment or
acceptance of rent hereunder by either party shall not be deemed to be a
waiver of any preceding breach by the other party of any term, covenant or
condition of this Lease, other than the failure of Lessee to pay the
particular rental so accepted, regardless of the party's knowledge of such
preceding breach at the time of payment or acceptance of such rent. No
covenant, term or condition of this Lease shall be deemed to have been waived
by either party, unless such waiver be in writing by Lessor.
28. ACCORD AND SATISFACTION. Except upon express written consent by
both parties, no payment by Lessee or receipt by Lessor of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Lessor may accept such check or
payment without prejudice to Lessor's right to recover the balance of such
rent or pursue any other remedy in this Lease provided.
29. ENTIRE AGREEMENT. This Lease and the Exhibits and Riders attached
hereto and forming a part hereof, set forth all the covenants, promises,
agreements, conditions and understandings between Lessor and Lessee
concerning the leased premises and there are no covenants, promises,
agreements, conditions or understandings, either oral or written, between them
other than are herein set forth. Except as herein otherwise provided, no
subsequent alteration, amendment, change or addition to this Lease shall be
binding upon the parties unless reduced to writing and signed by them.
30. NO PARTNERSHIP. Lessor does not, in any way or for any purpose,
become a partner of Lessee in the conduct of its business, or otherwise, or
joint venture or a member of a joint enterprise with Lessee.
31. FORCE MAJEURE. In the event that either party hereto shall be
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, labor troubles, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reason of a like nature not the
fault of the party delayed in performing work or doing acts required under
the terms of this Lease, then performance of such act shall be excused for
the period of the delay and the period for the performance of any such act
shall be extended for a period equivalent to the period of such delay. The
provisions of this Section shall not operate to excuse Lessee from prompt
payment of rent or any other payments required by the terms of this Lease.
14
<PAGE>
32. ATTORNEY'S FEES. In the event that at any time during the term of
this Lease either Lessor or Lessee shall institute any action or proceeding
against the other relating to the provisions of this Lease, or any default
hereunder, then, and in that event, the unsuccessful party in such action or
proceeding agrees to reimburse the successful party for the reasonable
expenses of such action including reasonable attorney's fees and
disbursements incurred therein by the successful party.
33. NOTICES. Any notice, demand, request or other instrument which is
required to be given under this Lease shall be deemed given upon receipt and
shall be delivered in person or sent by United States certified mail postage
prepaid, and shall be addressed (a) if to Lessor at the address first
hereinabove given or at such other address as Lessor may designate by written
notice and (b) if to Lessee at the leased premises with a copy provided to:
Fingerhut Companies, Inc., 4400 Baker Road, Minnetonka, Minnesota 55343
Attention: General Counsel, or at such other address as Lessee shall
designate by written notice.
34. CAPTIONS AND SECTION NUMBERS. The captions and section numbers
appearing in this Lease are inserted only as a matter of convenience and in
no way define, limit, construe, or describe the scope or intent of such
sections or articles of this Lease not in any way affect this Lease.
35. LESSEE DEFINED, USE OF PRONOUNS. The word Lessee shall be deemed
and taken to mean each and every person or party mentioned as a Lessee
herein, be the same one or more; and if there shall be more than one Lessee,
any notice required or permitted by the terms of this Lease may be given by
or to any one thereof, and shall have the same force and effect as if given
by or to all thereof. The use of the neuter singular pronoun to refer to
Lessor or Lessee shall be deemed a proper reference even though Lessor or
Lessee may be an individual, a partnership, a corporation, or a group of two
or more individuals or corporations. The necessary grammatical changes
required to make the provisions of this Lease apply in the plural sense where
there is more than one Lessor or Lessee and to either corporations,
associations, partnerships, or individuals, males or females, shall in all
instances be assumed as though in each case fully expressed.
36. BROKER COMMISSIONS. Each of the parties represents and warrants
that there are no claims for brokerage commissions or finder's fees in
connection with the execution of this Lease, and each of the parties agrees
to indemnify the other against and hold it harmless from, all liabilities
arising from any such claim, including without limitation, the cost of
counsel fees in connection therewith.
37. PARTIAL INVALIDITY. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held
15
<PAGE>
invalid or unenforceable, shall not be affected thereby and each term, covenant
or condition of this Lease which is invalid or unenforceable shall be modified
and be enforced to the fullest extent permitted by law.
38. NO OPTION. The submission of this Lease for examination does not
constitute a reservation of or option for the leased premises and this Lease
becomes effective as a Lease only upon execution and delivery thereof by Lessor
and Lessee.
39. RECORDING. Lessee shall not record this Lease without the written
consent of Lessor, however, upon the request of either party hereto the other
party shall join in the execution of a memorandum or so-called "short form" of
this Lease for the purpose of recordation. Said memorandum or short form of the
Lease shall describe the parties, the leased premises and the term of this Lease
and shall incorporate this Lease by reference.
40. EXPANSION/RELOCATION. Anytime during this Lease term, should Tenant
require additional space, and if the adjacent, contiguous, or other additional
space acceptable to Lessee is not available for Tenant's lease, Landlord will
use best reasonable efforts to relocate Tenant into larger, comparable and
compatible space within the Metro Business Park development or any other
development or space which is under Landlord's control. Should Landlord be able
to relocate Tenant as defined above, a new Lease Agreement shall be entered into
between the parties at prevailing market lease rates and said new Lease shall
supersede and take the place of this Lease Agreement.
41. RIDERS. The riders to the Lease, those being Lease Riders "A" through
"C" are hereby incorporated as a part of this Lease, and the parties
specifically agree to be bound by the conditions thereof.
IN WITNESS WHEREOF, Lessor and Lessee have signed this Lease as of the
day and year first above written.
LESSOR: Rhode Island Hospital Trust National Bank as Trustee for the
Textron Collective Investment Trust.
By RREEF America Partners, L.C.
By /s/ Steve Backer
-------------------------------------
Authorized Representative
LESSEE: DMCCB, Inc.
a Minnesota Corporation
By /s/ [ILLEGIBLE]
------------------------
Attached hereto and incorporated herein:
16
<PAGE>
Lease Rider "A"
Lease Rider "B"
Lease Rider "C"
Lease Rider "D"
Exhibit "A" - Building Site Plan
Exhibit "B" - Building Floor Plan
17
<PAGE>
LEASE RIDER A
FIRST RIGHT OF OFFER
1. Provided Lessee is not then in default under the terms, covenants and
conditions of this Lease, Lessee shall have the right to lease any Expansion
Premises within the same building as shown on Exhibit "A" attached hereto when
and if such space becomes available. Lessor shall give written notice to Lessee
of the availability of the Expansion Premises and upon receipt of such notice,
Lessee shall have a period of thirty (30) days in which to exercise Lessee's
right to lease said space, in writing to Lessor, failing which Lessor may lease
such space to any third party on whatever basis Lessor desires, and Lessee shall
have no further rights with respect to the space covered by such notice.
2. If Lessee exercises on expansion option hereunder, the Expansion Space
shall automatically be included within the Premises and Lessee's Proportionate
Share shall increase accordingly. The Annual Rent, as adjusted in paragraph 4
below, shall be applied thereto, in accordance with the provisions hereof,
effective as of the date of availability at least forty-five (45) days from the
date of Lessor's notice of such space specified in Lessor's notice to Lessee, or
such later date as the space actually becomes available. The lease term for
such Expansion Premises shall be coterminous with this Lease.
3. All space leased by Lessee pursuant to this expansion option shall be
on an "as is" basis.
4. The Annual Rent for the Expansion Premises prior to any rent
adjustment shall be the market rate for comparable office space in comparable
condition in the Building and in other office buildings of like quality in
the same rental market as of the date the extension term is to commence.
Lessor shall give to Lessee written notice of the annual rent Lessor proposes
to have apply for the Expansion Premises at the time that notice of the
availability of the space is given. Lessor and Lessee shall have thirty (30)
days after lessor receives notification from Lessee of Lessee's desire to
lease said Expansion Premises in which to agree on the new annual rent,
failing which Lessee shall have no further rights with respect to space
covered by such notice, unless Lessor later proposes to lease such premises
at a rental rate equal to or less than that proposed by Lessee, in which case
Lessee's rights under this Right of First Offer shall be revived.
5. If requested by Lessor, Lessee shall, prior to the beginning of the
term for the Expansion Premises, execute a written memorandum confirming the
Annual Rent for the Expansion Premises.
18
<PAGE>
LEASE RIDER B
SUBORDINATION OF LEASE
Lessee agrees that upon the request of Lessor in writing it will
subordinate this Lease and the lien hereof from time to time to the lien of
any present or future mortgage to a bank, insurance company or similar
financial institution, irrespective of the time of execution or time of
recording of any such mortgage or mortgages, provided that the holder of any
such mortgage shall enter into an agreement with Lessee, in recordable form,
that in the event of foreclosure or other right asserted under the mortgage
by the holder or any assignee thereof, this Lease and the rights of Lessee
hereunder shall continue in full force and effect and shall not be terminated
or disturbed except in accordance with the provisions of this Lease. Lessee
agrees that if requested by the holder of any such mortgage it will be a
party to said agreement and will agree in substance that if the mortgagee or
any person claiming under the mortgagee shall succeed to the interest of
Lessor in the Lease, it will recognizee said mortgagee or person as its Lessor
under the terms of this Lease. Lessee agrees that it will upon the request
of Lessor execute, acknowledge and deliver any and all instruments necessary
or desirable to give effect to or notice of such subordination. The word
"mortgage" as used herein includes mortgages, deeds of trust or other similar
instruments and modifications, consolidations, extensions, renewals,
replacements and substitutions thereof.
19
<PAGE>
LEASE RIDER C
BUILDING OPERATION EXPENSE INCREASES
Lessee agrees to pay as additional rent for the demised premises an
amount equal to Lessee's proportionate share of the increase in insurance
maintained for the benefit of Lessor and Lessee on the premises, real estate
taxes assessed or imposed, charges for interior janitorial service charges for
exterior janitorial service (including landscaping, snow removal, trash
removal, and cleaning), charges for utilities (including water, sewer,
electrical power, and natural gas), expenses of maintaining the elevator and
heating, ventilating, and air conditioning systems and other direct operating
costs of the building imposed or incurred for the applicable year with
respect to the building and property on which the demised premises are
located over and above such charges thereon for the base year, whether such
excess be due to an increase or addition of such charges, a change in
valuation, or otherwise.
The total net leaseable square feet of the building shall be one hundred
percent (100%). If Lessee occupies the entire building, its proportionate
share shall be one hundred percent (100%). If Lessee does not occupy the
entire building, floor space shall be the basic factor in determining the
proportionate share of increase to be borne by Lessee. Each Lessee's
percentage may vary as the net leasable square footage of the building
changes due to interior space modifications. Lessee's initial proportionate
share shall be thirty-eight and six/tenths percent (38.6%).
The liability of Lessee hereunder for any period of occupancy for less
than a full year shall be prorated. The additional rent represented by
Lessee's share of such increases shall be payable as follows: On the first
day of each month during the term or any extended term of this Lease, Lessee
shall pay to Lessor one-twelfth (1/12th) of the aggregate of Lessee's share
of such increases for the preceding calendar year. Within a reasonable time
following the end of each calendar year, Lessor shall deliver to Lessee a
statement itemizing the costs comprising such increases and the computation
of Lessee's share thereof. Within ten (10) days after the receipt of such
statement, Lessee shall pay to Lessor the difference between Lessee's share
thereof. Within ten (10) days after the receipt of such statement, Lessee
shall pay to Lessor the difference between Lessee's share of the total amount
of such increases for the preceding calendar year and the amounts paid by
Lessee to Lessor during the preceding calendar year toward such increases. In
the event that the amounts paid by Lessee to Lessor during the preceding
calendar year toward such increases exceeds Lessee's share of the total
amount of such increases, Lessor shall refund the difference to Lessee
concurrently with delivery of said statement.
The year 1994 shall be considered the base year for computing increases
in taxes. The year 1994 shall be considered the base year for all cost
increases other than taxes.
20
<PAGE>
ESTOPPEL CERTIFICATE
LEASE DATE: March 31, 1994
LANDLORD: Textron Collective Investment Trust
ADDRESS: 1515 West 2200 South #E1, West Valley City, UT 84119
TENANT: DMCCB, Inc.
LEASE ADDRESS: 1455 West 2200 South, #300, West Valley City, Utah
As Tenant under the above referenced Lease, the undersigned hereby
acknowledges for the benefit of: Lessor, (hereinafter "Lender") that:
1. Tenant has accepted, is satisfied with, and is in full possession of
said Premises, including all improvements, additions and alterations
thereto required to be made by Landlord under the said Lease.
2. Tenant is currently paying the full rent stipulated in said Lease with
no offsets, defenses or claims.
3. To the best of Tenant's knowledge Landlord has not been and is not
presently in default under any of the terms, covenants or provisions of
said Lease.
4. Landlord has satisfactorily complied with all of the requirements and
conditions precedent to the commencement of the term of said Lease as
specified in said Lease.
5. The fixed annual rent under said Lease is $120,893.40 for the 11 month
period of the first year and no monies have been paid to Landlord more
than five (5) days in advance of due date set forth in the Lease
described above, except: N/A.
6. The commencement date of said Lease is May 1, 1994.
The Lease is for a term of (5) five years.
Tenant in occupancy and paying rent since: June 1, 1994.
8. Tenant hereby acknowledges (a) that there have been no modifications or
amendments to said Lease other than herein specifically stated, (b) that
it has no notice of a prior assignment, hypothecation or pledge of rents
or of the Lease, and (c) that notice of the proposed assignment of
Landlord's interest in said Lease may be given it in person or by
Certified Mail, postage prepaid, at the Premises, with a copy provided to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel
TENANT: DMCCB, Inc. or at such other address as Lessee shall designate by
---------------- written notice.
By: Richard B Hoffman Its S. VP Credit
------------------------------------ ----------------------------
/s/ Richard B Hoffman
------------------------------------
Please type or print above signature
Dated 9/19/94
----------------------------------
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
BASIC:
Net income available to common
stockholders $38,058 $20,016 $ 4,581
------- ------- -------
------- ------- -------
Weighted average number of common
shares outstanding 19,225 16,572 15,967
Net income per share $1.98 $1.21 $0.29
DILUTED:
Net income available to common
stockholders $38,058 $20,016 4,581
------- ------- -------
------- ------- -------
Weighted average number of common
shares outstanding 19,225 16,572 15,967
Net effect of assumed exercise of stock
options based on treasury stock
method using average market price 1,013 557 402
------- ------- -------
20,238 17,129 16,369
------- ------- -------
------- ------- -------
Net income per share $1.88 $1.17 $0.28
</TABLE>
<PAGE>
EXHIBIT 12
METRIS COMPANIES INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes $61,883 $32,546 $7,449 $3,503 $1,999
Add:
Fixed Charges:
Interest on indebtedness, and
amortization of debt expense 11,951 4,106 1,217
Interest factor of rental expense 1,313 378 50 26
------- ------- ------ ------ ------
Total fixed charges 13,264 4,484 1,267 26
------- ------- ------ ------ ------
Total available earnings $75,147 $37,030 $8,716 $3,529 $1,999
------- ------- ------ ------ ------
------- ------- ------ ------ ------
Ratio of earnings to fixed charges 5.67 8.26 6.88 134.16 NA
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
METRIS COMPANIES INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT EPS AND STOCK PRICES) YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (MANAGED BASIS): (1)
Net Interest Income $ 306,361 $ 143,491 $ 26,354 $ 487 $ 279
Provision for Loan Losses 319,299 136,305 26,234
Other Operating Income 212,869 126,647 52,969 14,238 10,053
Other Operating Expense 138,048 101,287 45,640 11,222 8,333
-----------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 61,883 32,546 7,449 3,503 1,999
Tax Rate 38.5% 38.5% 38.5% 37.3% 36.9%
Net Income $ 38,058 $ 20,016 $ 4,581 $ 2,198 $ 1,262
-----------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE STATISTICS:
EPS - diluted (2) $ 1.88 $ 1.17 $ 0.28 $ 0.14 $ 0.08
Stock Price (year end) 34.25 24.00
Shares Outstanding (year end) 19,225 19,225 15,967 15,967 15,967
Shares Used to Compute EPS (diluted) 20,238 17,129 16,369 16,270 15,967
----------------------------------------------------------------------------------------------------------------------
CREDIT CARD DATA (MANAGED BASIS): (1)
Total Accounts 2,293 1,418 703
Year-end Loans $ 3,546,936 $ 1,615,940 $ 543,619
Year-end Assets 3,604,972 1,687,227 622,983 $ 9,856 $ 6,615
Average Loans 2,294,893 1,018,856 183,274
Average Interest-earning Assets 2,341,451 1,040,924 193,086 6,615 4,531
Average Assets 2,355,978 1,078,346 214,363 7,076 5,191
Average Equity 158,180 92,852 30,083 5,365 3,904
Net Interest Margin (3) 13.1% 13.8% 13.6% 7.4% 6.2%
Return on Average Assets 1.6% 1.9% 2.1% 31.1% 24.3%
Return on Average Equity 24.1% 21.6% 15.2% 41.0% 32.3%
Loan Loss Reserves $ 244,084 $ 95,669 $ 22,219
Delinquency Ratio (4) 6.6% 5.5% 4.0%
Loan Loss Reserve Ratio 6.9% 5.9% 4.1%
Net Charge-off Ratio (5) 8.3% 6.2% 2.2%
-----------------------------------------------------------------------------------------------------------------------
FEE-BASED SERVICES AND
EXTENDED SERVICE PLAN DATA:
Fee-based Services Revenues $ 55,502 $ 29,853 $ 6,662 $ 1,994 $ 2,118
Net Extended Service Plan Revenues 7,911 20,420 17,779 12,244 7,935
Warrantable Product Unit Penetration Rates (6) 26.7% 24.4% 20.4% 15.3% 12.9%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company 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.
(2) Earnings per share is calculated assuming the Company reorganization
occurred at the beginning of the first year shown.
(3) Includes the Company's actual cost of funds plus all costs associated
with asset securitizations, including the interest expense paid to the
certificate holders and amortization of the discount and fees.
(4) Delinquency ratio represents credit card loans that were at least 30
days contractually past due at year end as a percentage of year-end
managed loans.
(5) Net charge-off ratio reflects actual principal amounts charged-off,
less recoveries, as a percentage of average managed loans.
(6) Warrantable product sales penetration rates reflect the percentage of
extended service plans sold to total warrantable products sold.
Percentages 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.
16
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information management
believes to be relevant to understanding the financial condition and
results of operations of Metris Companies Inc. and its subsidiaries
(collectively, the "Company"), including Metris Direct, Inc., Direct
Merchants Credit Card Bank, National Association ("Direct Merchants Bank"),
Metris Funding Co., and Metris Receivables, Inc. This discussion should be
read in conjunction with the consolidated financial statements and the
related notes thereto.
GENERAL
The Company is an information-based direct marketer and provider of
consumer credit products and fee-based services and extended service plans
primarily to moderate income consumers. The Company is an 83% owned
indirect subsidiary of Fingerhut Companies, Inc. ("FCI").
CONSUMER CREDIT PRODUCTS
The Company's consumer credit products are primarily unsecured credit cards
issued by Direct Merchants Bank. The primary factors affecting the
profitability of consumer credit products are credit card account and loan
growth, interest spreads on loans, credit card usage, credit quality
(delinquencies and charge-offs), the level of solicitation and marketing
expenses, fraud losses, servicing and other administrative costs. The
Company generates interest and other income through finance charges
assessed on outstanding credit card loans, credit card fees (including
annual membership, cash advance, overlimit, past-due, and other credit card
fee income) and interchange income. The Company's primary related expenses
are the costs of funding its loans, provisions for loan losses and
operating expenses including employee compensation, account solicitation
and marketing expenses, and data processing and servicing expenses.
FEE-BASED SERVICES AND EXTENDED SERVICE PLANS
To improve our ability to attract more clients for our fee-based services,
in 1997, we began to consolidate our fee-based services and extended
service plan businesses into one business line. The Company markets its
fee-based services, including debt waiver programs, card registration,
third-party insurance and third-party membership clubs, to its credit card
customers, customers of third-party partners and Fingerhut Corporation
("Fingerhut") customers. Profitability for fee-based services is affected
by the response rates to solicitation efforts, the targeted solicitation
plans, the commission rates received from and paid to the Company's
partners, claims rates and claims servicing costs for certain programs, and
other operating expenses. In addition, the Company provides extended
service plans that extend warranty service coverage beyond the
manufacturer's warranty on selected products sold by Fingerhut, an
affiliate. Extended service plan profitability is directly affected by the
response rates to product solicitation efforts, returns or cancel rates for
the underlying product, the retail sales price of the product on which an
extended service plan is sold, the cost of underwriting and claims
servicing, and other operating expenses.
17
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net income for the year ended December 31, 1997, was $38.1 million, or
$1.88 per share, an increase of $18.1 million over net income of $20.0
million, or $1.17 per share, for 1996. The 90% increase in net income is
the result of an increase in net interest income and other operating income
partially offset by increases in the provision for loan losses and other
operating expenses. These increases are largely attributable to the growth
in average managed loans to $2.3 billion for 1997 from $1.0 billion for
1996, an increase of 125%, and growth in total credit card accounts to 2.3
million at December 31, 1997, from 1.4 million at December 31, 1996.
The provision for loan losses on a managed basis was $319.3 million in
1997, compared to $136.3 million in 1996. The increase primarily reflects
higher credit card loan balances as well as an increase in net charge-offs.
The managed net charge-off rate was 8.3% for 1997, compared to 6.2% in
1996.
Other operating income on a managed basis increased $86.2 million to $212.9
million, primarily due to credit card fees, interchange and other credit
card income, which increased to $153.6 million for 1997, up 74% over $88.3
million for 1996. In addition, fee-based services revenues increased 86% to
$55.5 million for 1997, up from $29.9 million for 1996. These increases
were primarily due to the growth in total accounts and outstanding
receivables in the managed credit card loan portfolio.
Other operating expenses increased to $138.0 million in 1997, compared to
$101.3 million in 1996. The increase in operating costs was due to
continued investments in the infrastructure of the Company. However, the
Company's operating effectiveness as measured by the Company's managed
operating efficiency ratio improved to 26.6% in 1997 from 37.5% in 1996.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income for the year ended December 31, 1996, was $20.0 million, or
$1.17 per share, an increase of $15.4 million over net income of $4.6
million, or $.28 per share, for 1995. The 337% increase in net income is
the result of an increase in net interest income and other operating income
partially offset by increases in the provision for loan losses and other
operating expenses. These increases are largely attributable to the growth
in average managed loans to $1.0 billion for 1996 from $183 million for
1995, an increase of 456%, and growth in total credit card accounts to 1.4
million at December 31, 1996 from 0.7 million at December 31, 1995.
The provision for loan losses on a managed basis was $136.3 million in
1996, compared to $26.2 million in 1995. The increase primarily reflects an
increase in credit card loans as well as an increase in net charge-offs
consistent with the continued seasoning of the portfolio and industry
trends. The managed net charge-off rate was 6.2% for 1996, compared to 2.2%
in 1995.
Other operating income on a managed basis increased $73.7 million to $126.6
million, primarily due to credit card fees, interchange and other credit
card income, which increased to $88.3 million for 1996, up 298% over $22.2
million for 1995. In addition, fee-based services revenues increased 348%
to $29.9 million for 1996, up from $6.7 million for 1995. These increases
were primarily due to the growth in total accounts and outstanding
receivables in the managed credit card loan portfolio.
Other operating expenses increased to $101.3 million in 1996, compared to
$45.6 million in 1995. The increase in operating costs was due to continued
investments in the infrastructure of the business to support the growth of
the Company's business lines: consumer credit products and fee-based
services and extended service plans. However, the Company's operating
effectiveness as measured by the Company's managed operating efficiency
ratio improved to 37.5% in 1996 from 57.5% in 1995.
18
<PAGE>
MANAGED LOAN PORTFOLIO AND THE IMPACT OF CREDIT CARD SECURITIZATIONS
SECURITIZATION
Securitizations of credit card loans have been and are expected to be a
major source of funding for the Company. The effect on the Company's
consolidated financial statements from securitization is to remove credit
card loans sold with limited recourse from the consolidated balance sheet.
The securitization and sale of credit card loans changes the Company's
interest in such loans from lender to servicer, with a corresponding change
in how revenues and expenses are reported in the income statement. For
securitized and sold credit card loans, amounts that otherwise would have
been recorded as net interest income, fee income and provision for loan
losses are instead reported in other operating income as net securitization
and credit card servicing income.
During the first quarter of 1997, the Company implemented Statement of
Financial Accounting Standards No. 125 ("SFAS 125") "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS 125 did not have a material effect on the Company's
consolidated financial statements.
MANAGED LOAN PORTFOLIO
The Company analyzes its financial performance on a managed loan portfolio
basis. To do so, the income statement and balance sheet are adjusted to
reverse the effects of securitization. The Company's discussion of
revenues, where applicable, and provision for loan losses includes
comparisons to amounts reported in the Company's consolidated statements of
income ("owned basis" or "on-balance sheet") as well as on a managed basis.
The Company's managed loan portfolio is comprised of credit card loans held
for securitization, retained interests in loans securitized and the
investors' share of securitized credit card loans. The investors' share of
securitized credit card loans is not an asset of the Company, and,
therefore, is not shown on the Company's consolidated balance sheets. The
following tables summarize the Company's managed loan portfolio:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
YEAR-END BALANCES:
CREDIT CARD LOANS:
Loans held for securitization $ 8,795 $ 14,164
Retained interests in loans securitized 471,831 201,165
Investors' interests in securitized loans 3,066,310 1,400,611
---------------------------------------------------------------------------
TOTAL MANAGED LOAN PORTFOLIO $ 3,546,936 $ 1,615,940
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
AVERAGE BALANCES:
CREDIT CARD LOANS:
Loans held for securitization $ 78,264 $ 28,632
Retained interests in loans securitized 278,554 121,177
Investors' interests in securitized loans 1,938,075 869,047
---------------------------------------------------------------------------
TOTAL MANAGED LOAN PORTFOLIO $ 2,294,893 $ 1,018,856
---------------------------------------------------------------------------
</TABLE>
19
<PAGE>
IMPACT OF CREDIT CARD SECURITIZATIONS
The following table provides a summary of the effects of credit card
securitizations on selected line items of the Company's statements of
income for each of the periods presented, as well as selected financial
information on both an owned and managed loan portfolio basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF INCOME (OWNED BASIS):
Net interest income $ 57,243 $ 26,088 $ 6,399
Provision for loan losses 43,989 18,477 4,393
Other operating income 186,677 126,222 51,083
Other operating expense 138,048 101,287 45,640
----------------------------------------------------------------------------------
Income before income taxes $ 61,883 $ 32,546 $ 7,449
----------------------------------------------------------------------------------
ADJUSTMENTS FOR SECURITIZATIONS:
Net interest income $ 249,118 $ 117,403 $ 19,955
Provision for loan losses 275,310 117,828 21,841
Other operating income 26,192 425 1,886
Other operating expense
----------------------------------------------------------------------------------
Income before income taxes $ $ $
----------------------------------------------------------------------------------
STATEMENTS OF INCOME (MANAGED BASIS):
Net interest income $ 306,361 $ 143,491 $ 26,354
Provision for loan losses 319,299 136,305 26,234
Other operating income 212,869 126,647 52,969
Other operating expense 138,048 101,287 45,640
----------------------------------------------------------------------------------
Income before income taxes $ 61,883 $ 32,546 $ 7,449
----------------------------------------------------------------------------------
OTHER DATA:
----------------------------------------------------------------------------------
OWNED BASIS:
Average interest-earning assets $ 403,375 $ 171,877 $ 49,644
Return on average assets 7.7% 9.6% 6.5%
Return on average equity 24.1% 21.6% 15.2%
Net interest margin (1) 14.2% 15.2% 12.9%
----------------------------------------------------------------------------------
MANAGED BASIS:
Average interest-earning assets $ 2,341,451 $ 1,040,924 $ 193,086
Return on average assets 1.6% 1.9% 2.1%
Return on average equity 24.1% 21.6% 15.2%
Net interest margin (1) 13.1% 13.8% 13.6%
----------------------------------------------------------------------------------
</TABLE>
(1) Net interest margin is equal to net interest income divided by average
interest-earning assets.
20
<PAGE>
NET INTEREST INCOME
Net interest income consists primarily of interest earned on the Company's
credit card loans less interest expense on borrowings to fund the loans.
Managed net interest income for the year ended December 31, 1997, was
$306.4 million compared to $143.5 million for the same period in 1996, an
increase of $162.9 million. This increase was primarily due to a $1.3
billion increase in average managed loans over the comparable period in
1996. The average yield on managed interest-earning assets decreased to
18.6% for the year ended December 31, 1997, from 19.1% for the year ended
December 31, 1996. The acquisition of two credit card portfolios reduced
the average yield for the year ended December 31, 1997 by approximately 0.2
percentage points. The remaining reduction in the average yield was due to
increased charge-offs of finance charges in 1997. The Company has used
variable rate funding in its credit card securitization transactions and in
its short-term borrowings, or has executed interest rate swap agreements
with bank counterparties to effectively swap fixed term funding rates to
variable rates. The average yield on interest-earning assets on an owned
basis decreased to 17.2% for the year ended December 31, 1997, from 17.6%
for the same period in 1996.
Managed net interest income for the year ended December 31, 1996, was
$143.5 million compared to $26.4 million for the same period in 1995, an
increase of $117.1 million. This increase was primarily due to an $836
million increase in average managed loans over the comparable period in
1995. The average yield on managed interest-earning assets increased to
19.1% for the year ended December 31, 1996, from 18.8% for the year ended
December 31, 1995, primarily due to the increase in average credit card
loans as a percentage of total interest-earnings assets. The average yield
on interest-earning assets on an owned basis increased to 17.6% for the
year ended December 31, 1996, from 15.3% for the same period in 1995. This
increase is primarily due to an increase in average credit card loans as a
percentage of total interest-earning assets.
The following tables provide an analysis of interest income and expense,
net interest spread, net interest margin and average balance sheet data for
the years ended December 31, 1997, 1996 and 1995:
21
<PAGE>
ANALYSIS OF AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------- ----------------------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OWNED BASIS:
ASSETS:
INTEREST-EARNING ASSETS:
Federal funds sold $ 30,049 $ 1,636 5.4% $ 16,299 $ 867 5.3%
Short-term investments 16,509 863 5.2% 5,769 299 5.2%
Credit card loans 356,817 66,695 18.7% 149,809 29,028 19.4%
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS $ 403,375 $ 69,194 17.2% $ 171,877 $ 30,194 17.6%
----------------------------------------------------------------------------------------------------------------------
Other assets 113,191 44,829
Allowance for loan losses (24,169) (7,407)
----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 492,397 $ 209,299
----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-bearing deposit $ 167 $ 7 4.4% $ 1,000 $ 48 4.8%
Borrowings 149,559 11,944 8.0% 56,708 4,058 7.2%
----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 149,726 $ 11,951 8.0% $ 57,708 $ 4,106 7.1%
----------------------------------------------------------------------------------------------------------------------
Other liabilities 184,491 58,739
Total liabilities 334,217 116,447
Stockholders' equity 158,180 92,852
----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 492,397 $ 209,299
----------------------------------------------------------------------------------------------------------------------
Net interest income and
interest margin (1) $ 57,243 14.2% $ 26,088 15.2%
Net interest rate spread (2) 9.2% 10.5%
----------------------------------------------------------------------------------------------------------------------
MANAGED BASIS:
Credit card loans $ 2,294,893 $ 433,334 18.9% $ 1,018,856 $ 197,467 19.4%
Total interest-earning assets 2,341,451 435,833 18.6% 1,040,924 198,633 19.1%
Total interest-bearing liabilities 2,087,801 129,472 6.2% 926,755 55,142 5.9%
Net interest income and
interest margin (1) 306,361 13.1% 143,491 13.8%
Net interest rate spread (2) 12.4% 13.2%
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995
-----------------------------------------------------------------------------
DOLLARS IN THOUSANDS Average Balance Interest Yield/Rate
-----------------------------------------------------------------------------
<S> <C> <C> <C>
OWNED BASIS:
ASSETS:
INTEREST-EARNING ASSETS:
Federal funds sold $ 8,501 $ 487 5.7%
Short-term investments 1,311 75 5.7%
Credit card loans 39,832 7,054 17.7%
----------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS $ 49,644 $ 7,616 15.3%
----------------------------------------------------------------------------
Other assets 22,426
Allowance for loan losses (1,149)
----------------------------------------------------------------------------
TOTAL ASSETS $ 70,921
----------------------------------------------------------------------------
LIABILITIES AND EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-bearing deposit $ 700 $ 36 5.2%
Borrowings 20,822 1,181 5.7%
----------------------------------------------------------------------------
Total interest-bearing liabilities $ 21,522 $ 1,217 5.7%
----------------------------------------------------------------------------
Other liabilities 19,316
Total liabilities 40,838
Stockholders' equity 30,083
----------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 70,921
----------------------------------------------------------------------------
Net interest income and
interest margin (1) $ 6,399 12.9%
Net interest rate spread (2) 9.6%
----------------------------------------------------------------------------
MANAGED BASIS:
Credit card loans $ 183,274 $ 35,775 19.5%
Total interest-earning assets 193,086 36,337 18.8%
Total interest-bearing liabilities 164,964 9,983 6.1%
Net interest income and
interest margin (1) 26,354 13.7%
Net interest rate spread (2) 12.7%
----------------------------------------------------------------------------
</TABLE>
(1) Net interest margin is computed by dividing net interest income by
average total interest-earning assets.
(2) The interest rate spread is the yield on average interest-earning
assets minus the funding rate on average interest-bearing liabilities.
22
<PAGE>
INTEREST VARIANCE ANALYSIS
Net interest income is affected by changes in the average interest rate
earned on interest-earning assets and the average interest rate paid on
interest-bearing liabilities, in addition to changes in the volume of
interest-earning assets and interest-bearing liabilities. The following
table presents the effects of changes in average volume and interest rates
on individual financial statement line items on an owned basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
* Change due to * Change due to
-----------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS Increase Volume Rate Increase Volume Rate
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Federal funds sold $ 769 $ 749 $ 20 $ 380 $ 412 $ (32)
Short-term investments 564 562 2 224 230 (6)
Credit card loans 37,667 38,655 (988) 21,974 21,250 724
-----------------------------------------------------------------------------------------------------------
Total interest income 39,000 39,694 (694) 22,578 21,322 1,256
-----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest-bearing deposits (41) (37) (4) 12 14 (2)
Borrowings 7,886 7,364 522 2,877 2,499 378
-----------------------------------------------------------------------------------------------------------
Total interest expense 7,845 7,288 557 2,889 2,506 383
-----------------------------------------------------------------------------------------------------------
Net interest income $ 31,155 $ 32,406 $ (1,251) $ 19,689 $ 18,816 $ 873
-----------------------------------------------------------------------------------------------------------
</TABLE>
* The change in interest due to both volume and rates has been allocated in
proportion to the relationship of the absolute dollar amounts of the change
in each. The changes in income and expense are calculated independently for
each caption in the analysis. The totals for the volume and rate columns
are not the sum of the individual lines.
OTHER OPERATING INCOME
Other operating income contributes substantially to the Company's results
of operations, representing 73% and 81% of owned revenues for the years
ended December 31, 1997 and 1996, respectively. Fee-based services
revenues, particularly from debt waiver products, continue to provide an
increasing percentage of other operating income. Debt waiver products and
other fee-based services revenues are expected to increase with growth in
credit card accounts and as the Company continues to offer other fee-based
services to its customer base and to customers of its partners. The
following table presents other operating income on an owned basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOLLARS IN THOUSANDS 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Net extended service plan revenues $ 7,911 $ 20,420 $ 17,779
Net securitization and credit card servicing income 79,533 49,921 16,003
Credit card fees, interchange and other credit card income 43,731 26,028 10,639
Fee-based services revenues 55,502 29,853 6,662
-----------------------------------------------------------------------------------------------------------
TOTAL $ 186,677 $ 126,222 $ 51,083
-----------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The following definitions may be helpful when reading the discussion of the
changes in other operating income found below for the periods presented:
NET EXTENDED SERVICE PLAN REVENUES - Net extended service plan revenues
include revenues received from sales of extended service plans, net of a
provision for service plan returns. The Company began performing
administrative services on January 1, 1997, and retained the claims risk
for all extended service plans sold on or after January 1, 1997. As a
result, extended service plan revenues are deferred and recognized over the
life of the related extended service plan contracts. Prior to January 1,
1997 the Company contracted with a third-party underwriter and claims
administrator to service and absorb the risk of loss for most claims and
the revenues related to these contract sales were recognized immediately.
NET SECURITIZATION AND CREDIT CARD SERVICING INCOME - Due to the
securitization of credit card loans, activity from securitized account
balances normally reported as net interest income, fee income, and
provision for loan losses is reported in net securitization and credit card
servicing income. Net securitization income is the excess of interest and
fee income earned over the related securitization expenses, including
interest payments, provision for loan losses, servicing costs and
transaction expenses related to securitized loans. Credit card servicing
income is also included in this amount and represents fees paid to the
Company from the Metris Master Trust (the "Trust") and a third-party
multi-seller conduit (the "Conduit") for servicing the securitized loans.
Such fees generally approximate 2% of average securitized loans on an
annualized basis.
CREDIT CARD FEES, INTERCHANGE AND OTHER CREDIT CARD INCOME - Credit card
fees include annual membership, cash advance, overlimit, past-due, and
other credit card fee income derived from on-balance sheet loans. Also
included in this amount is interchange income generated from total
accounts, which represents fees payable by merchants to the credit card
issuer for sales transactions. This amount presently represents about 1.4%
of all net credit card purchases.
FEE-BASED SERVICES REVENUES - Fee-based services revenues presently include
revenues from sales of debt waiver protection for unemployment, disability
and death, card registration, third-party insurance, membership clubs, and
revenues from targeted list programs.
Other operating income increased $60.5 million for the year ended December
31, 1997, over 1996, primarily due to income generated from the growth in
average securitized credit card loans. Additionally, fee-based services
revenues increased 86% to $55.5 million because of the Company's marketing
efforts to cross-sell other products and services to its customers.
Specifically, debt waiver product revenue increased by $22.1 million to
$47.6 million for the year ended December 31, 1997, as the Company
continued to add new credit card customers with debt waiver protection. In
addition, interchange revenue increased over the prior year due to credit
card charge volume increasing to approximately $2.7 billion in 1997 from
$1.7 billion in 1996.
Other operating income increased $75.1 million for the year ended December
31, 1996, over 1995, primarily due to income generated from the growth in
average securitized credit card loans. Additionally, fee-based services
revenues increased 348% to $29.9 million as the Company's marketing efforts
to cross-sell other products and services to its customers were successful.
Specifically, debt waiver product revenue increased by $20.6 million to
$25.5 million for the year ended December 31, 1996, as the Company
continued to add new credit card customers with debt waiver protection.
24
<PAGE>
OTHER OPERATING EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER OPERATING EXPENSE:
Credit card account and other product
solicitation and marketing expense $ 30,503 $ 29,297 $ 23,089
Employee compensation 35,200 23,068 2,466
Data processing services and communications 20,087 12,757 3,090
Third-party servicing expense 12,711 9,207 5,300
Warranty and debt waiver underwriting
and claims servicing expense 6,053 10,024 6,552
Credit card fraud losses 3,240 2,276 775
Other 30,254 14,658 4,368
---------------------------------------------------------------------------------------------
TOTAL $ 138,048 $ 101,287 $ 45,640
---------------------------------------------------------------------------------------------
</TABLE>
Total other operating expenses include direct and allocated expenses from
FCI for administrative services provided to the Company under an
administrative services agreement. Additionally, total other operating
expenses reflect the retroactive effects of additional intercompany
agreements and contracts between the Company and FCI or its subsidiaries
(See Note 1 to the Consolidated Financial Statements).
Total other operating expenses for the year ended December 31, 1997,
increased $36.8 million over 1996, largely due to costs associated with the
growth of the Company's business activities. Also, total other operating
expenses increased due to increases in data processing services and
communications expenses and third-party servicing expenses of $7.3 million
and $3.5 million, respectively. These cost increases were largely due to
the growth in credit card accounts, transaction volumes and loan balances.
Employee compensation also increased $12.1 million to $35.2 million for the
year ended December 31, 1997, due to increased staffing needs to support
the increase in credit card accounts and other functions.
Total other operating expenses for the year ended December 31, 1996,
increased $55.6 million over 1995, largely due to costs associated with the
growth of the Company's business activities. Credit card account and other
product solicitation and marketing expenses rose by $6.2 million over the
same period in the prior year. New credit card account solicitation
programs were implemented in 1996, increasing the number of credit card
accounts and loans outstanding. The Company also incurred increased
solicitation costs in its efforts to increase the penetration of fee-based
services sold to the Company's customers and extended service plan sales on
warrantable products sold by Fingerhut. Also, total other operating
expenses increased due to increases in data processing services and
communications expenses and third-party servicing expenses of $9.7 million
and $3.9 million, respectively. These cost increases were largely due to
the growth in credit card accounts, transaction volumes and loan balances.
Employee compensation also increased $20.6 million to $23.1 million for the
year ended December 31, 1996, due to increased management incentive plan
expenses, increased staffing needs to support the increase in credit card
accounts and the internalization of credit card collections and other
functions.
INCOME TAXES
The Company's provision for income taxes includes both federal and state
income taxes. Applicable income tax expense was $23.8 million, $12.5
million and $2.9 million for the years ended December 31, 1997, 1996 and
1995, respectively. This tax expense represents an effective tax rate of
38.5% for the years ended December 31, 1997, 1996 and 1995.
25
<PAGE>
ASSET QUALITY
The Company's delinquency and net loan charge-off rates at any point in
time reflect, among other factors, the credit risk of loans, the average
age of the Company's various credit card account portfolios, the success of
the Company's collection and recovery efforts, and general economic
conditions. The average age of the Company's credit card portfolio affects
the stability of delinquency and loss rates of the portfolio. The Company
continues to focus its resources on refining its credit underwriting
standards for new accounts, and on collections and post charge-off recovery
efforts to minimize net losses. At December 31, 1997, 47% of managed
accounts and 39% of managed loans were less than 18 months old.
Accordingly, the Company believes that its loan portfolio will experience
increasing or fluctuating levels of delinquency and loan losses as the
average age of the Company's accounts increases.
This trend is reflected in the change in the Company's net charge-off
ratio. For the year ended December 31, 1997, the Company's managed net
charge-off ratio was 8.3%, compared to 6.2% and 2.2% for the years ended
December 31, 1996 and 1995, respectively. The charge-off ratio for the year
ended December 31, 1997, was favorably impacted by the portfolio
acquisitions. The Company believes, consistent with its statistical models
and other credit analysis, that this rate will continue to fluctuate but
generally rise over the next year.
The Company's strategy for managing loan losses to maximize profitability
consists of credit line management and risk-based pricing so that an
acceptable profit margin is maintained based on the perceived risk of each
credit card account. Under this strategy, interest rates are established
for each credit card account based on its perceived risk profile. Loan
losses are further managed through the offering of credit lines which are
generally lower than is currently standard in the industry. Individual
accounts and their related credit lines are also continually managed using
various marketing, credit and other management processes in order to
continue to maximize the profitability of accounts.
DELINQUENCIES
Delinquencies not only have the potential to affect earnings in the form of
net loan losses, but are also costly in terms of the personnel and other
resources dedicated to their resolution. Delinquency levels are monitored
on a managed basis, since delinquency on either an owned or managed basis
subjects the Company to credit loss exposure. A credit card account is
contractually delinquent if the minimum payment is not received by the
specified date on the cardholder's statement. It is the Company's policy to
continue to accrue interest and fee income on all credit card accounts,
except in limited circumstances, until the account and all related loans,
interest and other fees are charged off. The following table presents the
delinquency trends of the Company's credit card loan portfolio on a managed
portfolio basis:
26
<PAGE>
MANAGED LOAN DELINQUENCY
<TABLE>
<CAPTION>
DECEMBER 31, % OF DECEMBER 31, % OF
DOLLARS IN THOUSANDS 1997 TOTAL 1996 TOTAL
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Managed loan portfolio $ 3,546,936 100% $ 1,615,940 100%
Loans contractually delinquent:
30 to 59 days 72,114 2.0% 32,114 2.0%
60 to 89 days 49,300 1.4% 20,398 1.2%
90 or more days 111,166 3.2% 36,857 2.3%
---------------------------------------------------------------------------------------
TOTAL $ 232,580 6.6% $ 89,369 5.5%
---------------------------------------------------------------------------------------
</TABLE>
The above numbers reflect continued seasoning of the Company's managed loan
portfolio. In 1997, the ratio was favorably impacted by the portfolio
acquisitions. The Company intends to continue to focus its resources on its
collection efforts to minimize the negative impact to net loan losses that
results from increased delinquency levels.
NET CHARGE-OFFS
Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balances, as well as bankrupt and
deceased cardholders, less current period recoveries. Net charge-offs
exclude accrued finance charges and fees, which are charged against the
related income at the time of charge-off. The following table presents the
Company's net charge-offs for the periods indicated as reported in the
consolidated financial statements and on a managed portfolio basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
OWNED BASIS:
Average loans outstanding $ 356,817 $ 149,809
Net charge-offs 29,398 9,327
Net charge-offs as a percentage
of average loans outstanding 8.2% 6.2%
---------------------------------------------------------------------------
MANAGED BASIS:
Average loans outstanding $ 2,294,893 $ 1,018,856
Net charge-offs 191,130 62,855
Net charge-offs as a percentage
of average loans outstanding 8.3% 6.2%
---------------------------------------------------------------------------
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained for on-balance sheet loans. For
securitized loans, anticipated losses and related recourse reserves are
reflected in the calculations of net securitization and credit card
servicing income. Provisions for loan losses are made in amounts necessary
to maintain the allowance at a level estimated to be sufficient to absorb
probable future losses of principal and earned interest, net of recoveries,
inherent in the existing on-balance sheet loan portfolio.
27
<PAGE>
The provision for loan losses on an owned basis for the year ended December
31, 1997, totaled $44.0 million compared to a provision of $18.5 million in
1996. The amount and level of the provision for loan losses on an owned
basis may vary from period to period, depending on the amount of credit
card loans sold and securitized in a particular period. However, the
increase in 1997 compared to 1996 is primarily reflective of the large
increase in on-balance sheet loans and the overall seasoning of the
portfolio. The following table presents the change in the Company's
allowance for loan losses and other ratios on both an owned and a managed
portfolio basis for the periods presented:
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996
--------------------------------------------------------------------------
<S> <C> <C>
OWNED BASIS
Balance at beginning of year $ 12,829 $ 3,679
Allowance related to assets acquired, net 4,619
Provision for loan losses 43,989 18,477
---------------------------------------------------------------------------
Loans charged off 30,065 9,514
Recoveries 667 187
---------------------------------------------------------------------------
Net loan charge-offs 29,398 9,327
---------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 32,039 $ 12,829
---------------------------------------------------------------------------
ENDING ALLOWANCE AS A PERCENT OF LOANS 6.7% 6.0%
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
MANAGED BASIS
Balance at beginning of year $ 95,669 $ 22,219
Allowance related to assets acquired, net 20,246
Provision for loan losses 319,299 136,305
---------------------------------------------------------------------------
Loans charged off 195,535 64,083
Recoveries 4,405 1,228
---------------------------------------------------------------------------
Net loan charge-offs 191,130 62,855
---------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 244,084 $ 95,669
---------------------------------------------------------------------------
ENDING ALLOWANCE AS A PERCENT OF LOANS 6.9% 5.9%
---------------------------------------------------------------------------
</TABLE>
Management believes the allowance for loan losses on both an owned and a
managed basis is adequate to cover probable losses in the loan portfolio
under current conditions and expected trends. However, there can be no
assurance as to the future credit losses that may be incurred in connection
with the Company's loan portfolio, nor can there be any assurance that the
loan loss allowance that has been established by the Company will be
sufficient to absorb such future loan losses. Management will continue to
monitor the allowance for loan losses and make additional provisions to the
allowance as it deems appropriate and necessary given the circumstances.
28
<PAGE>
DERIVATIVES ACTIVITIES
The Company uses derivative financial instruments for the purpose of
managing its exposure to interest rate risks and has a number of mechanisms
in place to monitor and control both market and credit risk from these
derivatives activities. Until such time as the proposed Spin Off (discussed
below) may be consummated, all derivatives strategies and transactions are
managed under a hedging policy approved by the Board of Directors of FCI
that details the use of such derivatives. In addition, all derivatives
strategies must currently be approved by the Company's senior management.
Under these policies, the Company has entered into interest rate cap and
swap agreements to hedge its economic exposure to the impact of fluctuating
interest rates associated with the spread between the floating rate loans
owned by the Trust and the floating and fixed rate certificates issued by
the Trust to fund the loans. In connection with the issuance of the $513
million Trust Series 1995-1 variable funding certificates in May 1995, the
Company entered into eight-year agreements with bank counterparties in a
total notional amount of $513 million effectively capping the potential
impact to the Company of increases in the certificates' floating interest
rate at 11.2%. Also, in connection with the issuance of $513 million
additional Trust Series 1995-1 certificates related to the September 1996
amendment of Trust Series 1995-1, the Company entered into additional six
and two-thirds year agreements in a total notional amount of $513 million
effectively capping the potential impact to the Company of increases in the
new certificates' floating interest rate at 11.2%. The Company entered into
interest rate swap agreements in April 1996 and May 1997 to effectively
offset the potential impact of the fixed rate Trust Series 1996-1 and
1997-1 certificates by paying a floating rate. Total notional amounts of
these swap transactions amounted to $605.5 million for Series 1996-1 and
$722.5 million for Series 1997-1. The Company receives the benefits and
bears the obligations of these swap transactions, with FCI guaranteeing the
Company's performance under the swap agreements. The obligations of the
Company and the counterparties under these swap agreements are settled on a
monthly basis. In the event that the Spin Off, discussed below, is
consummated, FCI would no longer guarantee the Company's swap agreements,
and no assurance can be given as to the terms upon which the Company could
maintain these swap agreements on a stand-alone basis.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's principal market risk is to changes in interest rates.
This affects the Company directly in its lending and borrowing activities,
as well as indirectly as interest rates may impact the payment performance
of the Company's cardholders.
To manage the Company's direct risk to market interest rates, management
actively monitors the interest sensitive components of the Company's owned
and managed balance sheet as well as market interest rates to minimize the
impact of changes in interest rates on the fair value of assets, net income
and cash flow. Management seeks to minimize the impact of changes in
interest rates on the Company primarily by matching asset and liability
repricings.
The Company's primary owned and managed assets are credit card loans,
which are virtually all priced at rates indexed to the variable prime
rate. On-balance sheet loans are funded through a combination of cash
flow from operations, the Company's $300 million revolving bank credit
facility, on which pricing is indexed to either the variable prime rate
or the variable London Interbank Offered Rate ("LIBOR"), $100 million in
10% Senior Notes, and stockholders' equity. The Company's off-balance
sheet managed loans are owned by the Trust and the Conduit, which have
committed current funding indexed to variable commercial paper rates, as
well as term funding which is either directly indexed to LIBOR or at
fixed rates. At December 31, 1997, approximately 53% of the trust
funding of off-balance sheet receivables was funded with fixed rate
certificates.
The Company receives cash flow and recognizes securitization income from
the loans owned by the trusts net of trust funding expenses. Because this
interest is dependent in part on the difference between the floating rate
yield on the loans and the portion of their funding from fixed rate term
asset-backed certificates, the Company has entered into interest rate swap
contracts with several bank counterparties in a notional amount equal to
the total amount of the trust's fixed rate funding to offset the impact of
the fixed rate trust funding on the
29
<PAGE>
Company's expected cash flow and income by paying a floating LIBOR rate to
the counterparties in exchange for receiving a fixed rate comparable to the
rate of the trust's term funding. Combining these swaps with the total
trust funding, 100% of the funding for the off-balance sheet loan portfolio
is indexed to floating commercial paper and LIBOR rates. On a total managed
receivables basis, 91% of the total managed receivables were funded,
including the impact of the interest rate swap agreements, with floating
rate debt indexed to commercial paper, prime or LIBOR at December 31, 1997.
One approach used by management to quantify interest rate risk is a
sensitivity analysis. This approach calculates the impact on net income
from an instantaneous and sustained change in interest rates by 200 basis
points. A 200 basis point increase in interest rates affecting the
Company's floating rate financial instruments, including both debt
obligations and loans, will result in an increase in net income of
approximately $4 million relative to a base case over the next 12 months;
while a decrease of 200 basis points will result in a reduction in net
income of approximately $4 million. The Company's use of this methodology
to quantify the market risk of financial instruments should not be
construed as an endorsement of its accuracy or the accuracy of the related
assumptions. In addition, this methodology does not take into account the
indirect impact interest rates may have on the payment performance of the
Company's cardholders. The quantitative information about market risk is
necessarily limited because it does not take into account operating
transactions or other costs associated with managing immediate changes in
interest rates.
LIQUIDITY, FUNDING AND CAPITAL RESOURCES
One of the Company's primary financial goals is to maintain an adequate
level of liquidity through active management of assets and liabilities.
Because the pricing and maturity characteristics of the Company's assets
and liabilities change, liquidity management is a dynamic process, affected
by changes in short- and long-term interest rates. The Company utilizes a
variety of financing sources to manage liquidity, refunding, rollover and
interest rate risks. Current funding sources are committed and/or available
by counterparties to the Company through facilities established by the
Company and FCI.
The Company finances the growth of its credit card loan portfolio through
cash flow from operations, asset securitization, bank financing, long-term
debt issuance and equity issuance.
At December 31, 1997 and 1996, the Company had received cumulative net
proceeds of approximately $3.1 billion and $1.4 billion, respectively, from
sales of credit card loans, of which $29.3 million and $17.0 million,
respectively, was deposited in an investor reserve account held for the
benefit of the certificate holders in the Trust or the Conduit. Cash
generated from these transactions was used to reduce short-term borrowings
and to fund credit card loan growth.
In September 1996, the Company executed a $300 million, five-year revolving
credit facility (the "Revolving Credit Facility"), with a group of banks.
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 loans and interests held therein by the Company. The Revolving
Credit Facility contains certain financial covenants standard for revolving
credit facilities of this type, including minimum net worth, minimum equity
to managed assets ratio, maximum leverage and a limitation on indebtedness.
In addition, the FCI guarantee includes certain covenants including minimum
interest coverage, maximum leverage and minimum net worth for FCI.
The Company borrows under the Revolving Credit Facility to fund on-balance
sheet loans and for other general business purposes. At December 31, 1997
and 1996, the Company had outstanding borrowings of $144 million and $50
million, respectively, under the Revolving Credit Facility.
In November 1997, the Company privately issued and sold $100 million of 10%
Senior Notes due 2004 pursuant to an exemption under the Securities Act of
1933, as amended. The net proceeds were used to reduce borrowings under the
Revolving Credit Facility. In January 1998, the Company commenced an
exchange offer for the Senior Notes pursuant to a registration statement.
The terms of the new Senior Notes are identical in all material respects to
the original private issue. The Senior Notes are unconditionally guaranteed
on a senior basis, jointly and severally, by Metris Direct, Inc., and all
future subsidiaries of the Company that guarantee any of the
30
<PAGE>
Company's indebtedness, including the Revolving Credit Facility. The
guarantee is an unsecured obligation of Metris Direct, Inc. and ranks pari
passu with all existing and future unsubordinated indebtedness.
The Federal Reserve Act imposes various legal limitations on the extent to
which banks that are members of the Federal Reserve System can finance or
otherwise supply funds to certain of their affiliates. In particular,
Direct Merchants Bank is subject to certain restrictions on any extensions
of credit to the Company or its subsidiaries. Additionally, Direct
Merchants Bank is limited in its ability to declare dividends to the
Company. Therefore, Direct Merchants Bank's investments in federal funds
sold are generally not available for the general liquidity needs of the
Company or its subsidiaries. Such restrictions were not material to the
operations of the Company at December 31, 1997 and 1996.
As the portfolio of credit card loans grows, or as the Trust certificates
amortize or are otherwise paid, the Company's funding needs will increase
accordingly. The Company believes that its cash flow from operations, asset
securitization programs, together with the Revolving Credit Facility,
long-term debt issuance and equity issuance, will provide adequate
liquidity to the Company for meeting anticipated cash needs, although no
assurance can be given to that effect.
On October 9, 1997, FCI announced that its board of directors had approved
the filing of an application with the Internal Revenue Service (IRS) for
ruling on a tax-free distribution of FCI's stock in the Company ("Spin
Off"). FCI filed the ruling request with the IRS on October 23, 1997. The
proposed Spin Off of the Company would be subject to receipt of a favorable
ruling from the IRS, the approval by Fingerhut's board of directors, and
market conditions. If approved, the Spin Off would be expected to be
completed during 1998. The Spin Off may impact the means by which the
Company has obtained its funding as discussed below.
In anticipation of the proposed Spin Off, the Company is negotiating with
it's bank lenders to refinance the $300 million 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. The Company
has lower independent credit ratings than those of FCI. While the Company
believes it will be able to obtain stand-alone financing, it is expected to
be on terms less favorable than the current Revolving Credit Facility. The
Company expects a new bank credit facility to result in approximately $8
million in additional funding expense on an annualized basis.
In addition, the Company's lower independent credit ratings will reduce the
advance rate on a portion of the sale of receivables to the Trust. This
will require approximately $40 million in additional on-balance sheet
funding by the Company to finance the unsold loans.
The Company will also be required to restructure certain interest rate swap
agreements with counterparty banks to remove FCI as a guarantor or
co-obligor. These contracts hedge fixed rate term funding of credit card
loans in one of the trusts. The notional value of these contracts is
approximately $1.3 billion. While the Company believes it will be able to
restructure these contracts, no assurance can be given that it will be able
to do so on terms as favorable as the existing agreements. The market value
of these contracts at December 31, 1997, in total, was favorable to the
Company.
The Company is contemplating accessing the equity capital markets sometime
following the completion of the Spin Off.
If the Spin Off does not occur, it may impact the Company's growth and
profitability as it may limit the Company's access to the capital markets.
CAPITAL ADEQUACY
The Company improved its financial position, as reflected by an increase in
stockholders' equity, through the completion of an initial public offering
of its common shares, which raised net proceeds of approximately $47.2
million, the receipt of $60.0 million in capital contributions from FCI,
and the retention of earnings.
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of the Currency (the "OCC") and
the Federal Reserve Board, and monitored by the FDIC and the OCC. At
December 31, 1997 and 1996, Direct Merchants Bank exceeded the minimum
required capital levels and was considered a "well-capitalized" depository
institution under regulations of the OCC.
31
<PAGE>
NEWLY ISSUED PRONOUNCEMENTS
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes
standards for the way public enterprises report information about operating
segments in annual financial statements and interim financial reports. SFAS
131 is effective for fiscal years beginning after December 15, 1997. The
Company is evaluating the effect adoption of this statement will have on
the reporting of its financial information.
YEAR 2000
The "Year 2000" problem is a result of computer programs using two digit
years instead of four digit years. Year 2000 could have an impact on the
operations of the Company if not properly addressed.
The Company, like all database marketing companies and financial services
institutions, is heavily dependent upon computer systems for all phases of
its operations. The Company processes data through its own systems and
obtains data and processing services from various vendors. The Company,
therefore, must concern itself not only with its own systems but also with
the status of Year 2000 compliance with respect to those vendors that
provide data and processing services to the Company. The Company created a
Year 2000 project team to identify, address and monitor internal systems
and vendor issues related to the Year 2000 problem.
Most of the Company's existing information systems are less than three
years old and were originally designed for Year 2000 compliance. However,
the Company is dependent on databases maintained by FCI and card and
statement generation, among other services, provided by First Data
Resources ("FDR"). The project team meets monthly with systems experts at
FCI to determine where the Company's and FCI's systems overlap and to
determine what steps are necessary to ensure compliance. The project team
is monitoring ongoing testing by FCI to determine compliance with respect
to those matters which impact the Company. The project team also has been
in constant contact with FDR with respect to its programs for Year 2000.
The project team receives quarterly reviews from FDR concerning its efforts
to become Year 2000 compliant and also receives interim reports as to
specific issues. The Company believes that FDR will address the Year 2000
problems on a timely basis. However, the Company continues to closely
monitor the progress of FDR.
In addition, the project team has contacted many of its identified material
vendors and has prepared questionnaires to be submitted to all vendors by
April 1998. At this time, the project team's goal is to obtain test results
showing compliance by vendors by the end of first quarter 1999. The project
team is also developing contingency plans on a timely basis to address
noncompliance by vendors, which may include replacing vendors.
Although the Company cannot ensure compliance by all of its vendors on a
timely basis, the Company believes that it is taking appropriate steps to
identify exposure to Year 2000 problems and to address them on a timely
basis. In addition, the Company believes that it has adequate resources to
achieve Year 2000 compliance for its systems which may not be compliant.
Moreover, the Company believes that the costs of Year 2000 compliance will
not be material to the Company's consolidated financial position, results
of operations or cash flows.
32
<PAGE>
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements include statements regarding intent, belief or current
expectations of the Company and its management. Stockholders and
prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a
number of risks and uncertainties that may cause the Company's actual
results to differ materially from the results discussed in the
forward-looking statements. Among the factors that could cause actual
results to differ materially from those indicated by such
forward-looking statements are the Company's limited operating history
as a stand-alone entity; the Company's limited experience with respect
to originating and servicing credit card accounts, including limited
delinquency, default and loss experience; the lack of seasoning of its
credit card portfolio, which makes the predictability of delinquency
and loss levels more difficult; risks associated with unsecured credit
transactions, particularly to moderate income consumers; interest rate
risks; dependence on the securitization of the Company's credit card
loans to fund operations; general economic conditions affecting
consumer income which may increase consumer bankruptcies, defaults and
delinquencies; state and federal laws and regulations, including
consumer and debtor protection laws; and the highly-competitive
industry in which the Company operates. Each of these factors is more
fully discussed in Exhibit 99 to the Company's Annual Report on Form
10-K. Reference to this Cautionary Statement or Exhibit 99 in the
context of a forward-looking statement or statements shall be deemed
to be a statement that any one or more of these factors may cause
actual results to differ materially from those anticipated in such
forward-looking statement or statements.
33
<PAGE>
MANAGEMENT'S REPORT ON
CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL
The accompanying consolidated financial statements, related
financial data, and other information in this annual report were
prepared by the management of Metris Companies Inc. Management is
responsible for the integrity and objectivity of the data
presented, including amounts that must necessarily be based on
judgments and estimates. The consolidated financial statements
were prepared in conformity with generally accepted accounting
principles.
Management of Metris Companies Inc. depends on its accounting
systems and internal control structures in meeting its
responsibilities for reliable consolidated financial statements.
In management's opinion, these systems and structures provide
reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance
with management's authorizations. As an integral part of these
systems and structures, the Company utilizes a professional staff
of internal auditors of Fingerhut Companies, Inc., who conduct
operational and special audits and coordinate audit coverage with
Company management and the independent auditors.
The consolidated financial statements have been audited by the
Company's independent auditors, KPMG Peat Marwick LLP, whose
independent professional opinion appears separately. Their
opinion on the consolidated financial statements is based on
auditing procedures that include performing selected tests of
transactions and records as they deem appropriate. These auditing
procedures are designed to provide reasonable assurance that the
consolidated financial statements are free of material
misstatement.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with the internal auditors,
the independent auditors and management to review the work of
each and ensure that each is properly discharging its
responsibilities. The independent auditors have free access to
the Committee to discuss the results of their audit work and
their findings.
/s/ Ronald N. Zebeck
RONALD N. ZEBECK
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
/s/ Robert W. Oberrender
ROBERT W. OBERRENDER
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
34
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
METRIS COMPANIES INC.:
We have audited the accompanying consolidated balance sheets of
Metris Companies Inc. and subsidiaries as of December 31, 1997
and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
January 21, 1998
35
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 21,006 $ 8,902
Federal funds sold 27,089 19,001
Short-term investments 128 4,179
------------------------------------------------------------------------------------------------
Cash and cash equivalents 48,223 32,082
------------------------------------------------------------------------------------------------
Credit card loans:
Loans held for securitization 8,795 14,164
Retained interests in loans securitized 471,831 201,165
Less: Allowance for loan losses 32,039 12,829
------------------------------------------------------------------------------------------------
Net credit card loans 448,587 202,500
------------------------------------------------------------------------------------------------
Premises and equipment, net 15,464 5,163
Accrued interest and fees receivable 4,310 2,942
Prepaid expenses and deferred charges 18,473 4,826
Deferred income taxes 80,787 31,528
Customer base intangible 36,752 888
Other assets 20,625 6,687
------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 673,221 $ 286,616
------------------------------------------------------------------------------------------------
LIABILITIES:
Interest-bearing deposit from affiliate $ $ 1,000
Short-term borrowings 144,000 54,163
Long-term debt 100,000
Accounts payable 35,356 15,583
Other payables due to credit card securitizations, net 134,559 36,619
Current income taxes payable to FCI 9,701 1,460
Deferred income 49,204 23,183
Accrued expenses and other liabilities 24,363 15,890
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 497,183 147,898
------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share;
10,000,000 shares authorized, none issued or outstanding
Common stock, par value $.01 per share; 100,000,000
shares authorized, 19,225,000 shares issued and outstanding 192 192
Paid-in capital 107,059 107,220
Retained earnings 68,787 31,306
------------------------------------------------------------------------------------------------
Total Stockholders' Equity 176,038 138,718
------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 673,221 $ 286,616
------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Credit card loans $ 66,695 $ 29,028 $ 7,054
Federal funds sold 1,636 867 487
Other 863 299 75
-------------------------------------------------------------------------------------------------------------------
Total interest income 69,194 30,194 7,616
-------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposit 7 48 36
Borrowings 11,944 4,058 1,181
-------------------------------------------------------------------------------------------------------------------
Total interest expense 11,951 4,106 1,217
-------------------------------------------------------------------------------------------------------------------
Net Interest Income 57,243 26,088 6,399
Provision for loan losses 43,989 18,477 4,393
-------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,254 7,611 2,006
-------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Net extended service plan revenues 7,911 20,420 17,779
Net securitization and credit card servicing income 79,533 49,921 16,003
Credit card fees, interchange and other credit card income 43,731 26,028 10,639
Fee-based services revenues 55,502 29,853 6,662
-------------------------------------------------------------------------------------------------------------------
186,677 126,222 51,083
-------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSE:
Credit card account and other product
solicitation and marketing expenses 30,503 29,297 23,089
Employee compensation 35,200 23,068 2,466
Data processing services and communications 20,087 12,757 3,090
Third-party servicing expense 12,711 9,207 5,300
Warranty and debt waiver underwriting and claims
servicing expense 6,053 10,024 6,552
Credit card fraud losses 3,240 2,276 775
Other 30,254 14,658 4,368
-------------------------------------------------------------------------------------------------------------------
138,048 101,287 45,640
-------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 61,883 32,546 7,449
Income taxes 23,825 12,530 2,868
-------------------------------------------------------------------------------------------------------------------
NET INCOME $ 38,058 $ 20,016 $ 4,581
-------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Basic $ 1.98 $ 1.21 $ 0.29
Diluted 1.88 1.17 0.28
-------------------------------------------------------------------------------------------------------------------
SHARES USED TO COMPUTE EPS:
Basic 19,225 16,572 15,967
Diluted 20,238 17,129 16,369
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
37
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
PAID-IN RETAINED STOCKHOLDERS'
(DOLLARS IN THOUSANDS) COMMON STOCK CAPITAL EARNINGS EQUITY
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 38,058 38,058
Dividends and other (161) (577) (738)
--------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 192 $ 107,059 $ 68,787 $ 176,038
--------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996 1995
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 38,058 $ 20,016 $ 4,581
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Provision for loan losses 43,989 18,477 4,393
Depreciation and amortization 15,942 7,329 2,808
(Gain)/net amortization of gain on
securitization of credit card loans (1,376) 6,194 (7,267)
Changes in operating assets and liabilities:
Accrued interest and fees receivable (1,368) (719) (2,223)
Prepaid expenses and deferred charges (23,150) (6,045) (6,696)
Deferred income taxes (49,259) (27,222) (4,108)
Accounts payable and accrued expenses 28,246 8,110 20,374
Other payables/receivables due to/from
credit card securitizations, net 98,670 61,542 (24,572)
Current income taxes payable to FCI 8,241 (3,718) 5,051
Deferred income 26,021 13,096 10,084
Other (16,022) (4,084) (4,431)
-------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 167,992 92,976 (2,006)
-------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of loans 1,665,700 952,055 448,555
Net loans originated or collected (1,260,620) (1,081,644) (528,864)
Credit card portfolio acquisition (733,486) (15,469)
Net decrease in loans to FCI 9,375
Additions to premises and equipment (11,705) (4,113) (1,353)
-------------------------------------------------------------------------------------------------------
Net cash used in investing activities (340,111) (133,702) (87,756)
-------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
(Decrease) increase in interest-bearing deposit (1,000) 1,000
Net increase (decrease) in short-term borrowings 89,837 (9,319) 63,482
Net proceeds from issuance of common stock 47,384
Issuance of senior notes 100,000
Cash dividends paid (577)
Capital contributions from FCI 60,000
-------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 188,260 38,065 124,482
-------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 16,141 (2,661) 34,720
Cash and cash equivalents at beginning of year 32,082 34,743 23
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 48,223 $ 32,082 $ 34,743
-------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
39
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
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 and fee-based services and extended service plans primarily to
moderate-income consumers. The Company's business is conducted through
Metris Direct, Inc., Direct Merchants Credit Card Bank, National
Association ("Direct Merchants Bank"), Metris Funding Co. ("MFC") and
Metris Receivables, Inc. ("MRI"), each a wholly-owned direct or indirect
subsidiary of MCI.
Prior to September 1996, Metris Direct, Inc., (previously known as
Fingerhut Financial Services Corporation) 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 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 operations 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
original terms ranging up to seven years, expiring no later than October
2003.
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.
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.
40
<PAGE>
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 bank sponsored, commercial paper funded,
multi-seller receivables 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.
Beginning in 1997, the sales of these loans have been recorded in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." 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 various receivables from and
payables to the Trust or Conduit and other assets/liabilities as a result
of securitizations, including: amounts deposited in an investor reserve
account held by the Trust for the benefit of the Trust's certificate
holders; interest rate caps and swaps; accrued interest and fees on the
securitized receivables; servicing fee receivables; recourse reserves;
interest-only strip (see discussion in Note 15); and various other
receivables. These amounts are reported as "other payables due to credit
card securitizations, net" on the Consolidated Balance Sheets.
41
<PAGE>
The Company securitized approximately $1.7 billion and $1.0 billion of
credit card loans in 1997 and 1996, respectively. At December 31, 1997, the
Company had approximately $3.1 billion of investors' interests in
securitized loans, with expected maturities from 1998 to 2006.
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 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 services revenues" and were $47.6
million, $25.5 million, and $4.8 million for the years ended December 31,
1997, 1996 and 1995, respectively. Unearned revenues and reserves for
pending claims are recorded in the consolidated balance sheets in "Accrued
expenses and other liabilities" and amounted to $4.0 million and $2.5
million as of December 31, 1997 and 1996, 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. The Company began performing administrative
services and retained the claims risk for all extended service plans
42
<PAGE>
sold on or after January 1, 1997. As a result, extended service plan
revenues and the incremental direct acquisition costs are deferred and
recognized over the life of the related extended service plan contracts.
The provision for service contract returns charged against revenues for the
years ended December 31, 1997, 1996 and 1995 amounted to $4.6 million, $4.5
million and $3.6 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 $3.6 million, $4.8 million, and $4.2 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
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, overlimit,
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 $9.2 million and $14.3 million as of
December 31, 1997 and 1996, respectively.
SOLICITATION EXPENSES
Credit card account 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.
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 due to 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. The Company has not sold
or terminated any derivative financial instruments.
43
<PAGE>
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 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 years ended December 31, 1997, 1996 and
1995 was $9.4 million, $4.1 million, and $1.2 million, respectively. Cash
paid for income taxes for the same periods was $64.8 million, $41.6
million, and $2.0 million, respectively.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS 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 earnings per share, ("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.
Basic EPS excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. Earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS 128
requirements. The following table presents the computation of basic and
diluted weighted average shares used in the per share calculations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT EPS) 1997 1996 1995
------------------------------------------------------------------------------------------
Income available to common stockholders $ 38,058 $ 20,016 $ 4,581
------------------------------------------------------------------------------------------
Weighted average common shares outstanding 19,225 16,572 15,967
Adjustments for dilutive securities:
Assumed exercise of outstanding stock options 1,013 557 402
------------------------------------------------------------------------------------------
Diluted common shares 20,238 17,129 16,369
------------------------------------------------------------------------------------------
Basic EPS $ 1.98 $ 1.21 $ 0.29
Diluted EPS 1.88 1.17 0.28
------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
CUSTOMER BASE INTANGIBLE
The customer base intangible represents the excess of amounts paid for
portfolio acquisitions over the related credit card loan balances net of
reserves and discounts. The intangible assets are amortized over the
estimated periods of benefit, generally 5 to 7 years, in proportion to the
expected benefits to be recognized.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 12,829 $ 3,679 $
Allowance related to assets acquired, net 4,619
Provision for loan losses 43,989 18,477 4,393
------------------------------------------------------------------------------------------
Loans charged off 30,065 9,514 720
Recoveries 667 187 6
------------------------------------------------------------------------------------------
Net loan charge-offs 29,398 9,327 714
------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 32,039 $ 12,829 $ 3,679
------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT
The carrying value of premises and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $ 6,346 $ 1,013
Computer software and equipment 3,733 2,784
Construction in progress 4,937 1,710
Leasehold improvements 2,439 248
---------------------------------------------------------------------------
TOTAL $ 17,455 $ 5,755
---------------------------------------------------------------------------
Less: Accumulated depreciation and amortization 1,991 592
---------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 15,464 $ 5,163
---------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1996 and 1995 was $1.4 million, $0.4 million, and $0.1 million,
respectively.
45
<PAGE>
NOTE 5 - SHORT-TERM BORROWINGS
On September 16, 1996, the Company executed a $300 million, five-year
revolving credit facility (the "Revolving Credit Facility"), with a group
of banks, guaranteed by FCI.
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 loans 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, limitations on
dividends and a limitation on indebtedness. In addition, the FCI guarantee
includes certain covenants including minimum interest coverage, maximum
leverage and minimum net worth for FCI. At December 31, 1997 and 1996, the
Company and FCI were in compliance with these covenants.
The Company borrows under the Revolving Credit Facility, and prior to 1997,
borrowed from FCI, to fund on-balance-sheet loans and for other general
business purposes. At December 31, 1997 and 1996, the Company had
outstanding borrowings of $144 million and $50 million, respectively, under
the Revolving Credit Facility and outstanding borrowings from FCI of $4.2
million at December 31, 1996. The weighted average interest rates on the
Revolving Credit Facility borrowings at December 31, 1997 and 1996 were
6.5% and 5.9%, respectively. The weighted average interest rates on the
borrowings from FCI was 7.1% at December 31, 1996.
NOTE 6 - PORTFOLIO ACQUISITIONS
In September 1997, the Company acquired a $317 million credit card
portfolio from Key Bank USA, National Association. These credit card
receivables were securitized and sold to investors through the 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 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 approximately 83%. The
Company realized net cash proceeds of approximately $47.2 million from the
sale of such shares after underwriting discounts, commissions and expenses
of the offering.
46
<PAGE>
NOTE 8 - STOCK OPTIONS
In connection with the initial public offering of the Company, 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. As of December 31,
1997 and 1996, 303,925 and 557,425 shares, respectively, 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 are eligible to receive 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. 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 $0.7 million and $7.8 million related to
these options was recorded for the years ended December 31, 1997 and 1996,
respectively.
During 1997 the Company granted 318,500 options to officers and employees
of the Company. At the time of the initial public offering, the Company
granted officers and employees of the Company, Fingerhut, and others
options to purchase an aggregate of 742,625 shares of common stock. 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"). Originally, such plan permitted up
to 20,000 shares of common stock subject to certain adjustments in certain
circumstances. In 1997, the Board of Directors amended the plan to provide
up to 100,000 shares of common stock for awards of options, subject to
adjustments in certain circumstances. During 1997 the Company granted
20,000 options and at the time of the initial public offering the Company
granted 10,000 options. At December 31, 1997 and 1996, 70,000 and 10,000
shares, respectively, were available for grant. This plan is subject to
approval by the shareholders of the Company at the annual meeting in 1998.
Because FCI will still own approximately 83% of the common stock on the
record date for such meeting and FCI has stated it will approve such plan,
the Company expects this plan to be adopted.
The Company has adopted the disclosure-only provisions of SFAS No. 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:
47
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings, as reported $ 38,058 $ 20,016 $ 4,581
Net earnings, pro forma 36,819 17,395 4,581
Diluted earnings per share, as reported 1.88 1.17 0.28
Diluted earnings per share, pro forma 1.82 1.02 0.28
</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
1997 and 1996, respectively: dividend yield of 0.11% and 0.17%; expected
volatility of 68.2% and 25.1%; risk-free interest rate of 6.34% and 6.48%;
and expected lives of 7 years and 6.5 years. There were no options granted
in 1995.
Information regarding the Company's stock options for 1997, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 1,408,700 $ 8.93 656,075 $ 2.76 656,075 $ 2.76
Options exercised
Options granted 338,500 40.58 752,625 14.31
Options canceled/forfeited 65,000 16.00
------------------------------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 1,682,200 15.03 1,408,700 8.93 656,075 2.76
------------------------------------------------------------------------------------------------------------------------------
Weighted-average fair value
of options, granted during
the year 28.29 11.54
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------------------------
Number Weighted- Weighted- Number Weighted-
Outstanding Average Remaining Average Exercise Exercisable at Average Exercise
Exercise Price at 12/31/97 Contractual Life Price 12/31/97 Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.76 752,200 5.7 $ 2.76 553,327 $ 2.76
$16.00-$24.00 604,500 8.8 16.17 295,000 16.27
$24.01-$46.00 325,500 9.7 41.24 10,000 39.00
------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
NOTE 9 - EMPLOYEE BENEFIT PLANS
In January 1997, the Company adopted a defined contribution profit sharing
plan (the "Retirement Plan") that provides retirement benefits for eligible
employees. During 1997, the Company's employees participated in the
Retirement Plan, which provides savings and investment opportunities. The
Retirement Plan stipulates that eligible employees with at least one year
of service may elect to contribute to the Retirement Plan. The Company
matches a portion of employee contributions and makes discretionary
contributions based upon the Company's financial performance. For the year
ended December 31, 1997, the Company contributed $0.9 million to the
Retirement Plan.
Prior to 1997, employees of Direct Merchants Bank participated in a defined
contribution plan maintained by Direct Merchants Bank that covered
substantially all of its employees. This plan was merged with and into the
Retirement Plan and the funds transferred to the Retirement Plan respective
accounts. Direct Merchants Bank employees were eligible to participate in
the Retirement Plan as of January 1, 1997.
NOTE 10 - INCOME TAXES
The components of the provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $66,496 $38,914 $6,238
State 4,663 4,035 921
Deferred (47,334) (30,419) (4,291)
---------------------------------------------------------------------------
$23,825 $12,530 $2,868
---------------------------------------------------------------------------
</TABLE>
A reconciliation of the Company's effective income tax rate compared to the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------
<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% 3.2%
Other, net 0.3% 0.3% 0.3%
---------------------------------------------------------------------------
Effective income tax rate 38.5% 38.5% 38.5%
---------------------------------------------------------------------------
</TABLE>
The "other net" tax rate in 1997, 1996 and 1995 was composed of
miscellaneous items, none of which was individually significant.
49
<PAGE>
The Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS RESULTING FROM FUTURE
DEDUCTIBLE TEMPORARY DIFFERENCES:
Allowance for loan losses and recourse reserves $ 71,240 $ 29,910
Deferred revenues 16,140 2,723
Other 9,344 1,592
-------------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $ 96,724 $ 34,225
-------------------------------------------------------------------------------------
DEFERRED INCOME TAX LIABILITIES RESULTING FROM FUTURE
TAXABLE TEMPORARY DIFFERENCES:
Deferred solicitation and origination costs $ 6,360 $ 1,692
Accrued interest on credit card loans 8,577 578
Other 1,000 427
-------------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES $ 15,937 $ 2,697
-------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 80,787 $ 31,528
-------------------------------------------------------------------------------------
</TABLE>
Management believes, based on the Company's history of operating earnings,
expectations for operating earnings in the future, and the expected
reversal 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.
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 5).
50
<PAGE>
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 provide 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 ($1.5
million was paid in January 1998). 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.
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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net extended service plan revenues $ 7,911 $ 20,420 $ 17,779
EXPENSES:
Interest expense 3,178 1,181
Credit card account and other
product solicitation and marketing expenses 8,432 9,335 8,204
Data processing services and communications 1,837 1,324 320
Third-party customer service and collections expenses 500
Other affiliate cost allocations 1,336 950 1,680
</TABLE>
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.
51
<PAGE>
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 $4.1
billion and $1.2 billion as of December 31, 1997 and 1996, 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 years ended December 31, 1997, 1996 and 1995 was $3.9 million, $1.1
million and $0.2 million, respectively.
Future minimum lease commitments at December 31, 1997 under cancelable and
non-cancelable operating leases are as follows:
<TABLE>
---------------------------------------------------------------------------
<S> <C>
1998 $4,686
1999 3,543
2000 2,196
2001 839
2002 678
Thereafter 2,908
---------------------------------------------------------------------------
Total minimum lease payments $14,850
---------------------------------------------------------------------------
</TABLE>
NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTED PAYMENTS
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 can finance or otherwise supply funds to 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 with certain
restrictions. Such restrictions limit Direct Merchants Bank's ability to
lend to the Company and its affiliates. Additionally, Direct Merchants Bank
is limited in its ability to declare dividends to the Company in accordance
with the National Bank Act dividend provisions.
Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the Office of the Comptroller of the Currency ("OCC"). The OCC
considers a range of factors when determining capital adequacy, such as the
organization's size, quality, liquidity and internal controls. At December
31, 1997 and 1996, 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 OCC.
The Company is also bound by restrictions set forth in an indenture related
to the Senior Notes dated November 7, 1997 (see Note 16). Pursuant to that
indenture, the Company may not make dividend payments in the event of a
default or if all such restricted payments would exceed 25% of the
aggregate cumulative net income of the Company.
52
<PAGE>
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 concentration of credit risk at December 31, 1997 or
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>
DECEMBER 31, 1997
Texas $ 61,844 $ 394,571 $ 456,415
California 58,098 370,652 428,750
Florida 35,654 227,477 263,131
New York 29,246 186,589 215,835
Ohio 17,961 114,589 132,550
Illinois 15,914 101,533 117,447
Pennsylvania 15,681 100,048 115,729
All Others 246,228 1,570,851 1,817,079
------------------------------------------------------------------
TOTAL $ 480,626 $ 3,066,310 $ 3,546,936
------------------------------------------------------------------
</TABLE>
<TABLE>
------------------------------------------------------------------
<S> <C> <C> <C>
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 primarily to moderate
income consumers. Primary risks associated with lending to this market are
that they may be more sensitive to future economic downturn, which may make
them more likely to default on their obligations.
At December 31, 1997, 1996 and 1995, the majority of 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.
53
<PAGE>
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value of its financial instruments in
accordance with SFAS 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
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 DUE TO CREDIT CARD SECURITIZATIONS, NET
The components of this net liability are as follows:
INTEREST-ONLY STRIP
The fair value of the interest-only strip is estimated by discounting the
expected future cash flows from the trusts 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 this, the fair
values presented may not be indicative of the value negotiated in an actual
sale. The future cash flows used to estimate fair value is limited to the
receivables that exist at year end and does not reflect the value
associated with future receivables generated by cardholder activity. The
significant assumptions used to estimate fair value include: (i) interest
rates on trust assets; (ii) payment rates; (iii) anticipated charge-offs
over the life of the loans under the recourse provisions; and (iv) discount
rates and are summarized as follows:
54
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1997 1996
-----------------------------------------------------------------
<S> <C> <C>
Discount rate 10% 9%
Payment rate (monthly) 5% 6%
Default rate (annually) 14% 12%
</TABLE>
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.
OTHER AMOUNTS
For the other components of other payables due to credit card
securitizations, net, the carrying amount is a reasonable estimate of the
fair value.
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.
LONG-TERM DEBT
The fair value of the long-term debt was obtained from a quoted market
price.
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 48,223 $ 48,223 $ 32,082 $ 32,082
Credit card loans, net 448,587 448,587 202,500 202,500
Other payables due to
credit card securitizations, net:
Interest-only strip 2,449 2,449 1,073 1,073
Interest rate swap agreements in a
net receivable position 21,667 2,657
Interest rate cap agreements 3,497 170 4,143 1,989
Other amounts (140,505) (140,505) (41,835) (41,835)
Interest-bearing deposit 1,000 1,000
Short-term borrowings 144,000 144,000 54,163 54,163
Long-term debt 100,000 101,750
-------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
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 the impact of fluctuating interest rates
associated with the spread between the floating rate loans owned by the
Trust and the floating and fixed rate certificates issued by the Trust to
fund the loans. In connection with the issuance of the $513 million Trust
Series 1995-1 variable funding certificates in May 1995, the Company
entered into eight-year agreements with bank counterparties in a total
notional amount of $513 million effectively capping the potential impact to
the Company of increases in the certificates' floating interest rate at
11.2%. Also, in connection with the issuance of $513 million of additional
Trust Series 1995-1 certificates related to the September 1996 amendment of
Trust Series 1995-1, the Company entered into additional six and two-thirds
year agreements in a total notional amount of $513 million effectively
capping the potential impact to the Company of increases in the new
certificates' floating interest rate at 11.2%. The Company entered into
interest rate swap agreements in April 1996 and May 1997 to effectively
offset the potential impact of the fixed rate Trust Series 1996-1 and
1997-1 certificates by paying a floating rate. Total notional amount of
these swap transactions amounted to $605.5 million for Series 1996-1 and
$722.5 million for Series 1997-1. These swaps exchanged an obligation to
pay a weighted-average fixed rate of 6.26% and 6.69%, respectively, for a
one month floating rate based on prevailing 30 day London Interday Offered
Rate ("LIBOR"). The Company receives the benefits and bears the obligations
of these swap transactions, with FCI guaranteeing the Company's performance
under the swap agreements. The obligations of the Company and the
counterparties under these swap agreements are settled on a monthly basis.
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 - LONG-TERM DEBT
In November 1997, the Company privately issued and sold $100 million of 10%
Senior Notes due 2004 (the "Senior Notes") pursuant to an exemption under
the Securities Act of 1933, as amended. In January 1998, the Company
commenced an exchange offer for the Senior Notes pursuant to a registration
statement. The terms of the new Senior Notes are identical in all material
respects to the original private issue. The net proceeds of $97 million
were used to pay down borrowings under the Revolving Credit Facility. The
Senior Notes are unconditionally guaranteed on a senior basis, jointly and
severally, by Metris Direct, Inc. (the "Guarantor"), and all future
subsidiaries of the Company that guarantee any of the Company's
indebtedness, including the Revolving Credit Facility. The guarantee is an
unsecured obligation of the Guarantor and ranks pari passu with all
existing and future unsubordinated indebtedness.
Metris Direct, Inc. has various subsidiaries which have not guaranteed the
Senior Notes. The Company has prepared condensed consolidating financial
statements of the Company, the Guarantor subsidiary and the non-guarantor
subsidiaries for purposes of complying with SEC reporting requirements.
Such financial statements are included in Note 16 to the Company's
consolidated financial statements included in its Annual Report on Form
10-K filed with the SEC.
56
<PAGE>
METRIS COMPANIES INC. AND SUBSIDIARIES
SUMMARY OF CONSOLIDATED QUARTERLY FINANCIAL INFORMATION AND STOCK DATA
(IN THOUSANDS, EXPECT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income $ 24,711 $ 17,215 $ 14,838 $ 12,430
Interest Expense 6,021 2,398 2,073 1,459
Net Interest Income 18,690 14,817 12,765 10,971
Provision for Loan Losses 15,400 11,106 6,429 11,054
Other Operating Income 56,489 41,279 42,661 46,248
Other Operating Expense 43,415 27,856 33,194 33,583
Income before Income Taxes 16,364 17,134 15,803 12,582
---------------------------------------------------------------------------------------------------------------------
Net Income $ 10,064 $ 10,537 $ 9,719 $ 7,738
---------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Earnings per Common Share - Diluted $ 0.50 $ 0.52 $ 0.48 $ 0.38
Shares used to Compute Diluted EPS 20,269 20,299 20,142 20,174
Dividends .01 .01 .01
---------------------------------------------------------------------------------------------------------------------
MARKET PRICES:
High $ 44 1/16 $ 47 13/16 $ 32 13/16 $ 35 1/8
Low 30 32 1/4 22 23 1/4
Close 34 1/4 43 5/16 32 13/16 25
<CAPTION>
1996
---------------------------------------------------------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income $ 9,847 $ 7,728 $ 6,916 $ 5,703
Interest Expense 1,283 965 761 1,097
Net Interest Income 8,564 6,763 6,155 4,606
Provision for Loan Losses 7,921 5,383 483 4,690
Other Operating Income 40,896 32,030 27,930 25,366
Other Operating Expense 32,889 23,976 25,409 19,013
Income before Income Taxes 8,650 9,434 8,193 6,269
---------------------------------------------------------------------------------------------------------------------
Net Income $ 5,320 $ 5,802 $ 5,039 $ 3,855
---------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Earnings per Common Share - Diluted $ 0.28 $ 0.35 $ 0.31 $ 0.23
Shares used to Compute Diluted EPS 18,893 16,507 16,489 16,464
---------------------------------------------------------------------------------------------------------------------
MARKET PRICES:
High $ 25 3/4
Low 20 1/8
Close 24
</TABLE>
STOCK DATA
The Company's common stock, which is traded under the symbol "MTRS," has
been listed on the Nasdaq Stock Market-SM- since October 25, 1996. As of
February 27, 1998, there were 21 holders of record and 2,225 beneficial
holders of the Company's common stock.
57
<PAGE>
CORPORATE INFORMATION
CORPORATE OFFICES
Executive Offices
600 South Highway 169
Interchange Tower, Suite 1800
St. Louis Park, Minnesota 55426
(612) 525-5020
Direct Merchants Credit Card Bank,
National Association
1455 West 2200 South, Suite 300
Salt Lake City, Utah 84119
ANNUAL MEETING
Tuesday, May 12, 1998
9:30 a.m., Marriott City Center
30 South 7th Street
Minneapolis, Minnesota
STOCK LISTING
Nasdaq Stock Market-SM-
Stock Symbol MTRS
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Minneapolis, Minnesota
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
Minneapolis, Minnesota
FORM 10-K
A copy of the Company's Annual Report
on Form 10-K may be obtained free of
charge from the Company's investor
relations contact:
ALFRED A. GALGANO
DIRECTOR, INVESTOR RELATIONS
Phone: (612) 593-4820
Fax: (612) 593-4733
BOARD OF DIRECTORS
THEODORE DEIKEL
CHAIRMAN, METRIS COMPANIES INC.
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
FINGERHUT COMPANIES, INC.
RONALD N. ZEBECK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LEE R. ANDERSON
CHAIRMAN AND CEO
API GROUP, INC.
DUDLEY C. MECUM
MANAGING DIRECTOR
CAPRICORN HOLDINGS, LLC
MICHAEL P. SHERMAN
SENIOR VICE PRESIDENT,
BUSINESS DEVELOPMENT,
GENERAL COUNSEL AND SECRETARY
FINGERHUT COMPANIES, INC.
DEREK V. SMITH
PRESIDENT AND CEO
CHOICEPOINT, INC.
FRANK D. TRESTMAN
PRESIDENT
TRESTMAN ENTERPRISES
AUDIT COMMITTEE
DUDLEY C. MECUM, CHAIRMAN
LEE R. ANDERSON
FRANK D. TRESTMAN
COMPENSATION COMMITTEE
FRANK D. TRESTMAN, CHAIRMAN
DUDLEY C. MECUM
DEREK V. SMITH
EXECUTIVE OFFICERS
RONALD N. ZEBECK
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
WILLIAM J. BRENNAN
SENIOR VICE PRESIDENT,
SALES AND ACCOUNT MANAGEMENT
DOUGLAS McCOY
SENIOR VICE PRESIDENT, OPERATIONS
ROBERT W. OBERRENDER
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
DOUGLAS L. SCALITI
SENIOR VICE PRESIDENT, MARKETING
Z. JILL BARCLIFT
VICE PRESIDENT, ASSISTANT
SECRETARY AND GENERAL COUNSEL
DAVID R. REAK
VICE PRESIDENT, CREDIT RISK
JEAN C. BENSON
DIRECTOR OF FINANCE,
CORPORATE CONTROLLER
CORPORATE OFFICERS
PAUL T. RUNICE
VICE PRESIDENT, TREASURER
DAVID P. TURK
VICE PRESIDENT/MANAGING DIRECTOR,
WARRANTY AND INSURANCE SERVICES
JEAN VERNOR
VICE PRESIDENT, MARKETING
58
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
COMPANY JURISDICTION OF INCORPORATION
Direct Merchants Credit National banking association
Card Bank, National Association
(d/b/a Direct Merchants Bank)
Metris Direct, Inc. Minnesota
(d/b/a Metris Direct)
Metris Receivables, Inc. Delaware
Metris Funding Co. Delaware
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Metris Companies Inc.:
We consent to the incorporation by reference in Registration Statement
No. 333-42529 and Registration Statement No. 333-42961, on Form S-8 of Metris
Companies Inc. of our report dated January 21, 1998 relating to the
consolidated balance sheets of Metris Companies Inc. and subsidiaries as of
December 31, 1997 and 1996, 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, 1997, which report appears in the
December 31, 1997 Annual Report on Form 10-K of Metris Companies Inc.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1997
<CASH> 21,006
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,089
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 480,626
<ALLOWANCE> 32,039
<TOTAL-ASSETS> 673,221
<DEPOSITS> 0
<SHORT-TERM> 144,000
<LIABILITIES-OTHER> 253,183
<LONG-TERM> 100,000
0
0
<COMMON> 192
<OTHER-SE> 175,846
<TOTAL-LIABILITIES-AND-EQUITY> 673,221
<INTEREST-LOAN> 66,695
<INTEREST-INVEST> 1,636
<INTEREST-OTHER> 863
<INTEREST-TOTAL> 69,194
<INTEREST-DEPOSIT> 7
<INTEREST-EXPENSE> 11,951
<INTEREST-INCOME-NET> 57,243
<LOAN-LOSSES> 43,989
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 138,048
<INCOME-PRETAX> 61,883
<INCOME-PRE-EXTRAORDINARY> 38,058
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,058
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.88
<YIELD-ACTUAL> 17.290
<LOANS-NON> 0
<LOANS-PAST> 15,063
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,829
<CHARGE-OFFS> 30,065
<RECOVERIES> 667
<ALLOWANCE-CLOSE> 32,039
<ALLOWANCE-DOMESTIC> 32,039
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
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<INTEREST-INVEST> 867 644 439 318
<INTEREST-OTHER> 299 120 64 29
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<INTEREST-DEPOSIT> 48 36 24 12
<INTEREST-EXPENSE> 4,106 2,823 1,858 1,097
<INTEREST-INCOME-NET> 26,088 17,524 10,761 4,606
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<SECURITIES-GAINS> 0 0 0 0
<EXPENSE-OTHER> 101,287 68,398 44,422 19,013
<INCOME-PRETAX> 32,546 23,896 14,462 6,269
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<PAGE>
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<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Metris Companies Inc. ("Metris" or "the Company") desires to take advantage
of the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995 and is filing this cautionary statement in connection with such safe
harbor legislation. The Company's Form 10-K, the Company's Annual Report to
Shareholders, any Form 10-Q or Form 8-K filed by the Company or any other
written or oral statements made by or on behalf of the Company may also include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. The words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project" and similar
expressions identify forward-looking statements.
The Company wishes to caution investors that any forward-looking statements
made by or on behalf of the Company are subject to uncertainties and other
factors that could cause actual results to differ materially from such
statements. These uncertainties and other factors include, but are not limited
to, the factors listed below (many of which have been discussed in the Company's
prior filings with the Securities and Exchange Commission). Though the Company
has attempted to list comprehensively these important factors, the Company
wishes to caution investors that other factors may in the future prove to be
important in affecting the Company's results of operations. New factors emerge
from time to time and it is not possible for management to predict all of such
factors, nor can it assess the impact of each such factor on the business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only of the Company's views as of the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
DEPENDENCE ON FINGERHUT
As of December 31, 1997, approximately 39% of the Company's credit card
accounts were customers of Fingerhut Corporation ("Fingerhut Customers"),
accounting for approximately 39% of the Company's managed loans, and Fingerhut
Customers are currently the Company's only customers for extended service plans.
Moreover, until the Company further develops its own database of information
based upon its experience as an independent, stand-alone entity, its success in
the credit card business will remain largely dependent upon its exclusive rights
to use information in Fingerhut's proprietary database (the "Fingerhut
Database"), particularly with respect to the experience of Fingerhut Corporation
("Fingerhut") with its customers. Similarly, until the Company develops
extended service plan marketing relationships with other companies, its success
in the extended service plan business will remain largely dependent upon its
right to provide extended service plans to Fingerhut Customers and the level of
Fingerhut's sales of warrantable products. Metris has entered into agreements
with Fingerhut relating to (i) credit cards issued to Fingerhut Customers, (ii)
use of information in the Fingerhut Database and (iii) marketing of extended
service plans to Fingerhut Customers. The loss of the ability to use information
from the Fingerhut Database or to market to Fingerhut Customers would have a
significant adverse economic impact on the Company's results of operations and
future prospects. Significant adverse changes which materially affect
Fingerhut's ability to maintain its database or to continue its catalog sales
business would also have an adverse impact on the Company.
Fingerhut Companies, Inc. ("FCI") is a guarantor of the Company's bank
revolving credit facility. Breaches of covenants contained in the guaranty,
including various financial covenants of FCI, would be
<PAGE>
events of default under the facility. Upon the occurrence of any such event
the facility would be terminable at the option of the lenders. Such events
could have a material adverse impact on the Company's financial condition and
results of operations. To the extent that the FCI guarantee contains certain
financial covenants and the cost of maintaining availability and borrowing
under the revolving credit facility is based on FCI's credit rating, the
Company will be dependent on the financial strength and performance of FCI.
FCI has been impacted by the industry-wide increase in paper and postage
rates, which began in early 1995 and continued into 1996. Primarily as a
result such increases in paper and postage rates, FCI's debt rating was
downgraded in 1996 by Standard & Poor's. FCI is currently rated BBB/Baa2 by
Standard & Poor's and Moody's Investors Service, respectively.
LACK OF PRIOR OPERATING HISTORY AS STAND-ALONE ENTITY
The financial services business of the Company originally was part of FCI
corporate group and therefore the Company 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 Company's initial public offering.
These changes include the establishment of the Company's revolving credit
facility and its own incentive compensation and stock option plans. These
changes may have a substantial impact on the financial position and future
results of operations of the Company. As a result, the historical financial
information included in the Company's Form 10-K, the Company's Annual Report to
Shareholders, any Form 10-Q or Form 8-K filed by the Company or any other
written or oral statements made by the Company, does not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been operated as a stand-alone entity during the periods presented.
FCI no longer guarantees all of the Company's indebtedness.
The Company has entered into an 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 impact of these and other changes on the Company's
operations cannot be fully predicted.
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. Approximately 47% of the Company's credit card accounts
were originated within the last 18 months and over 19% 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.
<PAGE>
ABILITY TO SUSTAIN AND MANAGE GROWTH
In order to meet its strategic objectives the Company must continue to
achieve growth in its credit card loan portfolio. Continued growth in the
Company's credit card loan portfolio depends on (i) the Company's ability to
attract new cardholders, (ii) growth in both existing and new account balances,
(iii) the degree to which the Company loses accounts and account balances to
competing card issuers, (iv) levels of delinquencies and losses, (v) the
availability of funding (including, but not limited to, securitizations) on
favorable terms and (vi) general economic and other factors beyond the control
of the Company. The Company's growth is also dependent on the level of the
Company's marketing expenditures used to solicit new customers and the number of
responses the Company receives with respect to solicitations for its consumer
credit, fee-based and other financial service products. Any increases in postal
rates could have a negative impact on the level and cost of direct mail
marketing activities. No assurance can be given as to the future growth in the
Company's loan portfolio or its profitability.
Further growth of the Company will require employment and training of new
personnel, expansion of facilities, expansion of management systems and access
to additional capital. If the Company is unable to manage its growth
effectively, the Company's profitability and its ability to achieve its
strategic objectives may be adversely affected.
RISKS RELATED TO TARGET MARKET
The Company 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. Nor can there
be assurance that the Company can successfully price its fee based products and
manage claims and service costs.
Primary risks associated with unsecured lending, especially to the
Company's target market, which focus on moderate income consumers, are that (i)
delinquencies and credit losses will increase because of future economic
downturns, (ii) an increasing number of customers will default on the payment of
their outstanding balances or seek protection under bankruptcy laws, resulting
in accounts being charged off as uncollectible, (iii) fraud by cardholders and
third parties will increase and (iv) unfavorable changes in consumers' attitudes
toward financing purchases with debt or in cardholder payment behavior, such as
increases in discretionary repayment of account balances, will result in
diminished interest income. At December 31, 1997, the Company's managed credit
card loans 30 days or more delinquent were 6.6% of managed loans compared to
5.5% at December 31, 1996. A portion of this increase is to be expected as the
Company's portfolio continues to season. 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.
<PAGE>
INTEREST RATE RISK
The Company's credit card accounts generally have finance charges set at a
variable rate with a spread above a designated prime rate or other designated
index. Although the Company intends to manage its interest rate risk through
asset and liability management, as the interest rate environment fluctuates, the
Company may be adversely affected by changes in its cost of funds as well as in
the relationship between the indices used in the Company's securitizations and
other funding and the indices used to determine the finance charges on account
balances.
FUNDING AND SECURITIZATION CONSIDERATIONS
The Company depends heavily upon the securitization of its credit card
loans to fund its operations and to date has been able to complete
securitization transactions on terms that it believes are favorable. There can
be no assurance, however, that the securitization market will continue to offer
attractive funding alternatives. In addition, the Company's ability to
securitize its assets depends on the continued availability of credit
enhancement on acceptable terms and the continued favorable legal, regulatory,
accounting and tax environment for securitization transactions. While the
Company does not at present foresee any significant problems in any of these
areas, any such adverse change could force the Company to rely on other
potentially more expensive funding sources.
Adverse changes in the performance of the Company's securitized assets,
including increased delinquencies and losses, could result in a downgrade or
withdrawal of the ratings on the outstanding certificates under the Company's
securitization transactions or cause early amortization of such certificates.
This could jeopardize the Company's ability to effect other securitization
transactions on acceptable terms, thereby decreasing the Company's liquidity and
forcing the Company to rely on other funding sources to the extent available.
The Company is also dependent on its bank revolving credit facility, which
is guaranteed by FCI. In the event that FCI no longer owns 51% or more of the
Company or FCI breaches its covenants, including various financial covenants
contained in its guarantee, the facility may be terminated by the lenders.
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 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.
<PAGE>
Direct Merchants Bank is also subject to regulation by the Federal Reserve
Board, the Federal Deposit Insurance Corporation and 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. 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. Any failure by the Company to comply with
such legal requirements also could adversely affect its ability to collect the
full amount of the account balances. Changes in federal and state bankruptcy
and debtor relief laws could adversely affect the Company if such changes result
in, among other things, additional administrative expenses and accounts being
written off as uncollectible.
COMPETITION
As a marketer of consumer credit products, the Company 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.
THE SPIN OFF
FCI has announced its intention to Spin Off its interest in the Company.
If the Spin Off occurs, the Company must arrange for refinancing of its
revolving credit agreements and renegotiation of its interest rate swaps and
caps which are currently guaranteed by FCI. In addition, the Company must make
arrangements to obtain its own insurance and arrange for managing internally
many of the administrative duties previously done by FCI. There can be no
assurances in connection with the Spin Off that its endeavors will be successful
or, if managed, that such endeavors will be without cost to the Company.
<PAGE>
CONTROL BY FCI
No assurance can be given that FCI will in fact cause the Spin Off to
occur. Currently, FCI now owns approximately 83% of the outstanding shares
of the Company's common stock. As long as FCI owns such shares, it will have
the ability to elect all the directors of the Company. FCI, therefore,
effectively controls all matters affecting the Company, including the
adoption of amendments to the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation"), any determination with
respect to the acquisition or disposition of Company assets, future issuances
of the Company's common stock, par value $.01 per share (the "common stock ")
or other securities of the Company, the Company's incurrence of debt, and any
dividend payable on the common stock.
If the Spin Off does not occur, there can still be no assurance that FCI
will maintain its ownership interest in the Company or as to the manner or
timing of any disposition of common stock by FCI.
POTENTIAL CONFLICTS OF INTEREST; RELATIONSHIP WITH FCI
CORPORATE OPPORTUNITIES
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 will be prohibited under the Co-Brand Credit Card
Agreement between Fingerhut and the Company from directly or indirectly issuing
a competing, general purpose credit card, substantially all of Fingerhut's sales
are made using credit card loans issued by Fingerhut National Bank, a subsidiary
of FCI. As a result, and as is the case now, FCI and the Company 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 presently offers various types of
credit-related insurance products in connection with the credit it extends to
its customers, and the bank affiliate will in the future offer such products in
connection with the private label credit cards it issues. The Company does not,
and cannot, offer these products in connection with credit extended by Fingerhut
or the bank affiliate because such products can be offered only by an insurance
company or the lender. Therefore, FCI and the Company believe that these
products do not compete with, and have no material effect on, the Company.
To address the potential for conflicts between the Company and FCI, the
Certificate of Incorporation 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 relevant provisions are intended to permit the Company 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 the shareholders. Because these limitations may restrict the Company's
ability to offer new products or services, they may limit the Company's
ability to compete.
The Certificate of Incorporation provides that no opportunity, transaction,
agreement or other arrangement to which FCI or an entity in which FCI has an
interest, is a party, shall be a corporate opportunity of the Company unless
such opportunity, transaction, agreement or other arrangement shall have been
initially offered to the Company before it is offered to FCI or such other
entity, and either (i) the Company has an enforceable contractual interest in
such opportunity, transaction, agreement or other
<PAGE>
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.
FINGERHUT PRIVATE LABEL CREDIT CARDS
FCI has established a limited purpose credit card bank affiliate
("Fingerhut National Bank"), which issues Fingerhut private label credit cards.
Such cards could be used only to purchase FCI products and may compete with the
Company's credit cards with respect to such purchases. To the extent that a
Metris cardholder has a Fingerhut credit card or other private label credit
card, his or her use of or availability of credit under a Metris credit card may
be reduced.
The Company believes FCI's issuance of Fingerhut private label credit cards
will not have a material negative effect on the Company. Fingerhut currently
provides credit to its customers for their purchases of Fingerhut products and
services, and private label credit cards would be an extension of the credit
options Fingerhut currently provides. Any Fingerhut private label credit cards
could be used only to purchase Fingerhut products and services.
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. 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.
<PAGE>
EXTENDED SERVICE PLAN UNDERWRITING
Historically, the Company has contracted with a third party to perform
services related to most of its extended service plans and to underwrite the
risks related to performance under those extended service plans for a fee. The
Company has terminated this agreement for sales on and after January 1, 1997,
and currently administers the extended service plans internally. The Company
will retain the risks associated with performance under the extended service
plans entered into on or after January 1, 1997, but will not assume any risks
already transferred to the third party. There can be no assurance that the
Company will not experience higher than anticipated costs in connection with the
internal administration and underwriting of these plans.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and By-laws contain
restrictions that may discourage other persons from attempting to acquire
control of the Company, including, without limitation, a Board of Directors
that has staggered terms for its members, certain notice and supermajority
voting provisions, and certain "fair price" provisions. These provisions do
not become effective until FCI and its affiliates collectively own
outstanding common stock representing less than 51% of all the outstanding
common stock. The Board of Directors has the authorization to issue
preferred stock in one or more series without the specific approval of the
holders of the common stock. Also, only a majority of the Board of Directors
may call a special meeting of stockholders. If the ownership of the common
stock ceases to be concentrated in a single holder, in certain circumstances,
these devices may render more difficult or tend to discourage a change of
control of the Company or the removal of incumbent management, which could
reduce the market value of the common stock.
