METRIS COMPANIES INC, PRES14A, 1998-12-23

METRIS COMPANIES INC
PRES14A, 1998-12-23
PERSONAL CREDIT INSTITUTIONS

Previous: PACIFIC BIOMETRICS INC, 8-K, 1998-12-23

Next: ENTEX INFORMATION SERVICES INC, 8-K, 1998-12-23

<PAGE>

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ X ] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

METRIS COMPANIES INC.
(Name of Registrant as Specified in Its Charter)

N/A
---------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.

1) Title of each class of securities to which transaction applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):

4) Proposed maximum aggregate value of transaction:

5) Total fee paid:

[ ] Fee paid previously by written preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange
Act rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or Schedule and the date
of its filing.

1) Amount Previously Paid: _________________________________

2) Form Schedule or Registration Statement No.: ____________

3) Filing Party: ___________________________________________

4) Date Filed: ____________________________________________

<PAGE>

[METRIS LOGO]

Dear Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders
(the "Special Meeting") of Metris Companies Inc. (the "Company"), which will
be held on Friday, March 12, 1999, at 10:00 a.m., central standard time, at
the Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota 55343.

At the Special Meeting, you will be asked to consider and vote upon a
proposal of the Company's Board of Directors (Proposal 1) to approve the
terms of and to issue the Company's Series C Perpetual Convertible Preferred
Stock (the "Series C Preferred Stock") in exchange (the "Preferred Stock
Exchange") for (a) the Company's outstanding 12 1/2% Series B Perpetual
Preferred Stock in the stated amount of $200,000,000, (b) $100,000,000
aggregate principal amount of the Company's outstanding 12% Senior Notes due
2006 and (c) outstanding ten-year warrants to purchase 3,750,000 shares of
the Company's common stock, $.01 par value (the "Common Stock"),
(representing approximately 19.5% of the outstanding shares) at $30 per
share, that have been issued to certain affiliates of the Thomas H. Lee
Company. Assuming the Preferred Stock Exchange takes place on the date of
the Special Meeting, the number of shares of Series C Preferred Stock to be
issued will be 824,375. Each share of Series C Preferred Stock has a
pay-in-kind, cumulative dividend rate of 9%, compounded quarterly, and, if
issued, will be convertible into shares of Common Stock at a conversion price
of $37.25 per share, subject to adjustment.

You will also be asked to consider and vote upon a proposal of the
Company's Board of Directors (Proposal 2) to amend the Company's Amended and
Restated Certificate of Incorporation (the "Certificate") to authorize the
issuance of up to 10,000,000 shares of non-voting common stock and to
increase the authorized number of shares of preferred stock to be issued by
the Company from 10,000,000 to 25,000,000 shares.

Finally, you will be asked to consider and vote upon a proposal of the
Company's Board of Directors (Proposal 3) to amend the Certificate to delete
certain provisions which restrict the scope of the Company's business
activities and which are no longer considered appropriate following the
Company's spin-off from Fingerhut Companies, Inc. Proposals 2 and 3 are
referred to as the "Amendments."

THE COMPANY'S BOARD OF DIRECTORS HAS DETERMINED THAT THE PREFERRED STOCK
EXCHANGE AND THE AMENDMENTS ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE PREFERRED STOCK EXCHANGE AND THE
AMENDMENTS AND RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.

You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Proxy Statement for details of the Preferred Stock
Exchange, the Amendments and additional related information.

<PAGE>

Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-prepaid envelope. Your stock will be voted
in accordance with the instructions you have given in your proxy, or, if no
instructions are given, your executed proxy will be voted for Proposals 1, 2
and 3 in accordance with the recommendations of the Board of Directors. If
you attend the Special Meeting, you may vote in person if you wish, even
though you previously returned your proxy card. Your prompt cooperation will
be greatly appreciated.

Sincerely,

Ronald N. Zebeck
President and Chief Executive Officer

St. Louis Park, Minnesota
January _____, 1999

<PAGE>

METRIS COMPANIES INC.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426

BY ORDER OF THE BOARD OF DIRECTORS

--------------------

NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON
MARCH 12, 1999

--------------------

To the Stockholders of
Metris Companies Inc.

A Special Meeting of Stockholders (the "Special Meeting") of Metris
Companies Inc. (the "Company") will be held on Friday, March 12, 1999, at
10:00 a.m., central standard time, at the Marriott Southwest, 5801 Opus
Parkway, Minnetonka, Minnesota 55343 for the following purposes:

(1) To consider and vote upon a proposal (Proposal 1) to approve the
terms of and to issue the Company's Series C Perpetual Convertible
Preferred Stock (the "Series C Preferred Stock") in exchange (the
"Preferred Stock Exchange") for (a) the Company's outstanding 12 1/2%
Series B Perpetual Preferred Stock in the stated amount of
$200,000,000, (b) $100,000,000 aggregate principal amount of the
Company's outstanding 12% Senior Notes due 2006 and (c) outstanding
ten-year warrants to purchase 3,750,000 shares of the Company's
common stock, $.01 par value (the "Common Stock"), (representing
approximately 19.5% of the outstanding shares) at $30 per share,
that have been issued to certain affiliates of the Thomas H. Lee
Company. Assuming the Preferred Stock Exchange takes place on the
date of the Special Meeting, the number of shares of Series C
Preferred Stock to be issued will be 824,375. Each share of
Series C Preferred Stock has a pay-in-kind, cumulative
dividend rate of 9%, compounded quarterly, and, if issued, will be
convertible into shares of Common Stock at a conversion price of
$37.25 per share, subject to adjustment;

(2) To consider and vote upon a proposal (Proposal 2) to amend Article IV
of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate") to authorize the issuance of up to 10,000,000
shares of non-voting common stock and to increase the authorized
number of shares of preferred stock to be issued by the Company from
10,000,000 to 25,000,000 shares;

(3) To consider and vote upon a proposal (Proposal 3) to amend Article III
and delete Article XIII of the Certificate to remove certain
restrictions on the Company's

<PAGE>

business activities which are no longer considered appropriate
following the Company's spin-off from Fingerhut Companies, Inc.; and

(4) In the discretion of the persons named in the proxy, to transact any
other business that may properly come before the Special Meeting or
any adjournment thereof.

The accompanying Proxy Statement more fully describes the Preferred Stock
Exchange and other matters referred to above.

Approval of Proposal 1 requires the affirmative vote of a majority of all
shares represented and voted at the Special Meeting, whether in person or by
proxy. Approval of Proposals 2 and 3 requires the affirmative vote of a
majority of the outstanding shares of Common Stock.

The Board of Directors has fixed the close of business on January 19, 1999
as the record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting.

By Order of the Board of Directors,

Z. Jill Barclift
Executive Vice President, General Counsel and
Secretary

St. Louis Park, Minnesota
January _____, 1999

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY OR, IF NO INSTRUCTIONS ARE GIVEN, YOUR
EXECUTED PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS CONTAINED IN THIS PROXY STATEMENT. IF
YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH
YOU PREVIOUSLY RETURNED YOUR PROXY CARD. YOUR PROMPT COOPERATION WILL BE
GREATLY APPRECIATED.

<PAGE>

Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
(612) 525-5020

-------------

PROXY STATEMENT

-------------

The accompanying proxy is solicited by the Board of Directors (The "Board
of Directors" or "Board") of Metris Companies Inc., a Delaware corporation (the
"Company"), for use at a Special Meeting of Stockholders (the "Special Meeting")
to be held on Friday, March 12, 1999, at 10:00 a.m., central standard time, at
the Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota 55343, and any
adjournments thereof.

At the Special Meeting, stockholders of the Company at the close of
business on January 19, 1999 will consider and vote upon a proposal of the
Company's Board of Directors (Proposal 1) to approve the terms of and to
issue the Company's Series C Perpetual Convertible Preferred Stock (the
"Series C Preferred Stock") in exchange (the "Preferred Stock Exchange") for
(a) the Company's currently outstanding 12 1/2% Series B Perpetual Preferred
Stock (the "Series B Preferred Stock") in the stated amount of $200,000,000,
(b) $100,000,000 aggregate principal amount of the Company's currently
outstanding 12% Senior Notes due 2006 (the "Senior Notes") and (c) the
Company's currently outstanding ten-year warrants (the "Warrants") to
purchase 3,750,000 shares of the Company's common stock, $.01 par value (the
"Common Stock"), (representing approximately 19.5% of the outstanding shares)
at $30 per share, that have been issued to certain affiliates of the Thomas
H. Lee Company (the "Lee Investors"). Assuming the Preferred Stock Exchange
takes place on the date of the Special Meeting, the number of shares of
Series C Preferred Stock to be issued will be 824,375. Each share of Series
C Preferred Stock has a pay-in-kind, cumulative dividend rate of 9%,
compounded quarterly, and, if issued, will be convertible into shares of
Common Stock at a conversion price of $37.25 per share, subject to adjustment.

One of the primary reasons for the spin-off of the Company from Fingerhut
Companies Inc. ("Fingerhut") was to allow the Company to independently raise
equity. The Company had contemplated raising equity capital in the second half
of 1998, following the spin-off, in order to support its growth plan, provide
capital for portfolio acquisitions, ensure compliance with bank credit facility
covenants and continue to strengthen its capital base. On November 13, 1998,
recognizing difficult market conditions which restricted the Company's ability
to access the capital markets in a timely fashion, the Company entered into a
securities purchase agreement (the "Securities Purchase Agreement") providing
for the issuance and private placement of the Series B Preferred Stock, the
Senior Notes and the Warrants to the Lee Investors. The Company used the net
proceeds of the private placement, which closed on December 9, 1998, to provide
funding in part for the concurrent purchase of a portfolio of approximately $821
million of credit card receivables from PNC National Bank (the "PNC Portfolio")
and to pay down short-term debt of the Company.

<PAGE>

The Lee Investors initially intended to purchase and the Company intended
to issue the Series C Preferred Stock. However, the issuance of the Series C
Preferred Stock, which initially represents __% of the voting power of the
Company, requires both regulatory and stockholder approval. The Company's
wholly-owned subsidiary, Direct Merchants Credit Card Bank, N.A., is regulated
by the Office of the Comptroller of the Currency (the "Comptroller") which must
receive notice of and not disapprove any transfer of voting securities
potentially resulting in a change of control of the Company ("OCC Approval").
Similarly, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires the
approval of the contemplated issuance of the Series C Preferred Stock ("HSR
Approval"). In addition, the rules of the National Association of Securities
Dealers, Inc. (the "NASD") require stockholder approval of certain issuances of
voting stock by companies whose securities are quoted on the Nasdaq National
Market. The NASD rules require that stockholder approval be obtained prior to
the issuance of the Series C Preferred Stock. Due to the non-voting nature of
the securities issued to the Lee Investors on December 9, 1998, OCC Approval,
HSR Approval and stockholder approval were not required at that time.

The Securities Purchase Agreement contemplates that, upon obtaining all
necessary approvals (including approval of Proposal 1), the Company will
automatically exchange the outstanding Series B Preferred Stock, Senior Notes
and Warrants for the Series C Preferred Stock. In the event that the Company
does not obtain the necessary approvals on or prior to March 31, 1999 (or such
later date prior to June 30, 1999 as the parties agree), the annual pay-in-kind
dividend rate on the Series B Preferred Stock increases from 12 1/2% to 15%,
compounded quarterly, and the annual interest rate on the Senior Notes increases
from 12% to 15%, payable semi-annually. In the event that the Company does not
obtain stockholder approval for Proposal 1, but does obtain the regulatory
approvals, the Warrants become exercisable at $30 per share. As of January __,
1999, the closing price for the Common Stock was $__ per share. The risks and
disadvantages of the failure to approve Proposal 1, including the adverse
economic consequences to the Company and its stockholders, are more fully
described on page 33 of this Proxy Statement.

At the Special Meeting, stockholders will also be asked to vote upon a
proposal of the Company's Board of Directors (Proposal 2) to amend Article IV
of the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") to authorize the issuance of up to 10,000,000 shares of
non-voting common stock, $.01 par value (the "Non-Voting Common Stock"), and
to increase the authorized number of shares of preferred stock, $.01 par
value (the "Preferred Stock"), to be issued by the Company from 10,000,000 to
25,000,000 shares. The Board of Directors has already authorized the
issuance of approximately 4,500,000 shares of Series B, C and D Preferred
Stock, in aggregate. Under certain circumstances, a portion of the Series C
Preferred Stock, instead of being convertible into shares of Common Stock,
may be convertible into Non-Voting Common Stock or Series D Junior
Participating Convertible Preferred Stock (the "Series D Preferred Stock").
The Company currently has no authorized Non-Voting Common Stock. To assure
the availability of Non-Voting Common Stock and to improve the Company's
flexibility to issue additional Preferred Stock in the future, the Board of
Directors has proposed this amendment to Article IV of the Certificate.

2
<PAGE>

Finally, at the Special Meeting, stockholders will be asked to vote upon a
proposal of the Company's Board of Directors (Proposal 3) to amend Article III
and delete Article XIII of the Certificate to remove certain restrictions on the
Company's business activities which are no longer considered appropriate
following the Company's spin-off from Fingerhut. The Board of Directors
proposes that Article III be amended to state that the Company may engage in any
business or activity and may exercise any powers permitted to corporations under
the General Corporation Law of the State of Delaware. This amendment would
remove various limitations on the scope of the Company's business activities
which applied at the time Fingerhut was the controlling stockholder of the
Company. Similarly, the Board of Directors proposes that Article XIII, which
regulates corporate opportunities involving Fingerhut and the Company, be
deleted in its entirety. The Board believes that the present restrictions in
the Certificate unduly limit the Company's ability to engage in a broad range of
business activities and are no longer necessary or appropriate given that
Fingerhut has ceased to be the controlling stockholder of the Company.
Proposals 2 and 3 are referred to as the "Amendments."

3
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

PROPOSAL 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
What is the Company Asking You to Approve?. . . . . . . . . . . . . . . . 9
What is the Background and Reason for the Preferred Stock Exchange? . . . 9
What are the Terms of the Series C Preferred Stock? . . . . . . . . . . . 11
What Other Rights or Limitations Do the Purchasers of the Series C
Preferred Stock Have?. . . . . . . . . . . . . . . . . . . . . . . . 19
Who are the Lee Investors?. . . . . . . . . . . . . . . . . . . . . . . . 20
What are the Principal Terms of the Existing Securities Sold to the Lee
Investors? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
What are the Principal Differences Between the Existing Securities and
the Series C Preferred Stock?. . . . . . . . . . . . . . . . . . . . 25
Do the Existing Securities and the Series C Preferred Stock Impact
the Company's Earnings Per Share and Other Financial Data
Differently? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Are There Any Risks or Disadvantages to the Company If the Stockholders
Do Not Approve Proposal 1 Providing for the Preferred Stock
Exchange?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
How Will the Issuance of the Series C Preferred Stock Impact the
Company's Capitalization?. . . . . . . . . . . . . . . . . . . . . . 34
Are There Any Tax Implications to the Company of the Preferred Stock
Exchange?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Are There Any Anti-Takeover Implications of the Preferred Stock
Exchange?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Why is Stockholder Approval Sought for Proposal 1?. . . . . . . . . . . . 36
What Does the Board of Directors Recommend With Respect to Proposal 1?. . 36

PROPOSAL 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
What is the Company Asking You to Approve?. . . . . . . . . . . . . . . . 37
What is the Company's Current Capital Structure?. . . . . . . . . . . . . 37
What are the Terms of the Non-Voting Common Stock?. . . . . . . . . . . . 37
What are the Terms of the Preferred Stock?. . . . . . . . . . . . . . . . 40
What is the Impact of the Approval or Disapproval of Proposal 2?. . . . . 40
Why is the Company Requesting the Creation of the Non-Voting
Common Stock?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Why is the Company Requesting an Increase in the Number of
Authorized Shares of Preferred Stock?. . . . . . . . . . . . . . . . 41
What is the Text of the Proposed Amendments?. . . . . . . . . . . . . . . 41
What are the Possible Effects of the Adoption of Proposal 2?. . . . . . . 44
What Does the Board of Directors Recommend With Respect to
Proposal 2?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

PROPOSAL 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
What is the Company Asking You to Approve?. . . . . . . . . . . . . . . . 45
Why is the Company Requesting the Deletion of Those Provisions of the
Certificate? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
What is the Text of the Proposed Amendment? . . . . . . . . . . . . . . . 45
What Does the Board of Directors Recommend With Respect to
Proposal 3?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

4
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . 47

NOTE REGARDING FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . . . . 49

WHERE YOU CAN FIND MORE INFORMATION. . . . . . . . . . . . . . . . . . . . . . 50

</TABLE>

5
<PAGE>

THE SPECIAL MEETING

DATE, TIME AND PLACE

The Special Meeting will be held on Friday, March 12, 1999, at 10:00 a.m.,
central standard time, at the Marriott Southwest, 5801 Opus Parkway, Minnetonka,
Minnesota 55343.

PURPOSE

At the Special Meeting, you will be asked to consider and vote upon the
Preferred Stock Exchange and the Amendments. The Board of Directors is not
currently aware of any business to be acted upon at the Special Meeting other
than as described in this Proxy Statement. If, however, other matters are
properly brought before the Special Meeting, the persons appointed as proxies
will have discretion to vote on those matters according to their judgment.

RECORD DATE AND OUTSTANDING SHARES

The Board of Directors has fixed the close of business on January 19, 1999
as the record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting. As of the record date, the Company had
outstanding __________ shares of Common Stock. Each share of Common Stock is
entitled to one vote on all matters coming before the Special Meeting.

QUORUM

The holders of one-third of the outstanding shares entitled to vote at the
Special Meeting, present in person or represented by proxy, will constitute a
quorum for the transaction of business at the Special Meeting. In the absence
of a quorum, the holders of a majority of the shares represented at the Special
Meeting have the power to adjourn the Special Meeting without further notice,
other than by announcement at the Special Meeting at the time of its
adjournment. At any adjourned meeting at which a quorum exists, the
stockholders entitled to vote may transact any business that might have been
transacted at the original meeting. If and when a quorum exists at the Special
Meeting or any adjourned meeting, the stockholders present or represented at the
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal from the meeting of stockholders counted in determining the existence
of a quorum. Please be aware that, notwithstanding the existence of a quorum, a
majority of the outstanding shares of Common Stock is necessary to approve
Proposals 2 and 3 (see "Required Vote" below).

VOTING METHODS AND PROXIES

Unless you hold your shares in the Metris Retirement 401(k) Plan, you can
vote on the matters to come before the Special Meeting in one of two ways:

- You can come to the Special Meeting and cast your vote there; or
- You can vote by signing and returning the enclosed proxy card.

6
<PAGE>

The Board of Directors has selected Ronald N. Zebeck and Z. Jill Barclift,
the persons named on the proxy card accompanying this Proxy Statement, to serve
as proxies for the Special Meeting. Each of Ronald N. Zebeck and Z. Jill
Barclift is an officer of the Company. All shares represented by properly
executed proxies received prior to or at the Special Meeting and not revoked
will be voted in accordance with the instructions indicated on those proxies or,
if no instructions are given, for Proposals 1, 2 and 3 in accordance with the
recommendation of the Board of Directors contained in this Proxy Statement. We
urge you to mark the box on the proxy to indicate how you want your shares of
Common Stock to be voted. If matters other than those described in this Proxy
Statement are properly presented at the Special Meeting, the persons named as
proxies will vote in accordance with their own judgment with respect to those
matters, unless you withhold authority to do so in the proxy.

Any stockholder who executes and returns a proxy may revoke such proxy at
any time before it is voted by: (i) notifying the Secretary of the Company in
writing at 600 South Highway 169, Suite 1800, St. Louis Park, Minnesota 55426;
(ii) granting a subsequent proxy; or (iii) appearing in person and voting at the
Special Meeting. Attendance at the Special Meeting will not, by itself,
constitute revocation of a proxy.

IF YOUR SHARES ARE HELD IN THE NAME OF YOUR BROKER, BANK OR OTHER NOMINEE,
THE INSPECTORS WILL REQUIRE YOU TO PRESENT A POWER OF ATTORNEY FROM SUCH BROKER,
BANK OR NOMINEE FOR YOU TO VOTE SUCH SHARES AT THE SPECIAL MEETING. Please
contact your broker, bank or nominee.

SPECIAL VOTING INSTRUCTIONS FOR STOCKHOLDERS IN THE METRIS 401(k)

If you participate in the Metris Retirement 401(k) Plan, an employee
benefit plan of the Company, please return your proxy in the envelope provided
by _________, 1999. Norwest Bank Minnesota, N.A., the tabulator, will calculate
the votes returned by all holders in the Metris Retirement 401(k) Plan. First
Trust National Association, the Trustee for the plan, will act as your proxy for
the shares of Common Stock held in your 401(k) account. If your voting
instructions are not received by ________, 1999, those shares will be voted by
the Trustee in its absolute discretion. Holders of shares in the Metris
Retirement 401(k) Plan will not be permitted to vote such shares at the Special
Meeting.

REQUIRED VOTE

Approval of Proposal 1 requires the affirmative vote of a majority of the
shares represented and voted at the Special Meeting, in person or by proxy, with
respect to Proposal 1. Approval of Proposals 2 and 3 requires the affirmative
vote of a majority of the outstanding shares of Common Stock.

Votes cast in person or by proxy will be counted by persons appointed by
the Company to act as inspectors at the Special Meeting. The inspectors will
treat shares represented by proxies that reflect abstentions as shares that are
present and entitled to vote for the purpose of determining a quorum.
Abstentions will not be deemed to be cast and therefore will have no effect on
the outcome of Proposal 1. However, because Proposals 2 and 3 require a
majority of

7
<PAGE>

the outstanding shares of Common Stock, abstentions will have the same legal
effect as a vote against Proposals 2 and 3.

Broker non-votes occur where a broker holding stock in street name votes
the shares on some matters but not others. The missing votes are deemed to be
"broker non-votes." The inspectors will treat broker non-votes as shares that
are present and entitled to vote for the purpose of determining a quorum.
However, for the purpose of determining the outcome of any matter as to which
the broker or nominee has indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).

As of the record date, directors and executive officers of the Company and
their affiliates beneficially owned approximately ____% of the outstanding
shares of Common Stock entitled to vote at the Special Meeting. Each of the
directors and executive officers of the Company and their affiliates plans to
vote or direct the vote of all shares of Common Stock over which he or she has
voting control IN FAVOR of Proposals 1, 2 and 3.

INFORMATION REGARDING TABULATION OF THE VOTE

The Company has a policy that all proxies, ballots and votes tabulated at a
meeting of its stockholders are confidential, and the votes will not be revealed
to any Company employee or anyone else, other than the inspectors, except as
necessary to meet applicable legal requirements.

PROXY SOLICITOR

The Company has retained Morrow & Co., Inc. to aid in the solicitation of
proxies. The Company estimates that the cost of these services will be
approximately $[7,500] plus expenses. In addition to solicitation by mail,
proxies may also be solicited by telephone, telegram or otherwise. The Company
will bear the entire cost of soliciting proxies from its stockholders and will
reimburse brokers or other persons holding stock in their names or in the names
of their nominees for their reasonable expenses incurred in forwarding proxy
materials to beneficial owners of Common Stock.

8
<PAGE>

PROPOSAL 1

PROPOSAL TO APPROVE THE ISSUANCE OF THE COMPANY'S SERIES C
PREFERRED STOCK IN EXCHANGE FOR ITS OUTSTANDING SERIES B
PREFERRED STOCK, SENIOR NOTES AND WARRANTS

1. WHAT IS THE COMPANY ASKING YOU TO APPROVE?

You are being asked to approve the terms and issuance of the Company's
Series C Preferred Stock, which will represent more than 20% of the voting power
of the outstanding capital stock of the Company, in exchange for the Company's
outstanding Series B Preferred Stock, Senior Notes and Warrants.

If you approve this Proposal 1 and if the Company receives certain required
regulatory approvals, the Series C Preferred Stock in the stated amount of
$300,000,000 (plus accrued dividends from December 9, 1998) will be issued in
exchange for the currently outstanding Series B Preferred Stock in the stated
amount of $200,000,000, $100,000,000 aggregate principal amount of Senior Notes
and the currently outstanding Warrants to purchase 3,750,000 shares of Common
Stock at $30 per share.

2. WHAT IS THE BACKGROUND AND REASON FOR THE PREFERRED STOCK EXCHANGE?

On October 23, 1997, Fingerhut filed an application with the Internal
Revenue Service for a letter ruling regarding the tax-free nature of the
contemplated spin-off of the Company. The decision to spin-off the Company from
Fingerhut was motivated primarily by the Company's need for additional equity in
order to finance its growth. During the latter part of 1998, the Company had
been considering raising additional equity capital to meet its ongoing growth
objectives. However, the Company was unable, due to legal and tax restrictions,
to sell Common Stock to outside investors so long as Fingerhut remained its
controlling shareholder. Fingerhut obtained the letter ruling on August 17,
1998, and the spin-off was completed on September 25, 1998.

In anticipation of the letter ruling and the subsequent spin-off from
Fingerhut, the Company filed a registration statement on Form S-3 with the SEC
on August 3, 1998. On September 8, 1998, the Company announced the execution of
a definitive agreement to purchase the PNC Portfolio, which increased its need
to raise equity capital. The SEC declared the Registration Statement effective
on September 28, 1998, 3 days after the spin-off, and the Company intended to
commence a roadshow during the week of October 12, 1998 to effect a public
offering of Common Stock. At that time, the price of the Company's Common Stock
had fallen from its 52-week high in August of $80-1/8 per share to a closing
price of $49-7/8 per share.

In early October, accounting issues concerning certain companies in the
fee-based services industry negatively affected the trading price of the stock
of those companies, including the Company. These issues, among other things,
caused two brokerage firms to lower their recommendations pertaining to the
Company's Common Stock. On October 5, 1998, the

9
<PAGE>

Company issued a press release stating that the SEC staff had recently changed
its position regarding revenue recognition of fee-based services for which a
full refund period exists and that the Company's previous accounting policies
followed generally accepted accounting principles. The Company estimated the
cumulative impact of the change in recognition of certain fee-based services
revenues and expenses to be a $68,000 increase in net income for the third
quarter of 1998. The Company also mentioned in its press release that the SEC
staff was deliberating a possible change in accounting for direct-response
advertising costs which, if the Company were required to adopt the change, would
have resulted, as of September 30, 1998, in an estimated, cumulative, one-time,
non-cash decrease in net income of $14.1 million, or $0.70 per share. Shortly
following the press release, several class action lawsuits were filed against
the Company and certain of its officers. On October 14, the Company issued a
press release stating that based upon guidance the SEC had provided to another
fee-based services company, capitalizing and amortizing qualifying costs related
to direct-response advertising continues to be in accordance with generally
accepted accounting principles and therefore, the Company would not be taking
the contemplated $14.1 million one-time, non-cash charge to earnings.

As a result of these events, as well as a general market decline in
financial services stocks from August to October, 1998, the Common Stock closed
on October 7, 1998 at $17 3/4 per share, a decline of 78% from the high of
$80-1/8 in August. Given these factors, general market conditions and the
volatility of the Common Stock during this period, the Company determined, after
consultation with its financial advisor, Donaldson Lufkin & Jenrette Securities
Corporation, that it was not practicable or feasible at that time to publicly
issue the large amount of Common Stock, at a price and on a timetable acceptable
to the Company, required to provide additional equity capital for the Company
and to fund a portion of the purchase price of the PNC Portfolio. During
October, 1998, the Company began to consider alternative means of raising the
needed equity and, in evaluating its options, solicited proposals from a number
of private investors. On November 2, 1998, amid discussions with certain
private investors concerning a possible equity investment, the Company announced
the resignation of its Chief Financial Officer, Robert W. Oberrender, to take
another position. On November 13, 1998, the Company entered into the Securities
Purchase Agreement with the Lee Investors to sell the securities described below
and to provide for the issuance of the Series C Preferred Stock in the Preferred
Stock Exchange. The Company and the Lee Investors finalized various material
terms of the transaction on December 3, 1998. The Company's Common Stock closed
on December 3, 1998 at $31 per share.

On December 9, 1998, the Company issued and sold to the Lee Investors
536,913 shares of Series B Preferred Stock in the stated amount of $200,000,000,
$100,000,000 aggregate principal amount of Senior Notes, and Warrants to
purchase 3,750,000 shares of Common Stock at an exercise price of $30 per share
(collectively, the "Existing Securities"). The Company used the net proceeds
from the sale to provide funding in part for the purchase of a portfolio of
approximately $821 million in credit card receivables from PNC National Bank
pursuant to a contract it entered into with PNC National Bank in September, 1998
and to pay down short-term debt.

The Lee Investors desired to purchase the Series C Preferred Stock
initially because such stock is convertible into Common Stock and has equity
appreciation features and voting rights, but the Series C Preferred Stock could
not be issued prior to obtaining OCC Approval, HSR

10
<PAGE>

Approval and stockholder approval as required by rules of the NASD. The Company
also desired to sell the Series C Preferred Stock initially to the Lee Investors
because the Series C Preferred Stock would increase the Company's equity by $100
million in excess of the Existing Securities, ease compliance with bank credit
facility and indenture covenants, facilitate future growth and expansion and
have a pay-in-kind dividend rate which is lower than the pay-in-kind dividend
rate on the Series B Preferred Stock and the cash dividend rate on the Senior
Notes. To enable the Company to satisfy its contractual commitment to purchase
the PNC Portfolio on a timely basis and to provide the Company with needed
equity to support ongoing growth, the Lee Investors were willing to purchase the
Existing Securities. The Company could promptly issue the Existing Securities,
due to their non-voting nature, without obtaining the requisite regulatory and
stockholder approvals.

3. WHAT ARE THE TERMS OF THE SERIES C PREFERRED STOCK?

The following summarizes certain terms of the Series C Preferred Stock. We
have attached a copy of the Certificate of Designation establishing the Series C
Preferred Stock (the "Series C Certificate of Designation") as APPENDIX A. This
discussion is not complete, is qualified in its entirety by, and you should read
it in conjunction with, the Series C Certificate of Designation.

The Series C Certificate of Designation designates 2,000,000 shares of the
Company's Preferred Stock as Series C Preferred Stock, par value $.01 per share,
and fixes a purchase price of $372.50 per share. The Series C Preferred Stock
will rank senior or equal (with respect to dividends and liquidation payments)
to any future Preferred Stock of the Company.

DIVIDENDS

The Company will pay dividends on the Series C Preferred Stock quarterly,
on a cumulative basis, in additional shares of Series C Preferred Stock at an
annual rate of 9%, compounded quarterly. In addition, holders of the Series C
Preferred Stock will be entitled to receive all dividends paid with respect to
the Common Stock (other than dividends payable in additional shares of Common
Stock) on an as-converted basis. The Company has paid a quarterly dividend of
$.01 per share on the Common Stock each of the last seven quarters. After
December 9, 2008, the annual dividend rate on the Series C Preferred Stock will
increase to 15%, compounded quarterly. However, on or after December 9, 2008,
the Company will have the option to call the Series C Preferred Stock at par
plus accrued dividends. The dividends on the Series C Preferred Stock are
subject to further increase upon certain circumstances after a Change of
Control, as discussed below. If the Board of Directors determines in good faith
for legal, tax, regulatory or other good reason that it is inappropriate or
inadvisable to pay one or more dividends in-kind as described above, the Board
may, by a vote of 80% of its members (including a majority of the directors
elected by the holders of Series C Preferred Stock or, if there are no such
directors, the holders of a majority of the outstanding shares of Series C
Preferred Stock), determine to pay such dividend in cash, debt securities or
other securities of the Company. In order to make such a substitution, the
Board must believe that the dividend would be substantially economically
equivalent to the in-kind dividend that otherwise would have been declared.

11
<PAGE>

CONVERSION AT THE OPTION OF THE HOLDER

For each share of Series C Preferred Stock converted into Common Stock, the
holder will receive that number of shares of Common Stock (valued at the
conversion price, which is initially $37.25 per share) worth $372.50 plus
accrued dividends plus a premium amount (the "Premium Amount") designed to
guarantee that the holder receives the benefit of seven years worth of dividends
at the 9% annual rate (the "Conversion Value"). However, in the event of an
optional conversion by any holder of the Series C Preferred Stock prior to
January 1, 2003, the Premium Amount will be reduced. If the optional conversion
occurs on or prior to January 1, 2000, the holder will not receive any Premium
Amount. If the optional conversion occurs after January 1, 2000, the Premium
Amount related to each share converted will be reduced so that the total number
of shares of Common Stock to be received by the holders approximately equals the
amount indicated in the following table:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Holders will receive a
total number of shares of
Common Stock (including
For an optional conversion of all shares the Premium Amount) of
between: approximately:
-----------------------------------------------------------------------------
<S> <C>
January 1, 2000 through December 31, 2000 9.7 million
-----------------------------------------------------------------------------
January 1, 2001 through December 31, 2001 11.9 million
-----------------------------------------------------------------------------
January 1, 2002 through December 31, 2002 13.0 million
-----------------------------------------------------------------------------
January 1, 2003 through December 31, 2003 14.2 million
-----------------------------------------------------------------------------
January 1, 2004 through December 31, 2004 15.0 million
-----------------------------------------------------------------------------
</TABLE>

The conversion price is subject to adjustment upon the occurrence of
certain events including:

- the issuance of Common Stock as a dividend or distribution on the
Common Stock;

- a subdivision, combination, consolidation or reclassification of the
Common Stock;

- the issuance of Common Stock (or options, rights, warrants or other
securities convertible into or exchangeable for shares of Common
Stock) at a price per share less than the conversion price in effect
on the date of distribution (except for issuances authorized by
certain employee benefit plans and other options of the Company); and

- any reductions in the conversion price as the Company deems advisable
to prevent any distribution treated for federal income tax purposes as
a dividend of stock or stock rights from being taxable to the holders
of Common Stock.

12
<PAGE>

The Series C Preferred Stock is normally convertible into Common Stock.
However, in the event that such conversion would result in a stockholder or
group (within the meaning of Rules 13d-3 and 13d-5 promulgated under the
Exchange Act) obtaining 35% or more of the outstanding voting stock of the
Company, the indenture which governs the Company's outstanding 10% Senior Notes
due 2004 ("10% Notes") requires the Company to make an offer to purchase those
notes. Accordingly, for so long as any of the Company's 10% Notes remain
outstanding, in the event that the conversion of the Series C Preferred Stock
into Common Stock would cause any stockholder to own 35% or more of the
outstanding voting stock of the Company, the excess amount of shares of Series C
Preferred Stock will be convertible into non-voting stock. Such non-voting
stock will consist of Non-Voting Common Stock, if the stockholders approve
Proposal 2, or in the alternative, Series D Preferred Stock. The Non-Voting
Common Stock, if issued, will automatically convert into Common Stock at the
time such conversion will not trigger the restrictions on beneficial ownership
of voting stock set forth in the indenture relating to the 10% Notes. The terms
of the Series D Preferred Stock are essentially the same as the terms of the
Common Stock, except that the Series D Preferred Stock has a liquidation
preference of $.01 per share and is non-voting, except as required by law. In
addition, like the Non-Voting Common Stock, the Series D Preferred Stock will
automatically convert into Common Stock at the time such conversion will not
trigger the restrictions set forth in the indenture described above.

MANDATORY CONVERSION

At any time after December 9, 2005, the Series C Preferred Stock will
automatically convert into Common Stock, Non-Voting Common Stock or Series D
Preferred Stock, as described above, when the 20-day average trading price of
the Common Stock equals or exceeds $64 per share (as adjusted).

OPTIONAL REDEMPTION

At any time after December 31, 2001, the Company will have the option to
redeem the Series C Preferred Stock at a redemption price of $383.68 (103% of
the par value of $372.50) per share plus all accrued dividends to the date of
redemption if (i) the 20-day average trading price of the Common Stock equals or
exceeds $64 per share (as adjusted) and (ii) the Company becomes "investment
grade" as evidenced by the fact that the Company's unsecured debt securities are
rated equal to or better than "Baa3" by Moody's Investor Services and "BBB-" by
Standard & Poor's Corporation. The holders of the Series C Preferred Stock will
have the right, however, to convert their shares into Common Stock rather than
having them redeemed by the Company.

At any time after December 9, 2008, the Company will have the right to
redeem all of the outstanding Series C Preferred Stock at a redemption price of
$372.50 per share plus all accrued dividends to the date of redemption. If a
redemption of less than all of the shares of Series C Preferred Stock would not
cause such payment to be treated for tax purposes as a dividend (as opposed to a
capital transaction), the Company may make a partial redemption of the Series C
Preferred Stock pro-rata to each of the holders. The holders of the Series C
Preferred Stock will

13
<PAGE>

have the right, however, to convert their shares into Common Stock rather than
having them redeemed by the Company.

VOTING RIGHTS

So long as the initial purchasers of the Series C Preferred Stock and their
affiliates own at least 25% of the originally issued Series C Preferred Stock
(or any shares of Common Stock issued upon conversion thereof), the holders of a
majority of the shares of Series C Preferred Stock will be entitled to elect
four of eleven directors of the Board. So long as they own any shares of Series
C Preferred Stock (or any shares of Common Stock issued upon conversion
thereof), and the holders of the Series C Preferred Stock are entitled to elect
four directors, the Thomas H. Lee Equity Fund IV, L.P. will have the right to
appoint one of the four directors. So long as the initial purchasers of the
Series C Preferred Stock and their affiliates own at least 10% but less than 25%
of the originally issued Series C Preferred Stock (or any shares of Common Stock
issued upon conversion thereof), the holders of a majority of the shares of
Series C Preferred Stock will be entitled to elect one director. The holders of
the Series C Preferred Stock will be entitled to vote on all matters voted on by
holders of the capital stock of the Company, voting as a single class, except
the election of directors. With respect to a vote on any matter other than the
election of directors, each share of Series C Preferred Stock will entitle its
holder to cast the same number of votes he or she would have been able to cast
if such share of Series C Preferred Stock was converted into Common Stock on the
record date.

For so long as any shares of Series C Preferred Stock remain outstanding,
the vote of a majority of the outstanding shares of Series C Preferred Stock (in
addition to any other consent or approval required by law) will be required to:

- authorize or create any class of stock having any preference or
priority over the Series C Preferred Stock ("Senior Stock");

- authorize, create or issue any stock ranking equally with the Series C
Preferred Stock with respect to voting, dividends or upon redemption,
liquidation, dissolution or winding up of the Company ("Parity Stock);

- reclassify any shares of capital stock of the Company into Senior
Stock or Parity Stock;

- authorize any security exchangeable for, convertible into or
evidencing the right to purchase any shares of Senior Stock or Parity
Stock;

- alter or change the rights, preferences or privileges of the Series C
Preferred Stock;

- increase or decrease the authorized number of shares of Series C
Preferred Stock or issue shares of Series C Preferred Stock other than
to holders of Series C Preferred Stock pursuant to its terms; or

14
<PAGE>

- waive or amend any provision of the Company's Certificate or Amended
and Restated By-laws in a manner adverse in any material respect to
the holders of the Series C Preferred Stock.

Regardless of the above, the Company may distribute rights pursuant to a
shareholder rights plan approved by the Board of Directors without the consent
of the holders of Series C Preferred Stock.

In addition, with respect to a vote relating to a Change of Control,
liquidation, dissolution or winding up of the Company or certain other matters
which could result in the acceleration of dividends on the Series C Preferred
Stock, holders of the Series C Preferred Stock will be entitled to the number of
votes that could be cast by virtue of the shares he or she currently owns, as
well as the shares of Series C Preferred Stock he or she would receive as
accelerated dividends (through receipt of the "Dividend Shares" described below)
as a result of such event.

CONSOLIDATION OR MERGER

In the event of any capital reorganization or reclassification (other than
a reclassification which causes an adjustment of the conversion price), any
consolidation or merger of the Company with or into another corporation, or any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, prior to the consummation of such
transaction, each share of Series C Preferred Stock then outstanding will be
convertible into (in lieu of the Common Stock issuable upon such conversion) the
kind and amount of shares of stock and other securities and property (including
cash) receivable upon consummation of such transaction by a holder of that
number of shares of Common Stock into which one share of Series C Preferred
Stock was convertible immediately prior to such transaction.

CHANGE OF CONTROL

Within five days of the occurrence of a "Change of Control," the Company
may, but is not required to, offer to purchase all of the outstanding Series C
Preferred Stock for 101% of the Series C Preferential Payment (as defined
below). If the Company does not make such an offer:

- each holder of Series C Preferred Stock will receive additional shares
of Series C Preferred Stock so that the total number of shares of
Series C Preferred Stock he or she holds equals the Series C
Preferential Payment divided by $372.50;

- the annual dividend rate on the Series C Preferred Stock will increase
by 2 1/2% to 11 1/2%;

- the Company will become subject to a covenant which, subject to
certain exceptions, prohibits it from incurring additional
indebtedness if the incurrence would cause the ratio of the Company's
indebtedness (not including its hedging obligations) to consolidated
stockholder's equity to be more than 2 to 1;

15
<PAGE>

- the Company will be subject to a covenant which restricts the ratio of
the Company's indebtedness to its consolidated tangible net worth from
exceeding 6 to 1; and

- the Company will be subject to a covenant which restricts its
unsecured indebtedness (except (1) indebtedness outstanding prior to
the Change of Control, (2) indebtedness that refinances such
indebtedness on substantially the same terms and (3) indebtedness
represented by bank deposits at the Company's credit card bank) from
exceeding $25 million at any time.

In the event a Change of Control occurs, if the Company does not make an
offer to purchase all of the outstanding Series C Preferred Stock and
subsequently violates the covenants imposed under the Series C Certificate of
Designation, the dividend rate then in effect on the Series C Preferred Stock
will increase by an additional 2% to 13 1/2%, and at any time 91 days or more
after maturity or redemption of the Company's outstanding 10% Notes, the holders
of the Series C Preferred Stock may put their shares to the Company for 101% of
the Series C Preferential Payment.

"Change of Control" means any of the following:

- the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than the Company, any of
its subsidiaries, or any employee benefit plan or related trust of the
Company or any of its subsidiaries or the Thomas H. Lee Equity Fund
IV, L.P. or its affiliates (an "Acquiring Person"), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors;

- during any period of 12 consecutive months after the original date of
issuance of the Series C Preferred Stock, the individuals who at the
beginning of such 12-month period constituted the Board of Directors
of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; PROVIDED that (i) any
director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of the stockholders having the
right to designate such director (including, without limitation, the
exercise by the holders of a majority of the outstanding shares of
Series C Preferred Stock of their right to elect directors) and (ii)
any director whose election, or nomination for election by the
Company's stockholders, was approved by majority vote of the Board of
Directors of the Company shall, in each case, be considered as though
such director were a member of the Incumbent Board, but excluding, as
a member of the Incumbent Board, any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Company (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) and any person who is an affiliate
or

16
<PAGE>

associate (as those terms are defined in the General Rules and
Regulations under the Exchange Act) of an Acquiring Person having or
proposing to acquire beneficial ownership of 25% or more of the
continued voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors;

- the approval by the stockholders of the Company of a reorganization,
merger or consolidation following which all or substantially all of
the beneficial owners of the voting securities of the Company
immediately prior to such reorganization, merger or consolidation do
not beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the Company
resulting from such reorganization, merger or consolidation;

- the Company ceases to own, directly or indirectly, 100% of the capital
stock of Direct Merchants Credit Card Bank, National Association;

- the sale or other disposition of all or substantially all the assets
of the Company in one transaction or series of related transactions;

- so long as any of the Company's 10% Notes remain outstanding, the
occurrence of a change of control as defined in the indenture pursuant
to which such notes are issued (but only if the Company is obligated
to make an offer to purchase outstanding notes governed thereby); or

- if the Company's existing agreements with Fingerhut remain in effect,
the occurrence of a change of control permitting Fingerhut to
terminate such agreements, unless such change of control has been
waived.

Notwithstanding the preceding paragraphs, a Change of Control will not be deemed
to occur if both a majority of the Board and the holders of a majority of the
outstanding shares of the Series C Preferred Stock so otherwise determine or if
the acquisition by a person or group of more than 35% of the voting power or the
change in composition of the Board described above is the result of a sale by a
holder of the Series C Preferred Stock.

SERIES C PREFERENTIAL PAYMENT

Upon the occurrence of certain events, the holders of the Series C
Preferred Stock will be entitled to receive certain preferential payments (which
are defined in the Series C Certificate of Designation as the Liquidation
Preference) (the "Series C Preferential Payment"). If any of these events occur
prior to December 9, 2005, a holder of the Series C Preferred Stock will be
entitled to receive the Series C Preferential Payment both in respect of the
shares of Series C Preferred Stock he or she then owns ("Owned Shares") and in
respect of the shares of Series C Preferred Stock he or she would have received
as dividends from the date of such event through December 9, 2005 (the "Dividend
Shares"). The table below outlines the Series C Preferential Payment to be
received by holders of Series C Preferred Stock in certain specified events:

17
<PAGE>

SERIES C PREFERENTIAL PAYMENT

- --------------------------------------------------------------------------------
EVENT SERIES C PREFERENTIAL PAYMENT
- --------------------------------------------------------------------------------
Change of Control prior The greatest of:
to December 9, 2005
- the Conversion Value (i.e. $372.50 plus
accrued dividends plus the Premium Amount)
or
- the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares and Dividend Shares
into Common Stock and sold such shares for
the then-current market price
or
- the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares and Dividend Shares
into Common Stock and received the amount
paid per share of Common Stock by the
Acquiring Person in the Change of Control.
- --------------------------------------------------------------------------------
Change of Control after The greatest of:
December 9, 2005
- the Conversion Value
or
- the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares into Common Stock and
sold such shares for the then-current market
price
or
- the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares into Common Stock and
received the amount paid per share of Common
Stock by the Acquiring Person in the Change
of Control.
- --------------------------------------------------------------------------------
Redemption prior to The greater of:
December 9, 2005
- the Conversion Value
or
- the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares and Dividend Shares
into Common Stock and sold such shares for
the then-current market price.
- --------------------------------------------------------------------------------
Redemption after The greater of:
December 9, 2005
- the Conversion Value
or
- the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares into Common Stock and
sold such shares for the then-current market
price.
- --------------------------------------------------------------------------------

18
<PAGE>

4. WHAT OTHER RIGHTS OR LIMITATIONS DO THE PURCHASERS OF SERIES C PREFERRED
STOCK HAVE?

REGISTRATION RIGHTS

The Company has agreed to file a registration statement on Form S-3 (or any
successor form) for a public resale offering of the Series C Preferred Stock and
the Common Stock into which the Series C Preferred Stock is convertible. The
Company will pay all registration expenses (inclusive of up to 3.3% in
underwriting discounts and commissions or sales agent fees).

EQUITY PURCHASE RIGHTS

In the event the Company or any subsidiary proposes to sell equity or debt
securities convertible into equity (or rights, options or warrants to purchase
any of the foregoing), each of the Lee Investors (if they own at least 10% of
the securities they initially purchased) and any other holder of 15% or more of
the Series C Preferred Stock have the right to purchase a portion of such
securities equal to his or her ownership of the outstanding securities of the
Company. These equity purchase rights do not extend to, among other things,
shares issued pursuant to the Company's stock option plans, securities issued in
a public offering or securities issued in an offering pursuant to Rule 144A of
the SEC.

STANDSTILL PROVISIONS

At any time prior to December 9, 2000 (subject to termination earlier or
later under certain circumstances), each of the purchasers has agreed, subject
to certain exceptions, not to:

- acquire, offer to acquire, or agree to acquire by purchase or by
joining a group, any securities of the Company entitled to vote
generally in the election of directors, or securities convertible into
or exercisable or exchangeable for such securities, if

19
<PAGE>

the action would trigger the change of control provisions in certain
specified agreements or if the requisite regulatory approval has not
been obtained;

- participate in, or encourage, the formation of a group (within the
meaning of Rules 13d-3 and 13d-5 promulgated under the Exchange Act)
which owns such securities, other than a group consisting of
purchasers and permitted transferees;

- make, or in any way participate in, the solicitation of proxies other
than for the election of directors which may be elected by the holders
of such securities or for any matter to be voted on by the
stockholders that is not initiated by the purchasers or their
affiliates; or

- call, or seek to have called, any meeting of stockholders, except as
described in the immediately preceding clause above.

RESTRICTIONS ON TRANSFER

The purchasers have also agreed not to transfer any securities (including
any shares of Common Stock issued upon conversion thereof) to any person if the
transfer would violate the Hart-Scott-Rodino Antitrust Improvements Act of 1976
or the rules and regulations of the Comptroller or would constitute a change of
control under certain specified agreements.

5. WHO ARE THE LEE INVESTORS?

The purchasers are Thomas H. Lee Equity Fund IV, L.P. and other affiliates
of the Thomas H. Lee Company. Thomas H. Lee Company is a Boston-based
investment firm focused on identifying and acquiring substantial investments in
growth companies. Founded in 1974, the firm currently manages approximately $6
billion of committed capital. Notable recent transactions include Fisher
Scientific, Rayovac, HomeSide Lending, The Learning Company and PriCellular.

6. WHAT ARE THE PRINCIPAL TERMS OF THE EXISTING SECURITIES ISSUED AND SOLD TO
THE LEE INVESTORS?

SERIES B PREFERRED STOCK

GENERAL. On December 9, 1998, the Company issued 536,913 shares of Series
B Preferred Stock, par value $.01 per share, in the stated amount of
$200,000,000 to the Lee Investors. The Series B Preferred Stock ranks senior or
equal (with respect to dividends and liquidation payments) to any future
Preferred Stock of the Company.

DIVIDENDS. The Company pays dividends on the Series B Preferred Stock
quarterly, on a cumulative basis, in additional shares of Series B Preferred
Stock at an annual rate of 12.5%, compounded quarterly. If stockholder
approval, HSR Approval or OCC Approval is not received by March 31, 1999 (or
such later date prior to June 30, 1999 as the parties agree), then the annual
dividend rate on the Series B Preferred Stock will increase to 15%. If the
Board determines for legal, tax, regulatory or other good reason that it is
inadvisable or inappropriate to pay one or

20
<PAGE>

more of the dividends in-kind as described above, it may, by a vote of 80% of
its members (including a majority of the directors elected or designated by the
holders of Series B Preferred Stock or, if there are no directors elected or
designated by holders of Series B Preferred Stock, the holders of a majority of
the outstanding shares of Series B Preferred Stock), determine to pay such
dividends in cash, debt securities or other consideration. For periods after
December 9, 2008, the Company will pay all dividends on the Series B Preferred
Stock in cash. In addition, the holders of the Series B Preferred Stock are
entitled to receive all dividends paid with respect to the Common Stock at a
rate per share of Series B Preferred Stock equal to ten times the payment made
with respect to the Common Stock, subject to adjustment.

SERIES B PREFERENTIAL PAYMENT. At any time after December 31, 2005, the
Company may call or redeem the Series B Preferred Stock at the Series B
Preferential Payment. The "Series B Preferential Payment" per share is equal to
the greater of (i) $372.50 plus any accrued but unpaid dividends and (ii) the
amount the holder would have received if each share of Series B Preferred Stock
could have been converted into ten shares of Common Stock, subject to adjustment
in certain circumstances.

CHANGE OF CONTROL. Within five days of the occurrence of a "Change of
Control," the Company may, but is not required to, offer to purchase all of the
outstanding Series B Preferred Stock for 101% of the Series B Preferential
Payment. If the Company does not make such an offer:

- each holder of Series B Preferred Stock will receive additional shares
of Series B Preferred Stock such that the total number of shares of
Series B Preferred Stock equals the Series B Preferential Payment
divided by $372.50;

- the dividends on the Series B Preferred Stock will become payable in
cash; and

- following the earlier of March 31, 1999 and the date OCC Approval is
obtained, the Company will be subject to the same additional covenants
described under the Change of Control provisions relating to the
Series C Preferred Stock above.

In the event a Change of Control occurs, if the Company does not make an
offer to purchase all of the outstanding Series B Preferred Stock and
subsequently violates the covenants imposed under the Certificate of Designation
of Series B Preferred Stock (the "Series B Certificate of Designation"), the
dividend rate then in effect on the Series B Preferred Stock will increase to
18%, and at any time 91 days or more after maturity or redemption of the
Company's outstanding 10% Notes, the holders of a majority of the shares of
Series B Preferred Stock may put their shares to the Company for 101% of the
Series B Preferential Payment.

VOTING RIGHTS. The holders of the Series B Preferred Stock have no voting
rights except those required by law. However, for so long as any shares of
Series B Preferred Stock remain outstanding, the Company must obtain the consent
of the holders of a majority of the Series B Preferred Stock to:

21
<PAGE>

- authorize, create or issue any class or series, or any shares of any
class or series, of stock having any preference or priority over the
Series B Preferred Stock with respect to voting, dividends or upon
redemption, liquidation, dissolution, or winding up of the Company
("Senior Stock");

- authorize, create or issue any class or series, or any shares of any
class or series, of stock ranking equally with the Series B Preferred
Stock with respect to voting, dividends or upon redemption,
liquidation, dissolution or winding up of the Company ("Parity
Stock");

- reclassify any shares of capital stock of the Company into shares of
Senior Stock or Parity Stock;

- authorize the issuance of any security exchangeable for, convertible
into, or evidencing the right to purchase any shares of Senior Stock
or Parity Stock;

- alter or change the rights, preferences or privileges of the Series B
Preferred Stock;

- increase or decrease the authorized number of shares of Series B
Preferred Stock or issue shares of Series B Preferred Stock other than
to holders of Series B Preferred Stock pursuant to its terms; or

- amend or waive any provision of the Company's Certificate in a manner
adverse in any material respect to the holders of the Series B
Preferred Stock.

For a more complete description of the Series B Preferred Stock, you should
read the Series B Certificate of Designation, filed as an exhibit to the
Company's Report on Form 8-K filed with the SEC on December 22, 1998, which is
hereby incorporated by reference.

SENIOR NOTES

GENERAL. The Company has issued $100,000,000 in aggregate principal amount
of Senior Notes pursuant to an indenture dated as of December 9, 1998 (the
"Senior Notes Indenture") among the Company, Metris Direct, Inc., a subsidiary
of the Company, and The Bank of New York. The Senior Notes rank equally with
the Company's outstanding 10% Notes.

INTEREST. The Senior Notes initially bear interest at an annual rate of
12%, payable semi-annually. Upon the first to occur of stockholder disapproval
of the Preferred Stock Exchange and June 30, 1999, the annual interest rate on
the Senior Notes will increase to 15%.

REDEMPTION. There are no mandatory sinking fund payments and the Company
cannot optionally redeem any of the Senior Notes prior to maturity. However, in
the event that the Company redeems any of the 10% Notes, the Company is
obligated to make an offer to purchase all of the outstanding Senior Notes.

22
<PAGE>

CHANGE OF CONTROL. Upon the occurrence of a change of control (as defined
below) the Company is required to make an offer to purchase all of the Senior
Notes then outstanding at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued interest. For this purpose, "change of
control" means the occurrence of any of the following events (whether or not
approved by the Board):

- any person or group other than Fingerhut or its affiliates is or
becomes the beneficial owner directly or indirectly, of more than 35%
of the total voting power of the then outstanding voting stock of the
Company at a time when Fingerhut or its affiliates beneficially own a
lesser percentage of the total voting power than such person or group
and do not have the ability to elect a majority of the Board;

- the Company consolidates with, or merges with or into, another person
(other than the Company or a wholly-owned restricted subsidiary of the
Company) or the Company or its restricted subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially
all of the assets of the Company and its restricted subsidiaries
(determined on a consolidated basis) to any person (other than the
Company or a wholly-owned restricted subsidiary of the Company), other
than any transaction in which the beneficial owners of a majority of
the voting stock prior to the transaction retain a majority of the
voting power of the surviving entity; or

- during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board or whose
nomination for election by the Company's stockholders was approved by
a vote of a majority of the directors of the Company then still in
office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of
Directors of the Company.

COVENANTS. The covenants and restrictions in the Senior Notes Indenture
are substantially similar to those contained in the Company's indenture relating
to the 10% Notes. These include limitations on transactions with affiliates,
incurrence of indebtedness, asset sales, limitation on restricted payments,
incurrence of liens and other covenants. For a more complete description of
these covenants and other terms of the Senior Notes, you should read the Senior
Notes Indenture filed as an exhibit to the Company's Report on Form 8-K filed
with the SEC on December 22, 1998, which is hereby incorporated by reference.

WARRANTS

GENERAL. In connection with the issuance of the Series B Preferred Stock
and the Senior Notes, the Company also issued Warrants entitling the Lee
Investors to purchase up to 3,750,000 shares of the Common Stock (representing
approximately 19.5% of the Company's currently outstanding Common Stock) at a
price of $30 per share, subject to adjustment. However, the Warrants cannot be
exercised until OCC Approval has been obtained. In addition, the Warrants

23
<PAGE>

cannot be exercised until the earlier of stockholder disapproval of the
Preferred Stock Exchange and June 30, 1999. The Warrants expire December 31,
2008.

If the Warrants are exercised in full, the Company will receive gross
proceeds of $112.5 million, subject to adjustment.

EXERCISE PRICE. The $30 exercise price is subject to adjustment if the
Company:

- issues or sells Common Stock, with certain exceptions, at less than
the exercise price in effect immediately prior to such issue or sale;

- issues or sells options or rights to buy Common Stock or convertible
securities if such rights are exercisable at less than the exercise
price;

- issues convertible securities at less than the exercise price;

- makes any distribution with respect to its Common Stock as a
liquidating or partial liquidating dividend, other than a dividend
legally available for payment out of surplus;

- declares a stock dividend on its Common Stock, subdivides or combines
its outstanding Common Stock, issues any shares of Common Stock in a
reclassification; or

- undertakes certain other transactions.

For a more complete description of the terms of the Warrants, you should
read the Warrant Agreement (including the form of Warrant Certificate) filed as
an exhibit to the Company's Report on Form 8-K filed with the SEC on December
22, 1998, which is hereby incorporated by reference.

7. WHAT OTHER RIGHTS AND OBLIGATIONS APPLY TO HOLDERS OF THE SERIES B
PREFERRED STOCK?

NOMINATION OF DIRECTORS. Upon obtaining the OCC Approval, the Company's
Board of Directors will be expanded from seven to nine members and the Lee
Investors will be entitled to recommend two directors for nomination to the
Board. So long as the initial purchasers own at least 25% of the Series B
Preferred Stock, this right to nominate two directors continues. In the event
the Company fails to redeem the Series B Preferred Stock in accordance with its
terms, the Lee Investors will be entitled to designate four directors.

REGISTRATION RIGHTS. The holders of Series B Preferred Stock will have
registration rights similar to those described with respect to the Series C
Preferred Stock.

24
<PAGE>

8. WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN THE EXISTING SECURITIES AND THE
SERIES C PREFERRED STOCK?

DIFFERENCES IN TERMS

The following chart provides a general comparison of the Existing
Securities (in the event this Proposal 1 is not approved) and the Series C
Preferred Stock which would be issued in the Preferred Stock Exchange:

25
<PAGE>

EXISTING SECURITIES
(SERIES B PREFERRED
STOCK, SENIOR NOTES SERIES C
AND WARRANTS) PREFERRED STOCK
- --------------------------------------------------------------------------------
Stated Amount of $200,000,000 $300,000,000(1)
Preferred Stock
- --------------------------------------------------------------------------------
Convertibility of No Yes
Preferred Stock
- --------------------------------------------------------------------------------
Dividend Rate 15% pay-in-kind, 9% pay-in-kind,
on Preferred Stock compounded quarterly compounded quarterly
- --------------------------------------------------------------------------------
Voting Rights of Holders have limited Holders may elect four
Preferred Stock voting rights to protect directors and vote with
rights of Series B holders of Common Stock
Preferred Stock.(2) on all other matters. In
addition, holders have
limited voting rights to
protect rights of Series
C Preferred Stock.
- --------------------------------------------------------------------------------
Principal Amount $100,000,000 None
of Senior Notes
- --------------------------------------------------------------------------------
Interest Rate on 15% paid in cash Not applicable
Senior Notes
- --------------------------------------------------------------------------------
Restrictive Covenants The Senior Notes In the event of a Change
Indenture contains of Control, certain
certain restrictive restrictions in Series C
covenants. In addition, Preferred Stock may
in the event of a Change apply.
of Control, certain
restrictions in Series B
Preferred Stock may
apply.
- --------------------------------------------------------------------------------
Warrants Right to purchase None
3,750,000 shares of
Common Stock at $30 per
share (up to 19.5% of the
currently outstanding
Common Stock of the
Company)
- --------------------------------------------------------------------------------

(1) The exact amount of Series C Preferred Stock to be issued in the Preferred
Stock Exchange will include the value of accrued dividends from December 9,
1998.

(2) Upon obtaining OCC Approval, the holders of the Series B Preferred Stock
have the right to recommend two of nine directors for nomination to the Board.

26
<PAGE>

OTHER DIFFERENCES

The examples in the following schedule summarize the principal differences
between carrying the Existing Securities versus the Series C Preferred Stock for
seven years. As shown, if the Preferred Stock Exchange is approved, the Series
C Preferred Stock results in higher pro forma net income available to common
stockholders by $165 million. The first example assumes that Existing
Securities are outstanding for one quarter and the stockholders disapprove the
Preferred Stock Exchange at the end of that quarter, so that the Existing
Securities remain outstanding for an additional six years and nine months. The
second example assumes that the Existing Securities are outstanding for one
quarter and the stockholders approve the Preferred Stock Exchange at the end of
that quarter, so that the Series C Preferred Stock is exchanged for the Existing
Securities and remains outstanding for six years and nine months.

The data presented herein is based on the assumptions and adjustments
described in the accompanying notes. The data does not purport to represent what
the Company's results of operations would have been if the events described
above had occurred as of the dates indicated or what such results will be for
any future periods. The data is based upon assumptions and adjustments that the
Company believes are reasonable.

PRO FORMA IMPACT ON NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

(Unaudited)
<TABLE>
<S> <C> <C>

(Dollars in millions)
EXISTING SECURITIES REMAIN OUTSTANDING

Interest Expense on the Senior Notes, net of taxes (1) $ 64.1

Series B Preferred Stock Dividends (2) 357.3

Fair Value Adjustment of Warrants (3) 26.8

One-time Write-off of Upfront Fees, net of taxes (4) 26.2
----------
Existing Securities Seven-Year Impact $ 474.4

EXCHANGE TO SERIES C PREFERRED STOCK

Series C Preferred Stock Dividends (5) $ 259.4

Extraordinary Loss from Early Extinguishment of Debt (6) 16.7

Adjustment for the Retirement of Series B Preferred Stock (6) 33.3
-----------
Series C Preferred Stock Seven-Year Impact 309.4

-----------
DIFFERENCE $ 165.0
-----------
</TABLE>

- -------------
(1) Represents interest expense on the Senior Notes at an interest rate of 12%
per annum for three months and 15% per annum for six years and nine months.
Assumes a tax rate of 38.5%.

27
<PAGE>

(2) Represents cumulative preferred dividends which are compounded on a
quarterly basis on the Series B Preferred Stock at a dividend rate of 12.5%
per annum for three months and 15% per annum for six years and nine months.
(3) If the Preferred Stock Exchange is not approved and OCC Approval is
obtained, the Warrants will become exercisable at $30. At their date of
issue, the Warrants' fair value is considered a yield enhancement to the
Series B Preferred Stock and the Senior Notes. The fair value of the
Warrants is calculated using the Black-Scholes pricing model with the
following assumptions: dividend yield of .1%, expected market price
volatility of 35%, risk-free interest rate of 4.6%, and an expected life of
10 years. The Warrants are assumed to be outstanding effective March 31,
1997, assuming the Preferred Stock Exchange was not approved. The
assumptions are based upon current market conditions and could change
materially between the pro forma calculation date and the actual date of
determination, which could have a material impact on the reported pro forma
consolidated financial data. The fair value is allocated 33% to the Senior
Notes and 67% to the Series B Preferred Stock based upon their initial fair
values. The amount allocated to the Senior Notes is recorded as a
reduction of net income over the eight-year life of the Senior Notes. This
amount is not recorded net of taxes. The fair value allocated to the
Series B Preferred Stock is recorded in additional paid in capital and does
not impact net income, and therefore is not included in the amount
reported.
(4) The Company paid fees of approximately $30 million in connection with the
investment by the Lee Investors. The Company has determined, based on
representations from the Lee Investors and other financial advisors, that
the fees relate to the negotiation of the Series C Preferred Stock. If the
Preferred Stock Exchange does not occur, these fees will be expensed to
income. For tax purposes, only the fees allocated to the Senior Notes
would receive a tax benefit using a tax rate of 38.5%.
(5) Represents seven years of cumulative preferred dividends which are
compounded on a quarterly basis on the Series C Preferred Stock at a
dividend rate of 9% per annum.
(6) These amounts represent a one-time, non-cash accounting adjustment. The
excess of the fair value of the Series C Preferred Stock over the carrying
value of the Existing Securities at the time of the conversion will be
allocated to the Senior Notes and the Series B Preferred Stock based upon
their initial fair values. To arrive at net income available to common
stockholders in the calculation of earnings per share, the amount allocated
to the Senior Notes will be recognized as an extraordinary loss from the
early extinguishment of debt and the amount allocated to the Series B
Preferred Stock will be recognized as a reduction of net income available
to common stockholders. The extraordinary loss attributable to the Senior
Notes is not recorded net of taxes. These adjustments will have no impact
on total stockholders equity. The Company has estimated the fair value of
the Series C Preferred Stock based on several factors including: (1) the
negotiated price of the Series C Preferred Stock that was agreed to on an
arms-length basis when the Common Stock was trading at $31.00 per share;
(2) an assumed current Common Stock price of $41.00 per share; (3)
prevailing market interest rates and risk premiums; (4) the estimated
long-term price volatility of the Company's Common Stock; and (5) other
general economic conditions prevailing at the time of the estimate. The
Series C Preferred Stock fair value estimate has been based on numerous
subjective judgments. There is no public market for the Series C Preferred
Stock, nor does the Company have any outstanding convertible securities
that are publicly traded. Consequently, the fair value estimate has not
been based on any comparable market data. There can be no assurances that,
if a public market currently existed for the Series C Preferred Stock, the
Series C Preferred Stock would not trade at a price that is materially
different from the fair value estimate. In addition, it is possible that
market conditions, including the Company's Common Stock price, could change
materially between the date of the pro forma calculation and the actual
date of determination. These potential changes could also materially
impact the fair value of the Series C Preferred Stock. Due to the
subjective valuation methodology employed for the purposes of this pro
forma adjustment and the potential for changing market conditions, it is
possible that changes in the fair value of the Series C Preferred Stock
could have an impact on the Company's reported financial statements that
will be materially different from this pro forma presentation.

9. DO THE EXISTING SECURITIES AND THE SERIES C PREFERRED STOCK IMPACT THE
COMPANY'S EARNINGS PER SHARE AND OTHER FINANCIAL DATA DIFFERENTLY?

Yes. The tables below outline the impacts of the Existing Securities and
the Series C Preferred Stock on certain financial data of the Company.

28
<PAGE>

Set forth below is Unaudited Pro Forma Consolidated Financial Data
("Financial Data") for the year ended December 31, 1997 and the nine months
ended September 30, 1998. The Financial Data (i) gives pro forma effect
assuming the Existing Securities were outstanding as of January 1, 1997, the
stockholders disapproved the Preferred Stock Exchange on March 31, 1997 and the
Existing Securities remained outstanding and (ii) gives pro forma effect
assuming the Existing Securities were outstanding as of January 1, 1997, the
Preferred Stock Exchange was approved by the stockholders on March 31, 1997, all
regulatory approvals were obtained by March 31, 1997 and the Preferred Stock
Exchange occurred on March 31, 1997. The Financial Data does not include any
adjustments for the benefit of receiving the $300 million investment, such as
reduction of interest expense resulting from lower outstanding bank credit
facility borrowings.

The Financial Data presented herein is based on the assumptions and
adjustments described in the accompanying notes. The Financial Data does not
purport to represent what the Company's results of operations would have been if
the events described above had occurred as of the dates indicated or what such
results will be for any future periods. The Financial Data is based upon
assumptions and adjustments that the Company believes are reasonable. The
Financial Data and the accompanying notes should be read in conjunction with the
historical financial statements of the Company, including the notes thereto,
which are incorporated by reference in this Proxy Statement.

The pro forma earnings per share numbers reported in the table below
reflect the impact of the investment by the Lee Investors, excluding the
following one-time accounting adjustments: the write-off of upfront fees; the
extraordinary loss from early extinguishment of debt; and the adjustment for the
retirement of Series B Preferred Stock.

Pro Forma Earnings per Share
(Unaudited)

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1997 September 30, 1998
------------------------------------------- -------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Existing Series C Existing Series C
Reported Securities Preferred Stock Reported Securities Preferred Stock
-------- ---------- --------------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Basic $1.98 $(0.20) $0.53 $2.11 $0.20 $0.94
Diluted $1.88 $(0.20) $1.33(1) $2.03 $0.19 $1.37
</TABLE>

Note: Under generally accepted accounting principles, the Company is
required to report diluted earnings per share at the lower of basic or
diluted.

- ------------
(1) The Series C Preferred Stock pro forma diluted earnings per share cannot be
calculated using the information presented below in the Pro Forma
Consolidated Financial Data schedules as eliminating the one-time
accounting adjustments, as referenced above, would result in positive
earnings and require the Company to give effect to all dilutive potential
common shares that were outstanding during the period. The weighted
average shares used in this calculation are 28.6 million.

The pro forma consolidated financial data including the one-time accounting
adjustments are presented in the tables below. These schedules do not include
any adjustments for the benefit

29
<PAGE>

of receiving the $300 million investment, such as a reduction of interest
expense or the impact of the PNC Portfolio.

PRO FORMA CONSOLIDATED FINANCIAL DATA
EXISTING SECURITIES
(Unaudited)
(in millions, except earnings per share)

<TABLE>
<CAPTION>
Year Ended Nine Months Ended
12/31/97 9/30/98
---------------------------------
<S> <C> <C>
Reported Net Income $ 38.1 $ 40.6
Pro Forma adjustments to net income:
Interest Expense on the Senior Notes, net of taxes (1) 8.8 6.9

Amortization of Fair Value of Warrants (2) 2.9 2.9
One-time Write-off of Upfront Fees, net of taxes (3) 26.2
---------------------------------
Pro Forma Net Income 0.2 30.8
Preferred Dividends on Series B Preferred Stock (4) 30.3 26.9
---------------------------------
PRO FORMA NET INCOME (Loss) AVAILABLE TO COMMON
STOCKHOLDERS $ (30.1) $ 3.9
---------------------------------
---------------------------------
Reported Earnings Per Share:
Basic $ 1.98 $ 2.11
Diluted $ 1.88 $ 2.03

Pro Forma (Loss) Earnings Per Share:
Basic $ (1.56) $ 0.20
Diluted (5) $ (1.56) $ 0.19

Reported Weighted Average Shares:
Basic 19.2 19.2
Diluted 20.2 20.0

Pro Forma Weighted Average Shares:
Basic 19.2 19.2
Diluted (5) 19.2 20.7
</TABLE>

- -----------
(1) Interest expense is calculated assuming the Senior Notes were issued on
January 1, 1997 and the Preferred Stock Exchange was not approved effective
March 31, 1997. Thus, the interest rate is 12% per annum for the period
January 1, 1997 through March 31, 1997, and 15% per annum for the periods
thereafter. The interest expense is reported net of taxes assuming a tax
rate of 38.5%.
(2) If the Preferred Stock Exchange is not approved and OCC Approval is
obtained, the Warrants will become exercisable at $30. At their date of
issue, the Warrants' fair value is considered a yield enhancement to the
Series B Preferred Stock and the Senior Notes. The fair value of the
Warrants is calculated using the Black-Scholes pricing model with the
following assumptions: dividend yield of .1%, expected market price
volatility of 35%, risk-free interest rate of 4.6%, and an expected life of
10 years. The Warrants are assumed to be outstanding effective March 31,
1997, assuming the Preferred Stock Exchange was not approved. The
assumptions are based upon current market conditions and could change
materially between the pro forma calculation date and the actual date of
determination, which could have a material impact on the reported pro forma
consolidated financial data. The fair value is allocated 33% to the Senior
Notes and 67% to the Series B

30
<PAGE>

Preferred Stock based upon their initial fair values. The amount allocated
to the Senior Notes is recorded as a reduction of net income over the
eight-year life of the Senior Notes. The fair value allocated to the
Series B Preferred Stock is recorded in additional paid in capital and does
not impact net income.
(3) The Company paid fees of approximately $30 million in connection with the
investment by the Lee Investors. The Company has determined, based on
representations from the Lee Investors and other financial advisors, that
the fees relate to the negotiation of the Series C Preferred Stock. If the
Preferred Stock Exchange does not occur, these fees will be expensed to
income in the period the Preferred Stock Exchange is not approved. For tax
purposes, only the fees allocated to the Senior Notes would receive a
deferred tax benefit using a tax rate of 38.5%.
(4) The Series B Preferred Stock dividends are cumulative pay-in-kind dividends
which are compounded quarterly. The dividends are calculated assuming the
Series B Preferred Shares are outstanding effective January 1, 1997 and the
stockholders disapproved the Preferred Stock Exchange effective March 31,
1997. The dividend rate is 12.5% per annum for the period from January 1,
1997 through March 31, 1997, and 15% per annum for the periods thereafter.
(5) Pro forma weighted average diluted shares are adjusted to reflect the
dilutive impact from the Warrants using the treasury stock method. The
Warrants are assumed to be outstanding effective March 31, 1997, and the
dilution is calculated assuming an average Common Stock price of $41. For
the year ended December 31, 1997, basic weighted average shares are used to
calculate the diluted earnings per share to avoid the antidilutive impact
of the Warrants.

31
<PAGE>

PRO FORMA CONSOLIDATED FINANCIAL DATA
SERIES C PREFERRED STOCK
(Unaudited)
(in millions, except earnings per share)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
12/31/97 9/30/98
------------------------------
<S> <C> <C>
Reported Net Income $ 38.1 $ 40.6
Pro Forma Extraordinary Loss from Early Extinguishment of Debt (1) 16.7
------------------------------
Pro Forma Net Income after Extraordinary Loss $ 21.4 $ 40.6
Adjustment for the Retirement of Series B Preferred Stock (1) 33.3
Preferred Dividends on Series C Preferred Stock (2) 27.9 22.6
------------------------------
PRO FORMA NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (39.8) $ 18.0
------------------------------

Reported Earnings Per Share:
Basic $ 1.98 $ 2.11
Diluted $ 1.88 $ 2.03

Pro Forma Net Earnings (Loss) Per Share:
Basic - Net income (loss) per share before extraordinary item $ (1.20) $ 0.94
Basic - Extraordinary item per share $ (0.87) $ -
------------------------------
Basic - Net income (loss) per share $ (2.07) $ 0.94

Diluted - Net income (loss) per share before extraordinary item (3) $ (1.20) $ 1.37
Diluted - Extraordinary item per share (3) $ (0.87) $ -
------------------------------
Diluted - Net income (loss) per share (3) $ (2.07) $ 1.37

Reported Weighted Average Shares:
Basic 19.2 19.2
Diluted 20.2 20.0

Pro Forma Weighted Average Shares:

Basic 19.2 19.2
Diluted (2) (3) 19.2 29.7
</TABLE>

- -------------
(1) These amounts represent a one-time, non-cash accounting adjustment. The
excess of the fair value of the Series C Preferred Stock over the carrying
value of the Existing Securities at the time of the conversion will be
allocated to the Senior Notes and the Series B Preferred Stock based upon
their initial fair values. To arrive at net income available to common
stockholders in the calculation of earnings per share, the amount allocated
to the Senior Notes will be recognized as an extraordinary loss from the
early extinguishment of debt and the amount allocated to the Series B
Preferred Stock will be recognized as a reduction of net income available
to common stockholders. The extraordinary loss attributed to the Senior
Notes is not recorded net of taxes. These adjustments will have no impact
on total stockholders equity. The Company has estimated the fair value of
the Series C Preferred Stock based on several factors including: (1) the
negotiated price of the Series C Preferred Stock that was agreed to on an
arms-length basis when the Common Stock was trading at $31.00 per share;
(2) an assumed current Common Stock price of $41.00 per share; (3)
prevailing market interest rates and risk premiums; (4) the estimated
long-term price volatility of the Company's Common Stock; and (5) other
general economic conditions prevailing at the time of the estimate. The
Series C Preferred Stock fair value estimate has been based on numerous
subjective judgments. There is no public market for the Series C

32
<PAGE>

Preferred Stock, nor does the Company have any outstanding convertible
securities that are publicly traded. Consequently, the fair value estimate
has not been based on any comparable market data. There can be no
assurances that, if a public market currently existed for the Series C
Preferred Stock, the Series C Preferred Stock would not trade at a price
that is materially different from the fair value estimate. In addition, it
is possible that market conditions, including the Company's Common Stock
price, could change materially between the date of the pro forma
calculation and the actual date of determination. These potential changes
could also materially impact the fair value of the Series C Preferred
Stock. Due to the subjective valuation methodology employed for the
purposes of this pro forma adjustment and the potential for changing market
conditions, it is possible that changes in the fair value of the Series C
Preferred Stock could have an impact on the Company's reported financial
statements that will be materially different from this pro forma
presentation.
(2) The Series C Preferred Stock dividends are cumulative pay-in-kind dividends
which are compounded quarterly. The Preferred Stock Exchange was assumed to
be approved effective March 31, 1997, which is within the first reporting
period of the year and thus the dividends are calculated assuming the
Series C Preferred Stock is outstanding effective January 1, 1997. The
dividend rate is 9% per annum.
(3) Pro forma weighted average diluted shares are adjusted to reflect the
dilutive impact from the Series C Preferred Stock. These shares are
treated as if they were converted into Common Stock when calculating
diluted weighted average shares outstanding. For the year ended December
31, 1997, basic weighted average shares are used to calculate the diluted
earnings per share to avoid the antidilutive impact of the Series C
Preferred Stock.

10. ARE THERE ANY RISKS OR DISADVANTAGES TO THE COMPANY IF THE STOCKHOLDERS DO
NOT APPROVE PROPOSAL 1 PROVIDING FOR THE PREFERRED STOCK EXCHANGE?

Yes, if the Company's stockholders do not approve Proposal 1, there are
certain negative consequences to the Company and the holders of the Common
Stock, including, without limitation:

- the pay-in-kind annual dividend rate on the Series B Preferred Stock
will immediately increase from 12 1/2% to 15%;

- the 15% pay-in-kind annual dividend rate on the Series B Preferred
Stock is six percentage points higher than the 9% pay-in-kind annual
dividend rate on the Series C Preferred Stock;

- the interest rate on the Senior Notes will increase from 12% to 15%,
resulting in an increase in cash interest expense of $3 million per
year;

- the interest rate on the Senior Notes is six percentage points higher
than the annual pay-in-kind dividend rate on the Series C Preferred
Stock and is paid in cash;

- the Company's ability to finance further growth and expansion by
incurring additional indebtedness, both on an absolute basis and in
proportion to equity and capital, would be restricted pursuant to the
Company's existing bank credit facility and Senior Notes Indenture
covenants;

- management believes that the Company's creditors and the debt rating
agencies could view the existing capital structure less favorably than
if the Company were able to reduce its indebtedness by $100 million
and increase its equity by

33
<PAGE>

approximately the same amount through the issuance of Series C
Preferred Stock in exchange for the Existing Securities; and

- the ten-year Warrants to purchase 3,750,000 shares of Common Stock at
a price of $30 per share (compared to the closing market price of $__
per share on January __, 1999) results in the Warrants being viewed as
Common Stock equivalents, thereby diluting earnings per share. In
addition, the potential exercise of the Warrants may create an
overhang on the Company's outstanding Common Stock.

11. HOW WILL THE ISSUANCE OF THE SERIES C PREFERRED STOCK IMPACT THE COMPANY'S
CAPITALIZATION?

Upon stockholder approval of the Preferred Stock Exchange, the $100 million
of Senior Notes would be retired and total stockholder's equity would increase
by approximately $100 million. Currently, the Company is subject to certain
covenants in its $300 million bank credit facility, one of which is a minimum
tangible net worth to net managed receivables ratio (the "Ratio"). The minimum
Ratio increased to 5.0% from 4.0% on December 24, 1998. As of September 30,
1998, the Ratio was 4.5%. The pro forma Ratio, giving effect to a $100 million
increase in the tangible net worth as of September 30, 1998, would be 7.0%.

12. ARE THERE ANY TAX IMPLICATIONS TO THE COMPANY OF THE PREFERRED STOCK
EXCHANGE?

The spin-off of the Company from Fingerhut will be entitled to corporate
and shareholder tax-free treatment for federal income tax purposes assuming
certain requirements are satisfied, and under the Tax Sharing Agreement between
the Company and Fingerhut the Company might be liable for all or a portion of
the resulting taxes if those requirements are not met. Any liability for such
taxes would likely have a material adverse effect on the Company.

One tax requirement prohibits the acquisition by one or more persons of 50
percent or more of the Company's stock (by voting power or value) if, in
general, the acquisitions are part of a plan (or series of related transactions)
of which the spin-off from Fingerhut is a part.

Although at the time of the spin-off the Company intended to issue Common
Stock (rather than the Existing Securities and Series C Preferred Stock), shares
of the Company's Series B and Series C Preferred Stock (and Common Stock, if
any) issued under the arrangements described herein might be viewed as being
issued as part of a plan (or series of related transactions) which includes the
spin-off. Even if the Series C Preferred Stock issued at the time of the
Preferred Stock Exchange were treated as issued as part of a plan that includes
the spin-off, the Company does not expect the 50 percent voting power or value
test to be violated as of that time. However, the Preferred Stock Exchange
might impact future compliance with the 50 percent voting power or value test.
In general, subject to the compliance provisions noted below, the Company
expects that the issuance of the Series C Preferred Stock will increase the risk
of future noncompliance with the 50 percent voting power test and, although less
clear, the 50 percent value test. The Securities Purchase Agreement, the Series
B Certificate of Designation, and the Series C Certificate of Designation
contain provisions intended to assure compliance with the 50

34
<PAGE>

percent voting power and value tests (whether or not the Preferred Stock
Exchange occurs), although the effectiveness of those provisions may depend on,
among other possible factors, the cooperation of the Series B or Series C
Preferred Stock holders (or the vote of directors elected or designated by
them), as the case may be.

Guidance with respect to the foregoing rules has not yet been issued, and
the proper application of these rules is unclear in many respects. The
discussion set out and the provisions referred to above are based on the
Company's assumptions as to how these rules could be applied, which may or may
not be consistent with the view of the Internal Revenue Service.

13. ARE THERE ANY ANTI-TAKEOVER IMPLICATIONS OF THE PREFERRED STOCK EXCHANGE?

Yes, like the Existing Securities, the proposed issuance of Series C
Preferred Stock may have anti-takeover implications. At present, subject to
obtaining OCC Approval, the Company is obligated to nominate for election to the
Board of Directors two designees of the Lee Investors. The holders of Series C
Preferred Stock will be entitled to elect four of eleven directors of the
Company.

In the event of a Change of Control, as previously described, the Company
has the right to offer to purchase from each holder all, but not less than all,
of the Series C Preferred Stock held by such holder for an amount equal to 101%
of the Series C Preferential Payment. If the Company does not make such a
redemption offer, the annual dividend rate increases from 9% to 11 1/2% and
becomes payable in cash. In addition, in the event a Change of Control occurs,
if the Company does not make an offer to purchase and subsequently violates the
covenants imposed under the Series C Certificate of Designation, the dividend
rate then in effect on the Series C Preferred Stock will increase by an
additional 2% to 13 1/2%, and at any time 91 days or more after maturity or
redemption of the Company's outstanding 10% Notes, the holders of a majority of
the shares of Series C Preferred Stock may put their shares to the Company for
101% of the Series C Preferential Payment.

If a vote of the stockholders is required with respect to a Change of
Control, such as a merger transaction, each holder of Series C Preferred Stock
will be entitled to the number of votes that could be cast by virtue of the
shares he or she currently owns, as well as the shares he or she would receive
as accelerated dividends as a result of such event.

The Company cannot optionally redeem the Series C Preferred Stock prior to
December 31, 2001, and any optional redemption subsequent to December 31, 2001
is subject to various conditions. As a consequence of these provisions, as well
as the voting power of the holders of the Series C Preferred Stock, it would be
very difficult for another party to successfully acquire the Company without the
concurrence of a majority of the outstanding shares of Series C Preferred Stock.

The Existing Securities also contain provisions which may have
anti-takeover implications. Upon the occurrence of a Change of Control, the
Company may, but is not required to, offer to purchase all of the outstanding
Series B Preferred Stock at 101% of the Series B Preferential Payment. If the
redemption offer for the Series B Preferred Stock is not made, the dividends

35
<PAGE>

cease being pay-in-kind dividends and become payable in cash. In the event a
Change of Control occurs, if the Company does not make an offer to purchase the
Series B Preferred Stock and subsequently violates the covenants imposed under
the Series B Certificate of Designation following a Change of Control, the
dividend rate then in effect on the Series B Preferred Stock will increase to
18%, and at any time after 91 days or after maturity or redemption of the
Company's outstanding 10% Notes, the holders of the Series B Preferred Stock may
put their shares to the Company for 101% of the Series B Preferential Payment.

In addition, upon the occurrence of a change of control as defined in the
Senior Notes Indenture, the Company is required to make an offer to purchase all
of the Senior Notes at a purchase price equal to 101% of the aggregate principal
amount plus accrued interest.

14. WHY IS STOCKHOLDER APPROVAL BEING SOUGHT FOR PROPOSAL 1?

As an issuer of securities quoted on the Nasdaq National Marketplace, the
Company must comply with certain rules of the NASD for inclusion on Nasdaq.
Under Nasdaq Marketplace Rule 4460(i), the Company must obtain stockholder
approval prior to the issuance of securities when the issuance of such
securities:

- equals 20% or more of the Common Stock outstanding before the issuance
and is for less than the greater of book or market value; or

- equals 20% or more of the Common Stock outstanding before the issuance
and is in connection with an acquisition of the stock or assets of
another company; or

- would result in a change of control of the Company.

Because of these Nasdaq requirements, approval of the Company's stockholders is
required prior to the issuance of the Series C Preferred Stock in exchange for
the Existing Securities.

15. WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO PROPOSAL 1?

THE BOARD OF DIRECTORS HAS APPROVED THE ISSUANCE OF THE SERIES C PREFERRED
STOCK AND THE PREFERRED STOCK EXCHANGE. THE BOARD BELIEVES THAT PROPOSAL 1 IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT
YOU VOTE FOR THE APPROVAL OF PROPOSAL 1.

36
<PAGE>

PROPOSAL 2

AMENDMENT OF THE CERTIFICATE TO
AUTHORIZE NON-VOTING COMMON STOCK AND
INCREASE THE AUTHORIZED PREFERRED STOCK

1. WHAT IS THE COMPANY ASKING YOU TO APPROVE?

The Certificate currently authorizes 110,000,000 shares of capital stock,
100,000,000 of which are authorized as Common Stock, par value $.01 per share,
and 10,000,000 of which are authorized as Preferred Stock, par value $.01 per
share. The Company is requesting your approval to (i) authorize the creation of
a class of Non-Voting Common Stock consisting of 10,000,000 shares and (ii)
increase the authorized Preferred Stock from 10,000,000 to 25,000,000 shares.

2. WHAT IS THE COMPANY'S CURRENT CAPITAL STRUCTURE?

As of __________ __, 199_, ____ shares of the Common Stock were issued and
outstanding and an additional ______ shares of Common Stock were reserved for
issuance under the Company's stock incentive plans and existing options.
Thus, of the 100,000,000 presently authorized shares of Common Stock, _____
shares remain available for other purposes. As of the same date, ________
shares of the Company's Preferred Stock were outstanding in the form of
Series B Preferred Stock and an additional _______ shares of Preferred Stock
were reserved for issuance by the Company as follows:

- ________ shares reserved for the issuance of additional Series B
Preferred Stock as pay-in-kind dividends on the outstanding Series B
Preferred Stock (see the description of the terms of the Series B
Preferred Stock under Proposal 1 above);

- 2,000,000 shares reserved for the issuance of the Series C Preferred
Stock and the pay-in-kind dividends associated therewith (see the
description of the terms of the Series C Preferred Stock under
Proposal 1 above); and

- 100,000 shares reserved for the issuance of Series D Preferred Stock
(see the description of the terms of the Series D Preferred Stock
under Proposal 1 above).

Thus, of the 10,000,000 presently authorized shares of Preferred Stock only
5,500,000 shares remain available for other purposes.

The Company currently does not have an authorized class of Non-Voting
Common Stock.

3. WHAT ARE THE TERMS OF THE NON-VOTING COMMON STOCK?

Under the Amendment submitted to you as a part of this Proposal 2, a new
class of Common Stock to be designated as Non-Voting Common Stock will be
created. Article IV,

37
<PAGE>

Section 8 of the Certificate, as proposed to be amended and attached as
APPENDIX B to this Proxy Statement, sets forth in full the rights, powers and
limitations of the Non-Voting Common Stock.

VOTING

The holders of Non-Voting Common Stock will have no voting rights, except
as required by the Delaware General Corporation law. The Delaware General
Corporation Law requires that the holders of Non-Voting Common Stock have the
right to vote on proposals to change the par value of the Non-Voting Common
Stock or to alter or change the powers, preferences or special rights, if any,
of the Non-Voting Common Stock.

DIVIDENDS AND DISTRIBUTIONS

Each share of Common Stock and Non-Voting Common Stock will be equal with
respect to dividends and other distributions in cash, property, or shares of
stock of the Company (including distributions in connection with any
recapitalization), except as described below.

Declaration of any payment of cash dividends is solely within the
discretion of the Board of Directors, and the Company cannot assure you that
such dividends will be declared and paid with any regularity. Dividends or
other distributions payable in shares of the Company will be made to all holders
of Common Stock and Non-Voting Common Stock and will be made according to the
following table:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
IF THE DIVIDEND/DISTRIBUTION HOLDERS OF COMMON STOCK HOLDERS OF NON-VOTING
IS IN THE FORM OF: WILL RECEIVE: COMMON STOCK WILL RECEIVE:
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock Common Stock Non-Voting Common Stock
- --------------------------------------------------------------------------------------------------------------------
Non-Voting Common Stock Non-Voting Common Stock Non-Voting Common Stock
- --------------------------------------------------------------------------------------------------------------------
Other authorized class/series Same class/series Non-Voting equivalent of
of capital stock with voting such class/series
rights
- --------------------------------------------------------------------------------------------------------------------
Other authorized class/series Same class/series Same class/series
of capital stock without
voting rights
- --------------------------------------------------------------------------------------------------------------------
Convertible securities or Securities convertible into or Securities convertible into or
options giving the holder a options to acquire Common Stock options to acquire Non-Voting
right to acquire Common Common Stock
Stock or Non-Voting
Common Stock.*
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

*Other than rights issued pursuant to shareholder rights plans of the type
entitling holders of rights other than an "acquiring person" to purchase shares
other securities at a below-market price if certain events occur (which rights
may be distributed as a dividend pursuant to such a plan upon shares of either
class of Common Stock or Non-Voting Common Stock without a corresponding
dividend distribution upon shares of the other).

38
<PAGE>

In addition, the Company will make dividends or other distributions payable
on the Common Stock and Non-Voting Common Stock in convertible securities or
securities giving the holder a right to acquire shares of Common Stock or
Non-Voting Common Stock, other than rights issued pursuant to shareholder rights
plans of the type entitling holders of rights other than an "acquiring person"
to purchase shares or other securities at a below-market price if certain events
occur (which rights may be distributed as a dividend pursuant to such a plan
upon shares of either class of Common Stock or Non-Voting Common Stock without a
corresponding dividend distribution upon shares of the other), to all holders of
Common Stock and Non-Voting Common Stock in (i) securities convertible into
Common Stock or options to acquire Common Stock to the record holders of Common
Stock and (ii) securities convertible into Non-Voting Common Stock and options
to acquire Non-Voting Common Stock to the record holders of the Non-Voting
Common Stock. In no event will the Company split, subdivide or combine the
Common Stock or Non-Voting Common Stock, unless the other is proportionally
split, subdivided or combined.

CONVERSION

Prior to the redemption or maturity of the Company's 10% Notes, each share
of Non-Voting Common Stock will automatically convert into one share of Common
Stock only if such conversion will not cause the holder of the Common Stock
received (including any group to which the holder belongs within the meaning of
Rules 13d-3 and 13d-5 promulgated under the Exchange Act) to own more than 34.9%
of the outstanding voting power of the Company's stock. At the time that the
Company's 10% Notes are no longer outstanding, each share of Non-Voting Common
Stock will automatically convert into one share of Common Stock.

MERGERS AND CONSOLIDATIONS

In the event of a merger, consolidation, combination or similar transaction
of the Company with another entity (whether or not the Company is the surviving
entity), or in the event of a liquidation, dissolution or winding up of the
Company, the holders of Non-Voting Common Stock will be entitled to receive the
same per share consideration as the per share consideration, if any, received by
holders of the Common Stock in that transaction. Any Common Stock that holders
of Non-Voting Common Stock become entitled to receive in any merger,
consolidation, combination or similar transaction, however, may have terms
substantially similar to the terms of the Non-Voting Common Stock itself. Thus,
the surviving entity in any such transaction could have a dual-class capital
structure like that proposed for the Company and could, upon the consummation of
the merger or consolidation, give voting shares to the holders of Common Stock
and non-voting shares to the holders of Non-Voting Common Stock.

TRANSFERABILITY

Like the existing Common Stock, the Non-Voting Common Stock will be freely
transferable, and except for federal and state securities law restrictions on
directors, officers and other affiliates of the Company and on persons holding
"restricted" stock, stockholders will not be restricted in their ability to sell
or transfer shares of Non-Voting Common Stock. However, the

39
<PAGE>

Company does not currently anticipate that the Non-Voting Common Stock will be
quoted on the Nasdaq National Market System or any other exchange.

PREEMPTIVE RIGHTS

Like the existing Common Stock, the Non-Voting Common Stock will not carry
any preemptive rights enabling its holder to subscribe for or receive shares of
any class of stock of the Company (or any other securities convertible into such
shares) which may be issued by the Company.

4. WHAT ARE THE TERMS OF THE PREFERRED STOCK?

The Certificate allows the Board of Directors of the Company to provide
for the terms of any series of Preferred Stock prior to issuance, including
terms which give a series of Preferred Stock preference over the Common Stock
and Non-Voting Common Stock with respect to the payment of dividends and
voting and other rights.

5. WHAT IS THE IMPACT OF THE APPROVAL OR DISAPPROVAL OF PROPOSAL 2?

If stockholders approve Proposal 2, the Board of Directors will prepare and
file Articles of Amendment to the Certificate in accordance with the proposed
Amendments which will become effective immediately upon acceptance of the filing
by the Secretary of State of the State of Delaware. The Board could then cause
the issuance of the Non-Voting Common Stock without any further action on the
part of the stockholders. The Board of Directors presently intends to file the
Articles of Amendment if this Proposal 2 is approved by the stockholders, even
if Proposal 1 is not approved by the stockholders; however, the Board reserves
the right to abandon this Proposal 2 and not file the Articles of Amendment even
if the amendments described above are approved by the stockholders.

The amendments to the Certificate contained in this Proposal 2 are not
necessary for the Exchange described in Proposal 1. If the stockholders approve
Proposal 1, the Preferred Stock Exchange will occur even if the stockholders
disapprove this Proposal 2.

6. WHY IS THE COMPANY REQUESTING THE CREATION OF THE NON-VOTING COMMON STOCK?

As described above under Proposal 1, if the Preferred Stock Exchange is
approved, the Non-Voting Common Stock will be issued to the holders of the
Series Class C Preferred Stock in the event that the holders of Series C
Preferred Stock desire to convert their Series C Preferred Stock to Common Stock
and such conversion would require the issuance of a number of shares of Common
Stock in excess of the amount permitted under the Company's outstanding 10%
Notes or revolving credit agreement. You should read Proposal 1 for more
information on the intended use of the Non-Voting Common Stock.

In addition, the Board of Directors believes that the authorization of the
Non-Voting Common Stock will provide flexibility in meeting the Company's future
capital needs, whether as a result of growth generated internally or externally
through mergers and acquisitions. The newly

40
<PAGE>

authorized shares of Non-Voting Common Stock will be available for possible use
in connection with future financings, investment opportunities, mergers and
acquisitions, employee benefit plans, dividend reinvestment plans, other
distributions such as stock dividends or stock splits or for other corporate
purposes.

The Company does not currently have any definite plans or commitments that
would require the issuance of any of the Non-Voting Common Stock, except in
connection with the Preferred Stock Exchange as described in Proposal 1.

7. WHY IS THE COMPANY REQUESTING AN INCREASE IN THE NUMBER OF AUTHORIZED
SHARES OF PREFERRED STOCK?

The Board of Directors believes it is desirable to ensure that, after
giving effect to the Preferred Stock Exchange as described in Proposal 1, the
Company will have additional authorized shares of Preferred Stock available for
general corporate purposes, including possible acquisition, capital raising and
financing transactions, and future employee and director incentive and benefit
plans. While the Company has no present plans or commitments to issue any of
the additional authorized shares other than those described in connection with
Proposal 1, the Company believes it is advisable to have the ability to issue
the additional shares, as the need may arise, to take advantage of market
conditions or the availability of other favorable opportunities without the
delay and expense of calling a special stockholders' meeting. The Company also
believes the additional authorized shares of Preferred Stock, along with the
ability to vary features such as dividend rates and conversion rights of such
stock to meet the exigencies of a particular transaction, will allow the Company
advantages in negotiations and the flexibility to structure transactions
involving the issuance of Preferred Stock.

The additional shares of the Preferred Stock and the Non-Voting Common
Stock will be available for issuance by the Board of Directors for any proper
corporate purpose, to such persons and for such consideration as the Board may
determine, without any further action by the stockholders, except in certain
types of transactions requiring stockholder vote under the Delaware General
Corporation Law, the Certificate or the rules of the NASD. As discussed above,
the NASD rules currently require stockholder approval in several circumstances,
including change of control, certain acquisition transactions, the adoption of
certain employee and director plans and the private sale of more than 20% of the
equity or voting securities of the Company.

8. WHAT IS THE TEXT OF THE PROPOSED AMENDMENTS?

The Board of Directors recommends that the Certificate be further amended
by deleting Sections 1, 2 and 3 of Article IV in their entirety and replacing
them as follows:

SECTION 1. Number of Shares. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 135,000,000 shares,
consisting of 100,000,000 shares of Common Stock with par value $.01 per share
("Common Stock"), 10,000,000 shares of Non-Voting Common Stock with par value
$.01 per share ("Non-Voting Common Stock"), and 25,000,000 shares of Preferred
Stock with par value $.01 per share ("Preferred Stock").

41
<PAGE>

SECTION 2. Dividends. Subject to the provisions of law and the rights of
the Preferred Stock and any other class or series of stock then outstanding
having a preference as to dividends over the Common Stock or the Non-Voting
Common Stock, dividends may be paid on the Common Stock and the Non-Voting
Common Stock at such times and in such amounts as the Board of Directors shall
determine.

SECTION 3. Relative Rights of Shareholders. Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after any preferential amounts to be distributed to the holders of the Preferred
Stock and any other class or series of stock then outstanding having a
preference over the Common Stock or the Non-Voting Common Stock have been paid
or declared and set apart for payment, the holders of the Common Stock and the
Non-Voting Common Stock shall be entitled to receive all of the remaining assets
of the Corporation available for distribution to its stockholders.

In addition, the Board of Directors recommends the addition of the
following as Section 8 of Article IV:

SECTION 8. Rights and Terms of Non-Voting Common Stock.

(a) GENERAL. The powers, preferences and rights of the Common Stock and
the Non-Voting Common Stock, and the qualifications, limitations or restrictions
thereof, shall be in all respects identical, except as otherwise required by law
or expressly provided in this Section 8.

(b) VOTING. Except as otherwise required by law, no holder of the
Non-Voting Common Stock (by virtue of ownership of such shares) shall be
entitled to vote such shares of Non-Voting Common Stock on any matters to be
voted on by the stockholders of the Corporation.

(c) DIVIDENDS, SPLITS OR COMBINATIONS. (i) When and as dividends are
declared, whether payable in cash, in property or securities of the Corporation,
the holders of the Non-Voting Common Stock shall be entitled to share equally
with the holders of the Common Stock on a share-for-share basis in such
dividends, except as provided herein.

(ii) Dividends may be declared and paid to the holders of the Common
Stock and the holders of the Non-Voting Common Stock in cash, property, or other
securities of the Corporation out of any funds or other assets of the
Corporation legally available therefor.

(iii) If and when dividends on the Common Stock and the Non-Voting
Common Stock are declared payable from time to time by the Board of Directors,
whether payable in cash, in property or in shares of stock of the Corporation,
the holders shall be entitled to share equally, on a per share basis, in such
dividends, except that:

(A) dividends or other distributions payable in shares of stock
of the Corporation shall be made to all holders of Common Stock and Non-Voting
Common Stock and shall be made only (1) in shares of Non-Voting Common Stock to
the record holders of Common Stock and to the record holders of Non-Voting
Common Stock, (2) in shares of Common Stock to the record holders of Common
Stock and in shares of Non-Voting Common Stock to record holders of Non-Voting
Common Stock, or (3) in any other authorized class or series of capital stock to
the record holders of both classes of Common Stock and Non-Voting Common Stock,
regardless of the fair market value of such shares received in payment of such
dividend or other distribution; PROVIDED, HOWEVER, that if such other authorized
class or series of capital stock has voting rights, an additional class or
series of capital stock shall be created which series shall be identical in all
respects, except that it shall not have any voting rights (except as required by
law), and dividends or other distributions of such authorized class or series
shall be made only in such authorized class or series to holders of Common Stock
and in the non-voting version of such authorized class or series to holders of
Non-Voting Common Stock, and

42
<PAGE>

upon shares of the other), shall be made to all holders of Common Stock and
Non-Voting Common Stock and may be made in securities convertible into Common
Stock or Options to acquire Common Stock to the record holders of Common Stock
and in securities convertible into Non-Voting Common Stock or Options to acquire
Non-Voting Common Stock to the record holders of Non-Voting Common Stock.

(iv) If the Corporation shall in any manner split, subdivide or
combine the outstanding shares of Common Stock or Non-Voting Common Stock, the
outstanding shares of the other such class shall be proportionally split,
subdivided or combined in the same manner and on the same basis as the
outstanding shares of the other class have been split, subdivided or combined.

(d) CONVERSION.

(i) Each share of Non-Voting Common Stock shall automatically convert
into shares of Common Stock at the time such conversion is not prohibited by the
restrictions contained in paragraph (d)(ii) below, on the terms and conditions
set forth in this Section 8. Subject to the provisions for adjustment
hereinafter set forth, each share of Non-Voting Common Stock shall be
convertible into one share of Common Stock.

(ii) Notwithstanding any other provision contained in this Section 8
to the contrary, no shares of Non-Voting Common Stock may be converted into
Common Stock unless, after giving effect to such conversion, the holder thereof,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act to
which such holder belongs, shall not beneficially own (determined pursuant to
Rules 13d-3 and 13d-5 under the Exchange Act, except that such holder and any
such group shall be deemed to beneficially own all shares that such holder or
group has the right to acquire, whether such right is exercisable immediately or
only after the passage of time, upon the happening of an event or otherwise) a
number of shares of Common Stock which represents greater than the Maximum
Percentage of the voting power represented by the shares of stock of the
Corporation entitled to vote with the Common Stock at all meetings of the
stockholders of the Corporation.

(iii) For purposes of this Article IV, Section 8 the following terms
have the following meanings:

"Indenture" means that certain Indenture dated as of November 7, 1997,
among Metris Companies Inc., as Issuer, the Guarantors named therein and The
First National Bank of Chicago, as Trustee.

"Maximum Percentage" shall mean (a) for a period ending on the later to
occur of (i) December 31, 2000 or (ii) the date upon which all of the 10% Notes
no longer remain outstanding under the Indenture, 34.9% and (b) thereafter,
100%.

(e) BUSINESS COMBINATIONS; DISSOLUTION. In the event of merger,
consolidation, combination or similar transaction of the Corporation with
another entity (whether or not the Corporation is the surviving entity) or in
the event of liquidation, dissolution or winding up of the Corporation, holders
of Non-Voting Common Stock shall be entitled to receive in respect of each share
of Non-Voting Common Stock the same kind, and at the same ratio, of shares,
evidences of indebtedness, other securities, cash, rights, or any other
property, or any combination of shares, evidence of indebtedness, securities,
cash, rights, or any other property as holders of Common Stock shall be entitled
to receive in respect of each share, except that in any merger, consolidation,
combination or similar transaction, any common stock that holders of Non-Voting
Common Stock shall be entitled to receive may have terms substantially similar
to those of the Non-Voting Common Stock set forth in this Section 8.

The full text of the Certificate, as proposed to be further amended by this
Proposal 2 as well as Proposal 3, is set forth as APPENDIX B to this Proxy
Statement and has been marked to show all proposed changes.

43
<PAGE>

9. WHAT ARE THE POSSIBLE EFFECTS OF THE ADOPTION OF THE PROPOSAL 2?

ANTI-TAKEOVER IMPLICATIONS

The proposed amendment may have anti-takeover implications. Although
the proposed amendment is not intended to be an anti-takeover measure,
stockholders should note that, under certain circumstances, the issuance of the
additional authorized shares of Preferred Stock could be used to create
impediments to persons seeking to effect a merger or otherwise gain control of
the Company. The Board of Directors could privately place any of the additional
shares of Preferred Stock with purchasers who might side with the Board in
opposing a hostile takeover bid, making a change in control of the Company more
difficult, and therefore less likely. In particular, the Board could authorize
holders of the Preferred Stock to vote as a class, either separately or with the
holders of Common Stock, on any merger, sale or exchange of assets by the
Company or any other extraordinary corporate transaction.

The Board of Directors is not currently aware that any person or group is
seeking to obtain control of the Company and has no current plans to use the
newly authorized shares for purposes of discouraging a takeover attempt.

DILUTION

The issuance of the Non-Voting Common Stock may have a dilutive impact on
the stockholders depending on the price at which it is issued. The issuance of
shares of Preferred Stock having conversion rights may also have the effect of
diluting the interests of other stockholders. In addition, you should expect
that any shares of Preferred Stock which may be issued would have dividend and
liquidation preferences superior to those of the Common Stock. Holders of
Common Stock do not have preemptive rights to subscribe for additional
securities which may be issued by the Company.

ACQUISITION ACCOUNTING

The Non-Voting Common Stock may not be used to effect a business
combination to be accounted for using the "pooling of interests" method. In
order to use that method we would have to issue shares of Common stock for the
combination.

10. WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO PROPOSAL 2?

THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE TO INCREASE THE COMPANY'S AUTHORIZED SHARES TO 135,000,000 OF WHICH
100,000,000 WILL BE COMMON STOCK, 10,000,000 WILL BE NON-VOTING COMMON STOCK AND
25,000,000 WILL BE PREFERRED STOCK. THE BOARD BELIEVES THAT PROPOSAL 2 IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE FOR THE APPROVAL OF PROPOSAL 2.

44
<PAGE>

PROPOSAL 3

AMENDMENT OF THE CERTIFICATE TO REMOVE
CERTAIN RESTRICTIONS ON THE COMPANY'S ACTIVITIES

1. WHAT IS THE COMPANY ASKING YOU TO APPROVE?

The Certificate contains certain provisions which limit the Company's
ability to engage in certain types of businesses and activities. The Company is
requesting your approval to amend the Certificate to remove all of these
restrictions, including provisions providing certain corporate opportunities to
Fingerhut, the Company's former controlling shareholder.

2. WHY IS THE COMPANY REQUESTING THE DELETION OF THESE PROVISIONS OF THE
CERTIFICATE?

These provisions were included in the Certificate at a time when the
majority of the Company's stock was owned by Fingerhut and were designed to
prevent the Company from competing with Fingerhut and to assure that certain
corporate opportunities that the Company might encounter would belong to
Fingerhut. On September 25, 1998 Fingerhut distributed its remaining 83%
interest in the Company to Fingerhut's shareholders. Although the Company and
Fingerhut have various contractual relationships, Fingerhut currently does not
own any outstanding shares of the Company.

The Board of Directors believes that these provisions limiting the
businesses and activities in which the Company may engage are no longer
appropriate following the spin-off. Recognizing that these provisions prohibit
or restrict the Company's growth in certain areas, the Board of Directors
believes that removal of these provisions will improve management's flexibility
to take advantage of future business opportunities.

3. WHAT IS THE TEXT OF THE PROPOSED AMENDMENT?

The Board of Directors of the Company recommends that the Company's
Certificate be further amended by deleting Sections 1 and 2 of Article III in
their entirety and replacing them as follows:

The purpose of the Corporation is to engage in any lawful act or activity
and to exercise any powers permitted to corporations under the General
Corporation Law of Delaware.

The Board of Directors further recommends that the Certificate be further
amended by deleting Article XIII in its entirety.

The full text of the Certificate, as proposed to be further amended by this
Proposal 3 and Proposal 2, is set forth as APPENDIX B to this Proxy Statement
and has been marked to show all proposed changes.

45
<PAGE>

4. WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO PROPOSAL 3?

THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE TO REMOVE THE PROVISIONS RESTRICTING THE COMPANY'S ABILITY TO ENGAGE
IN CERTAIN ACTIVITIES AND BUSINESSES. THE BOARD BELIEVES THAT PROPOSAL 3 IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE FOR THE APPROVAL OF PROPOSAL 3.

46
<PAGE>

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

1. WHAT IS THE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS?

The following table lists the beneficial ownership of the Common Stock of
all persons who are known by the Company, as of January 10, 1998, to
beneficially own more than five percent of the outstanding shares of Common
Stock:

<TABLE>
<CAPTION>
Amount and
Nature of Beneficial
Name and Address of Beneficial Owner Ownership Percent of Class
------------------------------------ -------------------- ----------------
<S> <C> <C>
Theodore Deikel 1,329,887(1) 6.8%
</TABLE>

- ------------
(1) Includes 285,000 shares of common stock that Mr. Deikel has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.

2. WHAT IS THE SECURITY OWNERSHIP OF MANAGEMENT?

The directors and executive officers of the Company as a group beneficially
own approximately 10.5% of the outstanding shares of Common Stock. The
following table lists the number of shares of Common Stock, as of January 10,
1998, beneficially owned by each director of the Company, the President and
Chief Executive Officer of the Company, and each of the four most highly
compensated other executive officers of the Company, as well as all directors
and executive officers as a group.

<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
------------------------ -------------------- ----------------
<S> <C> <C>
Theodore Deikel 1,329,887(1) 6.8%

Ronald N. Zebeck 649,673(2) 3.3%

Lee R. Anderson, Sr. 25,411(3) *

Frank D. Trestman 21,910(4) *

Dudley C. Mecum 16,318(5) *

Derek V. Smith 12,000(6) *

John A. Cleary 5,000(7) *

Douglas B. McCoy 23,291(8) *

Douglas L. Scaliti 18,600(9) *

Z. Jill Barclift 15,450(10) *

47
<PAGE>

Joseph A. Hoffman 1,000 *

All directors and executive
officers as a group (16 persons) 2,130,815(11) 10.5%
</TABLE>

- ---------------
(*) Less than 1%
(1) Includes 285,000 shares of common stock that Mr. Deikel has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(2) Includes 639,673 shares of common stock that Mr. Zebeck has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(3) Includes 10,000 shares of common stock that Mr. Anderson has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(4) Includes 15,000 shares of common stock that Mr. Trestman has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(5) Includes 15,000 shares of common stock that Mr. Mecum has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(6) Includes 10,000 shares of common stock that Mr. Smith has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(7) Includes 5,000 shares of common stock that Mr. Cleary has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(8) Includes 15,000 shares of common stock that Mr. McCoy has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(9) Includes 15,000 shares of common stock that Mr. Scaliti has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options.
(10) Includes 7,500 shares of common stock that Ms. Barclift has the right to
acquire within 60 days of January 10, 1999, through the exercise of stock
options. Also includes 750 shares of common stock that Ms. Barclift's
husband has the right to acquire within 60 days of January 10, 1999,
through the exercise of stock options.
(11) Includes 1,026,673 shares of common stock that the directors and executive
officers have the right to acquire within 60 days of January 10, 1999,
through the exercise of stock options.

48
<PAGE>

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement contains forward-looking statements. These statements
include statements regarding intent, belief or current expectations of the
Company and its management. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements. Among
the factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are: the Company's limited
operating history as a stand-alone entity; the Company's limited experience with
respect to originating and servicing credit card accounts, including limited
delinquency, default and loss experience; the lack of seasoning of the Company's
credit card portfolio, which makes the predictability of delinquency and loss
levels more difficult; risks associated with unsecured credit transactions,
particularly to moderate income consumers; risks associated with acquired
portfolios; interest rate risks; dependence on the securitization of the
Company's credit card loans or the capital markets to fund operations; the
nature and timing of the funding of the Thomas H. Lee Company investment,
general economic conditions affecting consumer income, which may increase
consumer bankruptcies, defaults and delinquencies; state and federal laws and
regulations, including consumer and debtor protection laws; the highly
competitive industry in which the Company operates and the uncertainty
surrounding the effect the Year 2000 Problem will have on the Company or any of
its vendors.

49
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires the Company to file reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). You may inspect and
copy such reports, proxy statements and other information at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the regional offices of the SEC located at 7
World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain
more information about the public reference facilities by calling the SEC at
1-900-SEC-0330. In addition, you may access such reports, proxy statements and
other information electronically by means of the SEC's Web site at
http://www.sec.gov. The Company's Common Stock is quoted on the Nasdaq, and you
may also inspect copies of any documents filed with the SEC at the offices of
the Nasdaq, 1735 K Street, Washington, D.C. 20006.

The Exchange Act allows the Company to "incorporate by reference"
information into this Proxy Statement, which means that the Company can disclose
important information to you by referring you to another document filed
separately with the SEC. This Proxy Statement incorporates by reference the
following documents that the Company has previously filed with the SEC:

1. the Company's Annual Report on Form 10-K for the year ended
December 31, 1997;

2. the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998; and

3. the Company's Current Reports on Form 8-K filed on September 24, 1998,
October 7, 1998, October 15, 1998 and December 22, 1998.

This Proxy Statement also incorporates by reference additional documents
that the Company may file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this Proxy Statement and the Special Meeting.

You may obtain copies of such documents which are incorporated by reference
in this Proxy Statement (other than exhibits thereto which are not specifically
incorporated by reference therein), without charge, upon written or oral request
to Metris Companies Inc., 600 South Highway 169, Suite 1800, St. Louis Park,
Minnesota 55426, Attention: Investor Relations (telephone number (612)
593-4820).

50
<PAGE>

CERTIFICATE OF DESIGNATION

SERIES C PERPETUAL
CONVERTIBLE PREFERRED STOCK

METRIS COMPANIES INC.

Pursuant to Section 151 of the General Corporation Law
of the State of Delaware

Metris Companies Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, as amended, and in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware, its Board of Directors
(the "Board of Directors") has adopted the following resolution creating a
series of its Preferred Stock, par value $.01 per share, designated as Series C
Perpetual Convertible Preferred Stock:

RESOLVED, that a series of authorized Preferred Stock, par value $.01 per
share, of the Corporation be hereby created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:

Section 1. DESIGNATION AND AMOUNT.

The shares of such series shall be designated as the "Series C Perpetual
Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of
shares constituting such series shall be 2,000,000 shares of Series C Preferred
Stock. Section 10 below contains the definitions of certain defined terms used
herein.

Section 2. DIVIDENDS AND DISTRIBUTIONS.

(a) The holders of shares of Series C Preferred Stock, in preference
to the holders of shares of the Series A Junior Participating Preferred Stock,
Common Stock, Non-Voting Stock and of any other capital stock of the Corporation
ranking junior to the Series C Preferred Stock as to payment of dividends, shall
be entitled to receive on the last day of each calendar quarter, cumulative
dividends on the Series C Preferred Stock accruing on a daily basis

<PAGE>

(computed on the basis of a 360-day year of twelve 30-day months) at the rate
per annum equal to the Dividend Rate (as defined herein) per share of Series C
Preferred Stock calculated as a percentage of $372.50, compounded quarterly,
from and including December 9, 1998 until the redemption or conversion of the
Series C Preferred Stock. Such dividends shall be paid in kind as herein
provided, except as otherwise provided in this Section 1(a) or in Sections 5 and
7 hereof, and will be paid whether or not they have been declared and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. Dividends on the Series C Preferred
Stock shall be paid in additional shares of Series C Preferred Stock valued at
$372.50 per share; provided that with respect to periods following a Change in
Control Triggering Event, dividends shall be paid quarterly in cash. For
purposes hereof, except as otherwise provided in Section 5(b) or 5(c), the
"Dividend Rate" shall mean (i) 9% per annum from the date of initial issuance of
the Series C Preferred Stock until the occurrence of a Change in Control
Triggering Event or December 9, 2008, (ii) 11 1/2% following a Change in Control
Triggering Event and prior to December 9, 2008, and (iii) 15% per annum from and
after December 9, 2008, regardless of whether a Change in Control Triggering
Event has occurred. Notwithstanding the foregoing, if the Board of Directors
determines in good faith for legal, tax or regulatory reasons or other good
reason that it is inappropriate or inadvisable to pay one or more dividends in
kind as described above, the Board of Directors of the Corporation, by a vote of
80% of the members of the Board of Directors (which 80% must include a majority
of the directors elected by the holders of Series C Preferred Stock, if there
are any such directors so elected), may determine to pay such dividend in cash,
debt securities, convertible securities or other securities or property of the
Corporation or any combination thereof so long as, in the reasonable opinion of
the Board of Directors, such dividends, at the time of declaration, shall be
substantially economically equivalent to the in kind dividend that would have
been declared; provided; however, that if there are no directors elected or
designated by the holders of Series C Preferred Stock, no such determination to
pay dividends other than in kind shall be permitted without the affirmative
consent of the holders of a majority of the Series C Preferred Stock then
outstanding. In making such determination, the Board may rely upon the advice
or report of independent legal and financial advisors or other experts.

(b) In case the Corporation or any Subsidiary of the Corporation
shall at any time or from time to time declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of stock or
other securities or property or rights or warrants to subscribe for securities
of the Corporation or any of its Subsidiaries by way of dividend or spin off) on
the Common Stock or Non-Voting Stock, other than any dividend or distribution of
shares of Common Stock or Non-Voting Stock covered by paragraph (b)(i) of
Section 8 hereof and other than a redemption of rights to purchase Series A
Junior Participating Preferred Stock for a redemption amount not greater than
$.01 per right attached to each share of Common Stock, then, and in each such
case (a "Triggering Distribution"), the holders of shares of Series C Preferred
Stock shall be entitled to receive from the Corporation, with respect to each
share of Series C Preferred Stock held, in addition to the dividends payable
under paragraph (a) of this Section 2, the same dividend or distribution
received by a holder of the number of shares of Common Stock or Non-Voting Stock
into which such share of Series C Preferred Stock is

-2-
<PAGE>

convertible on the record date for such dividend or distribution. Any such
dividend or distribution shall be declared, ordered, paid or made on the Series
C Preferred Stock at the same time such dividend or distribution is declared,
ordered, paid or made on the Common Stock or Non-Voting Stock and shall be in
addition to any dividends payable under paragraph (a) of this Section 2.

Section 3. VOTING RIGHTS.

In addition to any voting rights provided elsewhere herein, and any voting
rights provided by law, the holders of shares of Series C Preferred Stock shall
have the following voting rights:

(a) So long as the Series C Preferred Stock is outstanding, each
share of Series C Preferred Stock shall entitle the holder thereof to vote on
all matters voted on by holders of the capital stock of the Corporation into
which such share of Series C Preferred Stock is convertible, voting together as
a single class with the other shares entitled to vote, at all meetings of the
stockholders of the Corporation, except that with respect to the election of
directors of the Corporation, holders of the Series C Preferred Stock shall have
only those voting rights specified in paragraphs (c) and (d) hereof. With
respect to any such vote, each share of Series C Preferred Stock shall entitle
the holder thereof to cast the number of votes equal to the number of votes
which could be cast in such vote by a holder of the shares of capital stock of
the Corporation into which such share of Series C Preferred Stock is convertible
on the record date for such vote or, if no such record date is established, on
the date any written consent of stockholders is solicited; provided, however,
that if such vote relates to a Change in Control, the liquidation, dissolution
or winding up of the Corporation or any other matter which, if approved would
entitle the holder thereof to receive on an accelerated basis any additional
shares of Series C Preferred Stock, then the number of votes such holder shall
be entitled to cast shall be the number of votes equal to the number of votes
which could be cast in such vote by a holder of shares of capital stock of the
Corporation into which such share of Series C Preferred Stock (and any Series C
Preferred Stock that would be so received on an accelerated basis) would be
convertible (or, in the event of a Change in Control or liquidation, dissolution
or winding up, the number of shares of Common Stock that would be used to
determine the Liquidation Preference pursuant to clause (i)(A) of the definition
thereof if such Change in Control or liquidation, dissolution or winding up were
to occur).

(b) So long as any shares of Series C Preferred Stock shall be
outstanding and unless the consent or approval of a greater number of shares
shall then be required by law, without first obtaining the consent or approval
of the Requisite Holders (as defined below), voting as a single class, given in
person or by proxy at a meeting at which the holders of such shares shall be
entitled to vote separately as a class, or by written consent, the Corporation
shall not: (i) authorize, create or issue any class or series, or any shares of
any class or series, of stock having any preference or priority as to voting,
dividends or upon redemption, liquidation, dissolution, or winding up over the
Series C Preferred Stock ("Senior Stock"); (ii) authorize, create or issue any
class or series, or any shares of any class or series, of stock ranking on a
parity as to voting, dividends or upon redemption, liquidation, dissolution or
winding up with the Series C Preferred

-3-
<PAGE>

Stock ("Parity Stock"); (iii) reclassify any shares of stock of the Corporation
into shares of Senior Stock or Parity Stock; (iv) authorize any security
exchangeable for, convertible into, or evidencing the right to purchase any
shares of Senior Stock or Parity Stock; (v) alter or change the rights,
preferences or privileges of the Series C Preferred Stock; (vi) increase or
decrease the authorized number of shares of Series C Preferred Stock or issue
shares of Series C Preferred Stock other than to holders of Series C Preferred
Stock pursuant to its terms; or (vii) amend or waive any provision of the
Corporation's Certification of Incorporation or bylaws in a manner adverse in
any material respect to the holders of Series C Preferred Stock; provided,
however, that nothing herein shall prohibit the Company from distributing rights
pursuant to the terms of that certain Rights Agreement, dated as of September
10, 1998 between the Company and Norwest Bank Minnesota, National Association,
as Rights Agent, as such Agreement is in effect on the Closing Date of the
Securities Purchase Agreement or pursuant to a similar rights plan approved by
the Board of Directors of the Corporation. For purposes hereof, the "Requisite
Holders" shall mean the holders of a majority of the then-outstanding shares of
Series C Preferred Stock.

(c) So long as the initial purchasers of Series C Preferred Stock or
their Affiliates own at least 25% of the shares of Series C Preferred Stock
purchased by them under the Securities Purchase Agreement or shares of Common
Stock issued upon conversion thereof, then the size of the Company's Board of
Directors shall be set at eleven (11) and the Requisite Holders shall be
entitled to elect four (4) directors. So long as the initial purchasers of the
Series C Preferred Stock or their Affiliates own less than 25% of the shares but
at least 10% of the shares of Series C Preferred Stock purchased by them under
the Securities Purchase Agreement or the shares of Common Stock issuable upon
conversion thereof, then the Requisite Holders shall be entitled to elect one
(1) director. At such time as the initial purchasers of the Series C Preferred
Stock or their Affiliates own less than 10% of the shares of Series C Preferred
Stock purchased by them under the Securities Purchase Agreement or the shares of
Common Stock issuable upon conversion thereof, then the right of the Requisite
Holders to elect directors under this Section 3(c) shall terminate, except as
provided below. So long as it shall own any shares of Series C Preferred Stock
or any shares of Common Stock issued upon conversion thereof, and the holders of
Preferred Shares shall be entitled to elect at least four directors, Thomas H.
Lee Equity Fund IV, L.P. ("Fund IV") shall have the right to appoint one (1) of
the four directors. If Fund IV does not exercise such right, the Requisite
Holders shall be entitled to elect all four directors. In the event that within
90 days of the Exchange Date (as defined in the certain Securities Purchase
Agreement), the initial purchasers thereunder sell or transfer Series C
Preferred Stock with an original aggregate Conversion Value equal to or greater
than $25 million to an unaffiliated person or group, then such original
purchasers and such unaffiliated person or group shall be treated as though they
were the original purchasers under the Securities Purchase Agreement of that
number of shares of Series C Preferred Stock owned by them immediately following
such sale and, if consented to by the Requisite Holders at the time of such
transfer, for so long as such person or group owns Series C Preferred Stock with
an aggregate Conversion Value equal to or greater than $10 million then such
person or group shall be entitled to designate one of the directors elected by
the Series C Preferred Stock during any period the Series C Preferred Stock is
entitled

-4-
<PAGE>

to elect four or more directors. In the event of a default under the
Corporation's principal credit facility or any other instrument or instruments
governing more than $20,000,000 of indebtedness of the Corporation or its
Subsidiaries, which default, with the passage of time or the delivery of notice,
or both, entitles the holders of such indebtedness to accelerate the maturity of
such indebtedness and which default is not cured or waived within sixty (60)
days (a "Material Default"), the Requisite Holders shall be entitled to elect up
to a majority of the Corporation's Board of Directors for as long as such
Material Default remains uncured or waived and for a period of six months
thereafter; provided, however, that from and after the second Material Default
the Requisite Holders shall be entitled to elect up to a majority of the
Corporation's Board of Directors notwithstanding any cure or waiver. The
Corporation shall provide the holders of Series C Preferred Stock with prompt
notice of the Corporation becoming aware of any default which, after the passage
of time or the delivery of notice or both, could become a Material Default. In
the event of a Material Default, the Corporation shall take whatever actions are
necessary in order to allow the Requisite Holders to elect, as promptly as
practicable, a majority of the Board of Directors as contemplated hereby.

(d) Notwithstanding anything to the contrary contained herein, in no
event shall the Series C Preferred Stock permit a holder or holders thereof to
vote as part of a single class with the shares of capital stock into which the
Series C Preferred Stock is convertible to the extent that such voting right
would cause such holder or holders, including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act to which such holder belongs, to vote more
than the Maximum Percentage of the shares entitled to vote on such matter. In
addition, notwithstanding anything to the contrary set forth herein, in the
event holders of Series C Preferred Stock convert such shares into Common Stock,
and hold such Common Stock at a time when they also have a right to elect
directors, voting as a separate class, then the number of directors which they
may elect as a class shall be reduced to that number which, when added to the
Cumulative Number of Directors (as herein defined) is less than half of the
total number of Directors. The Cumulative Number of Directors shall mean that
number of Directors, rounded up to the nearest whole number, equal to the number
of directors subject to election by the holders of Common Stock (after giving
effect to any increase required by the immediately preceding sentence)
multiplied by a fraction, the numerator of which is the sum of all shares of
Common Stock held by holders of Series C Preferred Stock as of the date of
determination and, without duplication, the Reserved Shares and the denominator
of which is the sum of all outstanding shares of Common Stock as of the date of
determination and, without duplication, the Reserved Shares. "Reserved Shares"
shall mean that number of shares of Common Stock reserved as of September 25,
1998 by the Corporation for issuance with respect to options to purchase shares
of Common Stock from the Corporation, subject to appropriate adjustment for
stock splits, stock dividends and other events giving rise to adjustment of
shares subject to such options.

(e) Except as provided in this Certificate of Designation of Series C
Preferred Stock (including, without limitation, the right to vote with the
Common Stock on all matters submitted to a vote of stockholders of the
Corporation as set forth in paragraphs (a) and (b) of

-5-
<PAGE>

this Section 3, subject to the limitation contained in this paragraph (e)) or as
required by law, the holders of shares of Series C Preferred Stock shall have no
voting rights and their consent shall not be required for the taking of any
corporate action.

Section 4. CERTAIN RESTRICTIONS.

(a) Whenever the Corporation shall have not redeemed the shares of
Series C Preferred Stock within five (5) Business Days of the date such
redemption is required by Section 5 (a "Redemption Default"), thereafter and
until all redemption payments shall have been made or all necessary funds shall
have been Set Apart for Payment, and at all times following a Change in Control
Triggering Event, if and so long as any shares of Series C Preferred Stock
remain outstanding, the Corporation shall not, nor shall it permit any of its
Subsidiaries to: (A) declare or pay dividends, or make any other distributions,
on any shares of Common Stock or Non-Voting Stock or other capital stock of the
Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock, other than dividends
or distribution payable in Junior Stock; (B) declare or pay dividends, or make
any other distributions, on any shares of Parity Stock, other than dividends or
distributions payable in Junior Stock, except dividends paid ratably on the
Series C Preferred Stock and all Parity Stock on which dividends are payable or
in arrears, in proportion to the total amounts to which the holders of all such
shares are then entitled; (C) redeem or purchase or otherwise acquire for
consideration (other than Junior Stock) any shares of Junior Stock or Parity
Stock (other than, with respect to Parity Stock, ratably with the Series C
Preferred Stock); or (D) purchase or otherwise acquire for consideration any
shares of Series C Preferred Stock, other than purchases ratably among all
holders of the Series C Preferred Stock.

(b) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
capital stock of the Corporation unless the Corporation could, pursuant to
paragraph (a) of this Section 4, purchase or otherwise acquire such shares at
such time and in such manner.

Section 5. REDEMPTION.

(a) Except as provided in this Section 5(a), the Corporation shall
have no right to redeem any shares of Series C Preferred Stock. If at any time
after December 31, 2001, both (i) the average Trading Price per share of Common
Stock equals or exceeds $64.00 (appropriately adjusted to reflect the occurrence
of any event described in subparagraph (i) of paragraph (b) of Section 8) for
the twenty Trading Days immediately preceding the date of determination and (ii)
the Corporation's unsecured debt securities shall have ratings equal to or
better than Baa3 from Moody's Investor Services and BBB- from Standard & Poor's
Corporation, then during such time as the criteria set forth as clauses (i) and
(ii) shall continue to be met, the Corporation shall have the right, at its
sole option and election, to redeem all, but not less than all, of the
outstanding shares of Series C Preferred Stock by paying therefor in cash 103%
of (x) $372.50 per share, plus (y) all Accrued Dividends thereon to the date of
redemption. In addition, from and

-6-
<PAGE>

after December 9, 2008, the Corporation shall have the right, at its sole option
and election, to redeem all, but not less than all, of the outstanding shares of
Series C Preferred Stock by paying therefor in cash (x) $372.50 per share, plus
(y) all Accrued Dividends thereon to the date of redemption. Notwithstanding
the foregoing requirement that any such redemption shall be for all, but not
less than all, shares of Series C Preferred Stock, if any such redemption of
less than all of the outstanding shares of Series C Preferred Stock would not
result in the Redemption Price being treated as a dividend (as opposed to a
capital transaction) by the holders of Series C Preferred Stock, then the
Corporation shall have the right to make such a redemption of less than all of
the outstanding shares of Series C Preferred Stock pro rata from each of the
holders thereof. Notwithstanding the provisions of this Section 5(a), the
Corporation shall have no right to redeem the shares of Preferred Stock pursuant
to this Section 5(a) until the Corporation shall have reserved from its
authorized and unissued Common Stock and Non-Voting Stock such number of shares
of Common Stock and Non-Voting Stock as shall be sufficient to effect the
conversion of all then outstanding shares of Series C Preferred Stock into
Common Stock or Non-Voting Stock, as the case may be.

(b) In the event there occurs a Change in Control, the Corporation
shall have the right to offer to purchase from each holder all, but not less
than all, of the Series C Preferred Stock held by such holder for an amount
equal to 101% of the Liquidation Preference by delivery of a notice of such
offer (a "Change in Control Redemption Offer") within five days of the Change in
Control. In the event the Corporation makes a Change in Control Redemption
Offer, each holder of Series C Preferred Stock shall have the right (but not the
obligation) to require the Corporation to purchase all, but not less than all,
of the Series C Preferred Stock held by such holder for an amount equal to 101%
of the Liquidation Preference. In the event there occurs a Change in Control
and the Corporation does not make a Change in Control Redemption Offer in
accordance with this paragraph (a "Change in Control Triggering Event"), then
effective as of the date of such Change in Control:

(i) Each holder of Series C Preferred Stock shall be entitled to
receive a distribution of additional shares of Series C Preferred Stock such
that the total number of shares of Series C Preferred Stock held by such holder
as of the date of the Change in Control shall equal the Liquidation Preference
divided by $372.50;

(ii) Without the consent of the holders of a majority of the
outstanding shares of the Series C Preferred Stock, the Corporation will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and the Corporation and its Subsidiaries
will not issue any Disqualified Stock, and the Corporation will not permit any
of its Subsidiaries to issue any shares of preferred stock, provided, however,
that the Corporation and its Subsidiaries may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock or the Corporation's
Subsidiaries may issue shares of preferred stock if the Consolidated Leverage
Ratio of the Corporation, calculated on a pro forma basis after giving effect to
the incurrence of the additional

-7-
<PAGE>

Indebtedness to be incurred or the Disqualified Stock or preferred stock to be
issued and the application of the proceeds therefrom, would have been less than
2 to 1. Notwithstanding this subparagraph (iv), the Corporation may incur the
following Indebtedness (collectively, "Permitted Debt"):

A. Indebtedness of the Corporation under the Credit Agreement and
Guaranties thereof by the Corporations's Subsidiaries in an
aggregate amount not to exceed $300 million at any time
outstanding;

B. Indebtedness of the Corporation and its Subsidiaries existing on
December 9, 1998;

C. Indebtedness of any Subsidiary of the Corporation represented by
a guaranty of Indebtedness of the Corporation which constitutes
Permitted Debt;

D. Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance, defease, renew
or replace, any Indebtedness (other than intercompany
Indebtedness) that was permitted to be incurred under this
subparagraph (iv);

E. Intercompany Indebtedness of the Subsidiary of the Corporation
owing to the Corporation; provided, however, that any sale or
other transfer of any such Indebtedness to a person that is not
the Corporation shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by such Subsidiary that was not
permitted by this clause (E);

F. The issuance by a Subsidiary of the Corporation of preferred
stock to the Corporation; provided, however, that any subsequent
transfer of such preferred stock to a person other than the
Corporation shall be deemed to be an issuance of preferred stock
by such Subsidiary that was not permitted by this clause (F).

G. Hedging Obligations that are incurred in the ordinary course of
business;

H. Capital Lease Obligations and/or Purchase Money Indebtedness of
the Corporation or a Subsidiary of the Corporation incurred in
the ordinary course of business not to exceed $30.0 million at
any time outstanding;

I. The guarantee by the Corporation or any of its Subsidiaries of
Indebtedness of the Corporation or a Subsidiary of the
Corporation that was permitted to be incurred by another
provision of this clause (I);

-8-
<PAGE>

J. Additional Indebtedness of the Corporation and its Subsidiaries
in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (J), not
to exceed $10.0 million at any time outstanding.

Notwithstanding anything in this subparagraph (iv) to the contrary,
consummation of a Securitization shall not be deemed to be the
incurrence of Indebtedness or the issuance of Disqualified Stock or
preferred stock by the Corporation or a Subsidiary of the Corporation.
For purposes of determining compliance with this subparagraph (iv), in
the event that an item of Indebtedness meets the criteria of more than
one of the categories of Permitted Debt described in clauses (A)
through (J) above or is entitled to be incurred pursuant to the first
paragraph of this subparagraph (iv), the Corporation shall, in its
sole discretion, classify such item of Indebtedness in any manner that
complies with this subparagraph (iv) and such item of Indebtedness
will be treated as having been incurred pursuant to only one of such
clauses or pursuant to the first paragraph hereof.

(iii) Without the consent of the holders of a majority of the
outstanding shares of Series C Preferred Stock, (i) the Corporation shall not
permit the Leverage Ratio at any time to exceed 6 to 1; and (ii) the Corporation
shall not permit the amount of Unsecured Indebtedness of the Corporation and its
subsidiaries to exceed $25,000,000 in the aggregate at any time outstanding.

If the Corporation shall fail to comply with any one or more of the
provisions of this paragraph 5(b) or, following a Change in Control Triggering
Event, paragraph 2(a) or Section 4, then in any such event, (i) the Dividend
Rate shall be increased by 2% per annum above the Dividend Rate which otherwise
would be in effect and (ii) at any time following the 91st day after the
maturity or payment in full of the Corporation's 10% Senior Notes due 2004
issued pursuant to the Indenture, the holders of a majority of the shares of
Series C Preferred Stock shall be entitled to require the Corporation to redeem
all outstanding shares of Series C Preferred Stock for an amount equal to 101%
of the Liquidation Preference.

(c) (i) Notice of any redemption of shares of Series C Preferred
Stock pursuant to paragraph (a) of this Section 5 shall be mailed at least
thirty, but no more than sixty, days prior to the date fixed for redemption to
each holder of shares of Series C Preferred Stock to be redeemed, at such
holder's address as it appears on the transfer books of the Corporation. No
redemption of shares of Series C Preferred Stock pursuant to paragraph (c) of
this Section 5 shall take place unless such notice shall have been mailed in
accordance with this subparagraph (c)(i). In order to facilitate the redemption
of shares of Series C Preferred Stock, the Board of Directors may fix a record
date for the determination of shares of Series C Preferred Stock to be redeemed,
not more than sixty days nor less than thirty days prior to the date fixed for
such redemption.

-9-
<PAGE>

(ii) Within 20 Business Days of an event giving a holder of
shares of Series C Preferred Stock the right, pursuant to paragraph (b) of this
Section 5, to require the Corporation to redeem any of such shares, the
Corporation shall give notice by mail to each holder of Series C Preferred
Stock, at such holder's address as it appears on the transfer books of the
Corporation, of such event, which notice shall set forth each holder's right to
require the Corporation to redeem any or all shares of Series C Preferred Stock
held by it which are eligible for redemption pursuant to the terms of paragraph
(b) the redemption date (which date shall be thirty (30) Business Days following
the date of such mailed notice), and the procedures to be followed by such
holder in exercising its right to cause such redemption. In the event a record
holder of shares of Series C Preferred Stock shall elect to require the
Corporation to redeem any or all such shares of Series C Preferred Stock
pursuant to paragraph (b) of this Section 5, such holder shall deliver within
twenty Business Days of the mailing to it of the Corporation's notice described
in this subparagraph (ii), a written notice to the Corporation so stating,
specifying the number of shares to be redeemed pursuant to paragraph (b) of this
Section 5. The Corporation shall, in accordance with the terms hereof, redeem
the number of shares so specified on the date fixed for redemption, which will
be no later than thirty Business Days following receipt by the Corporation of a
holder's election to redeem the shares of Series C Preferred Stock. Failure of
the Corporation to give any notice required by this subparagraph (ii), or the
formal insufficiency of any such notice, shall not prejudice the rights of any
holders of shares of Series C Preferred Stock to cause the Corporation to redeem
any such shares held by them and, in the event of any such failure or
immediately after there has arisen a right on the part of the holders of
Series C Preferred Stock to compel redemption under Section 5(b) following a
Change in Control Triggering Event, the holders of a majority of the shares of
Series C Preferred Stock outstanding shall be entitled to exercise their right
to cause the Corporation to redeem all such shares held by delivery of written
notice to such effect by such holders to the Corporation and such shares shall
be redeemed upon receipt of such notice by the Corporation. Notwithstanding the
foregoing, the Board of Directors of the Corporation may modify any offer
pursuant to this Section 5(c)(ii) to the extent necessary to comply with the
Exchange Act and the rules and regulations thereunder.

(iii) The Corporation shall publish the fact that it is
redeeming, or offering to redeem, shares of Series C Preferred Stock through a
nationally prominent newswire service on the date of mailing any notice of
redemption or right of redemption. At any time after a notice of redemption
shall have been mailed and before such date of redemption the Corporation may
deposit for the benefit of the holders of the Series C Preferred Stock called
for redemption the funds necessary for such redemption with a bank or trust
company doing business in the Borough of Manhattan, the City of New York, and
having a capital and surplus of at least $1,000,000,000. Any interest allowed
on moneys so deposited shall be paid to the Corporation. Upon the deposit of
such funds or, if no such deposit is made, upon the date fixed for redemption
(unless the Corporation shall default in making payment of the appropriate
redemption amount), whether or not certificates for shares so called for
redemption have been surrendered for cancellation, the shares of Series C
Preferred Stock to be redeemed shall be deemed to be no longer outstanding and
the holders thereof shall cease to be stockholders with respect to such shares
and shall have no rights with respect thereto, except for the rights to receive
the amount

-10-
<PAGE>

payable upon redemption, but without interest, and, up to the close of business
on the date immediately preceding the date fixed for such redemption, the right
to convert such shares pursuant to Section 8 hereof. Such deposit in trust
shall be irrevocable except that any funds deposited by the Corporation which
shall not be required for the redemption for which they were deposited because
of the exercise of conversion rights shall be returned to the Corporation
forthwith, and any funds deposited by the Corporation which are unclaimed at the
end of one year from the date fixed for such redemption shall be paid over to
the Corporation upon its request, and upon such repayment the holders of the
shares of Series C Preferred Stock so called for redemption shall look only to
the Corporation for payment of the appropriate amount. Any such unclaimed
amounts paid over to the Corporation shall, for a period of six years from the
date fixed for such redemption, be set apart and held by the corporation in
trust for the benefit of the holders of such shares of Series C Preferred Stock,
but no such holder shall be entitled to interest thereon. At the expiration of
such six-year period, all right, title, interest and claim of such holders in or
to such unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the Corporation
free of any claim of such holders. If the Corporation shall have not redeemed
the shares of Series C Preferred Stock within five Business Days of the date
such redemption is required by this Section 5, all redemption payments that are
past due shall accrue interest at an annual rate of fifteen percent (15%),
compounded quarterly.

Section 6. REACQUIRED SHARES.

Any shares of Series C Preferred Stock converted, redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof, and, if necessary to
provide for the lawful redemption or purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the General
Corporation Law of the State of Delaware. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock, par value
$.01 per share, of the Corporation and may be reissued as part of another series
of Preferred Stock, par value $.01 per share, of the Corporation subject to the
conditions or restrictions on authorizing, or creating or issuing any class or
series, or any shares of any class or series, set forth in paragraph (b) of
Section 3.

Section 7. LIQUIDATION, DISSOLUTION OR WINDING UP.

If the Corporation shall adopt a plan of liquidation or of dissolution, or
commence a voluntary case under the Federal bankruptcy laws or any other
applicable state or Federal bankruptcy, insolvency or similar law, or consent to
the entry of an order for relief in any involuntary case under any such law or
to the appointment of a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Corporation or of any substantial part
of its property, or make an assignment for the benefit of its creditors, or
admit in writing its inability to pay its debts generally as they become due, or
if a decree or order for relief in respect of the Corporation shall be entered
by a court having jurisdiction in the premises in an involuntary

-11-

<PAGE>

case under the Federal bankruptcy laws or any other applicable Federal or state
bankruptcy, insolvency or similar law, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and any such decree or order shall be unstayed
and in effect for a period of 90 consecutive days and on account of such event
the Corporation shall liquidate, dissolve or wind up, or upon any other
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (i) to the holders of shares of Junior Stock, unless prior thereto, the
holders of shares of Series C Preferred Stock shall have received in cash the
Liquidation Preference, or (ii) to the holders of shares of Parity Stock, except
distributions made ratably on the Series C Preferred Stock and all such Parity
Stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up of the
Corporation. For the purposes of this Section 7, the voluntary sale,
conveyance, exchange or transfer of all or substantially all of the property or
assets of the Corporation or the consolidation or merger of the Corporation with
or into one or more other corporations shall not be deemed to be a liquidation,
winding-up or dissolution of the Corporation.

Section 8. CONVERSION.

Each share of Series C Preferred Stock may, at the option of the holder
thereof, be converted into shares of Common Stock or, if applicable, Non-Voting
Stock at any time, whether or not the Corporation has given notice of redemption
under Section 5, on the terms and conditions set forth in this Section 8. In
addition, if at any time after December 9, 2005, the Trading Price per share of
Common Stock equals or exceeds $64.00 (appropriately adjusted to reflect the
occurrence of any event described in subparagraph (ii) of paragraph (b) of
Section 8) for at least twenty (20) consecutive Trading Days, then all shares of
Series C Preferred Stock shall automatically be converted into shares of Common
Stock (and rights to acquire shares of Series A Junior Participating Preferred
Stock on a basis no less favorable than that which applies to any other shares
of Common Stock) or, if applicable, Non-Voting Stock on the terms and conditions
as set forth in this Section 8.

(a) Subject to paragraph (h) below and to the provisions for
adjustment hereinafter set forth, each share of Series C Preferred Stock shall
be convertible in the manner hereinafter set forth into a number of fully paid
and nonassessable shares of Common Stock equal to the product obtained by
multiplying the Applicable Conversion Rate by the number of shares of Series C
Preferred Stock being converted. The Applicable Conversion Rate shall be the
quotient obtained by dividing the Conversion Value on the date of conversion by
the applicable Conversion Price.

(b) The Conversion Price shall be subject to adjustment from time to
time as follows:

-12-
<PAGE>

(i) In case the Corporation shall at any time or from time to
time after the original issuance of the Series C Preferred Stock declare a
dividend, or make a distribution, on the outstanding shares of Common Stock in
either case, in shares of Common Stock, or effect a subdivision, combination,
consolidation or reclassification of the outstanding shares of Common Stock into
a greater or lesser number of shares of Common Stock, then, and in each such
case, the Conversion Price in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted by multiplying the
Conversion Price by a fraction, the numerator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this clause (i)
shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification,
consolidation or combination, at the close of business on the day upon which
such corporate action becomes effective.

(ii) In case the Corporation shall issue shares of Common Stock
(or options, rights or warrants or other securities convertible into or
exchangeable for shares of Common Stock) at a price per share (or having an
exercise or conversion price per share) less than the Conversion Price as of the
date of issuance of such shares (or of such options, rights, warrants or other
convertible securities), other than (x) in a transaction to which paragraph (b)
of Section 2 or subparagraph (i) of this paragraph (b) is applicable, (y)
pursuant to any employee benefit plan or program of the Corporation approved by
the Requisite Holders, or (z) pursuant to the exercise of the options, warrants
or other convertible securities set forth on Schedule 3.02 to the Securities
Purchase Agreement (the issuances under clauses (x), (y) and (z) being referred
to as "Excluded Issuances"), then, and in each such case, the Conversion Price
in effect immediately prior to such event shall be lowered so as to be equal to
an amount determined by dividing the aggregate consideration received by the
Corporation in connection with such issuance by the total number of shares of
Common Stock so issued (or into which the options, rights, warrants or other
convertible securities may convert). For purposes of this subparagraph, the
aggregate consideration receivable by the Corporation in connection with the
issuance of shares of Common Stock or of options, rights, warrants or other
convertible securities shall be deemed to be equal to the sum of the gross
offering price (before deduction of underwriting discounts or commissions and
expenses payable to third parties) of all such securities plus the minimum
aggregate amount, if any, payable upon conversion of any such options, rights,
warrants or other convertible securities into shares of Common Stock, less any
original issue discount, premiums and other similar incentives which have the
effect of reducing the effective price per share. Such adjustment shall become
effective immediately after the date of such issuance for purposes of this
clause (ii).

(iii) In addition to the foregoing adjustments in subsections
(i) and (ii) above, the Corporation will be permitted to make such reductions in
the Conversion Price as it considers to be advisable in order that any event
treated for Federal income tax purposes as a

-13-
<PAGE>

dividend of stock or stock rights will not be taxable to the holders of the
shares of Common Stock.

(iv) In any case in which this Section 8 shall require that an
adjustment (including by reason of the last sentence of subsection (i) above) be
made immediately following a record date, the Corporation may elect to defer the
effectiveness of such adjustment (but in no event until a date later than the
effective time of the event giving rise to such adjustment), in which case the
Corporation shall, with respect to any share of Series C Preferred Stock
converted after such record date and on and before such adjustment shall have
become effective (i) defer paying any cash payment pursuant to Section 8(f)
hereof or issuing to the holder of such shares of Series C Preferred Stock the
number of shares of Common Stock and other capital stock of the Corporation (or
other assets or securities) issuable upon such conversion in excess of the
number of shares of Common Stock and other capital stock of the Corporation
issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (ii) not later than five Business Days after such adjustment
shall have become effective, pay to such holder the appropriate cash payment
pursuant to Section 8(f) hereof and issue to such holder the additional shares
of Common Stock and other capital stock of the Corporation issuable on such
conversion.

(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 0.1% of
the Conversion Price; provided, that any adjustments which by reason of this
subsection (v) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
8 shall be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.

(c) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (b) (i) of this Section 8), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series C Preferred Stock then outstanding
shall thereafter be convertible into, in lieu of the Common Stock issuable upon
such conversion prior to the consummation of such Transaction, the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon the consummation of such transaction by a holder of that number
of shares of Common Stock into which one share of Series C Preferred Stock was
convertible immediately prior to such Transaction (including, on a pro rata
basis, the cash, securities or property received by holders of Common Stock in
any tender or exchange offer that is a step in such Transaction). In any such
case, if necessary, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 8 with respect to rights and interests thereafter of the holders of
shares of Series C Preferred Stock to the end that the provisions set forth
herein for the protection of the conversion rights of the Series C Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon

-14-
<PAGE>

conversion of the shares of Series C Preferred Stock remaining outstanding (with
such adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine to be appropriate). In case securities or property
other than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this Section 8 shall be deemed to apply, so
far as appropriate and as nearly as may be, to such other securities or
property.

Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person (as defined in Section 10) thereof shall assume, by written
instrument mailed to each record holder of shares of Series C Preferred Stock,
at such holder's address as it appears on the transfer books of the Corporation,
the obligation to deliver to such holder such cash and such securities to which,
in accordance with the foregoing provisions, such holder is entitled. Nothing
contained in this paragraph (c) shall limit the rights of holders of the Series
C Preferred Stock to convert the Series C Preferred Stock in connection with the
Transaction or to exercise their rights to require the redemption of the Series
C Preferred Stock under Section 5(b).

(d) The holder of any shares of Series C Preferred Stock may exercise
its right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other office
or agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series C Preferred Stock to be converted
duly endorsed to the Corporation in blank accompanied by a written notice
stating that such holder elects to convert all or a specified whole number of
such shares in accordance with the provisions of this Section 8. The
Corporation will pay any and all issue and other taxes (other than taxes based
on income) that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series C Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within three Business Days after the
surrender of such certificate or certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Corporation that such taxes have been
paid), the Corporation shall deliver or cause to be delivered (i) certificates
registered in the name of such holder representing the number of validly issued,
fully paid and nonassessable full shares of Common Stock to which the holder of
shares of Series C Preferred Stock so converted shall be entitled and (ii) if
less than the full number of shares of Series C Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversion shall be deemed to have been made at the close of business on
the date of receipt of such notice and of such surrender of the certificate or
certificates representing the shares of Series C Preferred Stock to be converted
so that the rights of the holder thereof as to the shares being converted shall
cease except for the right to receive shares of Common Stock and any declared
but unpaid dividends in accordance herewith, and the person entitled to receive
the shares of Common Stock shall be treated for all purposes as having become
the record holder of such shares of Common Stock at such time.

-15-
<PAGE>

(e) Shares of Series C Preferred Stock may be converted at any time
and, if subject to mandatory redemption, up to the close of business on the last
Business Day immediately preceding the date fixed for such mandatory redemption
of such shares.

(f) In connection with the conversion of any shares of Series C
Preferred Stock, no fractions of shares of Common Stock shall be issued, but in
lieu thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the day on which such
shares of Series C Preferred Stock are deemed to have been converted.

(g) In case at any time or from time to time the Corporation shall
pay any dividend or make any other distribution to the holders of its Common
Stock, or shall offer for subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or any other right, or there
shall be any capital reorganization or reclassification of the Common Stock of
the Corporation or consolidation or merger of the Corporation with or into
another corporation, or any sale or conveyance to another corporation of the
property of the Corporation as an entirety or substantially as an entirety, or
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, then, in any one or more of said cases the Corporation shall
give at least 20 days' prior written notice (the time of mailing of such notice
shall be deemed to be the time of giving thereof) to the registered holders of
the Series C Preferred Stock at the addresses of each as shown on the books of
the Corporation of the date on which (i) the books of the corporation shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization, reclassification,
consolidation, merger, sale or conveyance, dissolution, liquidation or winding
up shall take place, as the case may be, provided that in the case of any
Transaction to which paragraph (c) applies the Corporation shall give at lest 30
days' prior written notice as aforesaid. Such notice shall also specify the
date as of which the holders of the Common Stock and of the Series C Preferred
Stock of record shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock or Series C
Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale or conveyance, or
participate in such dissolution, liquidation or winding up, as the case may be.

(h) Notwithstanding any other provision contained in this Section (8) to
the contrary, no shares of Series C Preferred Stock may be converted by a holder
thereof into Common Stock unless, after giving effect to such conversion, such
holder, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, except that
such holder and any such group shall be deemed to beneficially own all shares
that such holder or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise) a number of shares of Common Stock which represents
greater than the Maximum Percentage of the voting power represented by the
shares of the Corporation entitled to vote with the Common Stock at all meetings
of the stockholders of the

-16-
<PAGE>

Corporation. In the event any shares of Series C Preferred Stock are at any
time unable to be converted into shares of Common Stock pursuant to the
restriction contained in this paragraph (h), then such shares of Series C
Preferred Stock shall be convertible instead into that number of shares of
Non-Voting Stock (as defined herein) as shall equal the number of shares of
Common Stock that such Series C Preferred Stock would have been convertible if
not for the restrictions contained in this paragraph (h).

Section 9. REPORTS AS TO ADJUSTMENTS.

Whenever the number of shares of Common Stock into which each share of
Series C Preferred Stock is convertible (or the number of votes to which each
share of Series C Preferred Stock is entitled) is adjusted as provided in
Section 8 hereof, the Corporation shall promptly mail to the holders of record
of the outstanding shares of Series C Preferred Stock at their respective
addresses as the same shall appear in the Corporation's stock records a notice
stating that the number of shares of Common Stock into which the shares of
Series C Preferred Stock are convertible has been adjusted and setting forth the
new number of shares of Common Stock (or describing the new stock, securities,
cash or other property) into which each share of Series C Preferred Stock is
convertible, as a result of such adjustment, a brief statement of the facts
requiring such adjustment and the computation thereof, and when such adjustment
became effective.

Section 10. DEFINITIONS.

For the purposes of the Certificate of Designation of Series C Perpetual
Convertible Preferred Stock which embodies this resolution:

"Accrued Dividends" to a particular date (the "Applicable Date") means (i)
all dividends accrued but not paid on the Series C Preferred Stock pursuant to
paragraph (a) of Section 2, whether or not declared, accrued to the Applicable
Date, plus (ii) all dividends or distributions payable pursuant to paragraph (b)
of Section 2 for which the Triggering Distribution was declared, ordered, paid
or made on or prior to the Applicable Date.

"Acquired Debt" means, with respect to any specified person, (i)
Indebtedness of any other person existing at the time such other person is
merged with or into or became a Subsidiary of such specified person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person, and (ii) Indebtedness secured by a lien
encumbering any asset acquired by such specified person.

"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.

-17-
<PAGE>

"Approval Date" shall have the meaning ascribed thereto in the Securities
Purchase Agreement.

"Business Day" means any day other than a Saturday, Sunday, or a day on
which commercial banks in the City of New York are authorized or obligated by
law or executive order to close.

"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.

"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing person.

"Change in Control" shall mean any of the following:

(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the
Corporation, or any of its Subsidiaries, or any employee benefit plan or related
trust of the Corporation or any of its Subsidiaries or any Excluded Person or
Excluded Group (an "Acquiring Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent
(35%) or more of the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors; or

(b) during any period of 12 consecutive months after December 9,
1998, the individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Corporation (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board; provided
that (i) any individual becoming a director whose election, or nomination for
election by the Corporation's stockholders, was approved by a vote of the
stockholders having the right to designate such director (including, without
limitation, the exercise by the Requisite Holders of their right to elect
directors) and (ii) any director whose election to the Board or whose nomination
for election by the stockholders of the Corporation was approved by majority
vote of the Board of Directors of the Corporation, shall, in each such case, be
considered as though such individual were a member of the Incumbent Board, but
excluding, as a member of the Incumbent Board, any such individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Corporation (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) and further excluding any person who is an affiliate or associate (as those
terms are defined in the General Rules and Regulations under the Exchange Act)
of an Acquiring Person having or

-18-
<PAGE>

proposing to acquire beneficial ownership of 25% or more of the continued voting
power of the then outstanding voting securities of the Corporation entitled to
vote generally in the election of directors; or

(c) the approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the individuals and entities who were the respective
beneficial owners of the voting securities of the Corporation immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than fifty percent (50%) of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the Corporation resulting from such reorganization, merger or
consolidation; or

(d) the Corporation ceases to own, directly or indirectly, one
hundred percent (100%) of the capital stock of Direct Merchants Credit Card
Bank, National Association; or

(e) the sale or other disposition of all or substantially all the
assets of the Corporation in one transaction or series of related transactions;
or

(f) the occurrence of a "Change of Control" as defined in that
certain indenture (the "Indenture"), dated as of November 7, 1997, among Metris
Companies Inc., as issuer, the guarantors named therein and The First National
Bank of Chicago, as Trustee, but only if the Corporation is obligated to make an
Offer to Purchase outstanding 10% Notes governed thereby, so long as such
Indenture remains in effect; or

(g) the occurrence of a "Change of Control," as defined in the
Fingerhut Agreements (as defined in the Securities Purchase Agreement), which
has not been waived, so long as such Fingerhut Agreements remain in effect;

provided that the occurrence of any event identified in subparagraphs (a)
through (g) above that would otherwise be treated as a Change in Control shall
not constitute a Change in Control hereunder if (i) the Board of Directors of
the Corporation, by vote duly taken, and (ii) the holders of a majority of the
outstanding shares of Series C Preferred Stock, by written consent, shall so
determine.

Notwithstanding the foregoing, no Change in Control shall be deemed to
occur under paragraph (a) or (b) as a result of a sale by a holder of Series C
Preferred Stock to an acquiring person that causes the Acquiring Person to own
more than thirty-five percent (35%) of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors or permits the Acquiring Person to elect a majority of the
Board of Directors which is not approved by the Incumbent Board.

-19-
<PAGE>

"Closing Price" per share of Common Stock on any date shall be the last
sale price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported on the Nasdaq National
Market or in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or American Stock Exchange, as the case may be, or, if the Common Stock
is listed or admitted to trading on the New York Stock Exchange or American
Stock Exchange, or, if the Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted sale price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use, or, if
on any such date the Common Stock is not quoted by any such organization, the
average of the Closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock selected by the Board of
Directors and reasonably acceptable to the Requisite Holders.

"Consolidated Indebtedness" means, with respect to any person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such person and its Subsidiaries, plus (ii) the total amount of
Indebtedness of any other person, to the extent that such Indebtedness has been
Guaranteed by the referent person or one or more of its Subsidiaries, plus (iii)
the aggregate liquidation value of all Disqualified Stock of such person and all
preferred stock of Subsidiaries of such person (other than, in the case of the
Corporation, preferred stock of a Subsidiary of the Corporation held by the
Corporation or a Guarantor), in each case, determined on a consolidated basis in
accordance with GAAP.

"Consolidated Leverage Ratio" means, with respect to any person, as of any
date of determination, the ratio of (i) the Consolidated Indebtedness of such
person as of such date excluding, however, all Hedging Obligations that
constitute Permitted Debt to (ii) the Consolidated Net Worth of such person as
of such date.

"Consolidated Net Worth" shall mean, as at any date of determination, the
consolidated stockholders' equity of the Corporation and its Subsidiaries, as
determined on a consolidated basis in conformity with GAAP consistently applied,
which consolidated stockholders' equity shall include the Series C Preferred
Stock.

"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) the sum of (without duplication) (a) all
write-ups subsequent to March 31, 1998 in the book value of any asset by the
Corporation or any of its 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.

-20-
<PAGE>

"Credit Agreement" shall mean the Amended and Restated Credit Agreement,
dated as of June 30, 1998, among Metris Companies Inc., the Lenders named
therein and certain agents and co-agents named therein, including the Chase
Manhattan Bank, as Administrative Agent, together with the related documents
thereto (including, without limitation, any Guaranty Agreements and security
documents), in each case as such Agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring, in whole or in part, all or any portion of
the Indebtedness under such Agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders and
whether in the form of a Revolving Credit Facility or a Term Loan Facility or
any combination thereof.

"Conversion Price" shall initially be $37.25 per share, as adjusted from
time to time in accordance with Section 8.

"Conversion Value" per share of Series C Preferred Stock shall be an amount
equal to $372.50 plus all Accrued Dividends thereon to the date of conversion or
redemption as the case may be, and the Premium Amount.

"Cumulative Securitization Gains" shall mean cumulative gains on
securitization transactions to the extent such gains exceed cumulative related
fees, to the extent the foregoing are first reflected on a consolidated balance
sheet of the Corporation and its Subsidiaries on or after March 31, 1998, as
determined on a consolidated basis in conformity with GAAP consistently applied
to the extent applicable.

"Current Market Price" per share of Common Stock on any date shall be the
average of the Closing Prices of a share of Common Stock for the five
consecutive Trading Days commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the date in question. If on any such
Trading Day the Common Stock is not quoted by any organization referred to in
the definition of Closing Price, the fair value of the Common Stock on such day,
as reasonably determined in good faith by the Board of Directors of the
Corporation, shall be used.

"Designated Debt" shall mean, as at any date, all obligations of the
Corporation and its consolidated Subsidiaries which are (or as of such date,
should be) accounted for as indebtedness on a consolidated balance sheet of the
Corporation in conformity with GAAP consistently applied whether such
obligations are classified as long-term or short-term under GAAP consistently
applied.

"Disqualified Stock" means any Capital Stock that, either (A) by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to December 31, 2006 or (B) is

-21-
<PAGE>

designated by the Corporation (in a Board Resolution of the Corporation
delivered to the Trustee) as Disqualified Stock.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Excluded Group" means a "group" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) that includes one or more Excluded Persons;
provided that the voting securities of the Corporation "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
Excluded Persons represents a majority of the voting securities "beneficially
owned" (as such term is used in Rule 13d-3 promulgated under the Exchange Act)
by such group.

"Excluded Person" means each of Thomas H. Lee Equity Fund IV, L.P. and any
affiliate (as defined in the Exchange Act) of any of the foregoing.

"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on December 9, 1998 and consistently applied.

"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.

"Hedging Obligations" means, with respect to any person, the obligations of
such person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate or currency collar agreements and related
agreements and (ii) other agreements or arrangements designed to protect such
person against fluctuations in interest rates, currencies and commodities in the
ordinary course of business.

"Indebtedness" means, with respect to any person, any indebtedness of such
person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a lien (except liens on receivables and other assets (including
spread accounts relating to a Securitization) incurred in connection with a
Securitization) on any asset of such person (whether or not such indebtedness is
assumed by such person and the value

-22-
<PAGE>

thereof being the lesser of the amount of such indebtedness so secured and the
fair market value of such asset that has a lien placed upon it) and, to the
extent not otherwise included, the Guarantee by such person of any indebtedness
of any other person. Notwithstanding the foregoing, the term "Indebtedness"
shall not include (i) obligations pursuant to representations, warranties,
covenants and indemnities or payments to owners of beneficial interests in
receivables, in each case in connection with a Securitization, (ii) deposit
liabilities of any Subsidiary of the Corporation, the deposits of which are
insured by the Federal Deposit Insurance Corporation or any successor thereto or
(iii) guarantees related to the fulfillment of the Corporation's obligations to
bank card associations in the ordinary course of business. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.

"Junior Stock" means any stock of the Corporation ranking junior to the
Series C Preferred Stock with respect to the payment of dividends and the
distribution of assets, whether upon liquidation or otherwise.

"Leverage Ratio" shall mean, at any time, the ratio of (a) Designated Debt
of the Corporation at such time to (b) Consolidated Tangible Net Worth
(excluding Cumulative Securitization Gains) at such time.

"Liquidation Preference" shall mean an amount per share of Series C
Preferred Stock equal to the greater of (i)(A) in the event of any liquidation
or winding up of the Corporation, the amount the holders of the Series C
Preferred Stock would have received had they converted into Common Stock
immediately prior to such liquidation or winding up and, if such liquidation or
winding up occurs prior to December 9, 2005, the amount such holders would have
received had they received the additional dividends that would have been paid
from the date of liquidation or winding up through December 9, 2005, and such
additional shares were also converted into Common Stock immediately prior to
such liquidation or winding up and (B) in the event of determination in
connection with a Change in Control or other redemption of shares of Series C
Preferred Stock, the value of the Series C Preferred Stock on an as converted
basis, valued with respect to each share of Common Stock or Non-Voting Stock
into which the Series C Preferred Stock is convertible at the Current Market
Price or, in connection with a Change in Control, if greater, at the amount paid
per share of Common Stock by the Acquiring Person in the Change in Control and,
if such Change in Control or other redemption occurs prior to December 9, 2005,
the value of the Common Stock as so determined that such holders would have
received had they received the additional dividends that would have been paid
from the date of such Change in Control or other redemption through December 9,
2005 and converted them into shares of Common Stock pursuant to Section 8 in
connection with such Change in Control or other redemption, and (ii) the
Conversion Value.

-23-
<PAGE>

"Maximum Percentage" shall mean (a) for a period ending on the later to
occur of (i) December 31, 2000 or (ii) the date upon which all of the 10% Notes
remain outstanding under the Indenture, 34.9% and (b) thereafter, 100%.

"Non-Voting Stock" shall mean, if there shall be no shares of Non-Voting
Common Stock outstanding, shares of Series D Junior Participating Preferred
Stock of the Company authorized by the Board of Directors on the date of
authorization of the Series C Preferred Stock, and, if there shall be authorized
a class of Non-Voting Common Stock of the Company, such class of Non-Voting
Common Stock. The Non-Voting Common Stock shall be automatically convertible
into shares of Common Stock to the extent that, after such conversion, the
holder thereof, together with any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, except that
such holder and any such group shall be deemed to beneficially own all shares
that such holder or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise) shares of Common Stock representing the Maximum
Percentage of shares of capital stock of the Corporation entitled to vote at all
meetings of the stockholders of the Corporation. Each share of the Non-Voting
Stock shall be economically equivalent to the Common Stock and shall be entitled
to share equally in dividends and distributions paid on the Common Stock, except
that dividends or distributions of voting securities on the Common Stock shall
entitle the holders of Non-Voting Stock to receive equivalent non-voting
securities.

"Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of the Corporation or any of its Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease, redeem or refund other Indebtedness or Disqualified Stock of the
Corporation or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) or liquidation value of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable) or
liquidation value, plus accrued interest or dividends on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased, redeemed or refunded (plus
the amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date or redemption date,
as the case may be, later than the final maturity date or redemption date, as
the case may be, of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased, redeemed or refunded; and
(iii) such Indebtedness or Disqualified Stock is incurred or issued, as the case
may be, either by the Corporation or by the Subsidiary who is the obligor or
issuer, as the case may be, on the Indebtedness or Disqualified Stock being
extended, refinanced, renewed, replaced, defeased, redeemed or refunded.

-24-
<PAGE>

"Person" shall mean an individual, partnership, corporation, limited
liability company or partnership, unincorporated organization, trust or joint
venture, or a governmental agency or political subdivision thereof, or other
entity of any kind.

"Premium Amount" per share of Series C Preferred Stock, as of the date of
conversion or redemption of the Series C Preferred Stock or the date of any
payments on the Series C Preferred Stock under Section 7 hereof or as of any
other date on which it is necessary to determine the number of shares of Common
Stock into which a share of Series C Preferred Stock is then convertible, shall
mean an amount calculated to provide the holder of a share of Series C Preferred
Stock, as of such date, with a gross amount of accretion calculated at the rate
of 9% on $372.50 per share of Series C Preferred Stock, compounded quarterly,
from the date of conversion or redemption of the Series C Preferred Stock or the
date of any payments on the Series C Preferred Stock under Section 7 hereof or
the date of any other determination, as the case may be, to and including
December 9, 2005. In the event that any Series C Preferred Stock is converted
voluntarily by the holder on or before December 31, 2003 pursuant to Section 8
and not (i) in connection with the Corporation's election or obligation to
redeem the shares of Series C Preferred Stock under Section 5 (a) or 5(b) or
(ii) in connection with a Change in Control or (iii) in connection with the
occurrence of any of the events described in Section 7, then the Premium Amount
used in determining the Conversion Value shall be reduced by the percentage of
the Premium Amount set forth opposite the relevant period listed below; provided
that if such optional conversion occurs at any point within a year commencing
January 1, 2000 and ending December 31, 2003, the Premium Amount will be further
reduced so that upon application of the conversion formula set forth in
Section 8, the number of shares of Common Stock the holder shall be entitled to
receive upon such conversion shall be that number of shares which, when added to
the number of shares of Common Stock issuable upon conversion of shares of
Series C Preferred Stock paid or accrued during such year as dividends with
respect to the shares to be converted (without giving effect to any Premium
Amount with respect to a conversion of such dividend shares), would equal that
number of shares of Common Stock which would have been issuable upon conversion
of the shares being converted as of the first day of such year, subject only to
anti-dilution adjustments occurring after the beginning of such year.

CONVERSION DATE REDUCTION TO PREMIUM AMOUNT
--------------- ---------------------------
<S> <C>
Prior to December 31, 1999 100.0%

January 1, 2000 through December 31, 2000 85.9%

January 1, 2001 through December 31, 2001 59.0%

January 1, 2002 through December 31, 2002 45.6%

January 1, 2003 through December 31, 2003 23.5%

-25-
<PAGE>

January 1, 2004 and thereafter 0.0%

</TABLE>

"Securities Purchase Agreement" shall mean that certain agreement dated as
of November 13, 1998, by and among the Corporation and certain purchasers of the
Series C Preferred Stock party thereto.

"Securitization" means any transaction or series of transactions that have
been or may be entered into by the Corporation or any of its Subsidiaries in
connection with or reasonably related to a transaction or series of transactions
in which the Corporation or any of its Subsidiaries may sell, convey or
otherwise transfer, directly or indirectly, to any person, or may grant a
security interest in, any receivables or any interests in such receivables
(whether such Receivables are then existing or arising in the future) and any
assets related thereto including, without limitation, all security interests in
any collateral relating thereto, the proceeds of such receivables, and other
assets which are customarily sold or in respect of which security interests are
customarily granted in connection with securitization transactions involving
such assets.

"Set Apart for Payment" shall mean the Corporation shall have deposited
with a bank or trust company doing business in the Borough of Manhattan, the
City of New York, and having a capital and surplus of at least $1,000,000,000 in
trust for the exclusive benefit of the holders of shares of Series C Preferred
Stock, funds sufficient to satisfy the Corporation's payment obligation.

"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.

"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the Corporation in
a merger, consolidation or other corporate combination in which the Corporation
is the continuing or surviving Person, but in connection with which the Series C
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
Subsidiary of a Person, the parent entity also shall be deemed to be a Surviving
Person.

"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not quoted,
listed or admitted to trading on any national securities exchange (including the
Nasdaq Stock Market), any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.

-26-
<PAGE>

"Trading Price" per share of Common Stock on any date shall be the lowest
sales price for the Common Stock reported on the Nasdaq Stock Market (or if the
Common Stock is not then quoted thereon, then for the principal national
securities exchange on which the Common Stock is listed or admitted to trading)
or, if the Common Stock is not quoted on the Nasdaq Stock Market and is not
listed or admitted to trading on any national securities exchange, in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such date the Common Stock is not quoted by any such organization,
as furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Company and reasonably acceptable to
the Requisite Holders.

"Unsecured Indebtedness" means general unsecured Indebtedness other than
(i) Indebtedness outstanding on the date immediately preceding the Change in
Control giving rise to the Change in Control Triggering Event but excluding any
Indebtedness incurred in connection with or in contemplation of such Change in
Control, and any unsecured Permitted Refinancing Indebtedness which is on terms
substantially equivalent to the Indebtedness being refinanced or replaced, the
proceeds of which are used to refinance or replace such previously outstanding
Indebtedness and (ii) Indebtedness represented by bank deposit accounts at
Direct Merchants Credit Card Bank, National Association.

"Voting Stock" means the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.

Section 11. RANK.

The Series C Preferred Stock shall rank, with respect to dividend rights
and rights upon liquidation, winding up and dissolution, prior to all classes
and series of the Corporation's preferred stock authorized or outstanding on the
date of initial issuance of the Series C Preferred Stock and prior to all
classes of Common Stock and Non-Voting Stock.

Section 12. ARTICLE IV, SECTION 5.

The provisions of Article IV, Section 5 of the Certificate of Incorporation
shall not apply to the Series C Preferred Stock.

[Remainder of Page Intentionally Left Blank]

-27-
<PAGE>

IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series C Perpetual Convertible Preferred Stock to be duly
executed by its President and attested to by its Secretary and has caused its
corporate seal to be affixed hereto, this ____ day of __________, 1998.

METRIS COMPANIES INC.

By:
-----------------------------------
President

ATTEST:

By:
--------------------------------
Secretary

-28-

<PAGE>

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

METRIS COMPANIES INC.
(adopted in accordance with Sections 245 and 242
of the General Corporation Law of the State of Delaware)

ARTICLE I

Name

The name of the Corporation is Metris Companies Inc.

ARTICLE II

Registered Office and Registered Agent

The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, New Castle County. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.

ARTICLE III

Purpose

The purpose of the Corporation is to engage in any business, and in
any activity and to exercise any powers permitted to corporations under the
General Corporation Law of the State of Delaware.

ARTICLE IV

Authorized Shares

<PAGE>

10,000,000 shares of Non-Voting Common Stock with par value $.01 per share ("Non
Voting Common Stock") and 25,000,000 shares of Preferred Stock with par value
$.01 per share ("Preferred Stock").

SECTION 2. Dividends. Subject to the provisions of law and the rights
of the Preferred Stock and any other class or series of stock then outstanding
having a preference as to dividends over the Common Stock or the Non-Voting
Common Stock, dividends may be paid on the Common Stock and the Non-Voting
Common Stock at such times and in such amounts as the Board of Directors shall
determine.

SECTION 4. Rights and Terms of Preferred Stock. The Board of Directors
is hereby authorized to provide, out of the unissued shares of Preferred Stock,
for one or more series of Preferred Stock. Before any shares of any such series
are issued, the Board of Directors shall fix, and hereby is expressly empowered
to fix, by the adoption and filing in accordance with the Delaware General
Corporation Law of an amendment or amendments to this Certificate of
Incorporation, the terms of such Preferred Stock or series of Preferred Stock,
including the following terms:

(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;

(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be special, conditional or limited or no
voting rights except as required by law;

(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of Preferred Stock;

(d) whether the shares of such series shall be subject to redemption
by the Corporation and, if so, the times, prices and other conditions of
such redemption;.

2
<PAGE>

(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the
assets, of the Corporation;

(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;

(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities (whether or not issued by the
Corporation) or other property and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;

(h) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of Preferred Stock;

(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional
stock, including additional shares of such series or of any other series of
Preferred Stock or of any other class of stock; and

(j) any other powers, preferences and relative participating, optional
and other special rights, and any qualifications, limitations and
restrictions thereof.

Except to the extent otherwise expressly required by law, (i) no share of
Preferred Stock shall have any voting rights other than those which shall be
fixed by the Board of Directors pursuant to this Section 4 and (ii) no share of
Common Stock shall have any voting rights with respect to an amendment to the
terms of any series of Preferred Stock; provided, however, that in the case of
this clause (ii) the terms of such series of Preferred Stock, as so amended,
could have been established without any vote of any shares of Common Stock.

SECTION 5. Redemption Related to License or Franchise. Notwithstanding
any other provision of these Restated Articles of Incorporation to the contrary,
but subject to the provisions of an amendment or amendments adopted pursuant to
this Article IV creating any series of Preferred Stock or any other class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, outstanding shares of Common Stock, Preferred Stock or any
other class or series of stock of the Corporation shall always be subject to
redemption by the Corporation, by action of the Board of Directors, if in the
judgment of the

3
<PAGE>

Board of Directors such action should be taken, pursuant to any applicable
provision of law, to the extent necessary to prevent the loss or secure the
reinstatement of any license or franchise from any governmental agency held by
the Corporation or such Subsidiary to conduct any portion of the business of the
Corporation or such Subsidiary (as defined herein), which license or franchise
is conditional upon some or all of the holders of the Corporation's stock of any
class or series possessing prescribed qualifications. The terms and conditions
of such redemption shall be as follows:

(a) the redemption price of the shares to be redeemed pursuant to this
Section 5 shall be equal to the Fair Market Value (as defined herein) of
such shares;

(b) the redemption price of such shares may be paid in cash,
Redemption Securities (as defined herein) or any combination thereof;

(c) if less than all the shares held by Disqualified Holders (as
defined herein) are to be redeemed, the shares to be redeemed shall be
selected in such manner as shall be determined by the Board of Directors,
which may include selection first of the most recently purchased shares
thereof, selection by lot or selection in any other manner determined by
the Board of Directors;

(d) at least 30 days' written notice of the Redemption Date shall be
given to the record holders of the shares selected to be redeemed (unless
waived in writing by such holder), provided that the Redemption Date may be
the date on which written notice shall be given to record holders if the
cash or Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and subject
to immediate withdrawal by them upon surrender of the stock certificates
for their shares to be redeemed;

(e) from and after the Redemption Date, any and all rights of whatever
nature, which may be held by the owners of shares selected for redemption
(including without limitation any rights to vote or participate in
dividends declared on stock of the same class or series as such shares),
shall cease and terminate and they shall henceforth be entitled only to
receive the cash or Redemption Securities payable upon redemption; and

(f) such other terms and conditions as the Board shall determine.

For purposes of this Section 5:

(i) "Disqualified Holder" shall mean any holder of shares of stock of
the Corporation of any class or series whose holding of such stock may
result in the loss of any license or franchise from any governmental agency
held by the Corporation or any Subsidiary to conduct any portion of the
business of the Corporation or any Subsidiary.

4
<PAGE>

(ii) "Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the Corporation
pursuant to this Section 5.

(iii) "Redemption Securities" shall mean any debt or equity securities
of the Corporation, any Subsidiary or any other corporation, or any
combination thereof, having such terms and conditions as shall be approved
by the Board of Directors and which, together with any cash to be paid as
part of the redemption price, in the opinion of any nationally recognized
investment banking firm selected by the Board of Directors (which may be a
firm which provides other investment banking, brokerage or other services
to the Corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of this Section 5, at least equal to the Fair
Market Value of the shares to be redeemed pursuant to this Section 5
(assuming, in the case of Redemption Securities to be publicly traded, such
Redemption Securities were fully distributed and subject only to normal
trading activity).

SECTION 6. Assessability. Upon receipt by the Corporation of the
consideration for which the Board of Directors authorized the issuance of stock,
the stock issued therefor shall be fully paid and nonassessable.

SECTION 7. Subscription Rights. No holder of stock of the Corporation
shall, as such holder, have any right to purchase or subscribe for any shares of
stock of the corporation of any class, now or hereafter authorized, or any
obligations or instruments which the corporation may issue or sell that shall be
convertible into or exchangeable for or entitle the holders thereof to subscribe
for or purchase any shares of stock of the Corporation of any class, now or
hereafter authorized, other than such rights, if any, as the Board of Directors,
in its sole discretion, may determine.

SECTION 8. Rights and Terms of Non-Voting Common Stock.

(a) GENERAL. The powers, preferences and rights of the Common Stock
and the Non-Voting Common Stock, and the qualifications, limitations or
restrictions thereof, shall be in all respects identical, except as otherwise
required by law or expressly provided in this Section 8.

5
<PAGE>

(ii) Dividends may be declared and paid to the holders of the
Common Stock and the holders of the Non-Voting Common Stock in cash, property,
or other securities of the Corporation out of any funds or other assets of the
Corporation legally available therefor.

(iii) If and when dividends on the Common Stock and the
Non-Voting Common Stock are declared payable from time to time by the Board of
Directors, whether payable in cash, in property or in shares of stock of the
Corporation, the holders shall be entitled to share equally, on a per share
basis, in such dividends, except that:

(A) dividends or other distributions payable in shares of
stock of the Corporation shall be made to all holders of Common Stock and
Non-Voting Common Stock and shall be made only (1) in shares of Non-Voting
Common Stock to the record holders of Common Stock and to the record holders of
Non-Voting Common Stock, (2) in shares of Common Stock to the record holders of
Common Stock and in shares of Non-Voting Common Stock to record holders of
Non-Voting Common Stock, or (3) in any other authorized class or series of
capital stock to the record holders of both classes of Common Stock and
Non-Voting Common Stock, regardless of the fair market value of such shares
received in payment of such dividend or other distribution; PROVIDED, HOWEVER,
that if such other authorized class or series of capital stock has voting
rights, an additional class or series of capital stock shall be created which
series shall be identical in all respects, except that it shall not have any
voting rights (except as required by law), and dividends or other distributions
of such authorized class or series shall be made only in such authorized class
or series to holders of Common Stock and in the non-voting version of such
authorized class or series to holders of Non-Voting Common Stock, and

(B) dividends or other distributions payable in convertible
securities or securities giving the holder a right to acquire shares of Common
Stock or Non-Voting Common Stock ("Options"), unless otherwise provided by the
Board of Directors with respect to such Options, other than rights issued
pursuant to shareholder rights plans of the type entitling holders of rights
other than an "acquiring person" to purchase shares or other securities at a
below-market price if certain events occur (which rights may be distributed as a
dividend pursuant to such a plan upon shares of either class of Common Stock or
Non-Voting Common Stock without a corresponding dividend distribution upon
shares of the other), shall be made to all holders of Common Stock and
Non-Voting Common Stock and may be made in securities convertible into Common
Stock or Options to acquire Common Stock to the record holders of Common Stock
and in securities convertible into Non-Voting Common Stock or Options to acquire
Non-Voting Common Stock to the record holders of Non-Voting Common Stock.

6
<PAGE>

(d) CONVERSION.

(i) Each share of Non-Voting Common Stock shall automatically
convert into shares of Common Stock at the time such conversion is not
prohibited by the restrictions contained in paragraph (d)(ii) below, on the
terms and conditions set forth in this Section 8. Subject to the provisions for
adjustment hereinafter set forth, each share of Non-Voting Common Stock shall be
convertible into one share of Common Stock.

(ii) Notwithstanding any other provision contained in this
Section 8 to the contrary, no shares of Non-Voting Common Stock may be converted
into Common Stock unless, after giving effect to such conversion, the holder
thereof, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, except that
such holder and any such group shall be deemed to beneficially own all shares
that such holder or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise) a number of shares of Common Stock which represents
greater than the Maximum Percentage of the voting power represented by the
shares of stock of the Corporation entitled to vote with the Common Stock at all
meetings of the stockholders of the Corporation.

(iii) For purposes of this Article IV, Section 8 the following
terms have the following meanings:

"Indenture" means that certain Indenture dated as of November 7, 1997,
among Metris Companies Inc., as Issuer, the Guarantors named therein and The
First National Bank of Chicago, as Trustee.

"Maximum Percentage" shall mean (a) during such time as any 10% notes
remain outstanding under the Indenture, 34.9% and (b) thereafter, 100%.

7
<PAGE>

ARTICLE V

Term of Directors and Vacancy on Board

SECTION 1. Term of Director. Except as otherwise provided by the terms
of any series of Preferred Stock or any other securities of the Corporation, the
number of directors of the Corporation shall be fixed from time to time by or
pursuant to the By-laws of the Corporation. Prior to the Threshold Time (as
defined in Article VII), the term of each director of the Corporation shall
expire at the next annual meeting of stockholders following such director's
election and until such director's successor shall have been elected and
qualified. The election of directors need not be by written ballot.

SECTION 2. Vacancy. Except as otherwise provided by the terms of any
series of Preferred Stock or any other securities of the Corporation, newly
created directorships resulting from any increase in the number of directors may
be filled by the Board of Directors, or as otherwise provided in the By-laws,
and any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause shall only be filled by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director, or as
otherwise provided in the By-laws.

ARTICLE VI

Provisions of By-Laws

The Board of Directors of the Corporation shall have the power,
without the assent or vote of the stockholders, to adopt, repeal, alter or amend
the By-laws of the Corporation pursuant to a resolution adopted by the vote of a
majority of the entire Board of Directors including, without limitation,
provisions governing the conduct of, and the matters which may properly be
brought before, meetings of the stockholders and provisions specifying the
manner and extent to which prior notice shall be given of the submission of
proposals to be submitted at any meeting of stockholders or of nominations or
elections of directors to be held at any such meeting.

ARTICLE VII

Provisions Relating to Threshold Time

SECTION 1. Threshold Time. The provisions of Sections 2, 3, 4 and 5 of
this Article VII shall become effective at such time, but only from and after
such time (the "Threshold Time"), as the Permitted Stockholder and Permitted
Transferees, taken together, shall no longer beneficially own in the aggregate
51% or more of the combined Voting Power (as defined herein) of the then
outstanding shares of Voting Stock (as defined herein) and shall continue to be

8
<PAGE>

effective from and after the Threshold Time. The term "Permitted Stockholder"
shall mean FCI or any subsidiary of FCI. The term "Permitted Transferee"shall
mean each of the following:

(a) a trust or trustee, guardian, custodian or similar entity
established or acting for the benefit of the Permitted Stockholder;

(b) any corporation or other entity 100% of the voting stock (or
equivalent interests) of which is owned, directly or indirectly, by the
Permitted Stockholder and/or any other person or entity referred to in
clause (a); and

(c) a trust or trustee, guardian, custodian or similar entity
established or acting for the benefit of any person or entity referred to
in clause (b).

SECTION 2. Change in Control. (a) In addition to any affirmative vote
required by law or by this Amended and Restated Certificate of Incorporation or
the terms of any series of Preferred Stock or any other securities of the
Corporation, and except as otherwise expressly provided in subsection (c) of
this Section 2:

(i) any merger or consolidation of the Corporation with (1) any
Interested Stockholder or (2) any other corporation (whether or not it is
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate or Associate (as defined herein) of an
Interested Stockholder (as defined herein); or

(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholders of (1) all or substantially all the assets of the Corporation
or (2) assets of the Corporation or any of its Subsidiaries representing in
the aggregate more than 75% of the total value of the assets of the
Corporation and its consolidated Subsidiaries as reflected on the most
recent consolidated balance sheet of the Corporation and its consolidated
Subsidiaries prepared in accordance with generally accepted accounting
principles then in effect; or

(iii) (1) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder of any assets of the Corporation or of any
Subsidiary of the Corporation having an aggregate Fair Market Value of
$10,000,000 or more, but less than the amount referred to in clause (2) of
paragraph (ii) of this subsection (a), or (2) any merger or consolidation
of any Subsidiary of the Corporation having assets with an aggregate Fair
Market Value of $10,000,000 or more in a transaction not covered by
paragraph (ii) of this subsection (a) with (x) any Interested Stockholder
or (y) any other corporation (whether or not it is itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate or Associate of an Interested Stockholder; or

9
<PAGE>

(iv) the issuance or transfer by the Corporation or any Subsidiary of
the Corporation (in one transaction or a series of transactions) to any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder of any securities of the Corporation or any Subsidiary of the
Corporation in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of $10,000,000
or more, other than the issuance of securities upon the conversion of
convertible securities of the Corporation or any Subsidiary of the
Corporation which were not acquired by such Interested Stockholder (or such
Affiliate or Associate) from the Corporation or a Subsidiary of the
Corporation; or

(v) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder; or

(vi) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries, or any other
transaction (whether or not with or into or otherwise involving any
Interested Stockholder), which in any such case has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares
of any class or series of stock or securities convertible into stock of the
Corporation or any Subsidiary of the Corporation which is directly or
indirectly beneficially owned by any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;

shall not be consummated without (1) the affirmative vote of the holders of at
least 80% of the combined Voting Power of the then outstanding shares of all
classes and series of Voting Stock and (2) the affirmative vote of a majority of
the combined Voting Power of the then outstanding shares of all classes and
series of Voting Stock held by Disinterested Stockholders (as defined herein),
in each case voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or by this Certificate of Incorporation or
the terms of any series of Preferred Stock or any other securities of the
Corporation or in any agreement with any national securities exchange or
otherwise.

(b) The term "Business Combination" as used in this Section 2 shall
mean any transaction which is referred to in any one or more of paragraphs (i)
through (vi) of subsection (a) of this Section 2.

(c) The provisions of subsection (a) of this Section 2 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation and the terms of any series of
Preferred Stock or any other securities of the Corporation, if all the
conditions specified in any of the following paragraphs (i), (ii),(iii) or (iv)
are met:

10
<PAGE>

(i) (1) such Business Combination shall have been approved by a
majority of the Disinterested Directors (as defined herein) and (2) the
Interested Stockholder involved in such Business Combination has (x)
acquired such status as an Interested Stockholder in a manner substantially
consistent with an agreement or memorandum of understanding approved by the
Board of Directors prior to the time such Interested Stockholder became an
Interested Stockholder and (y) complied with all requirements imposed by
such agreement or memorandum of understanding; or

(ii) in the case of any Business Combination described in paragraph
(i) of subsection (a) of this Section 2, (1) such Business Combination
shall have been approved by a majority of the Disinterested Directors, (2)
such Business Combination shall not have resulted, directly or indirectly,
in an increase of more than 10% in the total amount of shares of any class
or series of stock or securities convertible into stock of the Corporation
or any Subsidiary which was directly or indirectly beneficially owned by
any Interested Stockholder and all Affiliates and Associates of such
Interested Stockholder at the time of the approval of such Business
Combination by a majority of the Disinterested Directors, and (3) such
Business Combination shall not have been consummated within a period of two
years after the consummation of any other Business Combination described in
paragraph (i), (ii), (iii), (iv), (v) or (vi) of subsection (a) of this
Section 2 (whether or not such other Business Combination shall have been
approved by a majority of the Disinterested Directors) which had the
effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class or series of stock or securities
convertible into stock of the Corporation or any Subsidiary of the
Corporation which was directly or indirectly beneficially owned by such
Interested Stockholder or any Affiliate or Associate of such Interested
Stockholder; or

(iii) in the case of any Business Combination described in paragraph
(iii), (iv) or (vi) of subsection (a) of this Section 2, such Business
Combination shall have been approved by a majority of the Disinterested
Directors; or

(iv) all of the six conditions specified in the following clauses (1)
through (6) shall have been met:

(1) the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of each then
existing class of Common Stock in exchange for all their shares of
each class of Common Stock, and the aggregate amount of the cash and
the Fair Market Value as of the date of the consummation of the
Business Combination of any consideration other than cash to be
received per share by holders of each class of Common Stock in such
Business Combination shall be at least equal to the highest of the
following:

(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in

11
<PAGE>

order to acquire any shares of the particular class of Common
Stock in question beneficially owned by the Interested
Stockholder which were acquired (i) within the two-year period
immediately prior to the Announcement Date or (ii) in the
transaction in which it became an Interested Stockholder,
whichever is higher; and

(B) the Fair Market Value per share of the class of Common
Stock in question on the Announcement Date (as defined herein) or
on the Determination Date (as defined herein), whichever is
higher; and

(2) if the transaction constituting the Business Combination
shall provide for a consideration to be received by holders of any
class or series of outstanding Voting Stock other than Common Stock,
the aggregate amount of the cash and the Fair Market Value as of the
date of the consummation of the Business Combination of any
consideration other than cash to be received per share by holders of
shares of such Voting Stock shall be at least equal to the highest of
the following (the requirements of this clause (iv) (2) must be met
with respect to every class and series of such outstanding Voting
Stock, whether or not the Interested Stockholder beneficially owns any
shares of a particular class or series of Voting Stock):

(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid in order to acquire any shares of such class or series
of Voting Stock beneficially owned by the Interested Stockholder
which were acquired (i) within the two-year period immediately
prior to the Announcement Date or (ii) in the transaction in
which it became an Interested Stockholder, whichever is higher;

(B) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series of
Voting Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and

(C) the Fair Market Value per share of such class or series
of Voting Stock on the Announcement Date or on the Determination
Date, whichever is higher; and

(3) the consideration to be received by holders of a particular
class or series of outstanding Voting Stock (including any class of
Common Stock) shall be in cash or in the same form as was previously
paid in order to acquire shares of such class or series of Voting
Stock which are beneficially owned by the Interested Stockholder and,
if the Interested Stockholder beneficially owns shares of any

12
<PAGE>

class or series of Voting Stock which were acquired with varying forms
of consideration, the form of consideration to be received by holders
of such class or series of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class or
series of Voting Stock beneficially owned by it; the prices determined
in accordance with clauses (1) and (2) of this paragraph (iv) shall be
appropriately adjusted in the event of any stock dividend, stock split
or subdivision or combination of shares or any similar event; and

(4) after such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such business
Combination:

(A) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at
the regular dates therefor the full amount of any dividends
(whether or not cumulative) payable on the Preferred Stock or any
class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation;

(B) there shall have been (x) no reduction in the annual
rate of dividends paid on any class of Common Stock (except as
necessary to reflect any subdivision of such class of Common
Stock), except as approved by a majority of the Disinterested
Directors, and (y) an increase in such annual rate of dividends
(as necessary to prevent any such reduction) in the event of any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Disinterested Directors;
and

(C) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock except
as part of the transaction in which it became an Interested
Stockholder; and

(5) after such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder) of any loan, advance, guarantee, pledge or other
arrangement provided by the Corporation or any Subsidiary, whether in
anticipation of or in connection with such Business Combination or
otherwise; and

(6) a proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to

13
<PAGE>

public stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy
or information statement is required to be mailed pursuant to such Act
or subsequent provisions).

(d) A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with this
Section 2, including, without limitation, (i) whether a person is an Interested
Stockholder, (ii) the number of shares of each class or series of Voting Stock
beneficially owned by any person, (iii) whether a person is an Affiliate or
Associate of another person, (iv) whether the requirements of subsection (c) of
this Section 2 have been met with respect to any Business Combination and (v)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary of the Corporation in any Business Combination
has, an aggregate Fair Market Value of $10,000,000 or more or whether such
assets or consideration, as the case may be, represent in the aggregate more
than 75% of the total value of the assets of the Corporation and its
consolidated Subsidiaries as reflected on the most recent consolidated balance
sheet of the Corporation and its consolidated Subsidiaries prepared in
accordance with generally accepted accounting principles then in effect; and the
good faith determination of a majority of the Disinterested Directors on such
matters shall be conclusive and binding for all purposes of this Section 2.

(e) Nothing contained in this Section 2 shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.

SECTION 3. Staggered Board. (a) The directors of the Corporation,
other than those who may be elected pursuant to the terms of any series of
Preferred Stock or any other securities of the Corporation, shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible, as shall be provided in the
By-laws of the Corporation, one class whose term expires at the first annual
meeting of stockholders to be held after the Threshold Time, another class whose
term expires at the second annual meeting of stockholders to be held after the
Threshold Time, and another class whose term expires at the third annual meeting
of stockholders to be held after the Threshold Time, with each class to hold
office until its successors are elected and qualified. The classes shall be
initially comprised of directors serving on the Board of Directors at the
Threshold Time, and the membership of each class shall be initially determined
by the Board of Directors at such time. At each annual meeting of the
stockholders of the Corporation, the date of which shall be fixed by or pursuant
to the By-laws of the Corporation, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director. Any
director elected to fill a newly created directorship or any vacancy on the
Board of Directors resulting from any death, resignation, removal or other cause
shall hold office for the remainder of

14
<PAGE>

the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified.

(b) Except as otherwise provided by the terms of any series of
Preferred Stock or any other securities of the Corporation, any director of the
Corporation may be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the combined Voting Power of
the then outstanding shares of Voting Stock, voting together as a single class.
For purposes of this subsection (b), "cause" shall mean the willful and
continuous failure of a director to substantially perform such director's duties
to the Corporation (other than any such failure resulting from incapacity due to
physical or mental illness) or the willful engaging by a director in gross
misconduct materially and demonstrably injurious to the Corporation.

SECTION 4. Special Meetings. Subject to the terms of any series of
Preferred Stock or any other securities of the Corporation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of Directors
or as otherwise provided in the By-laws of the Corporation.

SECTION 5. Amendments of Certificate. In addition to any requirements
of law and any other provisions of this Certificate of Incorporation or the
terms of any series of Preferred Stock or any other securities of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Certificate of Incorporation or the terms of any series
of Preferred Stock or any other securities of the Corporation), the affirmative
vote of (i) the holders of 80% or more of the combined Voting Power of the then
outstanding shares of Voting Stock and (ii) a majority of the combined Voting
Power of the then outstanding shares of Voting Stock held by the Disinterested
Stockholders, in each case voting together as a single class, shall be required
to amend, alter or repeal, or adopt any provision inconsistent with, this
Article VII or Article VIII insofar as the definitions set forth in Article VIII
relate to this Article VII.

ARTICLE VIII

Certain Definitions

For purposes of this Certificate of Incorporation:

"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date this Certificate of Incorporation are
filed.

"Announcement Date" shall mean the date of first public announcement
of the proposed Business Combination.

15
<PAGE>

A person shall be a "beneficial owner" of any Voting Stock or other
security or interest:

(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or

(b) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote or to direct
the vote pursuant to any agreement, arrangement or understanding; or

(c) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock or such other
security or interest.

"Determination Date" means the date on which the Interested
Stockholder became an Interested Stockholder.

"Disinterested Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with, and not a nominee of, an Interested
Stockholder or any Affiliate or Associate of such Interested Stockholder and was
a member of the Board of Directors prior to the time that such Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, an
Interested Stockholder or any Affiliate or Associate of such Interested
Stockholder and who is recommended for election or elected to succeed a
Disinterested Director by a majority of Disinterested Directors then on the
Board of Directors.

"Disinterested Stockholder" shall mean a stockholder of the
Corporation who is not an Interested Stockholder or an Affiliate or an Associate
of an Interested Stockholder.

"Equity Interest" shall mean (i) in the case of a corporation, capital
stock, beneficially owned directly or indirectly, representing any portion of,
or, where a specified percentage of Equity Interest is referred to, the
specified percentage of, either (x) the total common equity of such corporation
or (y) the total outstanding Voting Power in respect of the election of
directors and (ii) in the case of a partnership or other person, partnership or
other ownership interests, beneficially owned directly or indirectly,
representing any portion of, or, where a specified percentage of Equity Interest
is referred to, the specified percentage of, either (x) the total partnership or
other ownership interests in such partnership or other person or (y) the total
outstanding Voting Power in respect of any matter submitted to a vote of all
partners or other owners.

16
<PAGE>

"Fair Market Value" means: (a) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock as reported in the consolidated transaction
reporting system for the principal United States securities exchange registered
under the Exchange Act on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing sales price or bid quotation
with respect to a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or, if no such quotations
are available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Disinterested Directors in good faith;
and (b) in the case of stock of any class or series which is not traded on any
securities exchange or in the over-the-counter market or in the case of property
other than cash or stock, the fair market value of such stock or property, as
the case may be, on the date in question as determined by a majority of the
Disinterested Directors in good faith.

"Interested Stockholder" shall mean any person who or which:

(a) is the beneficial owner, directly or indirectly, of 20% or more of
the combined Voting Power of the then outstanding shares of Voting Stock;
or

(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 20% or more of the combined
Voting Power of the then outstanding shares of Voting Stock; or

(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933 or other public distribution regardless of whether registered under
such Act.

Notwithstanding the foregoing, "Interested Stockholder" shall not
include:

(a) the Corporation or any Subsidiary of the Corporation;

(b) any employee benefit plan of the Corporation or of any Subsidiary
of the Corporation or any person holding any class or series of Voting
Stock for or pursuant to the terms of any such employee benefit plan;

(d) any transferee of the Permitted Stockholder or a Permitted
Transferee that would not absent such transfer be an Interested
Stockholder.

17
<PAGE>

For the purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding shall
include shares of which such person is the beneficial owner as defined in this
Article VIII but shall not include any other shares of Voting Stock which may be
issuable to other persons pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, exchange rights, warrants
or options, or otherwise.

A "person" shall mean any individual, firm, corporation, partnership,
trust or other entity.

"Subsidiary" shall mean a person, a majority of the total outstanding
Voting Power of which is owned, directly or indirectly, by another person or by
one or more other Subsidiaries of such other person or by such person and one or
more other Subsidiaries of such other person; provided, however, that for the
purposes of the definition of Interested Stockholder set forth in this Article
VIII, the term "Subsidiary" shall mean only a person, a majority the total
outstanding Voting Power of which is owned by the Corporation, by a Subsidiary
of the Corporation or by the Corporation and one or more of its Subsidiaries.

"Voting Power", when used with reference to the capital stock of, or
units of equity interests in, any person, shall mean the power under ordinary
circumstances (and not merely as a result of the occurrence of a contingency) to
vote in the election of directors of such person (if such person is a
corporation) or to participate in the management and control of such person (if
such person is not a corporation).

"Voting Stock" means capital stock of the Corporation of all classes
and series entitled to vote generally in the election of directors of the
Corporation.

ARTICLE IX

Amendments

Subject to the provisions of this Certificate of Incorporation
(including Section 5 of Article VII, Section 3 of Article X, and Section 2 of
Article XII) the Corporation reserves the right to amend, alter or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the laws of Delaware, and all rights and powers
conferred on directors and stockholders herein are granted subject to this
reservation.

ARTICLE X

Director Liability and Indemnification

SECTION 1. No Liability. To the fullest extent that the Delaware
General Corporation Law as it exists on the date hereof or as it may hereafter
be amended permits the

18
<PAGE>

limitation or elimination of the liability of directors, no director of the
Corporation shall be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. No amendment to this
Certificate of Incorporation, directly or indirectly by merger, consolidation or
otherwise, having the effect of amending, altering, changing or repealing any of
the provisions of this Section 1 shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal, unless such amendment shall have the effect of further
limiting or eliminating such liability.

SECTION 2. Indemnification. (a) The Corporation shall, to the fullest
extent permitted by applicable law as then in effect, indemnify any person (the
"indemnitee") who was or is involved in any manner (including, without
limitation, as a party or a witness) or was or is threatened to be made so
involved in any threatened, pending or completed investigation, claim, action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or proceeding by or in the
right of the Corporation to procure a judgment in its favor) (a "proceeding") by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director or officer
of another corporation, or of a partnership, joint venture, trust or other
enterprise (including, without limitation, service with respect to any employee
benefit plan), whether the basis of any such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, against all expenses, liabilities and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred by him in connection with such proceeding. Such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his heirs and legal representatives.
The right to indemnification conferred in this Article X shall include the right
to receive payment in advance of any expenses incurred by the indemnitee in
connection with such proceeding, consistent with applicable law as then in
effect, and shall be a contract right. The Corporation may, by action of its
Board of Directors, provide indemnification for employees, agents, attorneys and
representatives of the Corporation with up to the same scope and extent as
herein above provided for officers and directors. No amendment to this
Certificate of Incorporation having the effect of amending, altering, changing
or repealing any of the provisions of this Section 2 shall remove, abridge or
adversely affect any right to indemnification or other benefits under this
Section 2 with respect to any acts or omissions occurring prior to such
amendment or repeal.

(b) The right of indemnification, including the right to receive
payment in advance of expenses, conferred in this Article X shall not be
exclusive of any other rights to which any person seeking indemnification may
otherwise be entitled under any provisions of the Certificate of Incorporation,
By-laws, agreement, or otherwise.

(c) In any action or proceeding relating to the right to
indemnification conferred in this Article X, the Corporation shall have the
burden of proof that the indemnitee has not met any

19
<PAGE>

standard of conduct or belief which may be required by applicable law to be
applied in connection with a determination of whether the indemnitee is entitled
to indemnity, or otherwise is not entitled to indemnity, and neither a failure
to make such determination nor an adverse determination of entitlement to
indemnity shall be a defense of the Corporation in such an action or proceeding
or create any presumption that the indemnitee has not met any such standard of
conduct or belief or is otherwise not entitled to indemnity. If successful in
whole or in part in such an action or proceeding, the indemnitee shall be
entitled to be indemnified by the Corporation for the expenses actually and
reasonably incurred by him in connection with such action or proceeding.

SECTION 3. Amendments of Certificate. No amendment to this Certificate
of Incorporation, directly or indirectly by merger, consolidation or otherwise,
shall amend, alter, change or repeal any of the provisions of this Article X,
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote of the holders of at least 80% of the
outstanding shares of stock of the Corporation entitled to vote in elections of
directors, provided that this Section 3 shall not apply to any such amendment if
such amendment is submitted to the stockholders for adoption with the unanimous
recommendation of the entire Board of Directors.

ARTICLE XI

Compromise or Arrangement

Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which said application has
been made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the Corporation, as the case may
be, and also on the Corporation.

ARTICLE XII

Meetings of Stockholders

20
<PAGE>

SECTION 1. Meetings Required. No action required to be taken or which
may be taken at any annual or special meeting of stockholders of the Corporation
may be taken without a meeting, except on written consent, setting forth the
action so taken, signed by the holders of record of at least 80% of the
outstanding shares entitled to vote thereon.

SECTION 2. Amendments of Certificate. No amendment to this Certificate
of Incorporation, directly or indirectly by merger, consolidation or otherwise,
shall amend, alter, change or repeal any of the provisions of this Article XII,
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote of the holders of at least 80% of the
outstanding shares of stock of the Corporation entitled to vote in elections of
directors; provided that this Section 2 shall not apply to any such amendment if
such amendment is submitted to the stockholders for adoption with the unanimous
recommendation of the entire Board of Directors.

<PAGE>
PROXY
METRIS COMPANIES INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints RONALD N. ZEBECK and Z. JILL BARCLIFT as
proxies each with the power to act alone and with power of substitution and
revocation, and hereby authorizes them to vote all of the shares of Common Stock
of Metris Companies Inc. that the undersigned is entitled to vote at the Special
Meeting of Stockholders to be held on March 12, 1999, or any adjournment
thereof, as specified below on the following matters which are further described
in the Proxy Statement related hereto:

1. PROPOSAL TO APPROVE THE TERMS AND ISSUANCE OF SERIES C PERPETUAL CONVERTIBLE
PREFERRED STOCK IN EXCHANGE FOR OUTSTANDING SERIES B PERPETUAL PREFERRED
STOCK, 12% SENIOR NOTES DUE 2006 AND WARRANTS TO PURCHASE 3,750,000 SHARES
OF COMMON STOCK AT $30 PER SHARE:

/ / FOR / / AGAINST / / ABSTAIN

2. PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO AUTHORIZE 10,000,000 SHARES OF NON-VOTING COMMON STOCK AND
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF PREFERRED STOCK FROM
10,000,000 TO 25,000,000:

/ / FOR / / AGAINST / / ABSTAIN

3. PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO REMOVE CERTAIN RESTRICTIONS ON BUSINESS ACTIVITIES:

/ / FOR / / AGAINST / / ABSTAIN

(OVER)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)

IN THEIR DISCRETION, PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. Please sign exactly as your name appears
below. When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by the president
or other authorized officer. If a partnership, please sign in partnership name
by partner or other authorized person.
________________________________
(Signature)
________________________________
(Signature, if held jointly)
Dated: __________________ , 1998

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.

<PAGE>

[LETTERHEAD]

Exhibit 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors
of Metris Companies Inc.:

We consent to the use of our report dated January 21, 1998 incorporated herein
by reference.

KPMG Peat Marwick LLP

Minneapolis, Minnesota
December 23, 1998