<PAGE>
As filed with the Securities and Exchange Commission on October 8, 1999
Registration No. 333-86695
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
METRIS COMPANIES INC.
(Exact name of registrant as specified in its charter)
Delaware 6141 41-1849591
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
(612) 525-5020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Z. Jill Barclift, Esq.
Executive Vice President, Secretary and General Counsel
Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
(612) 525-5020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Kathleen L. Prudhomme, Esq.
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
(612) 343-7973
Facsimile: (612) 340-8738
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering. [_]
ADDITIONAL REGISTRANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Address, Including Zip
Code and Telephone
Exact Name of State or Other Primary Standard Number, Including Area
Registrant as Jurisdiction of Industrial I.R.S. Employer Code, of Registrant's
Specified in its Incorporation or Classification Identification Principal Executive Registration
Charter Organization Code Number Number Office No.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Metris Direct, Inc. Minnesota 6159 41-1111974 600 South Highway 169,
Suite 1800,
St. Louis Park, MN
55426
(612) 555-5020 333-86695-01
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
Exchange Offer For
$150,000,000
10 1/8% Senior Notes due 2006
. We are offering to exchange all of our outstanding unregistered 10 1/8%
Senior Notes due 2006 for new registered 10 1/8% Senior Notes due 2006.
. The exchange offer expires at 5:00 p.m., New York City time, on
November 12, 1999, unless we extend it.
. The exchange will not be a taxable event for U.S. federal income tax
purposes.
. The terms of the new notes are substantially identical to those of the
old notes, except for the transfer restrictions and registration rights
relating to the old notes.
. The old notes are, and the new notes will be, unconditionally
guaranteed on a senior unsecured basis by our subsidiary, Metris
Direct, Inc.
. The new notes will not trade on any national securities exchange and,
therefore, we do not anticipate that an active public market in the new
notes will develop.
See "Risk Factors" beginning on page 7 for a discussion of risk factors that
you should consider before deciding to tender your old notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is October 8, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............ 3
Risk Factors.................. 7
Forward-Looking Statements.... 14
Use of Proceeds............... 15
Capitalization................ 15
The Exchange Offer............ 16
Description of the New Notes.. 23
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Provisions Applicable to
the New Notes...................... 49
United States Federal Income Tax
Considerations..................... 51
Plan of Distribution................ 55
Legal Matters....................... 55
Experts............................. 55
Where you Can Find More
Information........................ 56
</TABLE>
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized any other person to provide
you with different information. This document may only be used where it is
legal to sell these securities. You should assume that the information in this
document is accurate as of the date on the front cover of this prospectus only.
Our business, financial condition, results of operations and prospects may have
changed since that date.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information and may not contain all the
information that is important to you. We encourage you to read the entire
prospectus, the documents incorporated by reference in this prospectus and the
other documents to which this prospectus refers.
THE EXCHANGE OFFER
Exchange offer......................
We are offering to exchange up to $150
million in aggregate principal amount of
our 10 1/8% Senior Notes due 2006 which
have been registered under the Securities
Act of 1933 for a like principal amount
of our outstanding 10 1/8% Senior Notes
due 2006 which were issued in a private
offering. The new notes may be exchanged
only in multiples of $1,000 principal
amount. We will issue the new notes as
soon as possible after the expiration of
the exchange offer. For procedures for
tendering, see "The Exchange Offer--
Procedures for Tendering Old Notes."
Expiration date.....................
The exchange offer will expire at 5:00
p.m., New York City time, on November 12,
1999, unless we extend it.
Withdrawal rights................... You may withdraw your tender of old notes
at any time before the exchange offer
expires.
Federal income tax consequences..... Your exchange of old notes for new notes
should not result in any income, gain or
loss to you for U.S. federal income tax
purposes.
Exchange agent...................... The Bank of New York is serving as the
exchange agent in connection with the
exchange offer.
Resale without further We believe that you may resell or
registration........................ otherwise transfer the new notes without
complying with the registration and
prospectus delivery provisions of the
Securities Act so long as you meet the
following conditions:
. you are not our "affiliate" within the
meaning of Rule 405 under the
Securities Act;
. you acquire the new notes issued in
the exchange offer in the ordinary
course of business; and
. you are not participating, do not
intend to participate, and have no
arrangement or understanding with any
person to participate, in the
distribution of the new notes.
By signing the letter of transmittal and
tendering your old notes, you will be
making representations to this
3
<PAGE>
effect. You may incur liability under the
Securities Act if:
. any of the representations listed
above are not true; and
. you transfer any new note issued to
you in the exchange offer without
delivering a prospectus meeting the
requirements of the Securities Act or
an exemption from the registration
requirements under the Securities Act.
We do not assume or indemnify you against
liability under these circumstances,
which means that we will not protect you
against any loss incurred as a result of
this liability under the Securities Act.
Restrictions on resale by broker- Each broker-dealer that has received new
dealers............................. notes for its own account in exchange for
old notes that were acquired as a result
of market-making or other trading
activities must acknowledge that it will
deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the new
notes. A broker-dealer may use this
prospectus in connection with any resale
for a period of 90 days after the end of
the exchange offer.
Consequence of failure to If you are eligible to participate in the
exchange............................ exchange offer and you do not tender your
old notes, you will not have further
registration rights and you will continue
to hold notes subject to restrictions on
transfer.
TERMS OF NEW NOTES
Issuer.............................. Metris Companies Inc.
Securities offered.................. $150,000,000 principal amount of 10 1/8%
Senior Notes due 2006.
Maturity............................ July 15, 2006.
Interest payment dates.............. Interest on the new notes will accrue at
a rate of 10 1/8% per annum and will be
payable in cash, semi-annually in
arrears, on January 15 and July 15,
commencing on January 15, 2000.
Optional redemption.................
On or after July 15, 2003, we may redeem
the new notes, in whole or in part, at
the redemption prices listed in this
prospectus, together with accrued and
unpaid interest, if any, to the date of
redemption. Before July 15, 2002, we may
redeem up to 35% of the new notes with
proceeds of certain public equity
offerings at the price set forth in this
prospectus. See "Description of the New
Notes--Optional Redemption."
4
<PAGE>
Guarantees..........................
The new notes will be guaranteed on a
senior basis by one of our subsidiaries,
Metris Direct, Inc., which has also
guaranteed all of our obligations under
our credit facility. The guarantee will
be a general unsecured obligation of the
guarantor. Other restricted subsidiaries
will also be required to guarantee the
new notes if they guarantee any of our
other debt. Direct Merchants Credit Card
Bank, National Association is not, and is
not expected to become, a guarantor of
the new notes.
Ranking.............................
The new notes will be our unsecured,
unsubordinated obligations and will rank
equally with all of our other existing
and future unsecured and unsubordinated
debt. They will effectively rank junior
to all of our secured debt and the
secured debt of our subsidiaries that are
guarantors, to the extent of the value of
the assets securing the debt. In
addition, they will effectively rank
junior to all existing and future debt of
any of our subsidiaries that are not
guarantors, including certificates of
deposit issued by Direct Merchants Bank
($579.8 million as of October 1, 1999).
As of June 30, 1999, on a pro forma basis
after giving effect to the sale of the
old notes and the application of the net
proceeds from that sale, we had
outstanding debt of approximately $660.0
million, of which approximately $100.0
million is secured debt under our credit
facility. All borrowings under the credit
facility are secured by liens on the
capital stock of substantially all of our
subsidiaries (including Direct Merchants
Bank) and certain of our accounts
receivable and interests held in those
receivables.
Change of control...................
If an event treated as a change of
control occurs, we must offer to
repurchase all outstanding new notes at
101% of their principal amount plus
accrued and unpaid interest to the date
of the purchase. See "Description of the
New Notes--Change of Control." We may not
have sufficient funds or the financial
resources necessary to satisfy our
obligations to repurchase the notes and
other debt that may become repayable upon
a change of control triggering event.
Basic covenants..................... The indenture governing the new notes
contains covenants that, among other
things, will limit our ability and the
ability of some of our subsidiaries to:
. pay dividends on, redeem or repurchase
our capital stock;
. make investments;
. incur additional debt;
5
<PAGE>
. create liens on our assets;
. sell assets
. enter into agreements that restrict
certain of our subsidiaries from
making distributions;
. consolidate, merge or transfer all or
substantially all of our assets and
the assets of our subsidiaries on a
consolidated basis; and
. engage in transactions with related
persons.
The covenants are subject to important
exceptions and qualifications. For more
details, see "Description of the New
Notes--Covenants".
The indenture provides that, so long as
no default or event of default has
occurred and is continuing, after the new
notes have been assigned an investment
grade rating, we will be released from
our obligation to comply with certain of
the covenants and provisions of the
indenture.
OUR BUSINESS
We are an information-based direct marketer of consumer credit products and
fee-based services primarily to moderate income consumers. Our primary consumer
credit products are unsecured credit cards issued by our subsidiary, Direct
Merchants Bank. Our customers and prospects include individuals for whom credit
bureau information is available and customers of a former affiliate, Fingerhut
Corporation. We market our fee-based services, including debt waiver programs,
membership clubs, third-party insurance as well as extended service plans
offered through third-party retailers, to our credit card customers and
customers of third parties.
Our principle executive offices are located at 600 South Highway 169, Suite
1800, St. Louis Park, MN 55426, and our main telephone number is (612) 525-
5020.
RATIOS OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
The following table shows our ratios of earnings to fixed charges and
preferred dividends for the periods indicated. Because we did not have any
preferred stock outstanding before December 9, 1998, our ratios of earnings to
fixed charges and preferred dividends before that date are the same as our
ratios of earnings to fixed charges.
<TABLE>
<CAPTION>
Six
Months
Ended
June 30, Years Ended December 31,
--------- -------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges and
preferred dividends...................... 2.8 3.8 3.7 5.7 8.3 6.9 134.2
Ratio of earnings to fixed charges........ 4.9 3.8 3.9 5.7 8.3 6.9 134.2
</TABLE>
For purposes of these ratios, earnings and fixed charges include applicable
amounts for us and our subsidiaries on a consolidated basis. Earnings consist
of earnings from continuing operations before income taxes, plus fixed charges.
Fixed charges consist of interest on indebtedness and a portion of rental
expense we believe to be representative of the interest factor. Our ratios of
earnings to fixed charges and preferred dividends have been calculated on an
owned basis (i.e., excluding securitized assets).
6
<PAGE>
RISK FACTORS
You should consider carefully all of the information in this prospectus and
incorporated by reference in this prospectus. See "Where You Can Find More
Information." In particular, you should carefully evaluate the following risks
before tendering your old notes in the exchange offer.
There may be adverse consequences for holders of the old notes who fail to
exchange them for new notes
If you do not exchange your old notes for new notes in this exchange offer,
you will continue to be subject to the restrictions on transfer of your old
notes set forth in the legend on the old notes because the old notes have not
been registered under the Securities Act or applicable state securities laws.
In general, you may offer or sell the old notes only if they are registered
under the Securities Act and applicable state securities laws, unless you sell
them under an exemption from the Securities Act and state securities laws. We
do not intend to register the old notes under the Securities Act.
If your tender of old notes in this exchange offer is for the purpose of
participating in a distribution of new notes, the new notes that you receive
will be restricted securities, and you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act if you
resell any of the new notes. To the extent old notes are tendered and accepted
in the exchange offer, the trading market, if any, for the old notes which are
not tendered, and the price at which the old notes may be sold, could be
adversely affected. See "The Exchange Offer."
There is no established trading market for the new notes, and even if one
develops, you may have difficulty selling them
There has not been any public market for the old notes, and we cannot assure
you that an active or liquid trading market will develop for the new notes. If
a trading market does not develop or is not maintained, you may experience
difficulty in reselling new notes, or you may be unable to sell them at all.
We do not intend to list the new notes on any securities exchange or seek
their admission to trading on any automated quotation system. The initial
purchasers of the old notes have advised us that they intend to make a market
in the new notes. However, the initial purchasers are not obligated to do so
and may discontinue their market-making activities at any time without notice.
In addition, any market-making activity will be subject to the limits imposed
by the securities laws, and may be limited during the exchange offer and at
other times.
If a public trading market develops for the new notes, it may not be liquid
and it may be discontinued at any time. Moreover, future trading prices of the
new notes would depend on many factors, including, among others, prevailing
interest rates, our operating results and the market for similar securities.
Depending on prevailing interest rates, the market for similar securities and
other factors, including our financial condition, the new notes could trade at
a discount from their principal amount.
We must receive dividends and distributions from our subsidiaries to make
payments on the notes
We are a holding company with no significant assets other than our equity
interests in our subsidiaries. We depend on the earnings and cash flow of our
subsidiaries and on our ability to receive funds from our subsidiaries through
dividends and other payments to make payments on our debt, including the new
notes. In addition, various regulations applicable to our subsidiaries restrict
the ability of our subsidiaries to pay dividends to us. In particular,
applicable banking regulations limit the ability of Direct Merchants Bank to
declare dividends to us. As a result, earnings of Direct Merchants Bank
(currently principally comprised of fee income from sales of fee-based products
and services, servicing fees and interchange fees) may not be available to us.
7
<PAGE>
The notes are effectively subordinated to secured senior debt and debt of
subsidiaries that are not guarantors
The new notes effectively will be subordinated to our secured debt and the
secured debt of the subsidiary guarantors to the extent of the value of the
assets securing such debt. In the event of a default on such secured debt,
holders of the secured debt would receive payments from the assets used as
security before the holders of the new notes receive payments. Further, the new
notes effectively will be subordinated to any debt of our subsidiaries that are
not guarantors, including certificates of deposit issued by Direct Merchants
Bank ($579.8 million as of October 1, 1999). Following the liquidation or
reorganization of a subsidiary that is not a guarantor of the new notes, the
creditors of that subsidiary will generally be entitled to be paid in full
before we are entitled to a distribution of any assets in the liquidation or
reorganization.
As of June 30, 1999, on a pro forma basis after giving effect to the sale of
the old notes and our use of the net proceeds, our total indebtedness was
approximately $660.0 million (excluding unused commitments of $200.0 million
under our credit facility), $100.0 million of which is secured debt outstanding
under our credit facility. The debt incurred under our credit facility is
secured by a pledge of the capital stock of substantially all of our
subsidiaries (including Direct Merchants Bank) and by a lien against certain
receivables and general intangibles. Metris Direct, Inc., the guarantor of the
new notes, is also a guarantor of our credit facility. The new notes will not
be secured by any of our assets or the assets of our subsidiaries.
Direct Merchants Bank is not, and is not expected to become, a guarantor of
the new notes. In addition, it is our policy to maintain the capitalization of
Direct Merchants Bank at a level that will allow it to be categorized as a
"well capitalized" bank under applicable banking regulations. As a result, we
may make contributions to the capital of Direct Merchants Bank from time to
time. For example, in anticipation of the acquisition of a portion of the
consumer bank card portfolio of GE Capital, we contributed approximately $80
million to the capital of Direct Merchants Bank to maintain its "well
capitalized" status.
We may be unable to purchase your notes upon a change of control offer
Upon certain change of control events, we are required to offer to
repurchase all of the notes. We may not have sufficient funds at the time of
the change of control to make the required repurchase. These change of control
events would also require the repurchase of our currently outstanding 10%
senior notes due 2004. Our credit facility prohibits such repurchases and
provides that certain change of control events would violate our credit
facility. If our debt under our credit facility became due as a result of such
a violation, the lenders would have a priority claim on our assets securing our
debt to them.
Guarantees may be unenforceable due to fraudulent conveyance statutes
The guarantees may be unenforceable under certain circumstances. Although
laws differ among various jurisdictions, in general, under fraudulent
conveyance laws, a court could subordinate or void a guarantee if it found
that:
. the guarantee was incurred with actual intent to hinder, delay or
defraud creditors; or
. the guarantor did not receive fair consideration or reasonably
equivalent value for the guarantee and the guarantor:
-- was insolvent or was rendered insolvent because of the guarantee;
-- was engaged in a business or transaction for which its remaining
assets constituted unreasonably small capital; or
-- intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.
8
<PAGE>
If a court determines to void a guarantee as a result of fraudulent
conveyance, or hold it unenforceable for any other reason, noteholders would
cease to have a claim against the guarantor and would be creditors solely of
Metris and any remaining guarantors.
The measures of insolvency for these purposes will vary depending upon the
law applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered insolvent if, at
the time it issued the guarantee:
. the fair market value or fair saleable value of all of its assets was
less than the amount required to pay its total debts and liabilities,
including contingent liabilities, as they become absolute and matured;
or
. it could not pay its debt, including contingent liabilities, as they
became due.
We believe that the guarantees are being incurred for proper purposes and in
good faith, that the guarantors received fair consideration for the issuance of
their guarantees, and that each guarantor is and will be solvent, will have
sufficient capital for the business in which it is engaged and is and will be
able to pay its debts as they mature. However, we cannot assure you that a
court would agree with our conclusions in this regard.
Our profitability and ability to grow is dependent on our funding sources
Securitization Markets. We depend heavily upon the securitization of our
credit card loans to fund our operations and growth. As recently as the fourth
quarter of 1998, these markets have undergone disruptions which adversely
affected the ability of companies like us to raise money from these sources.
Furthermore, our ability to securitize our assets depends on the continued
availability of credit enhancement on acceptable terms and the continued
favorable legal, regulatory and tax environment for such transactions.
In addition, even if we are able to securitize our assets consistent with
past practice, poor performance of our securitized assets, including increased
delinquencies and credit losses, could result in a downgrade or withdrawal of
the ratings on the outstanding securities issued in our securitization
transactions, cause early amortization of such securities or result in higher
required credit enhancement levels. As a result, poor performance of our
securitized assets could divert significant amounts of cash that would
otherwise be available to us. This could jeopardize our ability to complete
other securitization transactions on acceptable terms, decrease our liquidity
and force us to rely on other potentially more expensive funding sources, to
the extent available. We cannot assure you that the securitization market will
continue to offer suitable funding alternatives.
Credit Facility. We rely on our credit facility to fund our operations and
growth. If we breach any of our covenants under our credit facility, including
various financial covenants, the lenders may terminate the facility.
Disruptions in the securitization market could negatively affect our ability to
comply with these covenants, and therefore our ability to borrow or replace
this facility could be adversely affected.
Other Funding Sources. We also expect to obtain financing by selling debt
and equity securities. Our ability to obtain such financing is dependent upon
many factors, including general market conditions. We cannot assure you that we
will be able to obtain this financing on favorable terms or at all. In
addition, restrictions contained in our debt agreements may adversely affect
our ability to finance future operations or capital needs or to engage in other
business activities.
Jumbo CD Program. Beginning in the first quarter 1999, Direct Merchants Bank
began issuing jumbo certificates of deposit. We expect to use the proceeds of
these deposits to fund our operations and growth. To maintain our current level
of access to the jumbo certificate of deposit market, Direct Merchants Bank
must maintain a "well capitalized" rating, as that rating is defined by the
Office of the Comptroller of the Currency.
9
<PAGE>
If it does not do so, we may be required to modify the program and may not be
able to accept additional deposits.
Our ability to obtain financing from the various sources available to us is
dependent upon many factors, including those outside of our control. In
addition, disruptions or unfavorable conditions related to one financing source
may negatively affect our ability to access other financing sources, or may
increase our financing costs.
We require a high degree of liquidity to operate our business
We depend on cash flow from operations, asset securitization, our credit
facility, our jumbo CD program and the issuance of debt and equity to fund our
operations and growth. The loss or interruption of any of these sources of
funding could adversely affect our ability to operate.
Key elements of our strategy are dependent upon us having adequate available
cash. These cash needs include:
. funding receivable growth through marketing campaigns;
. additional credit enhancement in the case of poor performance of our
securitized assets;
. interest and principal payments under our securitizations, our credit
agreement, our existing senior notes and other indebtedness;
. ongoing operating expenses;
. maintenance of the "well capitalized" status of our subsidiary, Direct
Merchants Bank, which is necessary to maintain the jumbo CD program;
. portfolio acquisitions;
. fees and expenses incurred in connection with the securitization of
receivables and the servicing of them; and
. tax payments due on receipt of excess cash flow from securitization
trusts.
Given these cash needs, we anticipate that we will need to enter into
financing transactions on a regular basis. We cannot assure you that we will be
able to secure funds to support our cash needs on terms as favorable as past
transactions. Any adverse change in the funding sources we use could force us
to rely on other potentially more expensive funding sources, to the extent
available, and could have other adverse consequences.
Our target market for consumer credit products may lead to higher default and
bankruptcy rates
The primary risk associated with unsecured lending to moderate income
consumers is higher default or bankruptcy rates than other income classes of
consumers, resulting in more accounts being charged-off as uncollectible. In
addition, general economic factors, such as the rate of inflation, unemployment
levels and interest rates, may result in greater delinquencies and credit
losses among moderate income consumers than among other income classes of
consumers. We may be unable to successfully identify and evaluate the
creditworthiness of our target customers to minimize the expected higher
delinquencies and losses. We also cannot assure you that our risk-based pricing
system can offset the negative impact on profitability that the expected
greater delinquencies and losses may have.
The lack of seasoning of our credit card portfolio creates a risk of increasing
loss levels
Our growth strategy is likely to produce a continued flow of unseasoned
accounts into our portfolio. The average age of a credit card issuer's
portfolio of accounts generally affects the level and stability of
10
<PAGE>
delinquency and loss rates of that portfolio. For example, a portfolio
containing mostly older accounts generally behaves more predictably than a
newly originated portfolio. At June 30, 1999, 63% of our credit card accounts
were less than 36 months old. The delinquency and charge-off ratios for the
following periods do not reflect the favorable impact of purchase accounting
related to the portfolio acquisitions. At June 30, 1999, 7.6% of our managed
credit card loans were 30 days or more delinquent, compared to 7.4% at December
31, 1998, 7.1% at December 31, 1997 and 5.5% at December 31, 1996. For the six
months ended June 30, 1999, we had annualized net charge-offs of 10.8% compared
to 10.8%, 9.3% and 6.2% for the years ended December 31, 1998, 1997 and 1996,
respectively. As a result, until the accounts become more seasoned, we expect
the delinquency and loss levels of our portfolio to continue to increase. Any
material increases in delinquencies and losses beyond our expectations could
have a material adverse impact on us and the value of our net retained
interests in loans securitized, which are subordinated to the interests sold in
such securitizations.
Our limited operating history as a stand-alone entity makes predicting future
performance difficult
In connection with our spin off from Fingerhut Companies Inc. ("FCI") in
September 1998, we significantly changed our funding sources to stand-alone
financing without guarantees from FCI. We have incurred and expect to incur
higher borrowing expenses under our current credit facility because of our
lower independent credit rating. Our relatively short existence as a stand-
alone company makes it difficult to apply historical operating results and
trends to assess our future performance.
We may not be able to sustain and manage growth
In order to meet our strategic objectives, we plan to continue to expand our
credit card loan portfolio. Continued growth in this area depends largely on:
. our ability to attract new cardholders;
. growth in both existing and new account balances;
. the degree to which we lose accounts and account balances to competing
card issuers;
. levels of delinquencies and losses;
. the availability of funding, including securitizations, on favorable
terms;
. general economic and other factors such as the rate of inflation,
unemployment levels and interest rates, which are beyond our control;
. our ability to acquire and integrate portfolios; and
. stability and growth in management.
Our continued growth also depends on our ability to manage this growth
effectively. Factors that affect our ability to successfully manage growth
include: retaining and recruiting experienced management personnel, finding and
adequately training new employees, cost-effectively expanding our facilities,
growing and updating our management systems and obtaining capital when needed.
We may not be able to successfully integrate portfolio acquisitions
As previously mentioned, our growth depends in part on our ability to
acquire and successfully integrate new portfolios of credit card customers.
Since our risk-based pricing system depends on information regarding customers,
limited or unreliable historical information on customers within an acquired
portfolio may have an impact on our ability to successfully and profitably
integrate that portfolio. Our success also depends on whether the desirable
customers of an acquired portfolio close their accounts after transfer of the
portfolio. A large attrition rate would result in a lower borrowing base upon
which to assess fees, higher costs relating to closing accounts and less
potential for marketing fee-based services. In addition, if customers reduce
their borrowings after the transfer of accounts, the acquired portfolio may be
less profitable than originally expected.
11
<PAGE>
We may not be able to successfully market our fee-based services or sign
additional marketing alliances
We target our fee-based services to our credit card customers and customers
of third parties. Because of the variety of offers provided and the diversity
of the customers targeted, we are uncertain about how many customers will
respond to our offers for these fee-based services. We may experience higher
than anticipated costs in connection with the internal administration and
underwriting of these fee-based services and lower than anticipated response or
retention rates.
Furthermore, we may be unable to expand the fee-based services business or
maintain historical growth and stability levels if:
. we cannot successfully market credit cards to new customers;
. existing credit card customers close accounts voluntarily or
involuntarily;
. existing fee-based services customers cancel their services;
. we cannot form marketing alliances with other third parties; or
. new or restrictive state regulations limit our ability to market or sell
fee-based services.
Interest rate fluctuations impact the yield on our assets and funding expense
An increase or decrease in market interest rates could have a negative
impact on the net interest spread between the yield on our assets and our cost
of funding. A rise in market interest rates may indirectly impact the payment
performance of our customers. We try to minimize the impact of changes in
market interest rates on our cash flow, asset value and net income primarily by
funding variable rate assets with variable rate funding sources and by using
interest rate derivatives to match asset and liability repricings. However,
changes in market interest rates may have a negative impact on us.
Current and proposed regulation and legislation limit our business activities,
product offerings and fees charged
Various federal and state laws and regulations significantly limit the
activities in which we and Direct Merchants Bank are permitted to engage. Such
laws and regulations, among other things, limit the fees and other charges that
we are allowed to charge, limit or prescribe certain other terms of our
products and services, require specified disclosures to consumers, govern the
sale and terms of products and services we offer and require that we maintain
certain licenses, qualifications, or capital requirements. In some cases, the
precise application of these statutes and regulations is not clear. In
addition, the regulatory framework at the state and federal level regarding
some of our fee-based products is evolving. The regulatory framework affects
the design or profitability of such products and our ability to sell certain
products. In addition, numerous legislative and regulatory proposals are
advanced each year which, if adopted, could adversely affect our profitability
or further restrict the manner in which we conduct our activities. The failure
to comply with, or adverse changes in, the laws or regulations to which our
business is subject, or adverse changes in the interpretation thereof, could
adversely affect our ability to collect our receivables and generate fees on
the receivables which could have a material adverse effect on our business.
Other industry risks related to consumer credit products and fee-based services
could negatively impact us
We face a number of risks associated with unsecured lending. These include
the risk that delinquencies and credit losses will increase because of future
economic downturns; the risk that an increasing number of customers will
default on the payment of their outstanding balances or seek protection under
bankruptcy laws; and the risk that fraud by cardholders and third parties will
increase. We also face the risk that increased criticism from consumer
advocates and the media could hurt consumer acceptance of our products, as well
as
12
<PAGE>
the risk of litigation, including class action litigation, challenging our
product terms, rates, disclosures, collections or other practices, under state
and federal consumer protection statutes and other laws.
Due to intense competition in our consumer credit products and fee-based
services businesses, we may not be able to compete successfully
We face intense and increasing competition from numerous financial services
providers, many of which have greater resources than we do. In particular, our
credit card business competes with national, regional and local bank card
issuers, as well as other general purpose and private label credit card
issuers. There has been a recent increase in solicitations to moderate income
consumers, as competitors have increasingly focused on this market. Customers
are attracted to credit card issuers largely on the basis of price, credit
limit and other product features; as a result, customer loyalty is often
limited. According to published reports, as of December 1998, the 20 largest
issuers accounted for approximately 90% (based on receivables outstanding) of
the market for general purpose credit cards. Many of these issuers are
substantially larger, have more seasoned credit card portfolios and often
compete for customers by offering lower interest rates and/or fee levels than
we do. We cannot assure you that we will be able to compete successfully in
this environment.
We also face competition from numerous fee-based services providers,
including insurance companies, financial services institutions and other
membership-based or consumer services providers, many of which are larger,
better capitalized and more experienced than us. As we continue to expand our
extended service plan business to the customers of third-party retailers, we
compete with manufacturers, financial institutions, insurance companies and a
number of independent administrators, many of which have greater operating
experience and financial resources than we do.
Changes in the relationship with FCI could materially impact our business
Upon a change of control of our company, Fingerhut can terminate our access
to their database and may repurchase credit cards bearing the Fingerhut name
and logo
We have entered into a number of agreements with FCI or Fingerhut
Corporation for the purpose of defining the ongoing relationship between us,
some of which are material to our business. We rely on our access to the
Fingerhut database, including the Fingerhut suppression and bad debt file, to
market financial services products. As of June 30, 1999, Fingerhut customers in
the Fingerhut database represented 27% of our credit card accounts and all of
the purchasers of our extended service plans. Until we develop our own
significant database and extended service plan marketing relationships with
other companies, our success will depend largely on our rights to the Fingerhut
database to market such service plans and our right to be the provider of
certain financial services products to Fingerhut customers. Fingerhut can
terminate our contractual rights to this access in the event a third party
acquires control of our company and, upon termination of the agreement,
Fingerhut has the right to repurchase any then outstanding general purpose
credit cards bearing the Fingerhut name and logo. Any denial or delay of this
access or any such repurchase could have a significant economic impact on us.
The recent acquisition of Fingerhut could negatively affect us
On February 11, 1999, FCI announced that it had agreed to be acquired by
Federated Department Stores, Inc. This transaction was completed on March 18,
1999. Although our agreements with FCI and Fingerhut were not terminated by
this transaction, we cannot predict how this change in status for FCI may
affect our relationship with FCI and Fingerhut.
The failure to be Year 2000 compliant could negatively impact us
The "Year 2000 Problem" is a result of computer systems using two digits
rather than four digits to define the applicable year. We, like all database
marketing companies and financial services institutions, depend
13
<PAGE>
heavily upon computer systems for all phases of our operations. We process data
through our own systems and obtain data and processing services from various
vendors. We must concern ourselves not only with our own systems, but also with
the status of Year 2000 compliance with respect to those vendors that provide
data and processing services to us.
Most of our existing information systems are less than three years old and
were originally designed for Year 2000 compliance, but as a cautionary measure,
we have substantially completed the testing of our mission critical internal
systems for Year 2000 compliance. We also depend on databases maintained by FCI
and card and statement generation, among other services, provided by First Data
Resources. We have created a Year 2000 Project team to identify, address and
monitor internal systems and vendor issues related to Year 2000 problems. The
project team meets monthly with systems experts at FCI and works closely with
our identified material vendors, including First Data Resources, to determine
the impact of our and the vendors' plans for becoming Year 2000 compliant. As
of September 30, 1999, the project is on schedule. The project team has
developed contingency plans to address non-compliance by our material vendors,
which may include replacing vendors. We may have difficulty identifying
acceptable alternative vendors, many of which may be overburdened with requests
from similarly situated companies. If we are unable to identify acceptable and
available alternative vendors, the transition of services to such vendors may
be time consuming and costly.
Although we cannot ensure compliance by all of our vendors on a timely
basis, we believe that we have been taking appropriate steps to identify
exposure to Year 2000 problems and to address them on a timely basis. In
addition, we believe that we have adequate resources to achieve Year 2000
compliance for our systems which currently may not be compliant and that the
costs of Year 2000 compliance will not be material to us. If, however,
compliance with Year 2000 issues is not completed on a timely basis or is not
fully effective, the most reasonably likely worst case scenario that may impact
our results of operations, financial condition and prospects is the failure of
First Data Resources, Visa and MasterCard to provide services. Our cardholders
would be unable to use their credit cards or otherwise access their accounts.
Due to several unknown contributing factors, and the scope of the Year 2000
issue, the impact this worst case scenario would have on our results of
operations, financial condition and prospects is an uncertainty. The scenarios
will be analyzed and addressed in our contingency plans.
FORWARD-LOOKING STATEMENTS
This prospectus includes or incorporates by reference forward-looking
statements. You will recognize these statements because they do not strictly
relate to historical or current facts. Forward-looking statements generally may
use words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "think," "believe" and other similar words or phrases. Similarly,
statements relating to our objectives and strategies, future performance of
current or anticipated products, solicitation efforts, expenses, the outcome of
contingencies and the impact of the capital markets on our liquidity also are
forward-looking statements.
Any or all of our forward-looking statements may turn out to be wrong. They
can be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Important assumptions and factors that could cause actual
results to differ materially from those expressed or implied by forward-looking
statements include those described in the risk factor section of this
prospectus. Additional factors not presently known to us or that we currently
think are immaterial may also adversely affect our business. We can provide no
assurance that we will achieve anticipated results.
We assume no obligation to publicly update any forward-looking statement,
whether as a result of new information, subsequent events, changes in
assumptions or otherwise.
14
<PAGE>
USE OF PROCEEDS
The exchange offer is intended to satisfy obligations we have under the
registration rights agreement entered into in connection with the July 1999
offering of the old notes. We will not receive any cash proceeds from the
issuance of the new notes in the exchange offer.
The net proceeds from the sale of the old notes were approximately $139.4
million, after original issue discount of $6.3 million and deduction of
offering expenses. We used approximately $39.0 million of the net proceeds to
reduce outstanding borrowings under our revolving credit facility. We expect to
use the approximately $100.4 million balance for working capital and general
corporate purposes.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999, and
on a pro forma basis as adjusted to give effect to the issuance of the old
notes in July 1999 and application of the net proceeds from the offering of the
old notes.
<TABLE>
<CAPTION>
June 30, 1999
---------------------
As
Actual adjusted
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Debt:
Deposits (1)............................................. $ 315,373 $ 315,373
Credit facility (2)...................................... 139,000 100,000
10 1/8% Senior Notes due 2006, net (3)................... -- 143,700
10% Senior Notes due 2004................................ 100,000 100,000
Other debt............................................... 893 893
---------- ----------
Total debt............................................. 555,266 659,966
---------- ----------
Stockholders' Equity:
Convertible preferred stock-- Series C-- $.01 per share;
10,000,000
shares authorized; issued and outstanding 846,650 shares
(4)..................................................... 315,377 315,377
Common Stock--$.01 per share; 100,000,000 shares
authorized,
issued and outstanding 38,574,272 shares................ 386 386
Paid-in capital.......................................... 129,544 129,544
Retained earnings........................................ 112,887 112,887
---------- ----------
Total stockholders' equity............................. 558,194 558,194
---------- ----------
Total capitalization................................... $1,113,460 $1,218,160
========== ==========
</TABLE>
- --------
(1) Consists of $311.8 million in jumbo certificates of deposit and $3.6
million in other loans. As of October 1, 1999, the amount of jumbo
certificates of deposit was $579.8 million.
(2) Represents the amount outstanding under the $300.0 million credit
facility. As of June 30, 1999, as adjusted to give effect to the offering
of the old notes and the use of the proceeds therefrom, we would have had
$200.0 million of availability under the credit facility.
(3) The notes are presented net of debt discount of $6.3 million, which
represents original issue discount.
(4) The amount shown for the Series C Preferred represents the original $300.0
million investment by the Lee Company plus accrued paid-in-kind dividends
since December 9, 1998 accruing at 9% per annum, compounded quarterly.
15
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect
We issued the old notes on July 13, 1999 in a private placement. The
initial purchasers then resold the old notes to qualified buyers. In
connection with this issuance, we entered into a registration rights agreement
with the initial purchasers under which we agreed to file an exchange offer
registration statement under the Securities Act and, upon effectiveness of the
registration statement, offer to you the opportunity to exchange your notes
for a like principal amount of registered notes.
Based on interpretations by the staff of the SEC found in no-action letters
issued to third parties, if you are not our "affiliate" within the meaning of
Rule 405 under the Securities Act, we believe that you may resell or otherwise
transfer the new notes that we are issuing to you in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act. However, the new notes must be acquired in the ordinary
course of your business. In addition, you must not engage in, intend to engage
in or have any arrangement or understanding with any person to participate in,
a distribution of the new notes.
If you tender in the exchange offer for the purpose of participating in a
distribution of the new notes, you cannot rely on the interpretations by the
staff of the SEC stated in no-action letters. Instead, you must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available.
Further, each broker-dealer that receives new notes for its own account in
exchange for the old notes, where the broker-dealer acquired the old notes as
a result of market-making or other trading activities, must acknowledge in a
letter of transmittal that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of those new
notes. The letter of transmittal states that by making this acknowledgment and
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. We have agreed
that this prospectus may be used by a broker-dealer for resales of new notes
issued to it in the exchange offer for a period of 90 days after the
expiration date of the exchange offer. See "Plan of Distribution."
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal which accompanies this prospectus, we will
accept all old notes validly tendered and not withdrawn before 5:00 p.m., New
York City time, on the expiration date of the exchange offer. We will issue
$1,000 principal amount of new notes in exchange for each $1,000 principal
amount of outstanding old notes we accept in the exchange offer. You may
tender some or all of your old notes under the exchange offer. However, old
notes may be tendered only in integral multiples of $1,000 in principal
amount.
The form and terms of the new notes will be the same as the form and terms
of the old notes, except that:
(1) the new notes will bear a different cusip number from the old notes;
(2) the new notes will be registered under the Securities Act and,
therefore, will not bear legends restricting their transfer;
(3) the new notes will not contain terms providing for payments of
liquidated damages under circumstances relating to the timing of the
exchange offer; and
(4) holders of the new notes will not be entitled to rights under the
registration rights agreement, which will terminate upon completion of the
exchange offer.
The new notes will evidence the same debt as the old notes and will be
issued under, and be entitled to the benefits of, the indenture governing the
old notes.
16
<PAGE>
The exchange offer is not conditioned upon any minimum amount of old notes
being tendered. As of the date of this prospectus, $150.0 million aggregate
principal amount of old notes is outstanding.
In connection with the exchange offer, you do not have any appraisal or
dissenters' rights under the General Corporation Law of the State of Delaware
or the indenture. We intend to conduct the exchange offer in accordance with
the registration rights agreement and the applicable requirements of the
Securities Exchange Act and the rules and regulations of the SEC.
We will be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice of our acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the new notes from us.
If we do not accept any tendered notes because of an invalid tender or for
any other reason, we will return certificates for any unaccepted old notes
without expense to the tendering holder as promptly as practicable after the
expiration date.
Expiration Date; Amendments
The exchange offer will expire at 5:00 p.m., New York City time, on November
12, 1999, unless we, in our sole discretion, extend the exchange offer.
If we determine to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice and give each registered
holder notice of the extension by means of a press release or other public
announcement before 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our sole discretion, to delay accepting any old
notes, to extend the exchange offer or to amend or terminate the exchange offer
if any of the conditions described below under "--Conditions" have not been
satisfied or waived by giving oral or written notice to the exchange agent of
the delay, extension or termination. Further, we reserve the right, in our sole
discretion, to amend the terms of the exchange offer in any manner. We will
notify you as promptly as practicable of any extension, amendment or
termination.
Procedures for Tendering Old Notes
Any tender of old notes that is not withdrawn prior to the expiration date
will constitute a binding agreement between the tendering holder and us upon
the terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal. A holder who wishes to tender old notes in
the exchange offer must do either of the following:
. properly complete, sign and date the letter of transmittal, including
all other documents required by such letter of transmittal; have the
signature on the letter of transmittal guaranteed if the letter of
transmittal so requires; and mail or deliver such letter of transmittal
and other required documents to the exchange agent at the address listed
below under "--Exchange Agent" on or before the expiration date; or
. if the old notes are tendered under the book-entry transfer procedures
described below, transmit to the exchange agent on or before the
expiration date an agent's message.
In addition, one of the following must occur:
. the exchange agent must receive certificates representing your old
notes, along with the letter of transmittal, on or before the expiration
date; or
. the exchange agent must receive a timely confirmation of book-entry
transfer of the old notes into the exchange agent's account at DTC under
the procedure for book-entry transfers described below, along
17
<PAGE>
with the letter of transmittal or a properly transmitted agent's
message, on or before the expiration date; or
. the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted by the book-entry
transfer facility to and received by the exchange agent and forming a part of
the book-entry confirmation, which states that the book-entry transfer
facility has received an express acknowledgment from the tendering participant
stating that the participant has received and agrees to be bound by the letter
of transmittal and that we may enforce the letter of transmittal against the
participant.
The method of delivery of old notes, the letter of transmittal and all
other required documents to the exchange agent is at your election and risk.
Rather than mail these items, we recommend that you use an overnight or hand
delivery service. In all cases, you should allow sufficient time to assure
timely delivery to the exchange agent before the expiration date. Do not send
letters of transmittal or old notes to us.
Generally, an eligible institution must guarantee signatures on a letter of
transmittal or a notice of withdrawal unless the old notes are tendered:
. by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
. for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantee must be by a firm which is:
. a member of a registered national securities exchange;
. a member of the National Association of Securities Dealers, Inc.;
. a commercial bank or trust company having an office or correspondent in
the United States; or
. another "eligible institution" within the meaning of Rule 17Ad-15 under
the Exchange Act.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding old notes, such old notes must be
endorsed or accompanied by appropriate powers of attorney. The power of
attorney must be signed by the registered holder exactly as the registered
holder's name appears on the old notes and an eligible institution must
guarantee the signature on the power of attorney.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to so
act.
If you wish to tender old notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee, you should
promptly instruct the registered holder to tender on your behalf. If you wish
to tender on your behalf, you must, before completing the procedures for
tendering old notes, either register ownership of the old notes in your name
or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, and acceptance of old notes
tendered for exchange. Our determination will be final and binding. We reserve
the absolute right to reject any and all tenders of old notes not properly
tendered or old notes our acceptance of which might, in the judgment of our
counsel, be unlawful. We also reserve the absolute right to waive any defects,
irregularities or conditions of tender as to any particular old notes. Our
interpretation of the terms and conditions of the exchange offer, including
the instructions in the letter of transmittal, will be final
18
<PAGE>
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within the time period we
determine. Neither we, the exchange agent nor any other person will incur any
liability for failure to give you notification of defects or irregularities
with respect to tenders of your old notes.
By tendering, you will represent to us that, among other things:
. the new notes acquired in the exchange offer are being acquired in the
ordinary course of business of the person receiving the new notes;
. neither you nor any other person receiving the new notes is
participating, intends to participate, or has any arrangement or
understanding with any person to participate, in the distribution of the
new notes; and
. neither you nor any other person receiving the new notes is our
"affiliate," as defined under Rule 405 of the Securities Act.
If you or the person receiving the new notes is our "affiliate," as defined
under Rule 405 of the Securities Act, or is participating in the exchange offer
for the purpose of distributing the new notes, you or that other person (1)
cannot rely on the applicable interpretations of the staff of the SEC and (2)
must comply with the registration and prospectus delivery requirements of the
Securities Act in any resale transaction.
If you are a broker-dealer and you will receive new notes for your own
account in exchange for old notes, where such old notes were acquired as a
result of market-making activities or other trading activities, you must
acknowledge that you will deliver a prospectus in connection with any resale of
the new notes.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction of all conditions to the exchange offer, we will accept,
promptly after the expiration date, all old notes properly tendered and will
issue the new notes promptly after acceptance of the old notes.
For purposes of the exchange offer, we shall be deemed to have accepted
properly tendered old notes for exchange when, as and if we have given oral or
written notice of that acceptance to the exchange agent. For each old note
accepted for exchange, you will receive a new note having a principal amount at
maturity equal to that of the surrendered old note.
In all cases, we will issue new notes for old notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives (1) certificates for your old notes or a timely book-entry
confirmation of your old notes into the exchange agent's account at DTC and (2)
a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message. If we do not
accept any tendered old notes for any reason set forth in the terms of the
exchange offer or if you submit old notes for a greater principal amount than
you desire to exchange, we will return the unaccepted or non-exchanged old
notes without expense to you. In the case of old notes tendered by book-entry
transfer into the exchange agent's account at DTC under the book-entry
procedures described below, we will credit the non-exchanged old notes to your
account maintained with DTC.
Book-Entry Transfer
We understand that the exchange agent will make a request to establish an
account for the old notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in DTC's system may make book-entry delivery of old notes
by causing DTC to transfer the old notes into the exchange agent's account at
DTC in accordance with DTC's procedures for transfer. Although delivery of old
notes may be effected through book-entry transfer at DTC, the exchange agent
must receive a properly completed letter of transmittal, with any required
signature guarantees, or an agent's message instead of a letter of transmittal,
and all other required documents at its address listed below
19
<PAGE>
under "--Exchange Agent" on or before the expiration date, or if you comply
with the guaranteed delivery procedures described below, within the time
period provided under those procedures.
Guaranteed Delivery Procedures
If you wish to tender your old notes and your old notes are not immediately
available, or you cannot deliver your old notes, the letter of transmittal or
any other required documents or comply with DTC's procedures for transfer
before the expiration date, then you may participate in the exchange offer if:
(1) the tender is made through an eligible institution;
(2) before the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, containing (a) the name
and address of the holder and the principal amount of old notes
tendered, (b) a statement that the tender is being made thereby and (c)
a guarantee that within three New York Stock Exchange trading days
after the expiration date, the certificates representing the old notes
in proper form for transfer or a book-entry confirmation and any other
documents required by the letter of transmittal will be deposited by
the eligible institution with the exchange agent; and
(3) the exchange agent receives the properly completed and executed letter
of transmittal as well as certificates representing all tendered old
notes in proper form for transfer, or a book-entry confirmation, and
all other documents required by the letter of transmittal within three
NYSE trading days after the expiration date.
Withdrawal Rights
You may withdraw your tender of old notes at any time before the expiration
date of the exchange offer.
For a withdrawal to be effective, the exchange agent must receive a written
notice of withdrawal at its address listed below under "--Exchange Agent." The
notice of withdrawal must:
. specify the name of the person who tendered the old notes to be
withdrawn;
. identify the old notes to be withdrawn, including the principal amount
of such old notes, or, in the case old notes tendered by book-entry
transfer, the name and number of the DTC account to be credited and
otherwise comply with the procedures of the DTC; and
. if certificates for old notes have been transmitted, specify the name in
which such old notes are registered if different from that of the
withdrawing holder.
If you have delivered or otherwise identified to the exchange agent the
certificates for old notes, then, before the release of such certificates, you
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
eligible institution, unless the holder is an eligible institution.
We will determine in our sole discretion all questions as to the validity,
form and eligibility, including time of receipt, of such notices. Our
determination will be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer. We will return any old notes that have been tendered but that
are not exchanged for any reason to the holder, without cost, as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at DTC, the old notes will be credited to an
account maintained with DTC for the old notes. You may retender properly
withdrawn old notes by following one of the procedures described under "--
Procedures for Tendering Old Notes" at any time on or before the expiration
date.
20
<PAGE>
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange new notes for, any old notes and
we may terminate or amend the exchange offer before the acceptance of any old
notes, if:
(1) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to us; or
(2) any law, rule or regulation is proposed, adopted or enacted, or the
staff of the SEC interprets any existing law, rule or regulation in a
manner which, in our reasonable judgment, might materially impair our
ability to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us.
The conditions listed above are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any condition. We may waive
these conditions in our discretion in whole or in part at any time and from
time to time. If we fail at any time to exercise any of the above rights, the
failure will not be deemed a waiver of those rights, and those rights will be
deemed ongoing rights which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any such old notes, if at the time the
notes are tendered any stop order is threatened by the SEC or in effect with
respect to the registration statement of which this prospectus is a part or the
qualification of the indenture under the Trust Indenture Act.
Exchange Agent
The Bank of New York is the exchange agent for the exchange offer. You
should direct any questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange agent addressed as
follows:
By Registered or Certified Mail:
By Hand, or Overnight Courier:
By Facsimile:
(Eligible
The Bank of New York The Bank of New York Institutions Only)
101 Barclay Street, 7E 101 Barclay Street (212) 815-6339
New York, New York 10286 Corporate Trust Services Window
Attn: Gertrude Jean Pirre Ground Level Confirm by telephone:
New York, New York 10286 (212) 815-5920
Attn: Gertrude Jean Pirre
Delivery of the letter of transmittal to an address other than as listed
above or transmission via facsimile other than as listed above will not
constitute a valid delivery of the letter of transmittal.
Fees and Expenses
We will pay the expenses of the exchange offer. We will not make any
payments to brokers, dealers, or others soliciting acceptances of the exchange
offer. We are making the principal solicitation by mail; however, our officers
and employees may make additional solicitations by facsimile transmission, e-
mail, telephone or in person. You will not be charged a service fee for the
exchange of your notes, but we may require you to pay any transfer or similar
government taxes in certain circumstances.
21
<PAGE>
Transfer Taxes
You will not be obligated to pay any transfer taxes, unless you instruct us
to register new notes in the name of, or request that old notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder.
Consequences of Failure to Exchange Old Notes
If you are eligible to participate in the exchange offer but do not tender
your old notes, you will not have any further registration rights. Your old
notes will continue to be subject to restrictions on transfer. Accordingly, you
may resell the old notes that are not exchanged only:
. to us, upon redemption of the notes;
. so long as the old notes are eligible for resale under Rule 144A under
the Securities Act, to a person whom the seller reasonably believes is a
"qualified institutional buyer" within the meaning of Rule 144A
purchasing for its own account or for the account of a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
. to an institutional accredited investor (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) that is acquiring the notes
for its own account or for the account of such an institutional
accredited investor for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in violation of
the Securities Act;
. in accordance with Rule 144 under the Securities Act or another
exemption from the registration requirements of the Securities Acts;
. outside the United States to a foreign person in accordance with the
requirements of Regulation S under the Securities Act; or
. under any effective registration statement under the Securities Act,
in each case in accordance with all other applicable securities laws. We do not
intend to register the old notes under the Securities Act.
22
<PAGE>
DESCRIPTION OF THE NEW NOTES
You can find the definitions of some terms used in this description under
the caption "Defined Terms." In this section, the words "we," "our" and "us"
refer only to Metris Companies Inc., as a separate entity, and do not include
any of our subsidiaries.
We will issue the new notes under the indenture we entered into with The
Bank of New York, as trustee, in connection with the issuance of the old notes.
A copy of the indenture has been filed as an exhibit to the registration
statement which includes this prospectus. The terms of the new notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act.
The following description of the material provisions of the indenture is
only a summary. We urge you to read the indenture because that document, and
not this description, defines your rights as holders of the new notes.
References in this section to "notes" are references to both old notes and new
notes.
Brief Description of the Notes and the Guarantees
The notes:
. are our senior unsecured obligations;
. rank equally in right of payment with all of our existing and future
senior unsecured debt;
. rank senior in right of payment to all existing and future subordinated
debt that we issue;
. are effectively subordinated to all of our secured obligations,
including indebtedness under our credit facility, and the secured
obligations of our subsidiaries that are guarantors, to the extent of
the value of the assets securing those obligations;
. are effectively subordinated to the obligations of our subsidiaries that
are not guarantors, including certificates of deposit issued by our
subsidiary, Direct Merchants Bank ($579.8 million as of October 1,
1999); and
. are unconditionally guaranteed on a senior unsecured basis by one of our
subsidiaries, Metris Direct, Inc.
The new notes currently are guaranteed by one of our existing subsidiaries.
Additional subsidiaries will be required to guarantee the new notes under the
circumstances described below under the caption "--Covenants--Additional
Subsidiary Guarantees." We will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the indenture and will
not guarantee the new notes. In the event of a bankruptcy, liquidation or
reorganization of any subsidiary that is not a guarantor of the new notes, that
subsidiary will pay the holders of its obligations before it will be able to
distribute any of its assets to us.
We and certain of our subsidiaries are parties to a credit agreement, which
provides for a $200 million three-year revolving credit facility and a $100
million five-year term loan. All borrowings under the credit facility are
secured by a first priority lien on certain assets of our company and certain
of our subsidiaries. As of June 30, 1999, on a pro forma basis after giving
effect to the sale of the old notes and the application of the net proceeds
from that sale, we had total outstanding debt of approximately $660.0 million
(excluding unused commitments of $200.0 million under the credit facility),
$100.0 million of which is secured debt under the credit facility. The
indenture permits us and our subsidiaries to incur additional indebtedness in
the future, subject to certain limitations, including, without limitation,
under the credit facility. See "--Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" and "Risk Factors."
23
<PAGE>
Maturity, Interest and Principal of the Notes
The new notes will be limited in aggregate principal amount to $150.0
million and will mature on July 15, 2006. We will issue the new notes in
denominations of $1,000 and integral multiples of $1,000. Interest on the new
notes will accrue at a rate of 10 1/8% per annum and will be payable semi-
annually in arrears on January 15 and July 15, commencing January 15, 2000, to
holders of record of the new notes on the immediately preceding January 1 and
July 1. Interest on the new notes will accrue from the most recent interest
payment date to which interest has been paid or, if no interest has been paid,
from the date of original issuance of the old notes. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
We are permitted by the indenture to issue additional notes in one or more
series, from time to time. However, the maximum aggregate principal amount of
these additional notes may not exceed $100.0 million. Any additional issuance
will be subject to the covenant described below under the caption "Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock."
Optional Redemption
At any time on or before July 15, 2002, we may redeem up to 35% of the notes
issued under the indenture at a redemption price of 110.125% of the aggregate
principal amount of the notes, plus accrued and unpaid interest to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings (but only to the extent these proceeds consist of cash or Cash
Equivalents). However, at least 65% of the aggregate principal amount of the
notes issued under the indenture must remain outstanding immediately after the
occurrence of each redemption, excluding notes held by us and our subsidiaries.
We must mail a notice of redemption no later than 30 days after the Public
Equity Offering and the redemption must occur within 90 days of the date of
closing of the Public Equity Offering.
On or after July 15, 2003, we may redeem all or any portion of the notes at
the following redemption prices (expressed as a percentage of principal
amount), plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period beginning on July 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003............ 105.062%
2004............ 102.531%
2005............ 100.000%
</TABLE>
Selection and Notice of Redemption
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
. if the notes are listed on a principal national securities exchange, in
compliance with the requirements of that exchange; or
. if the notes are not so listed, on a pro rata basis, by lot or by any
other method that the trustee deems fair and appropriate, provided that
no notes of a principal amount of $1,000 or less will be redeemed in
part.
We will send notices of redemption by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at the holder's registered address. If we redeem only a portion of the
principal amount of a note, the notice of redemption that relates to the note
will state the portion of the principal amount to be redeemed. We will issue a
new note in principal amount equal to the unredeemed portion of the original
note in the name of the holder upon cancellation of the original note. On and
after the redemption date, interest will cease to accrue on notes or portions
of them called for redemption as long as we have deposited with the paying
agent funds in satisfaction of the applicable redemption price.
24
<PAGE>
Subsidiary Guarantees
The Guarantors will jointly and severally guarantee our payment obligations
under the notes on a senior unsecured basis. The obligations of each Guarantor
under its Subsidiary Guarantee will be limited so as to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law. For
information with respect to the meaning and consequences of a fraudulent
conveyance, we refer you to the discussion under the caption "Guarantees may be
unenforceable due to fraudulent conveyance statutes" in the "Risk Factors"
section of this prospectus.
A Guarantor may not consolidate with or merge with or into (whether or not
the Guarantor is the surviving Person), another Person whether or not
affiliated with the Guarantor unless: (1) the Person formed by or surviving the
consolidation or merger (if other than that Guarantor) assumes all the
obligations of that Guarantor under its Subsidiary Guarantee pursuant to a
supplemental indenture satisfactory to the trustee; (2) immediately after
giving effect to that transaction, no Default or Event of Default exists; (3)
the Guarantor, or any Person formed by or surviving the consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Guarantor immediately preceding the transaction; and (4) immediately after
giving effect to such transaction, we would have been able to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Leverage Ratio
test set forth in the first paragraph of the covenant described below under the
caption "--Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
Notwithstanding the above, any Wholly-Owned Restricted Subsidiary may
consolidate with or merge into any Guarantor, if the Guarantor is the surviving
corporation, and any Guarantor may consolidate with or merge into our company.
A Guarantor will be released of its obligations under its Subsidiary
Guarantee in connection with any sale or other disposition of all of the assets
of that Guarantor, or a sale or other disposition of all of the capital stock
of a Guarantor, if we apply the Net Cash Proceeds of that sale or other
disposition in accordance with the "Asset Sale" provisions of the indenture.
See "--Covenants--Asset Sales."
Change of Control
Within 30 days following any Change of Control, we are required to make an
Offer to Purchase all notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount, plus accrued and unpaid interest, if
any, to the date of purchase. If a Change of Control occurs, we will notify
each holder of the occurrence of the Change of Control in the manner required
by the indenture.
If a Change of Control occurs which also constitutes an event of default
under our Credit Facility, the lenders under the Credit Facility would be
entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to the terms of the Credit Facility. Accordingly,
any claims of these lenders with respect to our assets will be prior to the
claims of the holders of the notes to the extent of the security interest
therein.
We may not have sufficient funds to pay for all of the notes that holders
may tender to us upon a Change of Control. If we fail to repurchase all of the
notes tendered for purchase, that failure will constitute an Event of Default
under the indenture. See "--Events of Default and Remedies."
We will comply with the requirements of Section 14(e) and Rule 14e-1 under
the Securities Exchange Act and any other securities laws and regulations to
the extent these laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. Any violation of
the provisions of the indenture relating to an Offer to Purchase occurring as a
result of such compliance will not be deemed an Event of Default or an event
that, with the passing of time or giving of notice, or both, would constitute
an Event of Default under the indenture.
25
<PAGE>
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the holders of the notes to require us
to redeem the notes in the event of a takeover, recapitalization or similar
transaction.
Covenants
Termination of Certain Covenants in Event of Investment Grade Rating. For so
long as no Default or Event of Default has occurred and is continuing, after
either of the Rating Agencies assigns to the notes an Investment Grade Rating,
and notwithstanding that the notes may later cease to have an Investment Grade
Rating, our company and our Restricted Subsidiaries will not be subject to the
provisions of the indenture described under "--Restricted Payments," "--
Incurrence of Indebtedness and Issuance of Preferred Stock," "--Asset Sales,"
"--Transactions with Affiliates," "--Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" and clause (4) of "--Merger, Consolidation
or Sale of Assets."
Restricted Payments. Except as set forth below, we will not, and will not
permit any of our Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of our or any of our Restricted Subsidiaries'
Equity Interests, including, without limitation, any payment in connection
with any merger or consolidation involving us, or to the direct or indirect
holders of our company's or any of our Restricted Subsidiaries' Equity
Interests in their capacity as such, other than (a) dividends, payments or
distributions payable solely in Equity Interests (other than Disqualified
Stock) of our company and (b) dividends, payments or distributions payable
solely to us or our Wholly-Owned Restricted Subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving our company) any Equity Interests of our company or
any direct or indirect parent of our company or other Affiliate of our
company (other than any such Equity Interests owned by us or any Wholly-
Owned Restricted Subsidiary of our company); or
(3) make any Restricted Investment.
We refer to the payments and other actions set forth above in clauses (1)
through (3) as "Restricted Payments". We may make, and permit our Restricted
Subsidiaries to make, Restricted Payments if, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default under the indenture has occurred and
is continuing or would occur as a consequence of making the Restricted
Payment;
(b) at the time of the Restricted Payment and after giving pro forma
effect thereto, we would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Leverage Ratio test
set forth in the first paragraph of the covenant described below under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us and our Restricted Subsidiaries after
the Issue Date (excluding Restricted Payments permitted by clause (2) of
the next succeeding paragraph), is less than the sum of
(i) 25% of our aggregate cumulative Consolidated Net Income of our
company for the period (taken as one accounting period) from and after
July 1, 1999 to the end of our most recently ended fiscal quarter for
which internal financial statements are available at the time of that
Restricted Payment (or, if the Consolidated Net Income for such period
is a deficit, less 100% of the deficit), plus
(ii) 100% of the aggregate net cash proceeds received by us from the
issue or sale since the date of the indenture of Equity Interests of
our company (other than Disqualified Stock) or from the issue
26
<PAGE>
or sale of Disqualified Stock or debt securities of our company that
have been converted into those Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold
to a Subsidiary of our company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus
(iii) if any Restricted Investment that was made after the date of
the indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to that
Restricted Investment (less the cost of disposition, if any) and (B)
the initial amount of that Restricted Investment, plus
(iv) $150 million.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration the payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of our company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of our company) of, other Equity Interests of our company (other than
Disqualified Stock); provided that the amount of any net cash proceeds that
are utilized for any redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) (ii) of the preceding
paragraph;
(3) the payment of any dividend by a Restricted Subsidiary of our
company to the holders of its common Equity Interests on a pro rata basis;
(4) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of our company or any Restricted Subsidiary
of our company held by any member of our company's (or any of our
Restricted Subsidiaries') management in connection with compensation or
severance arrangements; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests does not exceed
$1.0 million in any twelve-month period and no Default or Event of Default
has occurred and is continuing immediately after such transaction;
(5) payments of withholding taxes due or payments of exercise prices in
connection with exercises of options for our common stock by any employee
or former employee of our company (or any Affiliate of our company) by the
tender of common stock owned by such employee or the withholding of shares
of our common stock in connection with such option exercise as
consideration therefor in connection with compensation arrangements;
(6) any purchase, redemption or other acquisition or retirement for a
nominal amount of Equity Interests issued pursuant to any shareholder
rights plan of our company;
(7) payment of cash in lieu of fractional shares of common stock that
otherwise would be issuable; and
(8) if no Default or Event of Default has occurred and is continuing,
the payment of dividends on the common stock not in excess of $0.02 per
share (as adjusted for stock splits, stock dividends, reclassifications and
the like) per fiscal quarter.
Our Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. For
purposes of making that determination, all outstanding Investments by us and
our Restricted Subsidiaries (except to the extent repaid in cash) in the newly
designated Unrestricted Subsidiary will be deemed to be Restricted Payments at
the time of that designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of (y) the net book value of the Investments at the time of such
designation or (z) the fair market value of the Investments at the time of such
27
<PAGE>
designation. The designation of a Restricted Subsidiary as an Unrestricted
Subsidiary will only be permitted if the requisite Restricted Payments would
be permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all non-cash Restricted Payments will be the fair market
value on the date of the Restricted Payment of the assets or securities
proposed to be transferred or issued by us or the applicable Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment will be determined by our
Board of Directors and will be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than 50 days after the end
of any fiscal quarter (100 days in the case of the last fiscal quarter of the
fiscal year) during which any Restricted Payment is made, we will deliver to
the trustee an Officers' Certificate stating that all Restricted Payments made
during such fiscal quarter were permitted and setting forth the basis upon
which the calculations required by this covenant were computed, together with
a copy of any opinion or appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock. We will not,
and will not permit any of our Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness, including Acquired Debt. In
addition, we and the Guarantors will not issue any Disqualified Stock, and we
will not permit any of our Restricted Subsidiaries (that are not Guarantors)
to issue any shares of preferred stock, except as provided in the following
two sentences. We and the Guarantors may incur Indebtedness, including
Acquired Debt, or issue shares of Disqualified Stock or our Restricted
Subsidiaries (that are not Guarantors) may issue shares of preferred stock if
the Consolidated Leverage Ratio of our company, calculated on a pro forma
basis after giving effect to the incurrence of the additional Indebtedness to
be incurred or the Disqualified Stock or preferred stock to be issued and the
application of the proceeds therefrom, would have been less than 2.0 to 1.
Direct Merchants Bank may incur Indebtedness or issue shares of Disqualified
Stock if the Consolidated Leverage Ratio of our company, calculated on a pro
forma basis after giving effect to the incurrence of the additional
Indebtedness to be incurred or the Disqualified Stock to be issued and the
application of the proceeds therefrom, would have been less than 1.5 to 1.
The foregoing provisions will not prohibit any of the following:
(1) the incurrence by us of Indebtedness under the Credit Agreement and
Guarantees thereof by the Guarantors in an aggregate amount not to exceed
$300.0 million at any time outstanding;
(2) the incurrence by us and our Restricted Subsidiaries of Indebtedness
existing on the Issue Date;
(3) the incurrence by any Restricted Subsidiary of our company of
Indebtedness represented by a Subsidiary Guarantee;
(4) the incurrence of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance, defease,
renew or replace any Indebtedness (other than intercompany Indebtedness)
that was permitted by the indenture to be incurred or that was outstanding
on the Issue Date;
(5) the incurrence of intercompany Indebtedness between or among our
company and any of our Restricted Subsidiaries; provided, however, that (a)
if our company or any Guarantor is the obligor on such Indebtedness to a
Restricted Subsidiary of our company that is not a Wholly-Owned Restricted
Subsidiary, the Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the notes or the
Subsidiary Guarantee, as the case may be, and (b)(i) any subsequent
issuance or transfer of Equity Interests that results in that Indebtedness
being held by a Person other than our company or a Restricted Subsidiary of
our company and (ii) any sale or other transfer of that Indebtedness to a
Person that is not either our company or a Restricted Subsidiary of our
company shall be deemed, in each case, to constitute an incurrence of that
Indebtedness by us or our Restricted Subsidiary, as the case may be, that
was not permitted by this clause (5);
(6) the issuance by our Restricted Subsidiary of preferred stock to us
or to any of the Guarantors; provided, however, that any subsequent event
or issuance or transfer of any Capital Stock that results in
28
<PAGE>
the owner of such preferred stock, in the case of a Guarantor, ceasing to
be a Restricted Subsidiary of our company or any subsequent transfer of
such preferred stock to a Person other than us or any of our Guarantors,
shall be deemed to be an issuance of preferred stock by the Restricted
Subsidiary that was not permitted by this clause (6);
(7) the incurrence of Hedging Obligations in the ordinary course of
business;
(8) the incurrence by us or a Restricted Subsidiary of our company of
Capital Lease Obligations and/or Purchase Money Indebtedness in the
ordinary course of business not to exceed $30.0 million at any time
outstanding;
(9) the Guarantee by us or any of the Guarantors of Indebtedness of our
company or a Restricted Subsidiary of our company that was permitted to be
incurred by another provision of this covenant; and
(10) the incurrence by us and the Guarantors of additional Indebtedness
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 (10), not to exceed $10.0 million at any time outstanding.
Notwithstanding anything in the indenture to the contrary, consummation of a
Securitization will not constitute an incurrence of Indebtedness or the
issuance of Disqualified Stock or preferred stock by us or a Restricted
Subsidiary of our company.
The indenture also provides that we will not, and will not permit any
Restricted Subsidiary of our company to, incur any Indebtedness that is
contractually subordinated to any Indebtedness of our company or any such
Restricted Subsidiary unless that Indebtedness is also contractually
subordinated to the notes, or the Subsidiary Guarantee of the Restricted
Subsidiary (as applicable), on substantially identical terms; provided,
however, that no Indebtedness will be deemed to be contractually subordinated
to any other Indebtedness solely by virtue of being unsecured or not guaranteed
by any Restricted Subsidiary of our company.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (1) through (10) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, we will, in our
sole discretion, classify that item of Indebtedness in any manner that complies
with this covenant and that item of Indebtedness will be treated as having been
incurred pursuant to only one of those clauses or pursuant to the first
paragraph of this covenant.
Liens. We will not, and will not permit any of our Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind (other than Permitted Liens) upon any of our
current or future property or assets, unless all payments due under the
indenture and the notes and, in the case of a Guarantor, its Subsidiary
Guarantee are secured on an equal and ratable basis (or on a senior basis in
the case of subordinated Indebtedness) with the obligations so secured until
such time as those obligations are no longer secured by the Lien.
Asset Sales. We will not, and will not cause or permit any of our Restricted
Subsidiaries to, directly or indirectly, make any Asset Sale, unless:
(1) we or our Restricted Subsidiary, as the case may be, receive
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of; and
(2) at least 85% of the consideration consists of cash or Cash
Equivalents, properties and assets to be used in the business our company
and our Restricted Subsidiaries and/or Equity Interests in any Person which
thereby becomes a Wholly-Owned Restricted Subsidiary of our company.
For purposes of clause (2), each of the following will be deemed to be cash:
(1) any Indebtedness (other than any subordinated Indebtedness) of our
company or any Restricted Subsidiary of our company that is actually
assumed by the transferee in the Asset Sale and from which we and our
Restricted Subsidiaries are fully released; and
29
<PAGE>
(2) notes or other similar obligations received by our company or any of
our Restricted Subsidiaries from the transferee that are immediately
converted, sold or exchanged (or are converted, sold or exchanged within
thirty days of the related Asset Sale) by us or any of our Restricted
Subsidiaries into cash, in an amount equal to the net cash proceeds
realized upon that conversion, sale or exchange.
We, or the Restricted Subsidiary, as applicable, may:
(1) apply the Net Cash Proceeds of any Asset Sale within 365 days after
receipt to repay Specified Senior Indebtedness of our company or the
Restricted Subsidiary and permanently reduce any related commitment, or
(2) commit in writing to, or, acquire, construct or improve properties
and assets to be used in the business of our company and our Restricted
Subsidiaries and so apply the Net Cash Proceeds within 365 days after the
receipt thereof.
Any Net Cash Proceeds from any Asset Sale that are not applied within 365
days of the Asset Sale as provided above will constitute "Unutilized Net Cash
Proceeds." Within 20 days after such 365th day, we must make an Offer to
Purchase all outstanding notes up to a maximum principal amount (expressed as a
multiple of $1,000) equal to the Unutilized Net Cash Proceeds, at a purchase
price in cash equal to 100% of the principal amount of the notes, plus accrued
and unpaid interest thereon, if any, to the date of purchase; provided,
however, that the Offer to Purchase may be deferred until there are aggregate
Unutilized Net Cash Proceeds equal to or in excess of $10.0 million, at which
time the entire amount of the Unutilized Net Cash Proceeds, and not just the
amount in excess of $10.0 million, must be applied as required pursuant to this
paragraph.
If the aggregate principal amount of notes tendered pursuant to an Offer to
Purchase exceeds the Unutilized Net Cash Proceeds to be applied to the
repurchase of those notes, the notes will be purchased pro rata based on the
aggregate principal amount of the notes tendered by each holder. If the
Unutilized Net Cash Proceeds exceed the aggregate amount of notes tendered by
the holders of the notes pursuant to an Offer to Purchase, we may retain and
utilize any portion of the Unutilized Net Cash Proceeds not applied to
repurchase the notes for any purpose consistent with the other terms of the
indenture.
We will comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) and Rule 14e-1 under the
Securities Exchange Act, in connection with an Offer to Purchase the notes. Any
violation of the provisions of the indenture relating to the Offer to Purchase
as a result of compliance with applicable securities laws and regulations will
not be deemed a Default or an Event of Default.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of our company to:
(1) pay dividends or make any other distributions to us or any of our
Restricted Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to us or any of our Restricted Subsidiaries;
(2) make loans or advances to us or any of our Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to us or any of our
Restricted Subsidiaries.
However, the foregoing provisions will not apply to encumbrances or
restrictions existing under or by reason of:
(a) the indenture;
(b) applicable law;
(c) any instrument governing Indebtedness or Capital Stock of a Person
acquired by us or any of our Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness
30
<PAGE>
was incurred in connection with or in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the indenture
to be incurred;
(d) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(e) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in
clause (3) above on the property so acquired;
(f) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing that Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced;
(g) the provisions of any Securitization that are exclusively applicable
to any Securitization Entity; or
(h) in the case of clause (3) above, restrictions contained in security
agreements securing Indebtedness of Guarantors relating to the properties
or assets of Guarantors subject to the Liens created thereby, provided that
those Liens were otherwise permitted to be incurred under the indenture.
Merger, Consolidation or Sale of Assets. The indenture provides that we may
not (1) consolidate or merge with or into another corporation, Person or
entity, whether or not we are the surviving corporation; or (2) sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
our properties or assets in one or more related transactions, to another
corporation, Person or entity, unless:
(a) we are the surviving corporation or the entity or the Person formed
by or surviving that consolidation or merger, if other than our company, or
to which that sale, assignment, transfer, lease, conveyance or other
disposition is made is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia;
(b) the entity or Person formed by or surviving that consolidation or
merger, if other than our company, or the entity or Person to which that
sale, assignment, transfer, lease, conveyance or other disposition is made
assumes all the obligations of our company under the notes and the
indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the trustee;
(c) immediately before and after the transaction, no Default or Event of
Default exists; and
(d) we or the entity or Person formed by or surviving that consolidation
or merger, if other than our company, or to which that sale, assignment,
transfer, lease, conveyance or other disposition is made will have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of our company immediately
preceding the transaction and would, at the time of the transaction and
after giving pro forma effect thereto, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Consolidated Leverage Ratio test
set forth in the first paragraph of the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant.
Notwithstanding the foregoing, any Wholly-Owned Restricted Subsidiary of
our company may consolidate with or merge into our company if we are the
surviving corporation. Notwithstanding anything in the indenture to the
contrary, consummation of one or more Securitizations will not constitute the
sale of all or substantially all of our properties or assets.
Transactions with Affiliates. We will not, and will not permit any of our
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of our company's or their properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless:
31
<PAGE>
(1) the Affiliate Transaction is on terms that are no less favorable to
us or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or that Restricted Subsidiary
with an unrelated Person; and
(2) we deliver to the trustee
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of our Board of Directors that the Affiliate
Transaction has been approved by a majority of the disinterested
members of our Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the holders of the
notes of that Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of
national standing.
To the extent any Affiliate Transaction involves a contract or agreement, the
foregoing dollar amounts are with respect to annual consideration under the
contract or agreement.
The following items will not be subject to the above provisions:
(1) any agreement in effect on the Issue Date and any amendments
thereto, provided that any such amendment shall be no more disadvantageous
to the holders of the notes in any material respect than the original
agreement;
(2) any compensation arrangements entered into by our company or any of
our Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of our company or the Restricted
Subsidiary;
(3) transactions between or among us and/or our Restricted Subsidiaries;
(4) any transaction in connection with a Securitization; and
(5) Restricted Payments that are permitted by the "Restricted Payments"
covenant.
Additional Subsidiary Guarantees. We will cause each Restricted Subsidiary
which Guarantees any Indebtedness of our company to execute and deliver to the
trustee a Subsidiary Guarantee under which the Restricted Subsidiary will
guarantee our payment obligations under the notes on a senior unsecured basis,
jointly and severally, with any other Guarantors; provided, that this covenant
will not apply to Subsidiaries that (1) have been properly designated as
Unrestricted Subsidiaries in accordance with the indenture for so long as they
continue to constitute Unrestricted Subsidiaries or (2) qualify as
Securitization Entities for so long as they continue to constitute
Securitization Entities.
Payments For Consent. Neither we nor any of our Subsidiaries will, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless the consideration is offered to be paid or is
paid to all holders of the notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to the consent,
waiver or agreement.
Reports. So long as any notes are outstanding, we will furnish to the
trustee:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
we were required to file those forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that
describes the financial condition and results of operations of our company
and our consolidated Subsidiaries (showing in reasonable detail, either on
the face of the financial statements or in the footnotes thereto and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of our
company and its Restricted Subsidiaries separate from the financial
condition and results of operations of our Unrestricted Subsidiaries) and,
with respect to the
32
<PAGE>
annual information only, a report on the annual financial statements by our
certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if we were required to file such reports.
In addition, we will file a copy of all information and reports referred in
clauses (1) and (2) above with the SEC for public availability (unless the SEC
will not accept such a filing) and make that information available to
securities analysts and prospective investors upon request.
Investment Company Status. The indenture provides that we and our
Subsidiaries will not take any action, or otherwise permit to exist any
circumstance, that would require us to register as an "investment company"
under the Investment Company Act of 1940.
Events of Default and Remedies
Each of the following constitutes an Event of Default under the indenture:
(1) default for 30 days in the payment when due of interest on, or
liquidated damages with respect to, the notes;
(2) default in payment when due of the principal of or premium, if any,
on the notes;
(3) we or any of our Restricted Subsidiaries fail to comply with the
provisions described under the captions "--Change of Control," and "--
Covenants--Asset Sales," "--Incurrence of Indebtedness and Issuance of
Preferred Stock," and "--Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries;"
(4) we or any of our Restricted Subsidiaries fail for 30 days after
notice from the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding to comply with any of the
other covenants or agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries, or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries, whether the Indebtedness now exists, or is created
after the Issue Date, if either: (a) the default is caused by a failure to
pay principal of or premium, if any, or interest on that Indebtedness prior
to the expiration of the grace period provided in that Indebtedness on the
date of that default (a "Payment Default") or (b) the default results in
the acceleration of the Indebtedness prior to its express maturity and, in
each case, the principal amount of the Indebtedness, together with the
principal amount of any other Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated,
aggregates $5.0 million or more;
(6) failure by us or any of our Restricted Subsidiaries to pay final
judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any Subsidiary Guarantee shall
be held in a judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and
(8) specified events of bankruptcy or insolvency with respect to our
company or any of our Significant Subsidiaries.
If any Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding notes may declare
all the notes to be due and payable immediately. In the case of an Event of
Default arising from certain events of bankruptcy or insolvency, with respect
to our company,
33
<PAGE>
any Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding notes will become
due and payable without further action or notice.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default,
except a Default or Event of Default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding may, on behalf of the holders of all of the notes, by notice to the
trustee, waive any existing Default or Event of Default and its consequences
under the indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any Default or Event of
Default, we are required to deliver to the trustee a statement specifying that
Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of our company
or any Guarantor, as such, shall have any liability for any obligations of our
company or the Guarantors under the notes, the indenture or the Subsidiary
Guarantees or for any claim based on, in respect of, or by reason of, those
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes.
Legal Defeasance and Covenant Defeasance
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes except for certain
obligations. This is known as "legal defeasance." We may not exercise our legal
defeasance option with respect to:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and liquidated
damages on those notes when such payments are due from the trust referred
to below;
(2) our obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and our obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have the
obligations of our company released with respect to certain covenants that are
described in the indenture. This is known as "covenant defeasance." If we
exercise our covenant defeasance option, our failure to comply with those
obligations will not constitute a Default or Event of Default with respect to
the notes. In the event covenant defeasance occurs, certain events, not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events, described under "Events of Default" will no longer constitute an Event
of Default with respect to the notes.
In order to exercise either legal defeasance or covenant defeasance:
(1) we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, cash in U.S. Dollars, non-callable
Government Securities, or a combination thereof, in amounts that will
34
<PAGE>
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest and liquidated damages on the outstanding notes on the stated
maturity or on the applicable redemption date, as the case may be, and we
must specify whether the notes are being defeased to maturity or to a
particular redemption date;
(2) in the case of legal defeasance, we must deliver to the trustee an
opinion of counsel reasonably acceptable to the trustee confirming that (a)
we have received from, or there has been published by, the Internal Revenue
Service a ruling or (b) since the Issue Date, there has been a change in
the applicable federal income tax law, in either case to the effect that,
and based thereon, such opinion of counsel shall confirm that, the holders
of the outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance and will
be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if legal defeasance had
not occurred;
(3) in the case of covenant defeasance, we must deliver to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming that
the holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if covenant
defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of the deposit, other than a Default or Event of Default
resulting from the borrowing of funds to be applied to the deposit, or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) the legal defeasance or covenant defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument, other than the indenture, to which we or any of
our Restricted Subsidiaries is a party or by which we or any of our
Restricted Subsidiaries is bound;
(6) we must deliver to the trustee an opinion of counsel to the effect
that, assuming no intervening bankruptcy of our company and that no holder
is an insider of our company, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) we must deliver to the trustee an Officers' Certificate stating that
the deposit was not made by us with the intent of preferring the holders of
notes over our other creditors with the intent of defeating, hindering,
delaying or defrauding creditors of our company or others; and
(8) we must deliver to the trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the legal defeasance or the covenant defeasance have been
complied with.
Paying Agent and Registrar
The trustee will initially act as paying agent and registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents. We may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
35
<PAGE>
Amendment, Supplement and Waiver
Except as provided below, the indenture or the notes may be amended or
supplemented with the consent of the holders of at least a majority in
principal amount of the notes then outstanding, including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, notes, and any existing default or compliance with any provision of
the indenture or the notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding notes, including consents
obtained in connection with a tender offer or exchange offer for notes.
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the repurchase or redemption of the
notes, other than provisions relating to the covenants described under the
caption "--Change of Control" or "--Covenants--Asset Sales;"
(3) reduce the rate of or change the time for payment of interest on any
note,
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes, except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from that acceleration;
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(7) waive a repurchase or redemption payment with respect to any note,
other than a payment required by one of the covenants described under the
caption "--Change of Control" or "--Covenants-- Asset Sales"; or
(8) make any change in the foregoing amendment and waiver provisions.
We and the trustee may amend or supplement the indenture or the notes
without the consent of any holder of notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations to holders of notes
in the case of a merger or consolidation;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of any such holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Concerning the Trustee
If the trustee becomes a creditor of our company, the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any claim as security or otherwise. The trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate that conflict within 90 days, apply to
the SEC for permission to continue or resign. We and our
36
<PAGE>
subsidiaries maintain deposit accounts and conduct other banking transactions
with the trustee in the ordinary course of business.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur, which shall not be cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to these provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Defined Terms
Some of the defined terms used in the indenture are set forth below.
Reference is made to the indenture for a full disclosure of those terms, as
well as any other capitalized terms used in this section for which no
definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time that other
Person is merged with or into or became a Restricted Subsidiary of the
specified Person, including, without limitation, Indebtedness incurred in
connection with, or in contemplation of, that other Person merging with or
into or becoming a Restricted Subsidiary of the specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by the
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of that Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than to us or a Wholly-Owned Restricted Subsidiary of our company,
in one transaction or a series of related transactions, of
(1) any Equity Interest of any Restricted Subsidiary of our company;
(2) any material license, franchise or other authorization of our
company or any Restricted Subsidiary of our company;
(3) any assets of our company or any Restricted Subsidiary of our
company which constitute substantially all of an operating unit or line of
business of our company or any Restricted Subsidiary of our company; or
(4) any other property or asset of our company or any Restricted
Subsidiary of our company outside of the ordinary course of business
(including the receipt of proceeds paid on account of the loss of or damage
to any property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings).
For purposes of this definition, the term "Asset Sale" shall not include:
(1) any transaction consummated in compliance with "--Covenants--Merger,
Consolidation or Sale of Assets" and the creation of any Lien not
prohibited by "--Covenants--Liens;" provided, however, that
37
<PAGE>
any transaction consummated in compliance with "--Covenants--Merger,
Consolidation or Sale of Assets" involving a sale, conveyance, assignment,
transfer, lease or other disposal of less than all of our properties or
assets shall be deemed to be an Asset Sale with respect to the properties
or assets of our company and the Restricted Subsidiary of our company that
are not so sold, conveyed, assigned, transferred, leased or otherwise
disposed of in such transaction;
(2) sales of property or equipment that has become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with the business of
our company or any Restricted Subsidiary of our company, as the case may
be;
(3) any transaction consummated in compliance with "--Covenants--
Restricted Payments;"
(4) a pledge, or transfer pursuant to a pledge of assets, which pledge
is a Permitted Lien; and
(5) sales of Receivables or interests in Receivables in connection with
Securitizations or otherwise in the ordinary course of business.
In addition, solely for purposes of "--Covenants--Asset Sales," any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving
assets with a Fair Market Value not in excess of $1.0 million in any fiscal
year shall be deemed not to be an Asset Sale.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) U.S. dollars;
(2) securities issued or directly and fully guaranteed or insured by the
U.S. government or any agency or instrumentality thereof having maturities
of not more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits, in
each case with any domestic commercial bank having capital and surplus in
excess of $500 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper rated P-1, A-1 or the equivalent thereof by Moody's
Investors Service, Inc. or Standard & Poor's Ratings Services,
respectively, and in each case maturing within six months after the date of
acquisition; and
38
<PAGE>
(6) money market funds, the portfolios of which are limited to
investments described in clauses (1) through (3) above.
"Change of Control" means the occurrence of any of the following events,
whether or not approved by our Board of Directors:
(1) any Person (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Securities Exchange Act), other than the Permitted
Holders, is or becomes the "beneficial owner" or "beneficial owners" (as
defined in Rule 13d-3 and 13d-5 under the Securities Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all shares
that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the
happening of an event or otherwise), directly or indirectly, of more than
35% of the total voting power of the then outstanding Voting Stock of our
company; but only in the event that the Permitted Holders "beneficially
own," directly or indirectly, in the aggregate a lesser percentage of the
total voting power of the then outstanding Voting Stock of our company than
such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of our
Board of Directors;
(2) we consolidate with, or merge with or into, another Person (other
than us or a Wholly-Owned Restricted Subsidiary of our company) or we or
our Restricted Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of the assets of our company
and our Restricted Subsidiaries (determined on a consolidated basis) to any
Person (other than us or a Wholly-Owned Restricted Subsidiary of our
company), other than any such transaction where immediately after such
transaction the Person or Persons that "beneficially owned" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), immediately
prior to such transaction, directly or indirectly, the then outstanding
Voting Stock of our company "beneficially own" (as so determined), directly
or indirectly, a majority of the total voting power of the then outstanding
Voting Stock of the surviving transferee Person;
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted our Board of Directors (together with
any new directors whose election by the Board of Directors or whose
nomination for election by the shareholders of our company was approved by
a vote of a majority of our directors 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 our Board of Directors then in office; or
(4) we are required by the holders of our Series C Preferred to redeem
the Series C Preferred upon the occurrence of a Change in Control (as
defined in the Certificate of Designation relating to the Series C
Preferred).
"Consolidated Indebtedness" means, with respect to any Person as of any
date, the sum, without duplication, of
(1) the total amount of Indebtedness of that Person and its Restricted
Subsidiaries, plus
(2) the total amount of Indebtedness of any other Person, to the extent
that such Indebtedness has been Guaranteed by the referent Person or one or
more of its Restricted Subsidiaries, plus
(3) the aggregate liquidation value of all Disqualified Stock of that
Person and all preferred stock of Restricted Subsidiaries of that Person
(other than, in the case of our company, preferred stock of a Restricted
Subsidiary of our company held by us 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, the ratio of
39
<PAGE>
(1) the Consolidated Indebtedness of that Person as of that date
excluding, however, all Hedging Obligations that constitute Permitted Debt
to
(2) the Consolidated Net Worth of that Person as of that date.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of that Person and its Restricted Subsidiaries
for that period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary of that Person or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly-Owned
Restricted Subsidiary of that Person;
(2) the Net Income of any Restricted Subsidiary of that Person shall be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (1) the consolidated equity of the common stockholders of that
Person and its consolidated Subsidiaries as of that date plus (2) the
respective amounts reported on the Person's balance sheet as of that date with
respect to any series of preferred stock (other than Disqualified Stock) that
by its terms is not entitled to the payment of dividends (other than dividends
paid solely in Equity Interests (other than Disqualified Stock)) unless those
dividends may be declared and paid only out of net earnings in respect of the
year of that declaration and payment, but only to the extent of any cash
received by that Person upon issuance of that preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the Issue Date in
the book value of any asset owned by that Person or a consolidated Restricted
Subsidiary of that Person, (y) all investments as of that date in
unconsolidated Restricted Subsidiaries and in Persons that are not Restricted
Subsidiaries, and (z) all unamortized debt discount and expense and unamortized
deferred financing charges as of that date, all of the foregoing determined in
accordance with GAAP.
"Credit Agreement" means the Credit Facility, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring, in whole or in part (including, without limitation,
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted by the "Incurrence of Indebtedness and
Issuance of Preferred Stock" covenant), or adding Restricted Subsidiaries of
our company as additional borrowers or guarantors thereunder to the extent
permitted by the indenture), all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders and whether in the form of a
revolving credit facility or a term loan facility or any combination thereof.
"Credit Facility" means the Amended and Restated Credit Agreement dated as
of June 30, 1998 among our company, the Lenders named therein, Nationsbank,
N.A., as Syndication Agent, Deutsche Bank, as Documentation Agent, U.S. Bank
National Association, as Documentation Agent, Barclays Bank PLC, as Co-
40
<PAGE>
Agent, Bank of America National Trust and Savings Association, as Co-Agent, and
The Chase Manhattan Bank, as Administrative Agent.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, either (1) by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event (other than under
circumstances that would constitute a Change of Control), matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the date on which the notes mature or
(2) is designated by our company (in a resolution of our Board of Directors
delivered to the trustee) as Disqualified Stock.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date and consistently applied.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of Metris Direct, Inc. and any other Restricted
Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
that Person under (1) interest rate or currency swap agreements, interest rate
cap agreements and interest rate or currency collar agreements and related
agreements and (2) other agreements or arrangements designed to protect that
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 that
Person, whether or not contingent, in respect of (1) borrowed money; (2)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof); (3) banker's
acceptances; (4) representing Capital Lease Obligations; (5) the balance
deferred and unpaid of the purchase price of any property; or (6) 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. In addition, the term "Indebtedness" includes 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 that Person (whether or not
such indebtedness is assumed by that Person) and the value thereof being the
lesser of the amount of such indebtedness so secured and the fair market value
of such asset that has a Lien placed upon it and, to the extent not otherwise
included, the Guarantee by that Person of any indebtedness of any other Person.
Notwithstanding the foregoing, the term "Indebtedness" shall not include (1)
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, (2) deposit liabilities of any Restricted
Subsidiary
41
<PAGE>
of our company, the deposits of which are insured by the Federal Deposit
Insurance Corporation or any successor thereto or (3) guarantees related to the
fulfillment of our obligations to bank card associations in the ordinary course
of business.
The amount of any Indebtedness outstanding as of any date shall be (1) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (2) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of
any other Indebtedness.
"Investment Grade Rating" means (1) with respect to Standard & Poor's, any
of the categories from and including AAA to and including BBB- (or equivalent
successor categories) and (2) with respect to Moody's, any of the categories
from and including Aaa to and including Baa3 (or equivalent successor
categories).
"Investments" means, with respect to any Person, all investments by that
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If we or any Restricted Subsidiary of our company sell or otherwise dispose of
any Equity Interests of any direct or indirect Restricted Subsidiary of our
company such that, after giving effect to that sale or disposition, that Person
is no longer a Restricted Subsidiary of our company, we shall be deemed to have
made an Investment on the date of that sale or disposition equal to the book
value of the Equity Interests of that Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
"Restricted Payments" covenant.
"Issue Date" means the date of original issuance of the notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of that asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received by us or any
of our Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to that Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of that Asset
Sale, a defeasance of a Securitization and any reserve for adjustment in
respect of the sale price of that asset or assets established in accordance
with GAAP.
"Net Income means, with respect to any Person, the net income (loss) of that
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on the gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or
42
<PAGE>
(b) the disposition of any securities by that Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
that Person or any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on that extraordinary or nonrecurring gain
(but not loss).
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf our company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the notes on the date of the Offer
offering to purchase up to the principal amount of notes specified in that
Offer at the purchase price specified in that Offer (as determined pursuant to
the indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase,
which shall be not less than 20 Business Days nor more than 60 days after the
date of the Offer, and a settlement date (the "Purchase Date") for purchase of
notes to occur no later than five Business Days after the Expiration Date. We
shall notify the trustee at least 15 Business Days (or such shorter period as
is acceptable to the trustee) prior to the mailing of the Offer of our
obligation to make an Offer to Purchase, and the Offer shall be mailed by us
or, at our request, by the trustee in the name and at the expense of our
company. The Offer shall contain all the information required by applicable
law to be included therein. The Offer shall also contain information
concerning the business of our company and our Subsidiaries which we in good
faith believe will enable the holders to make an informed decision with
respect to the Offer to Purchase and at a minimum will include:
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the
trustee pursuant to the indenture (which requirements may be satisfied by
delivery of such documents together with the Offer);
(2) a description of material developments in our business subsequent to
the date of the latest of the financial statements referred to in clause
(1), including a description of the events requiring us to make the Offer
to Purchase;
(3) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring us to make the
Offer to Purchase; and
(4) any other information required by applicable law to be included
therein.
The Offer shall contain all instructions and materials necessary to enable
the holders to tender notes pursuant to the Offer to Purchase. The Offer shall
also state:
(1) the section of the indenture pursuant to which the Offer to Purchase
is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding notes offered to
be purchased by our company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the section of the indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by our company for each $1,000
aggregate principal amount of notes accepted for payment (as specified
pursuant to the indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the notes
registered in the name of the holder and that any portion of a note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any note not tendered or tendered but not purchased
by our company pursuant to the Offer to Purchase will continue to accrue;
43
<PAGE>
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender all or any portion of a note
pursuant to the Offer to Purchase will be required to surrender that note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such note being, if we or the trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to us and the trustee duly executed by, the
holder thereof or his attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of
notes tendered if we (or the Paying Agent) receive, not later than the
close of business on the fifth Business Day next preceding the Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of the note the holder tendered,
the certificate number of the note the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
(11) that (a) if notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, we shall purchase all such notes and (b) if notes
in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, we shall
purchase notes having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only notes in denominations of $1,000 principal amount
or integral multiples thereof shall be purchased); and
(12) that in the case of any holder whose note is purchased only in
part, we shall execute and the trustee shall authenticate and deliver to
the holder of the note without service charge, a new note or notes, of any
authorized denomination as requested by the holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Permitted Holder" means the Thomas H. Lee Company and any of its
Affiliates.
"Permitted Investments" means:
(1) any Investment in our company or in a Wholly-Owned Restricted
Subsidiary of our company;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any Restricted Subsidiary of our company in
a Person, if as a result of that Investment (a) that Person becomes our
Wholly-Owned Restricted Subsidiary or (b) that Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, our company or a
Wholly-Owned Restricted Subsidiary of our company;
(4) any Restricted Investment made as a result of the receipt of non-
cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Covenants--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of our company;
(6) Investments by us or any of our Restricted Subsidiaries in the
ordinary course of business in connection with or arising out of
Securitizations;
(7) Hedging Obligations of our company and our Restricted Subsidiaries
entered into in the ordinary course of business; and
44
<PAGE>
(8) other Investments by us or any of our Restricted Subsidiaries in any
Person (other than an Affiliate of our company that is not also a
Restricted Subsidiary) that do not exceed $5.0 million in the aggregate at
any one time outstanding (measured as of the date made and without giving
effect to subsequent changes in value).
"Permitted Liens" means:
(1) Liens existing on the Issue Date;
(2) Liens to secure borrowings under the Credit Agreement;
(3) Liens on Receivables, related contract rights, collections on
Receivables and the proceeds of all such property incurred in connection
with Securitizations or permitted Guarantees thereof;
(4) Liens on property of a Person existing at the time that Person is
merged into or consolidated with us or any of our Restricted Subsidiaries;
provided that those Liens were in existence prior to the contemplation of
the merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with us or the Restricted
Subsidiary;
(5) Liens on property existing at the time of acquisition thereof by our
company or any Restricted Subsidiary of our company; provided that those
Liens were in existence prior to the contemplation of the acquisition;
(6) Liens securing Purchase Money Indebtedness permitted to be incurred
under the indenture and incurred in the ordinary course of business;
provided, however, that any such Lien may not extend to any other property
owned by our company or any of our Restricted Subsidiaries at the time the
Lien is incurred, and the Indebtedness secured by the Lien may not be
incurred more than 180 days after the latter of the acquisition or
completion of construction of the property subject to the Lien; provided,
further, that the amount of Indebtedness secured by such Liens does not
exceed the fair market value of the property purchased or constructed with
the proceeds of such Indebtedness;
(7) Liens to secure any Permitted Refinancing Indebtedness incurred to
refinance any Indebtedness secured by any Lien referred to in the foregoing
clauses (1) through (6); provided, however, that such new Lien shall be
limited to all or part of the same property that secured the original Lien
and the Indebtedness secured by such Lien at such time is not increased to
any amount greater than the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (1) through
(6), as the case may be, at the time the original Lien became a Permitted
Lien;
(8) Liens in favor of our company or a Guarantor;
(9) Liens incurred in the ordinary course of business of our company or
any Restricted Subsidiary of our company with respect to obligations that
do not exceed $10.0 million in the aggregate at any one time outstanding;
(10) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (including, without limitation,
lessor Liens on leased assets);
(11) Liens securing Capital Lease Obligations permitted to be incurred
under the indenture and incurred in the ordinary course of business;
(12) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP in existence at such time shall have been
made therefor and
(13) certain Liens consisting of restrictions on the use of real
property which do not materially interfere with the property's use.
45
<PAGE>
"Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of our company or any of our Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease, redeem or refund other Indebtedness or Disqualified Stock of
our company or any of our Restricted Subsidiaries (other than intercompany
Indebtedness); provided that:
(1) 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);
(2) 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;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness or Disqualified Stock is incurred or issued, as
the case may be, either by our company or by the Restricted Subsidiary who
is the obligor or issuer, as the case may be, on the Indebtedness or
Disqualified Stock being extended, refinanced, renewed, replaced, defeased,
redeemed or refunded.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust, joint venture, or a governmental
agency or political subdivision thereof.
"Public Equity Offering" means an underwritten offering of common stock of
our company pursuant to a registration statement that has been declared
effective by the SEC pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of our company).
"Purchase Money Indebtedness" means Indebtedness of our company and any of
our Restricted Subsidiaries incurred in the ordinary course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Rating Agencies" means Standard & Poor's and Moody's.
"Receivables" means credit card, consumer or commercial loans that are
purchased or originated in the ordinary course of business by our company or
any Subsidiary of our company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securitization" means any transaction or series of transactions that have
been or may be entered into by our company or any of our Subsidiaries in
connection with or reasonably related to a transaction or series of
transactions in which our company or any of our Subsidiaries may sell, convey
or otherwise transfer, directly or indirectly, to a Securitization Entity or
any other Person, or may grant a security interest in, any Receivables or any
interests in such Receivables (whether such Receivables are then existing or
arising in the future) and any assets related thereto including, without
limitation, all security interests in any collateral relating thereto, the
46
<PAGE>
proceeds of such Receivables, and other assets which are customarily sold or in
respect of which security interests are customarily granted in connection with
securitization transactions involving such assets.
"Securitization Entity" means any Person (whether or not a Subsidiary of our
company) established and maintained exclusively for one or more of the
following purposes:
(1) purchasing or otherwise acquiring Receivables (together with any
assets related to those Receivables, including, without limitation, all
collateral securing such Receivables, all contracts and all Guarantees or
other obligations in respect of these Receivables, proceeds of such
Receivables and other assets which are customarily transferred in
connection with asset securitization transactions involving Receivables) in
connection with a Securitization;
(2) selling those Receivables (and related assets) to a special purpose
owner trust or other Person in connection with a Securitization;
(3) issuing asset-backed securities, or beneficial interests in
Receivables;
(4) serving as a corporate general partner (or managing member of a
limited liability company) of another Securitization Entity;
(5) investing in and holding Investments in Securitization Entities
issuing securities backed by Receivables; or
(6) engaging in activities that are incidental to and necessary,
suitable or convenient for the accomplishment of the purposes specified
above,
provided, however, that the obligations of such Securitization Entity
are without recourse to our company and any Restricted Subsidiary of our
company other than such Securitization Entity.
For purposes of this definition, "without recourse" shall mean that the
Indebtedness of the Securitization Entity and none of the other obligations
(contingent or otherwise) of a Securitization Entity
(1) is guaranteed by our company or any other Restricted Subsidiary of
our company;
(2) obligates our company or any other Restricted Subsidiary of our
company in any way other than pursuant to representations, warranties,
covenants (including any covenant to deliver Receivables in a pre-funded
Securitization) and indemnities entered into in connection with a
Securitization; or
(3) subjects any property or asset of our company or any Restricted
Subsidiary of our company other than such Securitization Entity, directly
or indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to representations, warranties, covenants and
indemnities entered into in connection with a Securitization. For purposes
of the foregoing, a Permitted Investment in a Securitization Entity shall
not be deemed recourse.
As of the Issue Date, each of the Metris Master Trust, Metris Receivables,
Inc., Metris Funding Co. and the Fingerhut Owner Trust and Securitization
Entities formed in connection with any Securitization prior to the Issue Date
shall be deemed to satisfy the requirements of this definition.
"Significant Subsidiary" means any Restricted Subsidiary of our company that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in
effect on the date hereof.
"Specified Senior Indebtedness" means (1) the Indebtedness of any Person,
whether outstanding on the Issue Date or thereafter incurred and (2) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to such Person to the
extent post filing interest is allowed in such proceeding) in respect of (a)
Indebtedness of that Person for money borrowed and (b) Indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which that Person is responsible or liable unless, in the case of either clause
(1) or (2), in the instrument creating or
47
<PAGE>
evidencing the same pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the notes.
However, the term "Specified Senior Indebtedness" shall not include (1) any
obligation of such Person to any Subsidiary of such Person, (2) any liability
for Federal, state, local or other taxes owed or owing by such Person, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (4) any obligations in respect of Capital Stock of such Person or
(5) that portion of any Indebtedness which at the time of incurrence is
incurred in violation of the indenture.
"Standard & Poor's" means Standard & Poor's Rating Services, a division of
The McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing the Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person (or a combination thereof) and
(2) any partnership (a) the sole general partner or the managing general
partner of which is that Person or a Subsidiary of that Person or (b) the
only general partners of which are that Person or one or more Subsidiaries
of that Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary of our company that is
designated by our Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:
(1) has not at the time of designation, and does not thereafter, create,
incur, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender thereof has
recourse to any of the assets of our company or any of our Restricted
Subsidiaries;
(2) is not party to any agreement, contract, arrangement or
understanding with our company or any Restricted Subsidiary of our company
unless the terms of any that agreement, contract, arrangement or
understanding are no less favorable to our company or its Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of our company;
(3) is a Person with respect to which neither our company nor any of our
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
that Person's financial condition or to cause that Person to achieve any
specified levels of operating results; and
(4) has not otherwise directly or indirectly provided credit support for
any Indebtedness of our company or any of our Restricted Subsidiaries.
Any designation by our Board of Directors shall be evidenced to the trustee
by filing with the trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
"Restricted Payments" covenant If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
indenture
48
<PAGE>
and any Indebtedness of that Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of our company as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "--Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," we shall be in default of that covenant).
Our Board of Directors may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that the designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of our company of
any outstanding Indebtedness of that Unrestricted Subsidiary and that
designation shall only be permitted if (1) that Indebtedness is permitted under
the Consolidated Leverage Ratio test set forth in the first paragraph of the
covenant described under the caption "--Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock," and (2) no Default or Event of Default would
be in existence following that designation.
"Voting Stock" of any Person as of any date means the Capital Stock of that
Person that is at the time entitled to vote in the election of the Board of
Directors of that Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) 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
(2) the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of that Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by that Person or by one or more Wholly-Owned Restricted
Subsidiaries of that Person.
ADDITIONAL PROVISIONS APPLICABLE TO THE NEW NOTES
Book-Entry, Delivery and Form
The new notes initially will be issued in the form of one or more global
notes. The new notes will be deposited with, or on behalf of, The Depository
Trust Company, New York, New York, and registered in the name of DTC or its
nominee. Holders of the new notes will own book-entry interests in the global
note evidenced by records maintained by DTC. A global note may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "clearing agency" registered under the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in the accounts of
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Access to the DTC system is also available
to other entities such as banks, brokers, dealers and trust companies, which we
refer to as indirect participants, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Investors who
are not participants may beneficially own securities held by or on behalf of
DTC only through participants or indirect participants of DTC.
49
<PAGE>
We expect that pursuant to procedures established by DTC, upon deposit of
the global note, DTC will credit the accounts of participants with an interest
in the global note. Ownership of the new notes will be shown on, and the
transfer of ownership will be effected only through, records maintained by DTC,
with respect to interests of participants, and the records of participants and
indirect participants with respect to interests of persons other than
participants. Ownership of beneficial interests in the global notes will be
limited to persons who have accounts with DTC or persons who hold interests
through participants.
So long as DTC or its nominee is the registered owner or holder of a global
note, DTC or its nominee will be considered the sole owner or holder of the new
notes represented by the global note for all purposes under the indenture,
including for the purpose of giving any directions, instructions or approvals
to the trustee. No beneficial owner of an interest in the global note will be
able to transfer that interest except in accordance with DTC's procedures. We
understand that if we request any action of the holders of new notes, or a
holder of a beneficial interest in a global note desires to take any action
that DTC, as holder of the global note, is entitled to take, DTC would
authorize the participants to take that action and the participants would
authorize holders owning through participants to take that action or would
otherwise act upon the instruction of those holders.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to those persons may be limited
to that extent. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having beneficial interests in a global
note to pledge those interests to persons or entities that do not participate
in DTC's system, or otherwise take actions in respect of those interests, may
be affected by the lack of a physical certificate evidencing those interests.
Neither we nor the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the global note or for maintaining, supervising or
reviewing records relating to these beneficial interests.
Payments of interest, principal and other amounts due on any new notes
registered in the name of DTC or its nominee on the applicable record date will
be payable by the trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder under the indenture. Under the indenture, we
and the trustee may treat the persons in whose names the new notes, including
the global notes, are registered as the owners of the new notes for the purpose
of receiving payments and for any other purposes whatsoever. Consequently,
neither we nor the trustee has or will have any responsibility or liability for
payments to owners of beneficial interests in the global note, including
principal, premium, if any, liquidated damages, if any, and interest.
We expect that DTC or its nominee, upon receipt of any payment of interest,
principal or other amounts due on the global note, will credit participants'
accounts with payments proportionate to their respective beneficial interests
in the global note as shown on the records of DTC or its nominee. We also
expect that payments by participants and indirect participants to owners of
beneficial interests in the global note held through those participants will be
governed by standing instructions and customary practice. These payments will
be the responsibility of the participants or the indirect participants.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between DTC participants and Euroclear or Cedel
participants will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or Cedel, as the case may be, by its respective depositary.
These cross-market transactions, however, will require delivery of instructions
to Euroclear or Cedel, as the case may be, by the counterparty in that system
in accordance with the rules and procedures and within the established
deadlines (Brussels time) of that system. Euroclear or Cedel will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to
50
<PAGE>
effect final settlement on its behalf by delivering or receiving interests in
the relevant global note in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a DTC
participant will be credited during the securities settlement processing day,
which must be a business day for Euroclear or Cedel, immediately following
DTC's settlement date. Cash received in Euroclear or Cedel as a result of sales
of interests in a global note by or through a Euroclear or Cedel participant to
a DTC participant will be received with value on DTC's settlement date but will
be available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the global note among participants of DTC,
Eurocolear or Cedel, they are under no obligation to perform those procedures,
and those procedures may be discontinued at any time. Neither we nor the
trustee will have any responsibility for the performance by DTC, Eurocolear or
Cedel or their respective participants or indirect participants of their
respective obligations, under the rules and regulations governing their
operations.
Certificated Notes
We will issue certificated notes in exchange for book-entry interests in the
global note if:
(1) DTC notifies us that it is unwilling or unable to continue as
depositary for the global note or DTC at any time ceases to be a clearing
agency registered under the Exchange Act and we have not appointed a
successor depositary within 90 days;
(2) we elect to issue the new notes in definitive form under the
indenture and we deliver to the trustee instructions to that effect; or
(3) certain other events occur as provided in the indenture.
Upon surrender by DTC of the global note, certificated notes will be issued
to each person that DTC identifies as the beneficial owner of the related new
notes, and the trustee will register the certificated notes in the name of
those persons (or their nominees) and cause delivery of the certificated notes
to them.
Neither we nor the trustee will be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related new notes and each such person may conclusively rely on, and will be
protected in relying on, instructions from DTC for all purposes, including with
respect to the registration and delivery, and the respective principal amounts,
of the new notes to be issued.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of an exchange of old notes for new notes and the ownership and
disposition of the new notes. It deals only with notes held as capital assets
by the initial holders of the old notes, and does not address the federal
income tax consequences to holders subject to special treatment, such as
partnerships and other pass-through entities, dealers in securities, financial
institutions, insurance companies, and tax-exempt organizations. The discussion
below is based on current laws, regulations and administrative and judicial
decisions. These authorities may be repealed, revoked or modified, possibly
retroactively, in which case the federal income tax consequences could differ
from those discussed below.
For purposes of the following summary, the term United States holders refers
to a holder of notes that is, for United States federal income tax purposes:
. a citizen or resident of the United States;
51
<PAGE>
. a corporation created or organized under the laws of the United States
or any State, including the District of Columbia;
. an estate whose income is includable in gross income for United States
federal income tax purposes regardless of its source; or
. a trust, if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, trusts in existence on August
20, 1996, which are treated as United States persons prior to that date
and elect to continue to be treated as United States persons, are also
United States holders for purposes of this discussion.
The term non-United States holder refers to a holder of notes that is not a
United States holder.
We urge you to consult your tax advisor regarding the specific tax
consequences to you of the exchange of old notes for new notes and the
ownership and disposition of the new notes, as well as any tax consequences
arising under any state, local or foreign laws.
Exchange of Notes
There will be no federal income tax consequences to United States or non-
United States holders exchanging old notes for new notes under the exchange
offer because the exchange offer will occur by operation of the original terms
of the old notes and will not result in any material alteration in the terms of
the old notes. Each exchanging holder will have the same adjusted tax basis and
holding period in the new notes as it had in the old notes immediately before
the exchange.
United States Federal Income Tax Consequences to United States Holders
Interest
Interest paid on the notes generally will be taxable as ordinary income to a
United States holder at the time the interest is received or accrued, in
accordance with the United States holder's method of accounting for federal
income tax purposes.
Original Issue Discount
The old notes were issued with and the new notes will have original issue
discount for United States federal income tax purposes. A United States holder
must include original issue discount in gross income as it accrues in advance
of the receipt of any cash attributable to the income, regardless of whether
the holder is a cash or accrual basis taxpayer. Original issue discount will
accrue on a daily basis under a constant yield to maturity method that takes
into account the compounding of interest. One effect of this method is that a
relatively smaller portion of the original issue discount will be included in
income in the earlier years and a relatively larger portion in later years.
The amount of original issue discount that will accrue in the aggregate with
respect to a new note will be the excess of the stated redemption price at
maturity of the note over its issue price. The stated redemption price at
maturity of a note generally will equal the sum of the principal amount of the
note plus all amounts which the terms of the note require to be paid, other
than payments of qualified stated interest. For tax purposes, qualified stated
interest is stated interest that is unconditionally payable at least annually
at a single fixed rate that appropriately takes into account the length of
intervals between payments. Stated interest payable on the notes will
constitute qualified stated interest. The issue price of a note generally will
equal the first price at which a substantial amount of the old notes were sold.
A United States holder's adjusted tax basis in a note will be increased by
the amount of any original issue discount which the holder includes in gross
income.
52
<PAGE>
Effect of Optional Redemption
At our option, we may redeem part or all of the notes at the times and for
the amounts described in "Description of the New Notes--Optional Redemption."
Based on existing regulations, we intend to take the position that the option
to redeem will be presumed not to be exercised and, accordingly, the premium
payable upon optional redemption and the optional redemption dates will not
affect the yield to maturity or the maturity date of the notes. If, contrary to
our current expectations, we redeem the notes, it may be necessary to
redetermine the amount and timing of interest income and original issue
discount that a holder must include in taxable income.
Sale, Exchange or Retirement of Notes
A United States holder of a note generally will recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of a note equal to
the difference between the amount of cash and the fair market value of any
property received for the note and the holder's adjusted tax basis in the note.
This gain or loss will be capital gain or loss, and will be long-term capital
gain or loss if the note has been held for more than one year. However, any
cash or property received on disposition of a note which is attributable to or
taxable as accrued and unpaid interest on the note will be taxable as ordinary
income.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to interest paid
and original issue discount accrued on notes owned by United States holders,
other than exempt holders such as corporations, and to proceeds realized by
United States holders on dispositions of notes. A 31% backup withholding tax
will apply to these amounts only if the United States holder: (a) fails to
furnish its Social Security or taxpayer identification number (TIN) within a
reasonable time after request; (b) furnishes an incorrect TIN; (c) fails to
report properly interest or dividend income; or (d) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Any amount withheld under the backup withholding rules
may be refunded or credited against the United States holder's United States
federal income tax liability, if the holder furnishes the required information
to the Internal Revenue Service.
United States Federal Income Tax Consequences to Non-United States Holders
Interest
Interest, including original issue discount, which we pay on a note to a
non-United States holder will not be subject to United States federal income or
withholding tax if the interest is not effectively connected with the conduct
of a trade or business within the United States by the non-United States holder
and the non-United States holder: (a) does not actually or constructively own
10% or more of the total combined voting power of all classes of our stock; (b)
is not a controlled foreign corporation to which we are directly or indirectly
related for United States tax purposes; and (c) certifies, under penalties of
perjury, that the holder is not a United States person and provides the
holder's name and address.
A non-United States holder that does not qualify for exemption from
withholding under the preceding paragraph generally will be subject to a 30%
United States federal withholding tax, or lower applicable treaty rate, on
payments of interest or accrual of original issue discount on the notes.
If a non-United States holder is engaged in a trade or business in the
United States and interest and original issue discount on the note is
effectively connected with the conduct of this trade or business, the non-
United States holder, although exempt from the withholding tax discussed above,
may be subject to United States federal income tax on the interest in the same
manner as if it were a United States holder. In addition, if the non-United
States holder is a foreign corporation, it may be subject to a branch profits
tax of 30%, or a
53
<PAGE>
lower applicable treaty rate, of its effectively connected earnings and profits
for the taxable year, subject to adjustments. For this purpose, the foreign
corporation's earnings and profits will include interest on a note.
Recently finalized regulations, which, subject to transition rules, are
effective for payments made after December 31, 2000, provide alternative
procedures which a non-United States holder must follow to establish
eligibility for a withholding tax reduction or exemption.
Purchasers of notes that are non-United States holders should consult their
own tax advisors regarding the possible applicability of United States
withholding and other taxes upon interest income realized and original issue
discount accrued in connection with the notes.
Sale, Exchange or Retirement of Notes
A non-United States holder will generally not be subject to United States
federal income tax on gain recognized on a sale, exchange, retirement
(including redemption) or other disposition of a note unless: (a) the gain is
effectively connected with the conduct of a trade or business within the United
States by the non-United States holder; or (b) in the case of a non-United
States holder who is a nonresident alien individual and holds the note as a
capital asset, the holder is present in the United States for 183 or more days
in the taxable year and the holder meets other requirements.
Federal Estate Taxes
If interest on the notes is exempt from withholding of United States federal
income tax under the rules described above, the notes will not be included in
the estate of a deceased non-United States holder for United States federal
estate tax purposes.
Information Reporting and Backup Withholding
We will, where required, report to the non-United States holders of notes
and the Internal Revenue Service the amount of any interest, including original
issue discount, paid on the notes in each calendar year and the amounts of tax
withheld, if any, with respect to these payments.
Temporary regulations provide that the 31% backup withholding tax and
information reporting requirements will not apply to payments of interest and
original issue discount to non-United States holders, if the holder has given
us the required certification, as described above, or has otherwise established
an exemption, provided that neither we nor our paying agent has actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not in fact satisfied. Under temporary regulations,
these information reporting and backup withholding requirements will apply,
however, to the gross proceeds paid to a non-United States holder on the
disposition of the notes by or through a United States office of a United
States or foreign broker, unless the holder certifies to the broker under
penalties of perjury as to its name, address and status as a foreign person or
the holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to a payment of the
proceeds of a disposition of the notes by or through a foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States, unless the broker has documentary evidence in its files that
the holder of the notes is not a United States person, and the broker has no
actual knowledge to the contrary, or the holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to a
payment of the proceeds of a disposition of the notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
Final regulations, which, subject to transition rules, are effective for
payments made after December 31, 2000, alter these regulations in some
respects. Among other things, the final regulations provide presumptions under
which a non-United States holder will be subject to information reporting and
backup withholding at the rate of 31% unless we or our paying agent receive
certification from the holder of non-U.S. status. Depending
54
<PAGE>
on the circumstances, this certification must be provided: (a) directly by the
non-United States holder; (b) in the case of a non-United States holder that is
treated as a partnership or other fiscally transparent entity, by the partners,
shareholders or other beneficiaries of the entity; or (c) by qualified
financial institutions or other qualified entities on behalf of the non-United
States holder.
Backup withholding is not an additional tax. Any amounts which we or our
paying agent withhold under the backup withholding rules may be refunded or
credited against the non-United States holder's United States federal income
tax liability, provided the holder furnishes the required information to the
Internal Revenue Service.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account under the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of those notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer for resales of
new notes received in exchange for old notes that had been acquired as a result
of market-making or other trading activities. We have agreed that, for a period
of 90 days after the expiration date of the exchange offer, we will make this
prospectus, as it may be amended or supplemented, available to any broker-
dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by broker-
dealers. New notes received by broker-dealers for their own account under the
exchange offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on those notes or a combination of those methods, at market prices
prevailing at the time of resale, at prices related to prevailing market prices
or at negotiated prices. Any resales may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from the selling broker-dealer or the purchasers of
the new notes. Any broker-dealer that resells new notes received by it for its
own account under the exchange offer and any broker or dealer that participates
in a distribution of the new notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any resale of new notes and
any commissions or concessions received by these persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the expiration date of the exchange offer, we
will send additional copies of this prospectus and any amendment or supplement
to this prospectus to any broker-dealer that requests these documents in the
letter of transmittal.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any broker or dealer and will indemnify
holders of the notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the new notes offered in this exchange offer will be passed
upon for us by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from our Annual Report on Form 10-K for the year ended December 31,
1998 have been audited by KPMG LLP, independent auditors, and have been so
incorporated in reliance upon the report of that firm given upon their
authority as experts in accounting and auditing.
55
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are currently subject to the informational requirements of the
Securities Exchange Act of 1934. We file annual, quarterly and current
reports, proxy statements and other documents with the SEC. You may read and
copy any document we file with the SEC at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices 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. Please call the SEC at 1-800-SEC-0330 for further information about its
public reference facilities. In addition, our filings are available at the
SEC's Web site at "http://www.sec.gov." Our common stock is listed on the New
York Stock Exchange under the symbol "MXT."
We have filed with the SEC a registration statement on Form S-4 to register
this exchange offer. This prospectus, which forms a part of the registration
statement, does not contain all of the information included or incorporated in
the registration statement. The full registration statement can be obtained
from the SEC as indicated above.
The SEC allows us to incorporate by reference the information we file with
them. This allows us to disclose important information to you by referencing
those filed documents. We have previously filed the following documents with
the SEC and are incorporating them by reference into this prospectus:
. our Annual Report on Form 10-K for the year ended December 31, 1998;
. our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
. our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
and
. our current Report on Form 8-K dated June 22,1999;
We also are incorporating by reference any future filings made by us with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until the
completion of the exchange offer. The most recent information that we file
with the SEC automatically updates and supersedes more dated information.
You may request a copy of any documents which are incorporated by reference
in this prospectus, except for exhibits which are specifically incorporated by
reference into those documents, at no cost, by writing or telephoning us at:
Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, MN 55426
(612) 593-4820
Attention: Investor Relations
To ensure timely delivery of the documents, you should make your request by
November 5, 1999.
56
<PAGE>
Each broker-dealer who receives new notes for its own account in exchange
for old notes under the exchange offer, where such old notes were acquired as a
result of market-making or other trading activities, must deliver a copy of
this prospectus in connection with any resale of such new notes.
----------------
LOGO
Offer to Exchange
$150,000,000
10 1/8% Senior Notes due 2006
for all outstanding unregistered
10 1/8% Senior Notes due 2006
October 8, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
In accordance with the DGCL, the Certificate of the Company contains a
provision to limit the personal liability of the directors of the Company for
violations of their fiduciary duty. This provision eliminates each director's
liability to the Company or its stockholders for monetary damages except to the
extent provided by the DGCL:
. for any breach of the director's duty of loyalty to the Company or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under section 174 of the DGCL providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or
redemptions; or
. for any transaction from which a director derived an improper benefit.
The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their
fiduciary duty of care, including any such actions involving gross negligence.
The Certificate and the By-Laws of the Company provide for indemnification
of the Company's officers and directors to the fullest extent permitted by
applicable law. In addition, the Company maintains insurance policies which
provide coverage for its officers and directors in certain situations where the
Company cannot directly indemnify such officers or directors.
II-1
<PAGE>
Item 21. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation. (2)
3.3 Amended Certificate of Designation of Series C Perpetual Convertible
Preferred Stock.(2)
3.4 Certificate of Designation of Series D Junior Participating
Convertible Preferred Stock.(3)
3.5 Amended and Restated By-Laws of the Company. (6)
4.1 Indenture, dated as of July 13, 1999, by and among the Company, Metris
Direct, Inc. and The Bank of New York, including Form of 10 1/8%
Senior Notes due 2006 and Form of Guarantee.
4.2 Exchange and Registration Rights Agreement, dated as of July 13, 1999,
by and among the Company, Bear, Stearns & Co. Inc., Chase Securities
Inc., Salomon Smith Barney Inc. and Barclays Capital Inc., relating to
the new notes.
4.3 Indenture, dated as of November 7, 1997, among the Company, Metris
Direct Inc. and The First National Bank of Chicago, including Form of
10% Senior Note due 2004 and Form of Guarantee. (5)
4.4 First Supplemental Indenture, dated as of June 25, 1999, among the
Company, the Guarantors named therein and The First National Bank of
Chicago.
5.1 Opinion of Dorsey & Whitney LLP.
10.1 Registration Rights Agreement dated as of December 9, 1998 between the
Company and the investors named therein. (4)
10.2 Registration Rights Agreement dated as of April 23, 1999 between the
Company and Rakesh Kaul. (2)
10.3* Metris Companies Inc. Non-Employee Director Stock Option Plan.
10.4* Metris Companies Inc. Management Stock Purchase Plan.
10.5* Metris Companies Inc. Amended and Restated Annual Incentive Plan for
Designated Corporate Officers.
10.6* Metris Companies Inc. Amended and Restated Long-Term Incentive and
Stock Option Plan.
10.7 Amended and Restated Credit Agreement, dated as of June 30, 1998,
among the Company and the lenders named therein. (7)
10.8 Amendment, dated as of December 3, 1998, to the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company, the
lenders named therein, NationsBank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent. (8)
10.9 Amendment, dated as of December 7, 1998, to the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company, the
lenders named therein, NationsBank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent. (9)
10.10* Amendment dated as of May 7, 1999, to (a) the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company and the
lenders named therein, Nationsbank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent and (b) the Amended and
Restated Pledge Agreement, dated as of June 30, 1998, among the
Company, Metris Direct Inc. and The Chase Manhattan Bank.
10.11* Amendment dated as of June 10, 1999, to the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company and the
lenders named therein, Nationsbank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.12* Transfer and Administration Agreement, dated June 30, 1999, among
Direct Merchants Credit Card Bank, N.A. as Transferor and Collection
Agent, Enterprise Funding Corporation, Sheffield Receivables
Corporation as Purchasers, Barclays Bank PLC as Agent and NationsBank,
N.A. as Bank Investor and Agent.
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends.
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 hereto).
23.2* Consent of KPMG LLP with respect to the financial statements of the
Company.
24.1* Powers of Attorney of Company.
25.1* Statement of Eligibility of Trustee on Form T-1 of The Bank of New
York.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Registered Holder and/or DTC Participant.
99.4* Form of Exchange Agent Agreement.
99.5* Form of Letter to Clients.
</TABLE>
- --------
* Filed herewith.
(1) Incorporated by reference to Exhibit 3.a. from the Company's Registration
Statement on Form S-1 (File No. 333-10831).
(2) Incorporated by reference from the Company's Registration Statement on Form
S-3 (File No. 333-82007).
(3) Incorporated by reference to Exhibit 4.3 from the Company's Form 8-K, filed
on December 22, 1998.
(4) Incorporated by reference to Exhibit 10.3 from the Company's Form 8-K,
filed on December 22, 1998.
(5) Incorporated by reference to Exhibit 4.1 from the Company's Registration
Statement on Form S-4 (File No. 333-43771).
(6) Incorporated by reference to Exhibit 3.1 from the Company's Form 10-Q,
filed on August 13, 1999.
(7) Incorporated by reference to Exhibit 10.18(a) from the Company's Form 10-Q,
filed August 4, 1998.
(8) Incorporated by reference to Exhibit 10.5 from the Company's Form 8-K,
filed on December 22, 1998.
(9) Incorporated by reference to Exhibit 10.17(ii) from the Company's Form 10-
K, filed on March 30, 1999.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) under the Securities Act
if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement.
II-3
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this registration statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein that was not subject of and included in the
registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St. Louis
Park, State of Minnesota, on October 8, 1999.
METRIS COMPANIES INC.
/s/ Ronald N. Zebeck
By___________________________________
Ronald N. Zebeck
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ---------------------------------- ---------------
<S> <C> <C>
/s/ Ronald N. Zebeck October 8, 1999
- ------------------------------------
Ronald N. Zebeck President, Chief Executive
Officer and Director (Principal
Executive Officer)
/s/ David D. Wesselink October 8, 1999
- ------------------------------------
David D. Wesselink Executive Vice President, Chief
Financial Officer (Principal
Financial Officer)
/s/ Jean C. Benson October 8, 1999
- ------------------------------------
Jean C. Benson Senior Vice President, Finance,
Corporate Controller
(Principal Accounting Officer)
* October 8, 1999
- ------------------------------------
Theodore Deikel Chairman of the Board of Directors
* October 8, 1999
- ------------------------------------
Dudley C. Mecum Director
* October 8, 1999
- ------------------------------------
Frank D. Trestman Director
* October 8, 1999
- ------------------------------------
Derek V. Smith Director
* October 8, 1999
- ------------------------------------
Lee R. Anderson, Sr. Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- -------- ---------------
<S> <C> <C>
* October 8, 1999
- ------------------------------------
John A. Cleary Director
* October 8, 1999
- ------------------------------------
Thomas H. Lee Director
* October 8, 1999
- ------------------------------------
David V. Harkins Director
- ------------------------------------
C. Hunter Boll Director
* October 8, 1999
- ------------------------------------
Thomas M. Hagerty Director
</TABLE>
/s/ Z. Jill Barclift
*By:___________________________
Z. Jill Barclift
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St. Louis
Park, State of Minnesota, on October 8, 1999.
METRIS DIRECT, INC.
/s/ Ronald N. Zebeck
By___________________________________
Ronald N. Zebeck
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- -------------------------------- ---------------
<S> <C> <C>
/s/ Ronald N. Zebeck October 8, 1999
- ------------------------------------
Ronald N. Zebeck President, Chief Executive
Officer and Director (Principal
Executive Officer)
/s/ David D. Wesselink October 8, 1999
- ------------------------------------
David D. Wesselink Executive Vice President, Chief
Financial Officer (Principal
Financial Officer)
/s/ Jean C. Benson October 8, 1999
- ------------------------------------
Jean C. Benson Senior Vice President, Finance,
Corporate Controller
(Principal Accounting Officer)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company. (1)
3.2 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation. (2)
3.3 Amended Certificate of Designation of Series C Perpetual Convertible
Preferred Stock.(2)
3.4 Certificate of Designation of Series D Junior Participating
Convertible Preferred Stock.(3)
3.5 Amended and Restated By-Laws of the Company. (6)
4.1 Indenture, dated as of July 13, 1999, by and among the Company, Metris
Direct, Inc. and The Bank of New York, including Form of 10 1/8%
Senior Notes due 2006 and Form of Guarantee.
4.2 Exchange and Registration Rights Agreement, dated as of July 13, 1999,
by and among the Company, Bear, Stearns & Co. Inc., Chase Securities
Inc., Salomon Smith Barney Inc. and Barclays Capital Inc., relating to
the new notes.
4.3 Indenture, dated as of November 7, 1997, among the Company, Metris
Direct Inc. and The First National Bank of Chicago, including Form of
10% Senior Note due 2004 and Form of Guarantee. (5)
4.4 First Supplemental Indenture, dated as of June 25, 1999, among the
Company, the Guarantors named therein and The First National Bank of
Chicago.
5.1 Opinion of Dorsey & Whitney LLP.
10.1 Registration Rights Agreement dated as of December 9, 1998 between the
Company and the investors named therein. (4)
10.2 Registration Rights Agreement dated as of April 23, 1999 between the
Company and Rakesh Kaul. (2)
10.3* Metris Companies Inc. Non-Employee Director Stock Option Plan.
10.4* Metris Companies Inc. Management Stock Purchase Plan.
10.5* Metris Companies Inc. Amended and Restated Annual Incentive Plan for
Designated Corporate Officers.
10.6* Metris Companies Inc. Amended and Restated Long-Term Incentive and
Stock Option Plan.
10.7 Amended and Restated Credit Agreement, dated as of June 30, 1998,
among the Company and the lenders named therein. (7)
10.8 Amendment, dated as of December 3, 1998, to the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company, the
lenders named therein, NationsBank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent.(8)
10.9 Amendment, dated as of December 7, 1998, to the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company, the
lenders named therein, NationsBank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent. (9)
10.10* Amendment dated as of May 7, 1999, to (a) the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company and the
lenders named therein, Nationsbank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent and (b) the Amended and
Restated Pledge Agreement, dated as of June 30, 1998, among the
Company, Metris Direct Inc. and The Chase Manhattan Bank.
10.11* Amendment dated as of June 10, 1999, to the Amended and Restated
Credit Agreement, dated as of June 30, 1998, among the Company and the
lenders named therein, Nationsbank, N.A., as syndication agent,
Deutsche Bank, as documentation agent, U.S. Bank National Association,
as documentation agent, Barclays Bank PLC, as co-agent, Bank of
America National Trust and Savings Association, as co-agent, and The
Chase Manhattan Bank, as administrative agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.12* Transfer and Administration Agreement, dated June 30, 1999, among
Direct Merchants Credit Card Bank, N.A. as Transferor and Collection
Agent, Enterprise Funding Corporation, Sheffield Receivables
Corporation as Purchasers, Barclays Bank PLC as Agent and NationsBank,
N.A. as Bank Investor and Agent.
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends.
23.1 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 hereto).
23.2* Consent of KPMG LLP with respect to the financial statements of the
Company.
24.1* Powers of Attorney of Company.
25.1* Statement of Eligibility of Trustee on Form T-1 of The Bank of New
York.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Registered Holder and/or DTC Participant.
99.4* Form of Exchange Agent Agreement.
99.5* Form of Letter to Clients.
</TABLE>
- --------
* Filed herewith.
(1) Incorporated by reference to Exhibit 3.a. from the Company's Registration
Statement on Form S-1 (File No. 333-10831).
(2) Incorporated by reference from the Company's Registration Statement on Form
S-3 (File No. 333-82007).
(3) Incorporated by reference to Exhibit 4.3 from the Company's Form 8-K, filed
on December 22, 1998.
(4) Incorporated by reference to Exhibit 10.3 from the Company's Form 8-K,
filed on December 22, 1998.
(5) Incorporated by reference to Exhibit 4.1 from the Company's Registration
Statement on Form S-4 (File No. 333-43771).
(6) Incorporated by reference to Exhibit 3.1 from the Company's Form 10-Q,
filed on August 13, 1999.
(7) Incorporated by reference to Exhibit 10.18(a) from the Company's Form 10-Q,
filed August 4, 1998.
(8) Incorporated by reference to Exhibit 10.5 from the Company's Form 8-K,
filed on December 22, 1998.
(9) Incorporated by reference to Exhibit 10.17(ii) from the Company's Form 10-
K, filed on March 30, 1999.
<PAGE>
EXHIBIT 10.3
METRIS COMPANIES INC.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan. This plan shall be known as the "Metris Companies Inc.
Nonemployee Director Stock Option Plan" and is hereinafter referred to as the
"Plan." The purpose of the Plan is to promote the interests of Metris Companies
Inc., a Delaware corporation (the "Company"), by enhancing its ability to
attract and retain the services of experienced and knowledgeable outside
directors and by providing an additional means for such directors to identify
with the interests of the Company's shareholders.
2. Administration.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors"). All questions of interpretation of the Plan or of
any options issued under it shall be determined by the Board of Directors and
such determination shall be final and binding upon all persons having an
interest in the Plan. Any or all powers and discretion vested in the Board of
Directors under this Plan may be exercised by any person or committee duly
authorized by the Board of Directors except that the Board of Directors shall
approve and authorize each grant, award or other similar acquisition from the
Company pursuant to or in connection with the Plan.
(b) The Board of Directors shall have plenary authority in its discretion,
but subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock (as hereinafter defined) covered by each option, (ii)
to determine the directors to whom and the time or times at which such options
shall be granted and the number of shares to be subject to each, (iii) to
determine the terms of exercise of each option, (iv) to amend or modify the
terms of any option with the consent of the optionee, (v) to amend or interpret
the Plan, (vi) to prescribe, amend and rescind rules and regulations relating to
the Plan, (vii) to determine the terms and provisions of each option agreement
under the Plan (which agreements need not be identical), and (viii) to make all
other determinations necessary or advisable for the administration of the Plan.
The Board of Directors also shall have such additional authority and powers as
set forth in Section 17 hereof, including the authority to amend and terminate
the Plan. The Board of Directors' determinations on the foregoing matters shall
be final and conclusive.
3. Participation in the Plan. Each director of the Company shall be
eligible to participate in the Plan unless such director is an officer or
employee of the Company, any subsidiary of the Company, or any entity that owns
at least 20% of the outstanding common stock of the Company. A director who has
been granted an option under this Plan may be granted additional options under
the Plan.
4. Stock Subject to the Plan. Subject to the provisions of Section 14
hereof, the stock to be subject to options under the Plan shall be authorized
but unissued shares of the Company's common stock, par value $.01 per share (the
"Common Stock") or treasury shares of Common Stock. Subject to the adjustment as
provided in Section 14 hereof, the maximum number of shares on which options may
be exercised under this Plan shall be 250,000 shares. If an option under the
Plan expires, or for any reason is terminated and unexercised with respect to
any shares, such shares shall be available for options thereafter granted during
the term of the Plan.
5. Nonqualified Stock Options. All options granted under the Plan shall be
nonqualified stock options that do not qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
6. Terms and Conditions of Options. Each option granted under this Plan
shall be evidenced by a written agreement in such form as the Board of Directors
shall from time to time approve, which agreements shall comply with and be
subject to the terms and conditions of the Plan.
7. Term of Options. Each option and all rights and obligations thereunder
shall expire on the date determined by the Board of Directors as specified in
the option agreement. The Board of Directors shall be under no duty to provide
terms of like duration for options granted under the Plan, but the term of
options granted under the Plan may not extend more than fifteen (15) years from
the date of granting of such option.
1
<PAGE>
8. Exercise of Options
(a) The Board of Directors shall have full and complete authority to
determine whether an option will be exercisable in full at any time or from time
to time during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at such times during the term of the option as
the Board of Directors may determine and specify in the option agreement.
(b) The exercise of any option granted hereunder shall only be effective at
such time as counsel to the Company shall have determined that the issuance and
delivery of Common Stock pursuant to such exercise will not violate any state or
federal securities or other laws. An optionee desiring to exercise an option may
be required by the Company, as a condition of the effectiveness of any exercise
of an option granted hereunder, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held for his or her own account
without a view to any further distribution thereof, that the certificates for
such shares shall bear an appropriate legend to that effect and that such shares
will not be transferred or disposed of except in compliance with applicable
federal and state securities laws.
(c) An optionee electing to exercise an option shall give written notice to
the Company of such election and of the number of shares subject to such
exercise. The full purchase price of such shares shall be tendered with such
notice of exercise. Payment shall be made to the Company by delivery of (A) cash
(including check, bank draft or money order), (B) shares of Common Stock already
owned by the optionee having a fair market value as of the date of exercise
equal to the full exercise price of the shares to be acquired, (C) written
authorization for the Company to retain from the total number of shares of
Common Stock as to which the option is exercised that number of shares having a
fair market value as of the date of exercise equal to the aggregate exercise
price of the options exercised, (D) any combination of the foregoing methods of
payment, or (E) such other form of consideration as the Board of Directors may
deem acceptable. For purposes of the preceding sentence, the fair market value
of Common Stock tendered shall be determined as provided in Section 11 as of the
date of exercise.
9. Effect of Termination of Directorship or Death or Disability.
(a) In the event that an optionee shall cease to be a director of the
Company for any reason other than such person's gross and willful misconduct or
such person's death or disability, (as may be determined in the sole discretion
of the Board of Directors) such optionee shall have the right to exercise the
option at any time within seven months after such termination of directorship to
the extent of the full number of shares he or she was entitled to purchase under
the option on the date of termination, subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(b) In the event that an optionee shall cease to be a director of the
Company by reason of the optionee's gross and willful misconduct during the
course of his or her service as a director of the Company, including but not
limited to wrongful appropriation of funds of the Company, or the commission of
a gross misdemeanor or felony, the option shall be terminated as of the date of
the misconduct and the optionee shall have no further rights thereunder.
(c) If the optionee shall die while serving as a director of the Company or
within seven months after termination of his or her directorship for any reason
other than the optionee's gross and willful misconduct or the optionee shall
become disabled (as may be determined in the sole discretion of the Board of
Directors) while serving as a director of the Company and such optionee shall
not have fully exercised the option, such option may be exercised at any time
within 12 months after the date of such death or the onset of such disability by
the optionee or the optionee's legal representative, in the case of disability,
or by the personal representative(s), administrator(s), or heir(s) of the
optionee, in the case of death, to the extent of the full number of shares the
optionee was entitled to purchase under the option on the date of death,
disability, or termination of directorship, if earlier, and subject to the
condition that no option shall be exercisable after the expiration of the term
of the option.
2
<PAGE>
10. Option Exercise Price. The option price for all Options granted under
the Plan shall be determined by the Board of Directors but shall not be less
than 100% of the fair market value per share of Common Stock as of the date of
grant of such option.
11. Fair Market Value of Common Stock. For purposes of this Plan, the fair
market value of the Common Stock as of a given date shall be the closing price
of the Common Stock as reported on the Nasdaq National Market on the trading
date immediately preceding such date. If the Common Stock is not publicly traded
on such date, the Board of Directors shall make a good faith attempt to
determine such fair market value and, in connection therewith, shall take such
actions and consider such factors as it deems necessary or advisable.
12. Transfer Restrictions. No option granted under the Plan or interest
therein may be transferred, assigned, pledged or hypothecated by the optionee
during such optionee's lifetime, whether by operation of law or otherwise, or be
made subject to execution, attachment or similar process, except that options
shall be transferable by the optionee: (a) by will or by the laws of descent and
distribution as provided in Section 9(c) hereof; (b) to any child, stepchild,
grandchild, parent, step-parent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of
the optionee, including adoptive relationships ("immediate family members"); (c)
to charitable organizations; or (d) to trusts for the benefit of immediate
family members of the optionee or charitable organizations. Except as provided
in Section 9 hereof with respect to disability of the optionee, and except for
options that have been transferred in accordance with the provisions of this
Section 12, during the lifetime of the optionee an option granted under this
Plan shall be exercisable only by the optionee.
13. Limitation of Rights
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute,
or be evidence of, any agreement or understanding, express or implied, that the
Company will retain a director for any period of time, or at any particular rate
of compensation.
(b) No Shareholder Rights for Options. An optionee shall have no rights as
a shareholder with respect to the shares covered by options until the date of
the issuance to such optionee of a stock certificate therefor, and no adjustment
will be made for dividends or other rights for which the record date is prior to
the date such certificate is issued
14. Adjustments to Common Stock. If there shall be any change in Common
Stock through merger, consolidation, reorganization, recapitalization, stock
dividend (of whatever amount), stock split or other changes in the corporate
structure, appropriate adjustments to the Plan and outstanding options shall be
made. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares subject to outstanding options and the option exercise prices
thereof in order to prevent dilution or enlargement of option rights.
15. Effective Date of the Plan. The Plan shall take effect immediately upon
its approval by the affirmative vote of the majority of the directors of the
Company at a duly held meeting of the Board of Directors.
16. Time for Granting Options. Unless the Plan shall have been terminated
as provided in Section 17 hereof, the Plan shall terminate upon the expiration
of 10 years from the date upon which it takes effect as provided in Section 15
hereof. No option may be granted after such termination, but termination of the
Plan shall not, without the consent of the optionee, alter or impair any rights
or obligations under any option theretofore granted.
17. Amendment of the Plan. The Board of Directors may amend the Plan in any
respect whatsoever; provided however, that the Board of Directors shall not
amend the Plan in a manner that adversely affects any rights of any holder of
any option heretofore granted under the Plan without the consent of the holder
of the option. Notwithstanding the foregoing, only the Board of Directors has
the authority to amend the Plan to increase the number of shares subject thereto
or to terminate the Plan.
18. Governing Law. The place of administration of the Plan and the
Agreements issued thereunder shall be in the State of Minnesota. The corporate
law of the State of Delaware shall govern issues relating to the validity and
issuances of Shares. Otherwise, this Plan and the Agreements issued thereunder
shall be construed and administered in accordance with the laws of the State of
Minnesota without giving effect to principles relating to conflict of laws.
3
<PAGE>
EXHIBIT 10.4
METRIS COMPANIES INC.
MANAGEMENT STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
The purposes of this Metris Companies Inc. Management Stock Purchase Plan
(the "Plan") are (i) to align the interests of the stockholders of Metris
Companies Inc. (the "Company") and the senior executives of the Company and
certain of its subsidiaries by increasing the proprietary interest of such
executives in the Company's growth and success, (ii) to advance the interests of
the Company by attracting and retaining such executives of the Company and such
subsidiaries, and (iii) to motivate such executives to act in the long-term best
interests of the Company's stockholders.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following capitalized terms shall have the
meanings set forth in this Article. "Board" shall mean the Board of Directors of
the Company.
"Bonus Plan" shall mean the Metris Management Incentive Bonus Plan.
"Bonus Year" shall mean the calendar year for which an annual bonus is
payable under the Bonus Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean a committee designated by the Board consisting of
two or more members of the Board, each of whom is a "Non-Employee Director"
within the meaning of Rule 16b-3 under the Exchange Act.
"Common Stock" shall mean the common stock, par value $.01 per share, of
the Company.
"Company Match" shall mean an amount credited to a Participant's Stock
Purchase Account pursuant to Section 4.2 hereof based on the deferred portion of
the Participant's annual bonus under the Bonus Plan for a Bonus Year.
"Designated Beneficiary" shall mean the person or persons entitled to
receive the remaining Distributable Balance in a Participant's Stock Purchase
Account at the Participant's death.
"Distributable Balance" shall mean the balance in a Participant's Stock
Purchase Account that is distributable to the Participant upon termination of
the Participant's employment or the earlier distribution date specified by the
Participant.
"Employer" shall mean the Company and any subsidiary of the Company
approved by the Board.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock shall mean its closing sale
price on the principal national stock exchange on which Common Stock is traded
on the date as of which such value is being determined, or, if there shall be no
reported sale for such date, on the next preceding date for which a sale was
reported; provided that if Fair Market Value for any date cannot be so
determined, Fair Market Value shall be determined by the Committee by whatever
means or method as the Committee, in the good faith exercise of its discretion,
shall at such time deem appropriate.
"Legal Representative" shall mean a guardian, legal representative or other
person acting in a similar capacity with respect to a Participant.
"Participant" means an eligible executive of an Employer who has elected to
participate in the Plan.
1
<PAGE>
"Stock Purchase Account" shall mean a book reserve maintained by the
Company for the purpose of measuring the amount payable to a Participant with
respect to the deferred portion of the Participant's annual bonus under the
Bonus Plan for a Bonus Year.
ARTICLE III
ELIGIBILITY AND ADMINISTRATION
3.1 Eligibility. Any executive of an Employer whose job title is that of
Senior Vice President or higher and who is a participant in the Bonus Plan is
eligible to participate in the Plan.
3.2 Administration. The Plan shall be administered by the Committee. The
Committee may, in its sole discretion and for any reason at any time, take
action such that all or a portion of the amount in a Participant's Stock
Purchase Account attributable to a Company Match shall vest. The Committee
shall, subject to the terms of the Plan, interpret the Plan and the application
thereof, and establish such rules and regulations it deems necessary or
desirable for the administration of the Plan. All such interpretations, rules
and regulations shall be final, binding and conclusive.
(a) Indemnification. No member of the Board or Committee shall be liable
for any act, omission, interpretation, construction or determination made in
good faith in connection with the Plan, and each member of the Board and the
Committee shall be entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage or expense (including attorneys' fees)
arising therefrom to the full extent permitted by law, except as otherwise may
be provided in the Company's Articles of Incorporation or by-laws, and under any
directors' and officers' liability insurance which may be in effect from time to
time.
3.3 Shares Available. Subject to adjustment as provided in Section 5.5,
150,000 shares of Common Stock shall be available under the Plan. Such shares of
Common Stock shall be reduced by the aggregate number of shares of Common Stock
allocated to Participant's Stock Purchase Accounts under the Plan. To the extent
that shares of Common Stock allocated to Participant's Stock Purchase Accounts
are forfeited, then such shares of Common Stock shall again be available under
the Plan. Shares of Common Stock to be delivered under the Plan shall be made
available from authorized and unissued shares of Common Stock, or authorized and
issued shares of Common Stock reacquired and held as treasury shares or
otherwise or a combination thereof.
ARTICLE IV
STOCK PURCHASE ACCOUNTS
AND COMPANY MATCH AWARDS
4.1 Stock Purchase Accounts. There shall be deducted from each check in
full or partial payment of a Participant's annual bonus under the Bonus Plan for
a Bonus Year, an amount equivalent to the percentage (not to exceed 50%) of the
gross bonus payment that the Participant has elected to defer (in accordance
with rules and regulations established by the Committee), which amount will be
credited as of the date on which the check is issued to the Participant's Stock
Purchase Account. Amounts so credited to the Participant's Stock Purchase
Account (as adjusted for deemed investment returns) shall be 100% vested at all
times.
4.2 Company Match Awards. As of each date on which amounts are credited to
a Participant's Stock Purchase Account pursuant to Section 4.1, there shall also
be credited to the Stock Purchase Account a Company Match amount equal to 33
1/3% of the amount credited to the Stock Purchase Account as of such date
pursuant to Section 4.1. The Company Match amount so credited to the
Participant's Stock Purchase Account pursuant to this Section 4.2 (as adjusted
for deemed investment returns hereunder) shall become vested on the third
anniversary of the end of the Bonus Year, provided that the Participant is an
employee of the Company (or a subsidiary of the Company) on such date.
4.3 Deemed Investment of Stock Purchase Accounts. Amounts credited to a
Participant's Stock Purchase Account pursuant to Sections 4.1 and 4.2 above
shall be deemed to be invested in whole and fractional shares of Common Stock at
the Fair Market Value thereof on the date as of which the amount is credited to
the Stock Purchase Account.
2
<PAGE>
4.4 Distribution of Stock Purchase Accounts. On the earlier of the date
specified by the Participant (which shall be no earlier than the second
anniversary of the end of the Bonus Year in the case of the Bonus Year ending
December 31, 1999 or the third anniversary of the end of the Bonus Year for all
subsequent Bonus Years) in accordance with rules and regulations established by
the Committee or the date the Participant terminates his/her employment for
whatever reason, the Company shall compute the "Distributable Balance" in the
Stock Purchase Account on such date. This Distributable Balance shall include
(i) if the Participant's employment has terminated, all bonus deferrals made
through the current month (as adjusted for deemed investment returns hereunder),
or, if the Participant's employment has not terminated, all bonus deferrals that
are distributable to the Participant on such date (as adjusted for deemed
investment returns hereunder) and (ii) if the Participant's employment has
terminated for retirement, disability or death, all Company Match amounts
credited to the Stock Purchase Account (as adjusted for deemed investment
returns hereunder), or, if the Participant's employment has not terminated or
has terminated for any other reason, the vested Company Match amounts credited
to the Stock Purchase Account (as adjusted for deemed investment returns
hereunder). In the event that the Participant becomes disabled, his/her
employment shall for these purposes be deemed to terminate on the first day of
the month in which he/she begins to receive long term disability payments
provided by the Company's insurance carrier. Payment of the Distributable
Balance under these events will be in accordance with the Participant's payment
method and distribution date elections. For purposes of this Section 4.4,
"disability" shall mean a total physical disability which, in the Company's
judgment, prevents the Participant from performing substantially his/her
employment duties and responsibilities for a continuous period of at least six
months, and "retirement" shall mean retirement as defined in the [name of
Company's retirement plan]. All distributions hereunder will be made in whole
shares of Common Stock and cash equal to the Fair Market Value of any fractional
share. If a Participant dies before his/her entire Distributable Balance has
been paid, the Company shall pay the then undistributed remainder of the
Distributable Balance to the Participant's Designated Beneficiary.
4.5 Designation of Beneficiaries. A Participant may designate a Designated
Beneficiary by executing and filing with the Company during his/her lifetime, a
beneficiary designation. The Participant may change or revoke any such
designation by executing and filing with the Company during his/her lifetime a
new beneficiary designation. If any Designated Beneficiary predeceases the
Participant, or if any corporation, partnership, trust or other entity which is
a Designated Beneficiary is terminated, dissolved, becomes insolvent, is
adjudicated bankrupt prior to the date of the Participant's death, or if the
Participant fails to designate a beneficiary, then the following persons in the
order set forth below shall receive the entire amount which the previous
Designated Beneficiary would have been entitled to receive:
i) Participant's spouse, if living; otherwise
ii) Participant's then living descendants, per stirpes; and otherwise;
iii) Participant's estate
ARTICLE V
GENERAL
5.1 Effective Date of Plan. The Plan shall become effective as of [January
1, 2000]. The Program shall be submitted to the stockholders of the Company for
approval, and in the event that the Program is not approved by such
stockholders, any awards granted under the Program shall be void.
5.2 Amendments. The Board may amend the Plan as it shall deem advisable,
subject to any requirement of stockholder approval under applicable law;
provided, however, that, except as provided in Section 5.5, no amendment shall
be made without stockholder approval if such amendment increases the maximum
number of shares of Common Stock available for issuance under the Plan. No
amendment may impair the rights of a Participant without the consent of such
Participant.
3
<PAGE>
5.3 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock, payment by the
Participant of any federal, state, local or other taxes which may be required to
be withheld or paid in connection with the distribution of Common Stock. In the
alternative, the Company may withhold whole shares of Common Stock which would
otherwise be delivered to a Participant, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with a distribution (the "Tax Date") in the amount necessary to
satisfy any such obligation or (ii) the Participant may satisfy any such
obligation. Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the Participant.
5.4 Restrictions on Shares. If at any time the Company determines that the
listing, registration or qualification of the shares of Common Stock allocated
to the Stock Purchase Accounts of Participants upon any securities exchange or
under any law, or the consent or approval of any governmental body, or the
taking of any other action is necessary or desirable as a condition of, or in
connection with, the delivery of shares hereunder, such shares shall not be
delivered unless such listing, registration, qualification, consent, approval or
other action shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company may require that certificates evidencing
shares of Common Stock delivered to any Participant hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
5.5 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities deemed to be held in each Stock
Purchase Account shall be appropriately adjusted by the Committee. The decision
of the Committee regarding any such adjustment shall be final, binding and
conclusive.
5.6 Change in Control.
(a) (1) Notwithstanding any provision in the Plan, in the event of a Change
in Control, the Board may, but shall not be required to, make such adjustments
to outstanding awards hereunder as it deems appropriate, including, without
limitation, causing the amount in a Stock Purchase Account attributable to a
Company Match to vest, or electing that each outstanding Stock Purchase Account
shall be canceled by the Company, and that each Participant shall receive,
within a specified period of time from the occurrence of the Change in Control,
a cash payment from the Company in an amount equal to the number of shares of
Common Stock then deemed to be in the Participant's Stock Purchase Account,
multiplied by the greater of (x) the highest per share price offered to
stockholders of the Company in any transaction whereby the Change in Control
takes place or (y) the Fair Market Value of a share of Stock on the date of
occurrence of the Change in Control.
(2) In the event of a Change in Control pursuant to subsection (b)(3) or
(4) below in connection with which the holders of Common Stock receive shares of
common stock that are registered under Section 12 of the Exchange Act, the Board
may, but shall not be required to, substitute for each share of Common Stock
available under this Plan, whether or not then subject to an outstanding award,
the number and class of shares into which each outstanding share of Common Stock
shall be converted pursuant to such Change in Control.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act, of beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act, of 50% or more of the combined
voting power of the then outstanding securities of the Company entitled to
vote generally on matters (without regard to the election of directors)
(the "Outstanding Voting Securities"), excluding, however, the following:
(i) any acquisition directly from the Company or a subsidiary of the
Company (excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the Company or
a subsidiary of the Company), (ii) any acquisition by the Company or a
subsidiary of the Company, (iii) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company or a
subsidiary of the Company, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (3) of this Section 5.6(b) (all such persons, collectively,
the "Exempted Persons");
4
<PAGE>
(2) individuals who, as of [January 1, 2000], constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided that any individual who becomes a director of the
Company subsequent to [January 1, 2000], whose election, or nomination for
election by the Company's stockholders, was approved by the vote of at
least a majority of the directors then comprising the Incumbent Board shall
be deemed a member of the Incumbent Board; and provided further, that any
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a member of
the Incumbent Board;
(3) approval by the stockholders of the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or substantially
all of the individuals or entities who are the beneficial owners of the
Outstanding Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50% of
the combined voting power of the outstanding securities of the corporation
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns, either directly or
indirectly, the Company or all or substantially all of the Company's
assets) which are entitled to vote generally on matters (without regard to
the election of directors), in substantially the same proportions relative
to each other as the shares of Outstanding Voting Securities are owned
immediately prior to such Corporate Transaction, (ii) no Person (other than
the following Persons: (v) the Company or subsidiary of the Company, (w)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or subsidiary of the Company, (x) the corporation resulting from
such Corporate Transaction, (y) the Exempted Persons, (z) and any Person
which beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Voting Securities)
will beneficially own, directly or indirectly, 25% or more of the combined
voting power of the outstanding securities of such corporation entitled to
vote generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will constitute
at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(4) approval by the stockholders of the Company of (i) a plan of complete
liquidation or dissolution of the Company, or (ii) the sale or other
disposition of all or substantially all of the assets of the Company.
5.7 No Right of Employment. Participation in the Plan shall not confer upon
any person any right to continued employment by the Company or any of its
subsidiaries or affect in any manner the right of the Company or any of its
subsidiaries to terminate the employment of any person at any time without
liability hereunder.
5.8 Rights as Stockholder. No person shall have any right as a stockholder
of the Company with respect to any shares of Common Stock of the Company which
are allocated to such person's Stock Purchase Account hereunder unless and until
such person becomes a stockholder of record with respect to such shares of
Common Stock.
5.9 Governing Law. The place of administration of the Plan shall be in the
State of Minnesota. The corporate law of the State of Delaware shall govern
issues relating to the validity and issuance of shares of Common Stock.
Otherwise, the Plan shall be construed and administered in accordance with the
laws of the State of Minnesota, without giving effect to principles relating to
conflict of laws.
5.10 Severability. If a provision of the Plan shall be held illegal or
invalid, the illegality or invalidity shall not affect the remaining parts of
the Plan and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included in the Plan.
5
<PAGE>
EXHIBIT 10.5
ANNUAL INCENTIVE BONUS PLAN
DESIGNATED CORPORATE OFFICERS
(As Amended and Restated Effective January 1, 2000)
1. Definitions. When the following terms are used herein with initial
capital letters, they shall have the following meanings:
1.1 Base Pay - as determined by Compensation Committee.
1.2 Code - the Internal Revenue Code of 1986, as it may be amended from
time to time, and any proposed, temporary or final Treasury Regulations
promulgated thereunder.
1.3 Common Stock - shall mean the common stock, par value $.01 per share,
of the Company.
1.4 Company - Metris Companies Inc., a Delaware corporation, and any of its
affiliates that adopt this Plan.
1.5 Company Match - shall mean an amount credited to a Participant's
Deferred Stock Account pursuant to subsection 5.2 hereof based on the deferred
portion of the Participant's bonus payment for a Performance Period.
1.6 Company Performance Factor - percentage identified in Schedule Z. The
Company Performance Factor shall be directly and specifically tied to one or
more of the following business criteria, determined with respect to the Company:
consolidated pre-tax earnings, net revenues, net earnings, operating income,
earnings before interest and taxes, cash flow, return on equity, return on net
assets employed or earnings per share for the applicable Performance Period, all
as computed in accordance with generally accepted accounting principles as in
effect from time to time and as applied by the Company in the preparation of its
financial statements and subject to such other special rules and conditions as
the Compensation Committee may establish at any time ending on or before the
90th day of the applicable Performance Period. Such Performance Factors shall
constitute the sole business criteria upon which the performance goals under
this Plan shall be based.
1.7 Compensation Committee - a committee comprised solely of two or more
members of the Board of Directors of Metris Companies Inc., each of whom is an
"outside director" within the meaning of Section 162(m) of the Code and a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act.
1.8 Deferred Stock Account - shall mean a book reserve maintained by the
Company for the purpose of measuring the amount payable to a Participant with
respect to the deferred portion of the Participant's bonus payment for a
Performance Period.
1.9 Designated Beneficiary - shall mean the person or persons entitled to
receive the remaining Distributable Balance in a Participant's Deferred Stock
Account at the Participant's death.
1.10 Distributable Balance - shall mean the balance in a Participant's
Deferred Stock Account that is distributable to the Participant upon termination
of the Participant's employment or the earlier distribution date specified by
the Participant.
1.11 Exchange Act - shall mean the Securities Exchange Act of 1934, as
amended.
1.12 Fair Market Value - of a share of Common Stock shall mean its closing
sale price on the principal national stock exchange on which Common Stock is
traded on the date as of which such value is being determined, or, if there
shall be no reported sale for such date, on the next preceding date for which a
sale was reported; provided that if Fair Market Value for any date cannot be so
determined, Fair Market Value shall be determined by the Compensation Committee
by whatever means or method as the Compensation Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
1.13 Legal Representative - shall mean a guardian, legal representative or
other person acting in a similar capacity with respect to a Participant.
1
<PAGE>
1.14 Participant - the President and Chief Executive Officer, and any of
the Executive Vice Presidents or Senior Vice Presidents of the Company who are
designated by the Compensation Committee at any time ending on or before the
90th day of each Performance Period as Participants in this Plan.
1.15 Performance Period - the twelve consecutive month period which
coincides with the Company's fiscal year.
1.16 Targeted Bonus Percentage - the percentage identified in Schedule Y.
2. Administration.
2.1 Compensation Committee. The Plan shall be administered by the
Compensation Committee.
2.2 Determinations Made Prior to Each Performance Period. At any time
ending on or before the 90th day of each Performance Period, the Compensation
Committee shall:
(a) designate Participants for that Performance Period;
(b) establish Targeted Bonus Percentages for the Performance Period by
amending (in writing) Schedule Y;
(c) establish Company Performance Factors for the Performance Period by
amending (in writing) Schedule Z.
2.3 Certification. Following the close of each Performance Period and prior
to payment of any bonus under the Plan, the Compensation Committee must certify
in writing that the Company Performance Factor and all other factors upon which
a bonus is based have been attained.
2.4 Shareholder Approval. The material terms of this Plan shall be
disclosed to and approved by shareholders of the Company in accordance with
Section 162(m) of the Code. No bonus shall be paid under this Plan unless such
shareholder approval has been obtained.
3. Bonus Payment.
3.1 Formula. Each Participant shall receive a bonus payment for each
Performance Period in an amount not greater than:
(a) the Participant's Base Pay for the Performance Period, multiplied by.
(b) the Participant's Targeted Bonus Percentage for the Performance Period
multiplied by (c)the Participant's Company Performance Factor for the
Performance Period.
3.2 Limitations.
(a) No payment if Company Performance Factor not Achieved. In no event
shall any Participant receive a bonus payment hereunder if the Company
Performance Factor and all other factors on which the bonus payment is
based is not achieved during the Performance Period.
(b) No payment in excess of preestablished amount. No Participant
shall receive a bonus payment under this Plan for any Performance Period in
excess of $4 million.
(c) Compensation Committee may reduce bonus payment. The Compensation
Committee retains sole discretion to reduce the amount of or eliminate any
bonus otherwise payable under this Plan.
4. Benefit Payments.
4.1 Time and Form of Payments. Subject to Section 5 below, 50% of the bonus
payment under the Plan for a Performance Period shall be paid to the Participant
in one or more cash payments as soon as determined by the Compensation Committee
after it has certified that the Company Performance Factor and all other factors
upon which the bonus payment for the Participant is based have been attained.
2
<PAGE>
4.2 Nontransferability. Participants and beneficiaries shall not have the
right to assign, encumber or otherwise anticipate the payments to be made under
this Plan, and the benefits provided hereunder shall not be subject to seizure
for payment of any debts or judgments against any Participant or any
beneficiary.
4.3 Tax Withholding. In order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant.
5. Deferred Stock Accounts and Company Match Awards.
5.1 Deferred Stock Accounts. An amount equivalent to 50% of the gross bonus
payment payable to a Participant under the Plan for a Performance Period will be
credited to the Participant's Deferred Stock Account as of the date on which the
first cash bonus payment for the Compensation Performance Period is paid to the
Participant pursuant to subsection 4.1, provided, however, that a Participant
may elect, in accordance with rules and regulations established by the
Compensation Committee, to have all or a portion of such amount paid to the
Participant in cash under subsection 4.1 above rather than credited to the
Participant's Deferred Stock Account. Amounts credited to a Participant's
Deferred Stock Account pursuant to the subsection 5.1 (as adjusted for deemed
investment returns) shall be 100% vested at all times.
5.2 Company Match Awards. As of each date on which an amount is credited to
a Participant's Deferred Stock Account pursuant to subsection 5.1, there shall
also be credited to the Deferred Stock Account a Company Match amount equal to
33 1/3% of the amount credited to the Deferred Stock Account as of such date
pursuant to subsection 5.1. The Company Match amount so credited to a
Participant's Deferred Stock Account pursuant to this subsection 5.2 (as
adjusted for deemed investment returns hereunder) shall become vested on the
third anniversary of the end of the Performance Period, provided that the
Participant is an employee of the Company (or a subsidiary of the Company) on
such date.
5.3 Deemed Investment of Deferred Stock Accounts. Amounts credited to a
Participant's Deferred Stock Account pursuant to subsections 5.1 and 5.2 above
shall be deemed to be invested in whole and fractional shares of Common Stock at
the Fair Market Value thereof on the date as of which the amount is credited to
the Deferred Stock Account.
5.4 Distribution of Deferred Stock Accounts. On the earlier of (a) the date
specified by the Participant (which shall be no earlier than the second
anniversary of the end of the Performance Period in the case of the Performance
Period ending December 31, 1999 or the third anniversary of the end of the
Performance Period for all subsequent Performance Periods) in accordance with
rules and regulations established by the Compensation Committee or (b) the date
the Participant terminates his/her employment for whatever reason, the Company
shall compute the "Distributable Balance" in the Deferred Stock Account on such
date. This Distributable Balance shall include (i) if the Participant's
employment has terminated, all amounts credited to the Deferred Stock Account
pursuant to subsection 5.1 through the current month (as adjusted for deemed
investment returns hereunder), or, if the Paricipant's employment has not
terminated, all amounts credited to the Deferred Stock Account pursuant to
subsection 5.1 that are distributable to the Participant on such date (as
adjusted for deemed investment returns hereunder) and (ii) if the Participant's
employment has terminated for retirement, disability or death, all Company Match
amounts credited to the Deferred Stock Account (as adjusted for deemed
investment returns hereunder), or, if the Participant's employment has not
terminated or has terminated for any other reason, the vested Company Match
amounts credited to the Deferred Stock Account (as adjusted for deemed
investment returns hereunder). In the event that the Participant becomes
disabled, his/her employment shall for these purposes be deemed to terminate on
the first day of the month in which he/she begins to receive long term
disability payments provided by the Company's insurance carrier. Payment of the
3
<PAGE>
Distributable Balance under these events will be in accordance with the
Participant's payment method and distribution date elections. For purposes of
this subsection 5.4, "disability" shall mean a total physical disability which,
in the Company's judgment, prevents the Participant from performing
substantially his/her employment duties and responsibilities for a continuous
period of at least six months, and "retirement" shall mean retirement as defined
in the [name of Company's retirement plan]. All distributions hereunder will be
made in whole shares of Common Stock and cash equal to the Fair Market Value of
any fractional share. If a Participant dies before his/her entire Distributable
Balance has been paid, the Company shall pay the then undistributed remainder of
the Distributable Balance to the Participant's Designated Beneficiary. Subject
to adjustment as provided in subsection 5.8, 150,000 shares of Common Stock
shall be available under the Plan. Such shares of Common Stock shall be reduced
by the aggregate number of shares of Common Stock allocated to Participants'
Deferred Stock Accounts under the Plan. To the extent that shares of Common
Stock allocated to Participants' Deferred Stock Accounts are forfeited, then
such shares of Common Stock shall again be available under the Plan. Shares of
Common Stock to be delivered under the Plan shall be made available from
authorized and unissued shares of Common Stock, or authorized and issued shares
of Common Stock reacquired and held as treasury shares or otherwise or a
combination thereof.
5.5 Designation of Beneficiaries. A Participant may designate a Designated
Beneficiary by executing and filing with the Company during his/her lifetime, a
beneficiary designation. The Participant may change or revoke any such
designation by executing and filing with the Company during his/her lifetime a
new beneficiary designation. If any Designated Beneficiary predeceases the
Participant, or if any corporation, partnership, trust or other entity which is
a Designated Beneficiary is terminated, dissolved, becomes insolvent, is
adjudicated bankrupt prior to the date of the Participant's death, or if the
Participant fails to designate a beneficiary, then the following persons in the
order set forth below shall receive the entire amount which the previous
Designated Beneficiary would have been entitled to receive:
i) Participant's spouse, if living; otherwise
ii) Participant's then living descendants, per stirpes; and otherwise;
iii) Participant's estate
5.6 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock, payment by the
Participant of any federal, state, local or other taxes which may be required to
be withheld or paid in connection with the distribution of Common Stock. In the
alternative, the Company may withhold whole shares of Common Stock which would
otherwise be delivered to a Participant, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with a distribution (the "Tax Date") in the amount necessary to
satisfy any such obligation or (ii) the Participant may satisfy any such
obligation. Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the Participant.
5.7 Restrictions on Shares. If at any time the Company determines that the
listing, registration or qualification of the shares of Common Stock allocated
to the Deferred Stock Accounts of Participants upon any securities exchange or
under any law, or the consent or approval of any governmental body, or the
taking of any other action is necessary or desirable as a condition of, or in
connection with, the delivery of shares hereunder, such shares shall not be
delivered unless such listing, registration, qualification, consent, approval or
other action shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company may require that certificates evidencing
shares of Common Stock delivered to any Participant hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
5.8 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities deemed to be held in each Deferred
Stock Account shall be appropriately adjusted by the Compensation Committee. The
decision of the Compensation Committee regarding any such adjustment shall be
final, binding and conclusive.
4
<PAGE>
5.9 Change in Control.
(a) (1) Notwithstanding any provision in the Plan, in the event of a Change
in Control, the Compensation Committee may, but shall not be required to, make
such adjustments to outstanding awards hereunder as it deems appropriate,
including, without limitation, causing the amount in a Deferred Stock Account
attributable to a Company Match to vest, or electing that each outstanding
Deferred Stock Account shall be canceled by the Company, and that each
Participant shall receive, within a specified period of time from the occurrence
of the Change in Control, a cash payment from the Company in an amount equal to
the number of shares of Common Stock then deemed to be in the Participant's
Deferred Stock Account, multiplied by the greater of (x) the highest per share
price offered to shareholders of the Company in any transaction whereby the
Change in Control takes place or (y) the Fair Market Value of a share of Stock
on the date of occurrence of the Change in Control.
(2) In the event of a Change in Control pursuant to subsection (b)(3) or
(4) below in connection with which the holders of Common Stock receive shares of
common stock that are registered under Section 12 of the Exchange Act, the
Compensation Committee may, but shall not be required to, substitute for each
share of Common Stock available under this Plan, whether or not then subject to
an outstanding award, the number and class of shares into which each outstanding
share of Common Stock shall be converted pursuant to such Change in Control.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 50% or more of the combined voting power
of the then outstanding securities of the Company entitled to vote generally on
matters (without regard to the election of directors) (the "Outstanding Voting
Securities"), excluding, however, the following: (i) any acquisition directly
from the Company or a subsidiary of the Company (excluding any acquisition
resulting from the exercise of an exercise, conversion or exchange privilege,
unless the security being so exercised, converted or exchanged was acquired
directly from the Company or a subsidiary of the Company), (ii) any acquisition
by the Company or a subsidiary of the Company, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or a subsidiary of the Company, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (3) of this Section 5.6(b) (all such persons, collectively, the
"Exempted Persons");
(2) individuals who, as of [January 1, 2000], constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided that any individual who
becomes a director of the Company subsequent to [January 1, 2000], whose
election, or nomination for election by the Company's shareholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and provided
further, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or
any other actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a member of the
Incumbent Board;
(3) approval by the shareholders of the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Corporate Transaction"), excluding, however, a
Corporate Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the beneficial owners of the Outstanding Voting
Securities immediately prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than 50% of the combined voting power of the
outstanding securities of the corporation resulting from such Corporate
Transaction (including, without limitation, a corporation which as a result of
such transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote generally
on matters (without regard to the election of directors), in substantially the
same proportions relative to each other as the shares of Outstanding Voting
Securities are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (v) the Company or subsidiary of the
Company, (w) any employee benefit plan (or related trust) sponsored or
maintained by the Company or subsidiary of the Company, (x) the corporation
resulting from such Corporate Transaction, (y) the Exempted Persons, (z) and any
Person which beneficially owned, immediately prior to such Corporate
Transaction, directly or indirectly, 25% or more of the Outstanding Voting
Securities) will beneficially own, directly or indirectly, 25% or more of the
combined voting power of the outstanding securities of such corporation entitled
to vote generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the corporation
resulting from such Corporate Transaction; or
5
<PAGE>
(4) approval by the shareholders of the Company of (i) a plan of complete
liquidation or dissolution of the Company, or (ii) the sale or other disposition
of all or substantially all of the assets of the Company.
6. Amendment and Termination. The Compensation Committee may amend this
Plan prospectively at any time and for any reason deemed sufficient by it
without notice to any person affected by this Plan and may likewise terminate or
curtail the benefits of this Plan both with regard to persons expecting to
receive benefits hereunder in the future and persons already receiving benefits
at the time of such action.
7. Miscellaneous.
7.1 Effective Date. The effective date of this amendment and restatement of
the Plan is January 1, 2000.
7.2 Term of the Plan. Unless the Plan shall have been discontinued or
terminated, the Plan shall terminate on December 31, 2003. No bonus shall be
granted after the termination of the Plan; provided, however, that a payment
with respect to a Performance Period which begins before such termination may be
made thereafter. In addition, the authority of the Compensation Committee to
amend the Plan, shall extend beyond the termination of the Plan.
7.3 Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any ways material or relevant to the construction or interpretation of
the Plan or any provision thereof.
7.4 Applicability to Successors. This Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and assigns
of the Company, and the beneficiaries, personal representatives and heirs of
each Participant. If the Company becomes a party to any merger, consolidation or
reorganization, this Plan shall remain in full force and effect as an obligation
of the Company or its successors in interest.
7.5 Employment Rights and Other Benefits Programs. The provisions of this
Plan shall not give any Participant any right to be retained in the employment
of the Company. In the absence of any specific agreement to the contrary, this
Plan shall not affect any right of the Company, or of any affiliate of the
Company, to terminate, with or without cause, the participant's employment at
any time. This Plan shall not replace any contract of employment, whether oral,
or written, between the Company and any Participant, but shall be considered a
supplement thereto. This Plan is in addition to, and not in lieu of, any other
employee benefit plan or program in which any Participant may be or become
eligible to participate by reason of employment with the Company. Receipt of
benefits hereunder shall have such effect on contributions to and benefits under
such other plans or programs as the provisions of each such other plan or
program may specify.
7.6 No Trust Fund Created. This Plan shall not create or be construed to
create a trust or separate fund of any kind or fiduciary relationship between
the Company or any affiliate and a Participant or any other person. To the
extent that any person acquires a right to receive payments from the Company or
any affiliate pursuant to this Plan, such right shall be no greater than the
right of any unsecured general creditor of the Company or of any affiliate.
7.7 Governing Law. The place of administration of the Plan shall be in the
State of Minnesota. The corporate law of the State of Delaware shall govern
issues relating to the validity and issuance of shares of Common Stock.
Otherwise, the Plan shall be construed and administered in accordance with the
laws of the State of Minnesota, without giving effect to principles relating to
conflict of laws.
7.8 Severability. If any provision of the Plan is or becomes or is deemed
to be invalid, illegal or unenforceable in any jurisdiction such provision shall
be construed or deemed amended to conform to applicable laws, or if it cannot be
so construed or deemed amended without, in the determination of the Compensation
Committee, materially altering the purpose or intent of the Plan, such provision
shall be stricken as to such jurisdiction, and the remainder of the Plan shall
remain in full force and effect.
7.9 Qualified Performance Based Compensation. All of the terms and
conditions of the Plan shall be interpreted in such a fashion as to qualify all
compensation paid hereunder to the maximum extent possible as qualified
performance-based compensation within the meaning of Section 162(m) of the Code.
6
<PAGE>
EXHIBIT 10.6
METRIS COMPANIES INC.
LONG-TERM INCENTIVE AND STOCK OPTION PLAN
As Amended and Restated
Effective as of May 11, 1999
1. Purpose of Plan.
This Plan shall be known as the "METRIS COMPANIES INC. LONG-TERM INCENTIVE
AND STOCK OPTION PLAN." The purpose of the Plan is to aid in maintaining and
developing personnel capable of ensuring the future success of Metris Companies
Inc., a Delaware corporation, to offer such personnel additional incentives to
put forth maximum efforts for the success of the business, and to afford them an
opportunity to acquire a proprietary interest in the Company through stock
options and other long-term incentive awards as provided herein. Options granted
under this Plan may be either Incentive Stock Options or Nonqualified Stock
Options. Awards granted under this Plan may be stock appreciation rights,
restricted stock or performance awards as hereinafter described. Capitalized
terms used herein shall have the meanings assigned such terms in Section 2
hereof.
2. Definitions.
The following words and phrases, when used in the Plan, unless otherwise
specifically defined or unless the context clearly otherwise requires, shall
have the following respective meanings:
(a) Agreement. The document which evidences the grant of any Award
under this Plan and which sets forth the Award and the terms, conditions
and provisions of, and restrictions relating such Award.
(b) Award. Any award granted to a Participant under the Plan.
(c) Board. The Board of Directors of the Company.
(d) Code. The Internal Revenue Code of 1986, as amended. Any reference
to the Code includes the regulations promulgated pursuant to the Code.
(e) Company. Metris Companies Inc.
(f) Committee. The Company's Compensation Committee or its successor.
(g) Common Stock. The Company's common stock, par value $.01.
(h) Fair Market Value. The closing price of a share of Common Stock
the day before the date of determination of Fair Market Value on any
exchange or automated quotation system upon which the Common Stock is
listed or quoted, provided that if the Common Stock is listed on more than
one exchange, then the Committee shall determine which exchange's price
shall be used. If the Common Stock did not trade on such a date, the
Committee may use the closing price that is most recent provided the
Committee in good faith has determined that such price reflects the fair
market value of the Common Stock. Notwithstanding the foregoing, if the
Code shall specify a different method of determining fair market value for
setting the exercise price of an Incentive Stock Option, than Fair Market
Value for such purpose shall be determined as required by the Code. If on
the date of determination of Fair Market Value, the Common Stock is not
listed on an exchange or otherwise traded in an established securities
market or the Committee has determined that the most recent closing price
available does not reflect Fair Market Value, the Committee shall make a
good faith determination of Fair Market Value from sources and information
it deems relevant to such determination.
(i) Incentive Stock Option. An incentive stock option as defined in
Section 422 of the Code and designated by the Committee to be an incentive
stock option.
(j) Nonqualified Stock Option. A stock option which does not qualify
as an Incentive Stock Option.
(k) Option. Any Incentive Stock Option or Nonqualified Stock Option
granted under the Plan.
1
<PAGE>
(l) Performance Award. An Award made pursuant to Section 11 of this
Plan.
(m) Plan. The Metris Companies Long-Term Incentive and Stock Option
Plan, as amended and restated effective May 11, 1999.
(n) Restricted Stock. Awards of Common Stock made pursuant to Section
10 of the Plan.
(o) SAR. A stock appreciation right granted pursuant to Section 9 of
the Plan.
3. Stock Subject to Plan.
Subject to the provisions of Section 16 hereof, the stock to be subject to
options or other awards under the Plan shall be the Company's Common Stock.
Subject to adjustment as provided in Section 16 hereof, 4,000,000 shares of
Common Stock shall be available for issuance under this Plan, reduced by the sum
of the aggregate number of shares of Common Stock which become subject to
outstanding Options, free standing SARs, and outstanding Restricted Stock Awards
or outstanding Performance Awards of Common Stock. To the extent that shares of
Common Stock subject to an outstanding Option, (except to the extent that shares
of Common Stock are issued or delivered by the Company in connection with the
exercise of a tandem SAR), outstanding free standing SAR, or outstanding
Restricted Stock Award or outstanding Performance Award of Common Stock are not
issued or delivered by reason of the expiration, termination, cancellation or
forfeiture of such Award or by reason of the delivery or withholding of shares
of Common Stock to pay all or a portion of the exercise price of an Award, if
any, or to satisfy all or a portion of the tax withholding obligations relating
to an Award, then such shares of Common Stock shall again be available under
this Plan.
4. Administration of Plan.
(a) The Plan shall be administered by the Committee which shall be a
committee comprised of not less than two directors appointed from time to time
by the Board of Directors. Each member of the Committee shall be a "Non-Employee
Director" within the meaning of Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation ("Rule 16b-3") and an "outside director" within
the meaning of Section 162(m) of the Code.
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock covered by each option or award, (ii) to determine the
individuals to whom and the time or times at which such options and awards shall
be granted and the number of shares to be subject to each, (iii) to determine
the form of payment to be made upon the exercise of an SAR or in connection with
performance awards, either cash, Common Stock or a combination thereof, (iv) to
determine the terms of exercise of each option and award, (v) to accelerate the
time at which all or any part of an option or award may be exercised, (vi) to
revoke, amend or modify the terms of any Award prior to delivery of an Agreement
to the grantee and to amend or modify the terms of any Award with the consent of
the grantee after the execution of an Agreement, (vii) to interpret the Plan,
(viii) to prescribe, amend and rescind rules and regulations relating to the
Plan, (ix) to determine the terms and provisions of each option and award
agreement under the Plan (which agreements need not be identical), including the
designation of those options intended to be Incentive Stock Options, and (x) to
make all other determinations necessary or advisable for the administration of
the Plan, subject to the exclusive authority of the Board of Directors under
Section 16 hereof to amend or terminate the Plan. The Committee's determinations
on the foregoing matters, unless otherwise disapproved by the Board of Directors
of the Company, shall be final and conclusive.
5. Eligibility.
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations within the meaning of Section 424(f) of the
2
<PAGE>
Code (herein called "subsidiaries"). Full or part-time employees, consultants or
independent contractors to the Company or one of its subsidiaries shall be
eligible to receive Nonqualified Stock Options and Awards. In determining the
persons to whom Options and Awards shall be granted and the number of shares
subject to each, the Committee may take into account the nature of services
rendered by the respective employees or consultants, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant. A person who has been granted
an Option or Award under this Plan may be granted additional Options or Awards
under the Plan if the Committee shall so determine; provided, however, that for
Incentive Stock Options granted after December 31, 1986, to the extent the
aggregate Fair Market Value (determined at the time the Incentive Stock Option
is granted) of the Common Stock with respect to which all Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all plans described in subsection (d) of Section 422 of the Code of
his employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such Options shall be treated as Nonqualified Stock Options. Nothing
in the Plan or in any Agreement hereunder shall confer on any employee any right
to continue in the employ of the Company or any of its subsidiaries or affect,
in any way, the right of the Company or any of its subsidiaries to terminate his
or her employment at any time.
6. Price.
The exercise price for all Incentive Stock Options and all Nonqualified
Stock Options and SAR's that are intended to constitute "qualified
performance-based compensation" under Section 162(m) of the Code granted under
the Plan shall be determined by the Committee but shall not be less than 100% of
the fair market value per share of Common Stock at the date of grant of such
Option. The exercise price for Nonqualified Stock Options granted under the Plan
that are not intended to constitute "qualified performance-based compensation"
under Section 162(m) of the Code and, if applicable, the price for all Awards
shall also be determined by the Committee.
7. Term.
Each Option and Award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the Option or
Award agreement. The Committee shall be under no duty to provide terms of like
duration for Options or Awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years from the date of
grant of such Option and the term of Options granted under the Plan which do not
qualify as Incentive Stock Options may not extend more than fifteen (15) years
from the date of granting of such Option.
8. Exercise of Option or Award.
(a) The Committee shall have full and complete authority to determine
whether an Option or Award will be exercisable in full at any time or from time
to time during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at such times during the term of the Option as
the Committee may determine and specify in the Option or Award agreement.
(b) The exercise of any Option or Award granted hereunder shall only be
effective at such time that the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws and the shares of
Common Stock to be issued are listed as required by any exchange or automated
quotation system upon which the stock is traded or quoted. The Company shall not
be required to make such listing if such listing contains conditions
unacceptable to the Company..
3
<PAGE>
(c) An optionee or grantee electing to exercise an option or award shall
give written notice to the Company of such election and of the number of shares
subject to such exercise. If a payment is required, it shall be made to the
Company in cash (including bank check, certified check, personal check, or money
order), or, at the discretion of the Committee and as specified by the
Committee, (i) by delivering certificates for Common Stock already owned by the
optionee or grantee having a Fair Market Value as of the date of grant equal to
the full purchase price of the shares, (ii) by delivering the optionee's or
grantee's promissory note, which shall provide for interest at a rate not less
than the minimum rate required to avoid the imputation of income, original issue
discount or a below-market-rate loan pursuant to Sections 483, 1274 or 7872 of
the Code or any successor provisions thereto, (iii) a combination of cash, the
optionee's or grantee's promissory note and such shares, or (iv) in cash by a
broker-dealer acceptable to the Company to whom the optionee or grantee has
submitted an irrevocable notice of exercise. The fair market value of such
tendered shares shall be determined as provided in Section 5 hereof. The
optionee's or grantee's promissory note shall be a full recourse liability of
the optionee and may, at the discretion of the Committee, be secured by a pledge
of the shares being purchased. Such payment shall be made at the time required
by the Committee but in no event later than delivery of any shares of Common
Stock hereunder. Such payment shall be made at the time required by the
Committee but in no event later than delivery of any shares of Common Stock
hereunder. Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with respect to
such shares.
(d) The Committee may grant "restoration" options, separately or together
with another option, pursuant to which, subject to the terms and conditions
established by the Committee and any applicable requirements of Rule 16b-3
promulgated under the Securities and Exchange Act of 1934 or any other
applicable law, the optionee would be granted a new option when the payment of
the exercise price of the option to which such "restoration" option relates is
made by the delivery of shares of Common Stock owned by the optionee, as
described in subsection (c) above, which new option would be an option to
purchase the number of shares not exceeding the sum of (a) the number of shares
of Common Stock tendered as payment upon the exercise of the option to which
such "restoration" option relates and (b) the number of shares of Common Stock,
if any, tendered as payment of the amount to be withheld under applicable income
tax laws in connection with the exercise of the option to which such
"restoration" option relates, as described in Section 12 hereof. "Restoration"
options may be granted with respect to options previously granted under this
Plan or any prior stock option plan of the Company, and may be granted in
connection with any option granted under this Plan at the time of such grant.
The purchase price of the Common Stock under each such new option, and the other
terms and conditions of such option, shall be determined by the Committee
consistent with the provisions of the Plan.
9. Stock Appreciation Rights.
(a) Grant. At the time of grant of an option or award under the Plan (or at
any other time), the Committee, in its discretion, may grant a stock
appreciation right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to the Company of a
written notice which shall state that the holder thereof elects to exercise his
or her SAR as to the number of shares specified in the notice and which shall
further state what portion, if any, of the "SAR exercise amount" (hereinafter
defined) the holder thereof requests be paid in cash and what portion, if any,
is to be paid in Common Stock of the Company. The Committee promptly shall cause
to be paid to such holder the "SAR exercise amount" either in cash, in Common
Stock of the Company, or any combination of cash and shares as may be requested
by the holder of the SAR and approved by the Committee in its sole and absolute
discretion. The "SAR exercise amount" is the excess of the Fair Market Value of
one share of Common Stock on the date of exercise over the per share exercise
price in respect of which the SAR was granted, multiplied by the number of
shares as to which the SAR is exercised.
4
<PAGE>
(c) Tandem Grants. If SARs are granted in tandem with an Option, the
exercise of the Option shall cause a proportional reduction in SARs standing to
a grantee's credit which were granted in tandem with the Option; and the payment
of SARs shall cause a proportional reduction of the shares of Common Stock
subject to the Option. If SARs are granted in tandem with an Incentive Stock
Option, the SARS shall have such terms and condition as shall be required for
the Incentive Stock Option to qualify as an Incentive Stock Option.
10. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer restrictions may
be granted by the Committee. Any restricted stock award shall be evidenced by an
agreement in such form as the Committee shall from time to time approve, which
agreement shall comply with and be subject to the following terms and conditions
and any additional terms and conditions established by the Committee that are
consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted stock award made
under the Plan shall be for such number of shares of Common Stock as shall be
determined by the Committee and set forth in the agreement containing the terms
of such restricted stock award. Such agreement shall set forth a period of time
during which the grantee must remain in the continuous employment of the Company
in order for the forfeiture and transfer restrictions to lapse. If the Committee
so determines, the restrictions may lapse during such restricted period in
installments with respect to specified portions of the shares covered by the
restricted stock award. The agreement may also, in the discretion of the
Committee, set forth performance or other conditions that will subject the
Common Stock to forfeiture and transfer restrictions. The Committee may, at its
discretion, waive all or any part of the restrictions applicable to any or all
outstanding restricted stock awards.
(b) Delivery of Common Stock and Restrictions. At the time of a restricted
stock award, a certificate representing the number of shares of Common Stock
awarded thereunder shall be registered in the name of the grantee. Such
certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the Common Stock, including the
right to receive dividends and the right to vote such shares, subject to the
following restrictions: (i) the grantee shall not be entitled to delivery of the
stock certificate until the expiration of the restricted period and the
fulfillment of any other restrictive conditions set forth in the restricted
stock agreement with respect to such Common Stock; (ii) none of such shares may
be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or
disposed of during such restricted period or until after the fulfillment of any
such other restrictive conditions; and (iii) except as otherwise determined by
the Committee, all of the Common Stock shall be forfeited and all rights of the
grantee to such Common Stock shall terminate, without further obligation on the
part of the Company, unless the grantee remains in the continuous employment of
the Company or any subsidiary of the Company for the entire restricted period in
relation to which such Common Stock was granted and unless any other restrictive
conditions relating to the restricted stock award are met. Any Common Stock, any
other securities of the Company and any other property (except for cash
dividends) distributed with respect to the Common Stock subject to restricted
stock awards shall be subject to the same restrictions, terms and conditions as
such restricted Common Stock.
(c) Termination of Restrictions. At the end of the restricted period and
provided that any other restrictive conditions of the restricted stock award are
met, or at such earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the restricted stock award
or in the Plan shall lapse as to the restricted Common Stock subject thereto,
and a stock certificate for the appropriate number of shares of Common Stock,
free of the restrictions and the restricted stock legend, shall be delivered to
the grantee or his beneficiary or estate, as the case may be. If the Common
Stock is traded on a securities exchange, the Company shall not be required to
deliver such certificates until such shares have been admitted for trading on
such securities exchange.
5
<PAGE>
11. Performance Awards.
The Committee is further authorized to grant Performance Awards. Subject to
the terms of this Plan and any applicable award agreement, a Performance Award
granted under the Plan (i) may be denominated or payable in cash, Common Stock
(including, without limitation, restricted stock), other securities, other
awards, or other property and (ii) shall confer on the holder thereof rights
valued as determined by the Committee, in its discretion, and payable to, or
exercisable by, the holder of the Performance Award, in whole or in part, upon
the achievement of such performance goals during such performance periods as the
Committee, in its discretion, shall establish. Subject to the terms of this
Plan, any applicable award agreement, or as required to constitute "qualified
performance-based compensation" under Section 162(m) of the Code, the
performance goals to be achieved during any performance period, the length of
any performance period, the amount of any Performance Award granted, and the
amount of any payment or transfer to be made by the grantee and by the Company
under any Performance Award shall be determined by the Committee. For Awards
that are to be "qualified performance-based compensation" pursuant to Section
162(m) of the Code, the Committee shall set performance goals based on for one
or more of the following business criteria: consolidated pre tax earnings, net
revenues, net earnings, operating income, earnings before interest and taxes,
cash flow, return on equity, return on net assets employed or earnings per share
for the applicable performance period, all as computed in accordance with
generally accepted accounting principles in effect.
12. Income Tax Withholding.
In order to comply with all applicable federal or state income tax laws or
regulations, the Company may take such action as it deems appropriate to ensure
that all applicable federal or state payroll, withholding, income or other
taxes, which are the sole and absolute responsibility of an optionee or grantee
under the Plan, are withheld or collected from such optionee or grantee. In
order to assist an optionee or grantee in paying all federal and state taxes to
be withheld or collected upon exercise of an option or award which does not
qualify as an Incentive Stock Option hereunder, the Committee, in its absolute
discretion and subject to such additional terms and conditions as it may adopt,
may permit the optionee or grantee to satisfy such tax obligation by (i)
electing to have the Company withhold a portion of the shares otherwise to be
delivered upon exercise of such option or award with a Fair Market Value equal
to such taxes or (ii) delivering to the Company Common Stock other than the
shares issueable upon exercise of such option or award with a fair market value
equal to such taxes.
13. Additional Restrictions.
(a) The Committee shall have full and complete authority to determine
whether all or any part of the Common Stock acquired upon exercise of any of the
Options or Awards granted under the Plan shall be subject to restrictions on the
transferability thereof or any other restrictions affecting in any manner the
optionee's or grantee's rights with respect thereto, but any such restriction
shall be contained in the agreement relating to such Options or Awards.
(b) No person, who is an employee of the Company at the time of grant, may
be granted any award or awards payable in shares or otherwise, the value of
which is based solely on an increase in the value of the Common Stock after the
date of grant of such awards, for more than 675,000 shares, in the aggregate, in
any one calendar year period, or, for cash awards not tied to shares, for more
than $6,000,000, in the aggregate, in any three calendar year period. The
foregoing limitations specifically include the grant of any awards representing
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code.
14. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the time an
Incentive Stock Option is otherwise to be granted pursuant to the Plan the
optionee owns directly or indirectly (within the meaning of Section 424(d) of
the Code) Common Stock of the Company possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or its
parent or subsidiary corporations, if any (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be granted to such
optionee pursuant to the Plan shall satisfy the requirements of Section
422(c)(5) of the Code, and the option price shall be not less than 110% of the
fair market value of the Common Stock determined as described herein, and such
option by its terms shall not be exercisable after the expiration of five (5)
years from the date such option is granted.
6
<PAGE>
15. Non-Transferability.
Except as otherwise determined by the Committee or in an option or award
agreement, no Option or Award granted under the Plan shall be transferable by an
optionee or grantee, otherwise than by will or the laws of descent and
distribution and during the lifetime of an optionee or grantee, the Option or
Award shall be exercisable only by such optionee or grantee. Notwithstanding the
foregoing, no Incentive Stock Option shall be transferable by an optionee
otherwise than by will or the laws of descent or distribution.
16. Dilution or Other Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, dividend in the form of stock
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding Options and Awards shall be
made by the Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares subject to
the Plan, the number of shares and the price per share subject to outstanding
Options and Awards and the amount payable upon exercise of outstanding Awards,
in order to prevent dilution or enlargement of Option or Award rights.
17. Amendment or Discontinuance of Plan.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an option or award agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provisions of the Plan or any option or award
agreement, without the approval of the shareholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made
that, absent such approval:
(i) would violate the rules or regulations of the National Association
of Securities Dealers, Inc. or The Nasdaq stock market or any other
securities exchange that are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Option or Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Option or Award, prospectively or retroactively,
without the consent of the Participant or holder or beneficiary thereof, except
as otherwise herein provided.
7
<PAGE>
(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any option or award in the manner and to the extent it shall deem
desirable to carry the Plan into effect.
18. Time of Granting.
The effective date of any grant of an Award shall be the date of the
Committee action granting such Award provided that within a reasonable time
thereafter a definitive Agreement is delivered to the grantee and executed by
the grantee.
19. Section 16(b) Compliance.
The Plan is intended to comply in all respects with Rule 16b-3 or any
successor provision, as in effect from time to time, and in all events the Plan
shall be construed in accordance with the requirements of Rule 16b-3. If any
Plan provision does not comply with Rule 16b-3 as hereafter amended or
interpreted, the provision shall be deemed inoperative. The Board of Directors,
in its absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are officers
or directors subject to Section 16 of the Securities and Exchange Act of 1934,
as amended, without so restricting, limiting or conditioning the Plan with
respect to other participants.
20. Effective Date and Termination of Plan.
(a) The Plan shall be submitted to the shareholders of the Company for
their approval and adoption.
(b) Unless the Plan shall have been discontinued as provided in Section 16
hereof, the Plan shall terminate March 19, 2009. No option or award may be
granted after such termination, but termination of the Plan shall not, without
the consent of the optionee or grantee, alter or impair any rights or
obligations under any Option or Award theretofore granted.
21. Governing Law.
The place of administration of the Plan and each Agreement shall be in the
State of Minnesota. The corporate law of the Company's state of incorporation
shall govern issues related to the validity and issuance of shares of the Common
Stock. Otherwise, this Plan and each Agreement shall be construed and
administered in accordance with the laws of the State of Minnesota.
22. Fractional Shares.
The Company shall not be required to issue or deliver any fractional share
of Common Stock hereunder but may pay, in lieu thereof, an amount in cash equal
to the Fair Market Value of such fractional share.
23. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. Neither the Company nor any subsidiary shall be required
to segregate any assets that may be represented by Awards, and neither the
Company nor any subsidiary shall be deemed to be a trustee of any amounts to be
paid under an Award. Any liability of the Company to pay any grantee of an Award
hereunder with respect to such Award shall be based solely upon contractual
obligations created pursuant to the Agreement with the grantee and the Plan; no
such obligation shall be deemed to be secured by any pledge or encumbrance on
any property of the Company or its subsidiaries.
24. Headings.
Headings contained in the Plan and any Agreement are included for
convenience only, and they shall not be construed as a part of the Plan or
Agreement or in any respect affecting or modifying its provisions.
8
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
AMENDMENT, dated as of May 7, 1999, to (a) the AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of June 30, 1998, (as amended by the Amendment, dated as of
December 7, 1998, the "Credit Agreement") among METRIS COMPANIES INC., a
Delaware corporation (the "Borrower"), the lenders listed in Schedule 2.01
thereto (the "Lenders"), NATIONSBANK, N.A., as Syndication Agent (in such
capacity, the "Syndication Agent"), DEUTSCHE BANK, as documentation agent, U.S.
BANK NATIONAL ASSOCIATION, as documentation agent (collectively in such
capacity, the "Documentation Agents"), BARCLAYS BANK PLC as co-agent, BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as co-agent (collectively in
such capacity, the "Co-Agents"), and THE CHASE MANHATTAN BANK, as administrative
agent for the Lenders (the "Administrative Agent") and (b) the AMENDED AND
RESTATED PLEDGE AGREEMENT, dated as of June 30, 1998 (the "Pledge Agreement"),
among the Borrower, Metris Direct, Inc., a Delaware corporation, and the
Administrative Agent (this "Amendment").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, in connection with the acquisition by the Borrower of certain
credit card portfolio assets from General Electric Consumer Card Company (the
"GECC Portfolio"), the Borrower has requested that the Lenders agree to amend
the Credit Agreement as provided herein;
WHEREAS, in connection with certain other amendments to the Credit
Agreement and the Pledge Agreement, the Borrower has requested, and the Lenders
have agreed, that certain provisions of each of the Credit Agreement and the
Pledge Agreement be amended as provided herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in consideration of the premises contained
herein, the parties hereto hereby agree as follows:
SECTION I. AMENDMENTS
1.1. Defined Terms. Unless otherwise defined herein, capitalized terms
which are defined in the Credit Agreement are used herein as defined therein.
1.2. Amendment to Section 1.1. The definition of "Borrowing Base" set forth
in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and the
following definition is substituted in lieu thereof:
<PAGE>
2
"'Borrowing Base' shall mean, at any time, an amount equal to the product
of (x) Managed Accounts Receivable (other than Managed Accounts Receivable of
DMCCB or any other Depositary Institution, which Managed Accounts Receivable
have not been sold to the Borrower or any other Subsidiary of the Borrower)
times (y) the Advance Rate. The Borrowing Base at any time shall be determined
by reference to the most recent Borrowing Base Certificate delivered to the
Administrative Agent, absent any error in such Borrowing Base Certificate."
1.3. Amendment to Section 6.01. Paragraph (g) of Section 6.01 of the Credit
Agreement is deleted in its entirety and the following paragraph (g) is
substituted in lieu thereof:
"(g) Borrowing Base. In the case of the Borrower, permit the aggregate
principal amount of Funded Senior Debt (other than Funded Senior Debt incurred
by DMCCB or any other Depositary Institution, including that of the type
described in clause (c) of the definition of Funded Senior Debt) at any time to
exceed the Borrowing Base then in effect."
1.4. Amendment to Section 6.06(d). Each occurrence of the phrase "loans,
advances or investments" contained in paragraph (d) of Section 6.06 of the
Credit Agreement is deleted and the phrase "loans, advances, investments or
Guarantees" is substituted in lieu thereof.
1.5. Amendment to Section 6.06(g). Paragraph (g) of Section 6.06 of the
Credit Agreement is deleted in its entirety and the following paragraph (g) is
substituted in lieu thereof:
"(g) Permitted Business Acquisitions so long as the aggregate consideration
paid by the Borrower and its Subsidiaries in respect of all Permitted Business
Acquisitions (i) of Accounts, consummated or entered into during any period of
four consecutive fiscal quarter periods of the Borrower (an "Acquisition Test
Period") (provided, that for the purposes of this clause (i), the aggregate
consideration paid for Accounts on the date of any determination pursuant to
this clause (g) made after the end of the fiscal quarter during which such
Accounts were acquired shall be deemed to be the lesser of (x) the actual
aggregate consideration paid by the Borrower and its Subsidiaries and (y) the
outstanding amount of such Accounts determined in accordance with GAAP as of the
most recent fiscal quarter ending prior to such date of determination), shall
not exceed 30% of the average Managed Accounts Receivable as of the last day of
each of the four fiscal quarter periods of the Borrower and its Subsidiaries
most recently ended; provided, that (1) the acquisition of the GECC Portfolio by
the Borrower shall in any event be deemed to be a Permitted Business Acquisition
for the Acquisition Test Period ending on June 30, 1999 so long as no other
Permitted Business Acquisition is made during the period from May 7, 1999
through June 30, 1999; (2) in the event that the GECC Portfolio is acquired by
the Borrower, such percentage shall be changed to 35% for the Acquisition Test
Period ending on September 30, 1999, and (3) any acquisition that is a Permitted
Business Acquisition on the date of determination pursuant to this Section
6.06(g) shall remain a Permitted Business Acquisition once such transaction is
consummated, notwithstanding the average Managed Accounts Receivable subsequent
to such date of determination and (ii) otherwise, the cash portion of such
consideration does not exceed $50,000,000; for purposes of the foregoing, the
aggregate consideration shall not include any payment with Capital Stock or
assumption of Indebtedness (which assumption must otherwise not cause an Event
of Default after giving effect to such assumption);".
<PAGE>
3
1.6. Amendment to Section 6.06(i). Paragraph (i) of Section 6.06 of the
Credit Agreement is deleted in its entirety and the following paragraph (i) is
substituted in lieu thereof:
"(i) other loans, advances, investments or Guarantees by the Borrower or
any of its Subsidiaries that do not exceed $10,000,000 in the aggregate at any
one time outstanding (measured as of the date made and without giving effect to
subsequent changes in value)."
1.7. Amendments to Pledge Agreement. (a) Section 2 of the Pledge Agreement
is hereby amended by adding the following sentence to the end thereof:
"Notwithstanding anything to the contrary contained herein, no capital
stock of any Subsidiary that is not organized in the United States shall be
required to be pledged hereunder."
(b) Section 3(a) of the Pledge Agreement is deleted in its entirety and the
following paragraph (a) is substituted in lieu thereof:
"(a) the Pledged Stock set forth in Schedule I attached hereto (and revised
from time to time with the pledge of any additional stock) pledged by such
Pledgor represents all the outstanding capital stock of each of its Subsidiaries
(other than as to any Subsidiary that is not organized in the United States or
as to the pledge of whose Capital Stock is prohibited by law);".
SECTION II. MISCELLANEOUS
2.1. Conditions to Effectiveness of Amendment. This Amendment shall become
effective (the "Amendment Effective Date") as of the date first set forth above
upon (a) the Administrative Agent having received counterparts of this Amendment
duly executed and delivered by the Borrower and the Required Lenders and (b)
payment to the Administrative Agent and the Lenders by the Borrower of such fees
in respect of this Amendment as have been previously agreed upon by the Borrower
and the Administrative Agent.
2.2. Representations and Warranties. The Borrower represents and warrants
to each Lender that as of the effective date of this Amendment: (a) the
representations and warranties made by the Loan Parties in the Loan Documents
are true and correct in all material respects on and as of the date hereof
(except to the extent that such representations and warranties are expressly
stated to relate to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date); and (b) no Default or Event of Default shall have
occurred and be continuing as of the date hereof
2.3. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Amendment signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
<PAGE>
4
2.4. Continuing Effect; No Other Amendments. Except to the extent expressly
stated herein, all of the terms and provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect and are not
waived in any respect. This Amendment shall constitute a Loan Document.
2.5. Payment of Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and
reasonable expenses incurred to date in connection with this Amendment and the
other Loan Documents, including, without limitation, the reasonable fees and
disbursements of legal counsel to the Administrative Agent.
2.6. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
METRIS COMPANIES INC., as Borrower and
as a Pledgor
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
METRIS DIRECT, INC., as a Pledgor
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent, Lender and
Issuing Bank
By:
-----------------------------------
Name:
Title:
<PAGE>
NATIONSBANK, N.A.
By:
-----------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
-----------------------------------
Name:
Title:
BARCLAYS BANK PLC,
NEW YORK BRANCH
By:
-----------------------------------
Name:
Title:
THE SUMITOMO BANK, LTD.
By:
-----------------------------------
Name:
Title:
<PAGE>
THE BANK OF NEW YORK
By:
-----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
-----------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By:
-----------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
-----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By:
-----------------------------------
Name:
Title:
<PAGE>
KZH IV LLC
By:
-----------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By:
-----------------------------------
Name:
Title:
KZH SHOSHONE LLC
By:
-----------------------------------
Name:
Title:
AMARA-1 FINANCE LTD
By:
-----------------------------------
Name:
Title:
AMARA-2 FINANCE LTD
By:
-----------------------------------
Name:
Title:
<PAGE>
CERES FINANCE LTD.
By:
-----------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:
-----------------------------------
Name:
Title:
<PAGE>
STRATA FUNDING LTD.
By:
-----------------------------------
Name:
Title:
<PAGE>
SPS TRADES
By:
-----------------------------------
Name:
Title:
<PAGE>
OASIS COLLATERALIZED HIGH INCOME
PORTFOLIOS-I, LTD.
By:
-----------------------------------
Name:
Title:
<PAGE>
FIRST DOMINION FUNDING II
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.11
AMENDMENT (this "Amendment"), dated as of June 10, 1999, to the AMENDED AND
RESTATED CREDIT AGREEMENT, dated as of June 30, 1998 (as amended by the
Amendment dated as of December 3, 1998, the Amendment dated as of December 7,
1998 and the Amendment dated as of May 7, 1999, the "Credit Agreement"), among
METRIS COMPANIES INC., a Delaware corporation (the "Borrower"), the lenders
listed in Schedule 2.01 thereto (the "Lenders"), NATIONSBANK, N.A., as
Syndication Agent (in such capacity, the "Syndication Agent"), DEUTSCHE BANK, as
documentation agent, U.S. BANK NATIONAL ASSOCIATION, as documentation agent
(collectively in such capacity, the "Documentation Agents"), BARCLAYS BANK PLC
as co-agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as co-agent
(collectively in such capacity, the "Co-Agents"), and THE CHASE MANHATTAN BANK,
as administrative agent for the Lenders (the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders agree to amend the
Credit Agreement as provided herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in consideration of the premises contained
herein, the parties hereto hereby agree as follows:
SECTION I. AMENDMENT
Amendment to Section 6.06(d). Subclause (II) of clause (iv) of Section
6.06(d) of the Credit Agreement is hereby deleted in its entirety and the
following subclause (II) is substituted in lieu thereof:
"(II) an amount not to exceed the amount necessary to provide that DMCCB
qualifies as "well capitalized" for purposes of 12 U.S.C. ss.1831o, as
amended, re- enacted or redesignated from time to time"
SECTION II. MISCELLANEOUS
2.1. Defined Terms. Unless otherwise defined herein, capitalized terms
which are defined in the Credit Agreement are used herein as defined therein.
2.2. Conditions to Effectiveness of Amendment. This Amendment shall become
effective as of the date first set forth above upon the Administrative Agent
having received counterparts of this Amendment duly executed and delivered by
the Borrower and the Required Lenders.
<PAGE>
2.3. Representations and Warranties. The Borrower represents and warrants
to each Lender that as of the effective date of this Amendment: (a) the
representations and warranties made by the Loan Parties in the Loan Documents
are true and correct in all material respects on and as of the date hereof
(except to the extent that such representations and warranties are expressly
stated to relate to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date); and (b) no Default or Event of Default shall have
occurred and be continuing as of the date hereof
2.4. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Amendment signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
2.5. Continuing Effect; No Other Amendments. Except to the extent expressly
stated herein, all of the terms and provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect and are not
waived in any respect. This Amendment shall constitute a Loan Document.
2.6. Payment of Expenses. The Borrower agrees to pay and reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and
reasonable expenses incurred to date in connection with this Amendment and the
other Loan Documents, including, without limitation, the reasonable fees and
disbursements of legal counsel to the Administrative Agent.
2.7. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
METRIS COMPANIES INC.
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent, Lender
and Issuing Bank
By:
-----------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
-----------------------------------
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
-----------------------------------
Name:
Title:
BARCLAYS BANK PLC, NEW YORK BRANCH
By:
-----------------------------------
Name:
Title:
THE SUMITOMO BANK, LTD.
By:
-----------------------------------
Name:
Title:
<PAGE>
THE BANK OF NEW YORK
By:
-----------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
-----------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By:
-----------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.
By:
-----------------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By:
-----------------------------------
Name:
Title:
KZH IV LLC
By:
-----------------------------------
Name:
Title:
VAN KAMPEN PRIME RATE INCOME TRUST
By:
-----------------------------------
Name:
Title:
<PAGE>
KZH SHOSHONE LLC
By:
-----------------------------------
Name:
Title:
AMARA-1 FINANCE LTD
By:
-----------------------------------
Name:
Title:
AMARA-2 FINANCE LTD
By:
-----------------------------------
Name:
Title:
CERES FINANCE LTD.
By:
-----------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:
-----------------------------------
Name:
Title:
STRATA FUNDING LTD.
By:
-----------------------------------
Name:
Title:
SPS TRADES
By:
-----------------------------------
Name:
Title:
<PAGE>
OASIS COLLATERALIZED HIGH INCOME
PORTFOLIOS-I, LTD.
By:
-----------------------------------
Name:
Title:
FIRST DOMINION FUNDING II
By:
-----------------------------------
Name:
Title:
<PAGE>
================================================================================
TRANSFER AND ADMINISTRATION AGREEMENT
among
DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL ASSOCIATION,
as the Transferor and as the Collection Agent,
ENTERPRISE FUNDING CORPORATION
and
SHEFFIELD RECEIVABLES CORPORATION,
as Purchasers,
BARCLAYS BANK PLC,
as Sheffield Agent
and
NATIONSBANK, N.A.,
as a Bank Investor and Enterprise Agent,
and
NATIONSBANK, N.A.,
as Administrative Agent
Dated as of June 30, 1999
GE CAPITAL CONSUMER CARD CO. PORTFOLIO
================================================================================
<PAGE>
SECTION 10.3.Notices................................................96
SECTION 10.4.Governing Law; Submission to Jurisdiction;
Integration............................................99
SECTION 10.5.Severability; Counterparts.............................99
SECTION 10.6.Successors and Assigns................................100
SECTION 10.7.Waiver of Confidentiality.............................101
SECTION 10.8.Confidentiality Agreement.............................101
SECTION 10.9.No Bankruptcy Petition Against the Purchasers.........102
SECTION 10.10.No Recourse Against Stockholders, Officers or
Directors............................................102
SECTION 10.11.Characterization of the Transactions Contemplated
by the Agreement.....................................103
SECTION 10.12.Conflict Waiver......................................104
SECTION 10.13.Limitation of Liability..............................104
SECTION 10.14.Pari Passu Interests.................................105
SECTION 10.15.Further Assurances...................................105
EXHIBIT A Form of Additional Investment Certificates
EXHIBIT B Form of Assignment and Assumption Agreement
EXHIBIT C Form of Agreed Upon Procedures
EXHIBIT D Form of Investor Report
EXHIBIT E Form of Certificates
EXHIBIT F Form of Transfer Certificates
EXHIBIT G Location of Records
EXHIBIT H List of Subsidiaries, Divisions and Tradenames
iv
<PAGE>
TRANSFER AND ADMINISTRATION AGREEMENT
TRANSFER AND ADMINISTRATION AGREEMENT (as amended, supplemented or
otherwise modified and in effect from time to time, this "Agreement"), dated as
of June 30, 1999, by and among DIRECT MERCHANTS CREDIT CARD BANK, NATIONAL
ASSOCIATION, a national banking association with its principal offices located
in Arizona (together with its successors and assigns, "DMCCB"), as transferor
(in such capacity, the "Transferor") and as collection agent (in such capacity,
the "Collection Agent"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation
(together with its successors and assigns, "Enterprise"), as a Purchaser,
SHEFFIELD RECEIVABLES CORPORATION, a Delaware corporation (together with its
successors and assigns, "Sheffield"), as a Purchaser, BARCLAYS BANK PLC, an
English banking corporation (together with its successors and assigns,
"Barclays"), as the Sheffield Agent, NATIONSBANK, N.A., a national banking
association (together with its successors and assigns, "NationsBank"), as a Bank
Investor and the Enterprise Agent, and NationsBank, as the agent for the
Enterprise Agent and the Sheffield Agent (in such capacity, the "Administrative
Agent").
PRELIMINARY STATEMENTS
WHEREAS, the Transferor may desire to convey, transfer and assign, from
time to time, undivided percentage interests in certain accounts receivable, and
the Purchasers may desire to, and the Bank Investors, if requested, shall,
accept such conveyance, transfer and assignment of such undivided percentage
interests, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings:
"Account" shall mean each VISA or MasterCard account in existence as of the
Cut-Off Date pursuant to an Account Agreement, which accounts were sold by GE to
the Transferor pursuant to the GE Agreement, which is identified by account
number and by the outstanding balance as of the Cut-Off Date and referred to in
the Account Schedule delivered to the Purchaser Agents on the Closing Date
pursuant to Section 2.8, including any Related Account, and any Related Account
established after the Cut-Off Date and any Account converted
<PAGE>
to the Transferor's systems, shall be identified on the Account Schedule, as
such schedule is delivered from time to time pursuant to Section 2.8 hereof.
"Account Agreement" shall mean the cardholder agreements and Federal Truth
in Lending Statement for Accounts, between an Obligor and, originally, GE, or to
which the Transferor has become a party, as such agreements or statement may be
amended, modified or otherwise changed from time to time.
"Account Schedule" shall mean the schedule of Accounts (which schedule may
be in the form of a computer file or microfiche) of the Transferor delivered to
the Purchaser Agents on the Closing Date, as delivered from time to time
pursuant to the terms of this Agreement.
"Accrued Interest Component" means, for any Collection Period, that portion
of the Interest Component of all Related Commercial Paper outstanding at any
time during such Collection Period which has accrued from the first day through
the last day of such Collection Period whether or not such Related Commercial
Paper matures during such Collection Period, based on the actual number of days
in such Collection Period that such Related Commercial Paper was outstanding.
"Additional Investment Certificate" means a certificate, in substantially
the form attached hereto as Exhibit A or in such other form as is mutually
agreed to by the Transferor and the Purchaser Agents, furnished by the
Collection Agent pursuant to Section 2.11 hereof.
"Adjusted LIBOR Rate" means, with respect to any funding period during
which the return to any Bank Investor or any Liquidity Provider is to be
calculated by reference to the London interbank offered rate, a rate which is
1.0% in excess of a rate per annum equal to the sum (rounded upwards, if
necessary, to the next higher 1/100 of 1%) of (A) the rate obtained by dividing
(i) the applicable LIBOR Rate by (ii) a percentage equal to 100% minus the
reserve percentage, if any, used for determining the maximum reserve requirement
as specified in Regulation D (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) that is applicable to the
applicable Purchaser Agent during such period in respect of eurocurrency or
eurodollar funding, lending or liabilities (or, if more than one percentage
shall be so applicable, the daily average of such percentage for those days in
such period during which any such percentage shall be applicable) plus (B) the
then daily net annual assessment rate (rounded upwards, if necessary, to the
nearest 1/100 of 1%) as estimated by the applicable Purchaser Agent for
determining the current annual assessment payable by the applicable Purchaser
Agent to the Federal Deposit Insurance Corporation in respect of eurocurrency or
eurodollar funding, lending or liabilities.
"Adjustment Payment" has the meaning assigned to that term in Section
2.9(a).
"Administrative Agent" means NationsBank, N.A., in its capacity as agent
for the Purchaser Agents, together with its successors, including any successor
thereto appointed pursuant to Article IX.
2
<PAGE>
"Administrative Fee" means the fee payable by the Transferor to Enterprise
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Adverse Claim" means a lien, security interest, charge or encumbrance, or
other right or claim in, of or on any Person's assets or properties in favor of
any other Person (including any UCC financing statement or any similar
instrument filed against such Person's assets or properties), excluding any
liens created under this Agreement or liens that secure the payment of taxes,
assessments and governmental charges or levies, if such taxes are either (a) not
delinquent or (b) being contested in good faith by appropriate legal or
administrative proceedings and as to which adequate reserves in accordance with
generally accepted accounting principles shall have been established.
"Affected Assets" means, collectively, the Receivables, the Related
Security, the Collections and Proceeds relating thereto.
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of voting stock, by contract or otherwise.
"Aggregate Interest Component" means aggregate sum of the Interest
Components of all issued and outstanding Related Commercial Paper.
"Aggregate Unpaids" means, at any time, an amount equal to the sum of (i)
the aggregate accrued and unpaid Carrying Costs at such time, (ii) all amounts
of the type included in the definition of Carrying Costs which will accrue after
such time, (iii) the Net Investments at such time, and (iv) all other amounts
owed (whether due or accrued) hereunder by the Transferor or the Collection
Agent to the Purchasers, the Administrative Agent, the Purchaser Agents or the
Bank Investors at such time.
"Applicable Purchaser" means (a) Enterprise, with respect to the Enterprise
Bank Investors and the Enterprise Agent and (b) Sheffield, with respect to the
Sheffield Bank Investors and the Sheffield Agent.
"Applicable Purchaser Percentage" means (i) with respect to Enterprise,
56.25% and (ii) with respect to Sheffield, 43.75%.
"Assignment Amount" with respect to a Bank Investor shall mean at any time
an amount equal to the least of (i) such Bank Investor's Special Pro Rata Share
of the applicable Net Investment at such time, (ii) such Bank Investor's Special
Pro Rata Share of the aggregate outstanding principal balance of Receivables
(other than Defaulted Receivables as shown on the most recently delivered
Investor Report hereunder) at such time, and (iii) such Bank Investor's unused
Commitment.
3
<PAGE>
"Assignment and Assumption Agreement" means (i) with respect to any
Enterprise Bank Investor, an Assignment and Assumption Agreement substantially
in the form of Exhibit B attached hereto and (ii) with respect to any Sheffield
Bank Investor, the Sheffield Agreement.
"Bank Investors" shall mean, collectively, the Enterprise Bank Investors
and the Sheffield Bank Investors.
"Bank Receivables Purchase Facility" means the Amended and Restated Bank
Receivables Purchase Agreement, dated as of July 30, 1998, between DMCCB, as
seller, and MCI, as buyer, as amended from time to time.
"Bankruptcy Code" means Title 11, United States Code, as amended,
supplemented or otherwise modified.
"Barclays" shall have the meaning set forth in the preamble to this
Agreement.
"Base Rate" or "BR" means (x) with respect to Enterprise and the Enterprise
Bank Investors, a rate per annum equal to the greater of (i) the prime rate of
interest announced by the Liquidity Provider (or, if more than one Liquidity
Provider, then by NationsBank) from time to time, changing when and as said
prime rate changes (such rate not necessarily being the lowest or best rate
charged by the Liquidity Provider (or NationsBank, as applicable) and (ii) the
sum of (a) 1.50% and (b) the rate equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day for such transactions
received by the Liquidity Provider (or, if more than one Liquidity Provider,
then by NationsBank) from three (3) Federal funds brokers of recognized standing
selected by it and (y) with respect to Sheffield and the Sheffield Bank
Investors, a rate per annum equal to the greater of (i) the prime rate of
interest announced by the Sheffield Agent from time to time, changing when and
as said prime rate changes (such rate not necessarily being the lowest or best
rate charged by the Sheffield Agent) and (ii) the sum of (a) 1.50% and (b) the
rate equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day for such transactions received by the
Sheffield Agent from three (3) Federal funds brokers of recognized standing
selected by it.
"Benefit Plan" means any employee benefit plan as defined in Section 3(3)
of ERISA in respect of which the Transferor or any ERISA Affiliate of the
Transferor is, or at any time during the immediately preceding six years was, an
"employer" as defined in Section 3(5) of ERISA.
4
<PAGE>
"Business Day" means any day excluding Saturday, Sunday and any day on
which banks in New York, New York, Charlotte, North Carolina or in the States of
Minnesota or Arizona are authorized or required by law to close, and, when used
with respect to the determination of any Adjusted LIBOR Rate or any notice with
respect thereto, any such day which is also a day for trading by and between
banks in United States dollar deposits in the London interbank market.
"Buyer's Percentage Factor" shall mean, with respect to any Collection
Period, the fraction (expressed as a percentage) computed at any time of
determination as follows:
NI
---
PRB
Where:
NI = the Net Investments at the time of such computation.
PRB = the amount of Principal Receivables minus all Defaulted Receivables
for such Collection Period (which were not excluded from the calculation of
"Principal Receivables" used herein) plus the amount on deposit in the Excess
Funding Account at the time of such computation.
Notwithstanding the foregoing computation, (i) the Buyer's Percentage
Factor shall not exceed 100%, and (ii) the Buyer's Percentage Factor with
respect to Principal Collections at any time on and after the earlier of the
Termination Date and a Special Termination Date shall be the percentage
equivalent of a fraction the numerator of which is the Net Investments as of
such earlier date and the denominator of which is the lesser of (x) the
Principal Receivables plus the amount on deposit in the Excess Funding Account
on the last day of the Collection Period immediately prior to such earlier date
or (y) the Principal Receivables plus the amount on deposit in the Excess
Funding Account on the last day of the immediately preceding Collection Period.
"Capitalized Lease" of a Person means any lease of property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with GAAP.
"Carrying Costs" means for a Collection Period, the sum of (i) the sum of
the dollar amount of the Purchasers' obligations for such Collection Period
determined on an accrual basis in accordance with GAAP consistently applied (a)
as to Enterprise, to pay interest with respect to Purchased Interests pursuant
to the provisions of each Liquidity Provider Agreement (such interest to be
calculated based on the Adjusted LIBOR Rate, provided that if a Termination
Event shall have occurred, such interest shall be calculated at the Base Rate
with respect to Enterprise plus 2.00%) outstanding at any time during such
Collection Period accrued from the first day through the last day of such
Collection Period whether or not such interest is payable during such Collection
Period and to pay interest with respect to amounts disbursed by each
5
<PAGE>
Credit Support Provider pursuant to the applicable Credit Support Agreement
outstanding at any time during such Collection Period accrued from the first day
through the last day of such Collection Period whether or not such interest is
payable during such Collection Period, (b) as to the Sheffield Bank Investors,
to pay interest accrued from the first day through the last day of such
Collection Period whether or not such interest is payable during such Collection
Period on the applicable portions of the Net Investment of Sheffield allocated
to funding periods outstanding at any time during such Collection Period in
respect of which the applicable interest rate is the Base Rate with respect to
Sheffield or the Adjusted LIBOR Rate with respect to Sheffield (it being
understood that, if a Termination Event shall have occurred with respect to the
Sheffield Bank Investors, such interest shall be calculated at the Base Rate
plus 2.00%), (c) to pay the Accrued Interest Component of Related Commercial
Paper with respect to any Collection Period (and, for purposes of this clause
(c), Related Commercial Paper shall include Commercial Paper issued to fund the
Net Investments even if such Commercial Paper is issued in an amount in excess
of the Net Investments), (d) as to Enterprise, to pay the Dealer Fee with
respect to Related Commercial Paper issued during such Collection Period and (e)
to pay the costs of the Purchasers with respect to the operation of Sections
8.1, 8.2, 8.3 and 8.4; (ii) as to Enterprise, the Program Fee, the
Administrative Fee and the Facility Fee accrued from the first day through the
last day of such Collection Period whether or not such amount is payable during
such Collection Period; (iii) all amounts due the Bank Investors in accordance
with Section 2.3(c), (d), (e) and (f) hereof which accrued during such
Collection Period, whether or not payable during such Collection Period; (iv) as
to Sheffield, the fees specified in the Sheffield Fee Letter (which accrued
during such Collection Period, whether or not payable during such Collection
Period); and (v) any of the foregoing amounts which have not been paid in
respect of any prior Collection Period.
"Certificates" means the certificates issued to the Purchaser Agents for
the benefit of their related Purchasers and their related Bank Investors
pursuant to Section 2.2(g) hereof.
"Closing Date" means June 30, 1999.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time.
"Collateral Agent" means NationsBank, N.A., as collateral agent for each
Liquidity Provider, each Credit Support Provider, the holders of Commercial
Paper and certain other parties.
"Collection Account" shall have the meaning assigned to that term in
Section 2.12(a).
"Collection Agent" means at any time the Person then authorized pursuant to
Section 6.1 hereof to service, administer and collect Receivables, and its
successors and permitted assigns.
6
<PAGE>
"Collection Agent Default" has the meaning specified in Section 6.4 hereof.
"Collection Period" means the calendar month preceding the Remittance Date,
or in the case of the first Collection Period, the period commencing on the
Cut-Off Date to the end of the calendar month preceding the first Remittance
Date.
"Collections" means, with respect to any Receivable, all cash collections
and other cash proceeds of such Receivable, including, without limitation, all
Recoveries and collections on Finance Charge Receivables, if any, and cash
proceeds of Related Security with respect to such Receivable.
"Commercial Paper" means the promissory notes, having a maturity date of
270 days or less, issued by the Purchasers in the commercial paper market.
"Commitment" (i) means with respect to each Enterprise Bank Investor party
hereto, (A) the Commitment of such Enterprise Bank Investor to make acquisitions
from the Transferor or Enterprise in accordance herewith in an amount not to
exceed the dollar amount set forth opposite such Enterprise Bank Investor's
signature on the signature page hereto under the heading "Commitment" minus the
dollar amount of any Commitment or portion thereof assigned pursuant to an
Assignment and Assumption Agreement plus the dollar amount of any increase to
such Enterprise Bank Investor's Commitment consented to by such Enterprise Bank
Investor prior to the time of determination and (B) with respect to any assignee
of such Enterprise Bank Investor party hereto taking pursuant to an Assignment
and Assumption Agreement, the Commitment of such assignee to make acquisitions
from the Transferor or Enterprise not to exceed the amount set forth in such
Assignment and Assumption Agreement minus the dollar amount of any Commitment or
portion thereof assigned pursuant to an Assignment and Assumption Agreement
prior to such time of determination plus the dollar amount of any increase to
such assignee's Commitment consented to it prior to the time of determination
and (ii) with respect to each Sheffield Bank Investor party hereto, means an
amount not to exceed the dollar amount set forth opposite such Sheffield Bank
Investor's signature on the signature page of the Sheffield Agreement; provided,
however, that in the event that the Facility Limit is reduced, in any case, the
aggregate Commitment of all Bank Investors shall be reduced in a like amount and
the Commitment of each Bank Investor shall be reduced in proportion to such
reduction.
"Commitment Termination Date" means June 28, 2000, or such later date to
which the Commitment Termination Date may be extended by the Transferor, the
Administrative Agent, the Purchaser Agents, the Purchasers and the Bank
Investors not later than 60 days prior to the then current Commitment
Termination Date.
"Conduit Assignee" shall mean, as to Enterprise or Sheffield (a) any
commercial paper conduit administered by NationsBank or Bank of America N.T. &
S.A. ("BofA") or Barclays or (b) any commercial paper conduit, the commercial
paper notes of which are rated at least A-2 by S&P and at least P-2 by Moody's,
and designated by NationsBank or Barclays,
7
<PAGE>
respectively, from time to time to accept an assignment from a related Purchaser
of all or a portion of the applicable Net Investment.
"Conversion/Continuation Notice" shall have the meaning specified in
Section 2.3(e) hereof.
"Conversion Date" means the date on which the Collection Agent converts the
Accounts to its own bank identification number using the First Data Resources,
Inc. system instead of the Total System Services, Inc. system.
"Credit Agreement" means the Amended and Restated Revolving Credit
Agreement (as amended, supplemented or otherwise modified from time to time),
dated as of June 30, 1998, among MCI, The Chase Manhattan Bank, as
administrative agent, and the lenders and other parties named therein.
"Credit and Collection Policy" means the written policies and procedures of
the DMCCB relating to the operation of its consumer revolving credit card
business, including, without limitation, the written policies and procedures for
determining the creditworthiness of credit card customers, the extension of
credit to credit card customers and relating to the maintenance of credit card
accounts and collection of receivables with respect thereto, as such policies
and procedures are amended, modified or otherwise changed from time to time.
"Credit Support Agreement" means any agreement between a Purchaser and a
Credit Support Provider evidencing the obligation of such Credit Support
Provider to provide credit support to such Purchaser in connection with the
issuance by such Purchaser of Commercial Paper.
"Credit Support Provider" means the Person or Persons who provides credit
support to a Purchaser in connection with the issuance by such Purchaser of
Commercial Paper.
"Cut-Off Date" means June 29, 1999.
"Date of Processing" means, with respect to any transaction giving rise to
a Receivable, the date on which such transaction is settled according to the
Collection Agent's computer master file of Accounts.
"Dealer Fee" means the fee payable by the Transferor to Enterprise,
pursuant to Section 2.5 hereof, the terms of which are set forth in the Fee
Letter.
"Default Rate" means the ratio (expressed as a percentage) computed as of
the last day of each Collection Period by dividing (i) the aggregate outstanding
balance of all Defaulted Receivables as of such date by (ii) the aggregate
outstanding balance of all Receivables as of such date.
8
<PAGE>
"Defaulted Receivable" means a Receivable in an Account with respect to
which, in accordance with the Credit and Collection Policy or the Collection
Agent's customary and usual servicing procedures, the Collection Agent has
charged off such Receivable as uncollectible, and in any event shall include, by
the last day of the month in which it became 180 days past due, any Receivable
that is more than 180 days past due; a Receivable shall become a Defaulted
Receivable on the day on which it is recorded as charged off as uncollectible on
the Collection Agent's computer master file of consumer credit card revolving
accounts. Notwithstanding any other provision hereof, any Defaulted Receivables
that were not Eligible Receivables on the date on which an ownership interest
hereunder was initially purchased by the Purchasers or the Bank Investors
hereunder shall be treated as Receivables which are not Eligible Receivables
rather than as Defaulted Receivables.
"Defaulting Bank Investor" has the meaning specified in Section 2.2(d)(iii)
hereof.
"Determination Date" shall mean with respect to any Collection Period, the
date which is two Business Days before the related Remittance Date.
"Discount Percentage" means the Percentage designated by the Transferor
pursuant to Section 2.5(e).
"Discount Receivables" shall have the meaning specified in Section 2.5(e)
hereof.
"Discount Receivables Collections" means, for any day, the product of (a)
the Discount Percentage and (b) Principal Collections on such day.
"DMCCB" means Direct Merchants Credit Card Bank, National Association, a
national banking association, and its successors and permitted assigns.
"Document Agent Fee" means the fee payable by the Transferor to the
Enterprise Agent pursuant to Section 4.1 hereof, the terms of which are set
forth in the Fee Letter.
"Early Collection Fee" means, for any funding period during which the
portion of any Net Investment that was allocated to such funding period is
reduced for any reason whatsoever, an amount (which is payable in accordance
with Section 8.4(b) hereof) equal to the excess, if any, of (i) the additional
interest that would have accrued during such funding period if such reductions
had not occurred, minus (ii) the income, if any, received by the recipient of
such reductions from investing the proceeds of such reductions.
"Eligible Account" means, as of the Cut-Off Date (or, with respect to
Accounts arising after the Cut-Off Date, as of the date of creation), each
Account in existence and owned by the Transferor:
(i) the credit card or cards related thereto have not been reported
lost or stolen or designated fraudulent;
9
<PAGE>
(ii) the Obligor on which has provided, as its most recent billing
address, an address located in the United States or its territories or
possessions, or Canada, or which is a United States military address;
(iii) which is not an Account as to which any of the Receivables
existing thereunder are Defaulted Receivables;
(iv) which was purchased by the Transferor from GE pursuant to the GE
Agreement (or is a Related Account) and to which the Transferor has good
title, free and clear of all Adverse Claims; and
(v) as to which no Event of Bankruptcy shall have occurred with
respect to the Obligor of any Receivable with respect thereto.
"Eligible Investments" means any of the following (a) negotiable
instruments or securities represented by instruments in bearer or registered or
in book-entry form which evidence (i) obligations fully guaranteed by the United
States of America; (ii) time deposits in, or bankers acceptances issued by, any
depositary institution or trust company incorporated under the laws of the
United States of America or any state thereof and subject to supervision and
examination by Federal or state banking or depositary institution authorities;
provided, however, that at the time of investment or contractual commitment to
invest therein, the certificates of deposit or short-term deposits, if any, or
long-term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such institution or
trust company) of such depository institution or trust company shall have a
credit rating from Moody's and S&P of at least "P-1" and "A-1+", respectively,
in the case of the certificates of deposit or short-term deposits, or a rating
not lower than one of the two highest investment categories granted by Moody's
and by S&P; (iii) certificates of deposit having, at the time of investment or
contractual commitment to invest therein, a rating from Moody's and S&P of at
least "P-1" and "A-1+", respectively; or (iv) investments in money market funds
rated in the highest investment category or otherwise approved in writing by the
applicable rating agencies; (b) demand deposits in any depositary institution or
trust company referred to in (a)(ii) above; (c) commercial paper (having
original or remaining maturities of no more than 30 days) having, at the time of
investment or contractual commitment to invest therein, a credit rating from
Moody's and S&P of at least "P-1" and "A-1+", respectively; (d) Eurodollar time
deposits having a credit rating from Moody's and S&P of at least "P-1" and
"A-1+", respectively; and (e) repurchase agreements involving any of the
Eligible Investments described in clauses (a)(i), (a)(iii) and (d) hereof so
long as the other party to the repurchase agreement has at the time of
investment therein, a rating from Moody's and S&P of at least "P-1" and "A-1+",
respectively.
"Eligible Receivable" means, at any time, any Receivable:
(i) with respect to which the related Account is an Eligible Account;
10
<PAGE>
(ii) to which, immediately prior to the transfer to a Purchaser, the
Transferor has good title thereto, free and clear of all Adverse Claims;
(iii) which (together with the Related Security, Collections and
Proceeds related thereto) has been the subject of either a valid transfer
and sale from the Transferor to each of the Purchaser Agents, on behalf of
the applicable Purchaser and its related Bank Investors, of all of the
Transferor's right, title and interest therein or the grant of a first
priority perfected security interest therein (and in the Related Security,
Collections and Proceeds related thereto), effective until the termination
of this Agreement;
(iv) the Obligor of which is not a government or a government
subdivision or agency;
(v) which is not a Defaulted Receivable at the time of the initial
creation of an interest therein hereunder;
(vi) which is an "eligible asset" as defined in Rule 3a-7 under the
Investment Company Act of 1940, as amended;
(vii) a purchase of which with the proceeds of Commercial Paper would
constitute a "current transaction" within the meaning of Section 3(a)(3) of
the Securities Act of 1933, as amended;
(viii) which is an "account" or "general intangible" within the
meaning of Article 9 of the UCC of the applicable jurisdiction;
(ix) which is denominated and payable only in United States dollars in
the United States;
(x) which arises under an Account that, together with the Receivable
related thereto, is in full force and effect and constitutes the legal,
valid and binding obligation of the related Obligor enforceable against
such Obligor in accordance with its terms and is not, at the time of
transfer hereunder, subject to any litigation, right of recission, dispute,
offset, counterclaim or other defense;
(xi) which, together with the Account related thereto, complies in all
material respects with all laws, rules or regulations applicable thereto
(including, without limitation, laws, rules and regulations relating to
truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and with respect
to which the Account Agreement related thereto is not in violation of any
such law, rule or regulation in any material respect;
(xii) which is assignable without the consent of, or notice to, the
Obligor thereunder;
11
<PAGE>
(xiii) the transfer of which hereunder by the Transferor and the
transfer of which under the GE Agreement does not violate, breach or
contravene any applicable laws, rules, regulations, orders or writs or any
contractual or other restriction, limitation or encumbrance;
(xiv) which, at the time of transfer hereunder, has not been
compromised, adjusted or modified (including the granting of any discounts,
allowances or credits); provided, however, that only such portion of such
Receivable that is the subject of such compromise, adjustment or
modification shall be deemed to be ineligible pursuant to the terms of this
clause (xiv);
(xv) as to which no effective financing statement or other instrument
similar in effect covering such Receivable, any interest therein, Account
or Collections with respect thereto is on file in any recording office
except such as may be filed in favor of DMCCB under the GE Agreement or a
Purchaser hereunder;
(xvi) with respect to which all material consents, licenses, approvals
or authorizations of, or registrations or declarations with, any
governmental authority required to be obtained, effected or given by the
Transferor in connection with the creation of such Receivable or the
execution, delivery, creation and performance by the Transferor of the
Account Agreement pursuant to which such Receivable was created, have been
duly obtained, effected or given and are in full force and effect; and
(xvii) which was originated by GE or (as to Related Accounts) the
Transferor in the ordinary course of its business and was validly assigned
to the Transferor under the GE Agreement.
"Enterprise" shall have the meaning set forth in the preamble to this
Agreement.
"Enterprise Agent" means NationsBank or any other entity which has been
appointed as the administrator of Enterprise and agent for the Enterprise Bank
Investors.
"Enterprise Bank Investors" shall mean NationsBank and each other financial
institution that becomes a Bank Investor with respect to any Transferred
Interest held by Enterprise, pursuant to an Assignment and Assumption Agreement,
together with its successors and permitted assigns.
"Enterprise Majority Investors" shall have the meaning specified in Section
9.7(h) hereof.
"Enterprise Wind-Down Event" means the occurrence of any of the following
events:
12
<PAGE>
(a) any Liquidity Provider with respect to Enterprise or any Credit Support
Provider with respect to Enterprise shall have given notice that an event of
default has occurred and is continuing under any of its respective agreements
with Enterprise, or the Commitment of such Liquidity Provider under its
Liquidity Provider Agreement or such Credit Support Provider under its Credit
Support Agreement shall have terminated;
(b) the short-term unsecured debt of Enterprise shall not be rated at least
"A-2" by Standard & Poor's and at least "P-2" by Moody's, respectively;
(c) a Termination Event or Potential Termination Event shall have occurred
and be continuing;
(d) Enterprise has notified the Transferor that, in its sole discretion, it
(i) no longer wishes to, or is unable to, issue Commercial Paper with respect to
this Agreement, (ii) elects to commence a Reinvestment Termination Date or (iii)
elects to amortize its Net Investment or elects not to make an additional
Incremental Transfer; and
(e) the date which is five Business Days prior to the Commitment
Termination Date shall have occurred.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means, with respect to any Person, (i) any corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as such Person; (ii) a trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with such Person; or (iii) a member of the same
affiliated service group (within the meaning of Section 414(n) of the Code) as
such Person, any corporation described in clause (i) above or any trade or
business described in clause (ii) above; provided, however, that none of FCI and
its Affiliates (other than the Initial Purchaser and its Subsidiaries) shall be
an ERISA Affiliate.
"Event of Bankruptcy" means, with respect to any Person, (i) that such
Person (a) shall generally not pay its debts as such debts become due, (b) shall
admit in writing its inability to pay its debts generally or (c) shall make a
general assignment for the benefit of creditors; (ii) any proceeding shall be
instituted by or against such Person seeking to adjudicate it as bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a conservator,
receiver, trustee or other similar official for it or any substantial part of
its property, and in the case of any such proceeding instituted against such
Person (other than the Transferor), such proceeding shall continue undismissed
for a period of 30 days; or (iii) if such Person is a corporation, such Person
or any Subsidiary shall take any corporate action to authorize any of the
actions set forth in the preceding clauses (i) or (ii).
13
<PAGE>
"Excess Funding Account" shall have the meaning assigned to that term in
Section 2.12(c).
"Excess Spread" means, with respect to any Collection Period, the
annualized percentage equivalent of a fraction the numerator of which is equal
to the Buyer's Percentage Factor of Finance Charge Collections for such
Collection Period minus the Carrying Costs for such Collection Period minus the
Buyer's Percentage Factor of the aggregate amount of Principal Receivables which
became Defaulted Receivables during such Collection Period minus the Buyer's
Percentage Factor of the Servicing Fee with respect to such Collection Period,
and the denominator of which is equal to the average amount of the Net
Investments during such Collection Period.
"Excluded Taxes" shall have the meaning specified in Section 8.3 hereof.
"Facility Fee" means the fee payable by the Transferor to the Enterprise
Agent for distribution to the Bank Investors pursuant to Section 2.7 hereof, the
terms of which are set forth in the Fee Letter.
"Facility Limit" means $800,000,000. Following the earlier of the
Termination Date and Special Termination Date, the Facility Limit shall at all
times equal the Net Investments outstanding as of such date.
"FCI" means Fingerhut Companies, Inc., a Minnesota corporation.
"Fee Letter" means the confidential letter agreement dated the date hereof
among the Transferor, the Enterprise Agent and Enterprise with respect to the
fees to be paid by the Transferor hereunder, as amended, modified or
supplemented from time to time.
"FDIA" means the Federal Deposit Insurance Act.
"FDIC" means the Federal Deposit Insurance Corporation.
"Finance Charge Collections" shall mean, with respect to any Business Day,
Collections received by the Collection Agent with respect to Finance Charge
Receivables and unless otherwise specified herein, Discount Receivables
Collections on such Business Day.
"Finance Charge Receivables" shall mean the sum of all amounts billed from
time to time to the Obligors on any Account in respect of (i) Periodic Finance
Charges, (ii) over limit fees, (iii) late charges, (iv) returned check fees, (v)
annual membership fees and annual service charges, if any, (vi) transaction
charges, (vii) cash advance fees and (viii) similar fees and charges, excluding
fees and charges for insurance and insurance type products, plus (x) Recoveries
and (y) Discount Receivables, if any.
"Fitch" means Fitch Investors Service, L.P., and its successors and
assigns.
14
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
accounting profession, which are in effect from time to time.
"GE" means GE Capital Consumer Card Co., an Ohio state-chartered bank and
shall include, with respect to the origination or creation of any Account sold
pursuant to the GE Agreement, any predecessor in interest to GE which actually
originated such Account.
"GE Agreement" means the Purchase and Sale Agreement, dated as of May 10,
1999, by and between GE and DMCCB, and all schedules and exhibits thereto,
together with all agreements, instruments and documents executed in connection
therewith, including, without limitation, the Interim Servicing Agreement with
respect thereto, as they may be modified, amended and supplemented from time to
time.
"Guaranty" means, with respect to any Person, any agreement by which such
Person assumes, guarantees, endorses, contingently agrees to purchase or provide
funds for the payment of, or otherwise becomes liable upon, the obligation of
any other Person, or agrees to maintain the net worth or working capital or
other financial condition of any other Person or otherwise assures any other
creditor of such other Person against loss, including, without limitation, any
comfort letter, operating agreement or take-or-pay contract and shall include,
without limitation, the contingent liability of such Person in connection with
any application for a letter of credit.
"Incremental Transfer" means a Transfer which is made pursuant to Section
2.2(a) hereof.
"Indebtedness" means, with respect to any Person such Person's (i)
obligations for borrowed money, (ii) obligations representing the deferred
purchase price of property other than accounts payable arising in the ordinary
course of such Person's business on terms customary in the trade, (iii)
obligations, whether or not assumed, secured by liens or payable out of the
proceeds or products of property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease obligations and (vi) obligations for which
such Person is obligated pursuant to a Guaranty.
"Indemnified Amounts" has the meaning specified in Section 8.1 hereof.
"Indemnified Parties" has the meaning specified in Section 8.1 hereof.
"Interest Component" means (i) with respect to Enterprise, (a) with respect
to any Commercial Paper issued on an interest-bearing basis, the interest
payable on such Commercial Paper at its maturity (including any Dealer Fee) and
(b) with respect to any Commercial Paper issued on a discount basis, the portion
of the face amount of such Commercial Paper representing the discount incurred
in respect thereof (including any Dealer Fee to the extent included as part
15
<PAGE>
of such discount) and (ii) with respect to Sheffield, with respect to any
funding period with respect to Sheffield during which all or a portion of its
Net Investment is funded by Commercial Paper of Sheffield, the rate equivalent
to the rate (or, if more than one rate, the weighted average of the rates) at
which such Commercial Paper outstanding during such funding period with respect
to its Net Investment may be sold by any placement agent or commercial paper
dealer selected by Sheffield, which rates shall reflect and give effect to the
commissions of placement agents and dealers in respect of such Commercial Paper,
to the extent such commissions are allocated, in whole or in part, to such
Commercial Paper by the Sheffield Agent (on behalf of Sheffield); provided,
however, that if the rate (or rates) as agreed between any such agent or dealer
and Sheffield is a discount rate, then the rate (or if more than one rate, the
weighted average of the rates) resulting from Sheffield's converting such
discount rate (or rates) to an interest-bearing equivalent rate per annum.
"Interest Rate Cap" shall have the meaning specified in Section 5.1(n)(i).
"Interest Rate Cap Agreement" means each agreement providing for an
Interest Rate Cap between the Transferor and an Interest Rate Cap Provider,
which is satisfactory in form and substance to the Purchaser Agents, together
with any amendment, modification or supplement thereto.
"Interest Rate Cap Provider" means collectively, the providers of an
Interest Rate Cap, each of which shall have a short-term rating from Standard &
Poor's of at least "A-1" or a long-term rating from Standard & Poor's of at
least "A" and a short-term rating of at least "P-1" from Moody's or a long-term
rating of at least "A2" from Moody's.
"Investor Report" means a report, in substantially the form attached hereto
as Exhibit D or in such other form as is mutually agreed to by the Transferor
and the Purchaser Agents, furnished by the Collection Agent pursuant to Section
2.11 hereof.
"Law" means any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
Official Body.
"LIBOR Cap Rate" means for any Collection Period, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in U.S. dollars at approximately 11:00 a.m. (London time) two
London Business Days prior to the first day of such Collection Period for a term
of one month.
"LIBOR Rate" means with respect to any funding period, for the Net
Investment of Enterprise and the Enterprise Bank Investors, and the Net
Investment of Sheffield and the Sheffield Bank Investors, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in U.S. dollars at approximately 11:00 a.m. (London time) two
London Business Days prior to the first day of each such funding period for a
term of one month. If for any reason
16
<PAGE>
such rate is not available, the term "LIBOR Rate" shall mean, for any funding
period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered
rate for deposits in dollars at approximately 11:00 a.m. (London time) two
London Business Days prior to the first day of such funding period for a term of
one month; provided, however, if more than one rate is specified on the Reuters
Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such
rates; and provided further that if such funding period would expire on (i) a
day which is not a Business Day, such funding period shall expire on the next
succeeding Business Day, (ii) a day which is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such funding
period shall expire on the next preceding Business Day or (iii) a Business Day
for which there is no numerically corresponding day in the applicable subsequent
calendar month, such funding period shall expire on the last Business Day of
such month.
"Liquidity Provider" means the Person or Persons who will provide liquidity
support to a Purchaser in connection with the issuance by such Purchaser of
Commercial Paper.
"Liquidity Provider Agreement" means (i) with respect to Enterprise, the
agreement between Enterprise and a Liquidity Provider evidencing the obligation
of such Liquidity Provider to provide liquidity support to Enterprise in
connection with the issuance by Enterprise of Commercial Paper and (ii) with
respect to Sheffield, the Sheffield Agreement.
"Loss Sharing Agreement" means any agreement (other than any credit
insurance policies or rights under any such policies), an interest in which was
acquired from GE under the GE Agreement, by which any Person has agreed to make
payments with respect to any losses with respect to any Account or Receivable,
including without limitation, any such agreements as are referenced in the GE
Agreement.
"Material Adverse Effect" means any event or condition which could
reasonably be expected to have a material adverse effect on (i) the
collectibility of the Receivables, taken as a whole, (ii) the condition
(financial or otherwise), businesses or properties of the Transferor or the
Collection Agent, (iii) the ability of the Transferor or the Collection Agent to
perform its respective obligations under the Transaction Documents to which it
is a party or (iv) the legality, binding effect or enforceability of any
material provision of the Transaction Documents or on the rights and remedies of
the Administrative Agent, the Purchaser Agents, the Purchasers or the Bank
Investors under the Transaction Documents.
"Maximum Buyer's Percentage Factor" means 81%.
"MCI" means Metris Companies Inc., a Delaware corporation, and its
successors and permitted --- assigns.
"Moody's" means Moody's Investors Service, Inc., and its successors and
assigns.
"Multiemployer Plan" means a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA which is or was at any time during the current year or the
immediately
17
<PAGE>
preceding five years contributed to by the Transferor or any ERISA Affiliate of
the Transferor on behalf of its employees.
"NationsBank" shall have the meaning set forth in the preamble to this
Agreement.
"Net Investments" means the sum of the cash amounts paid to the Transferor
for each Incremental Transfer by each of the Purchaser Agents, on behalf of its
related Purchaser or its related Bank Investors, less the aggregate amount of
Collections received and applied by the applicable Purchaser Agent to reduce the
applicable Net Investment pursuant to Section 2.5, 2.6 or 2.9 hereof; provided,
however, that each Net Investment shall be restored and reinstated in the amount
of any Collections so received and applied if at any time the distribution of
such Collections is rescinded or must otherwise be returned for any reason; and,
provided, further, that, in the case of the Enterprise Bank Investors, the
related Net Investment may be increased by the amount described in Section
9.7(d) hereof as described therein.
"Non-Defaulting Bank Investor" has the meaning specified in Section
2.2(d)(iii) hereof.
"Obligor" means a Person obligated to make payments pursuant to an Account
or a Receivable, including any guarantor thereunder.
"Official Body" means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of any such government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"Other Transferor" means any Person other than the Transferor that has
entered into a receivables purchase agreement, loan and security agreement, note
purchase agreement, transfer and administration agreement or any other similar
agreement with a Purchaser.
"Payment Rate" means, for any Collection Period, the percentage equivalent
of a fraction, the numerator of which is equal to the amount of all cash
Collections during such Collection Period and the denominator of which is equal
to the average amount of Receivables outstanding during the prior Collection
Period.
"Periodic Finance Charges" shall have, with respect to any Account, the
meaning specified in the Account Agreement applicable to such Account for
finance charges (due to periodic rate) or any similar term.
"Person" means any corporation, limited liability company, natural person,
firm, joint venture, partnership, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
18
<PAGE>
"Potential Termination Event" means an event which but for the lapse of
time or the giving of notice, or both, would constitute a Termination Event.
"Principal Collections" means, with respect to any Collection Period, all
Collections received during such period other than Finance Charge Collections.
"Principal Receivables" means amounts shown on the Collection Agent's
records as amounts payable by Obligors with respect to Eligible Receivables on
any Account other than such amounts that are Finance Charge Receivables or
Defaulted Receivables and shall include, without limitation, amounts payable for
purchases of goods or services or cash advances. A Receivable shall be deemed to
have been created at the end of the day on the Date of Processing of such
Receivable. In calculating the aggregate amount of Principal Receivables on any
day, the amount of Principal Receivables shall be reduced by the aggregate
amount of credit balances in the Accounts on such day.
"Pro Rata Share" means, with respect to each Purchaser and its related Bank
Investors, the percentage obtained by dividing such Purchaser's and its related
Bank Investors' Net Investment by the aggregate Net Investments of the
Purchasers and the Bank Investors.
"Proceeds" means "proceeds" as defined in Section 9-306(1) of the UCC of
the states set forth -------- in Section 2.8(a) hereof.
"Program Fee" means the fee payable by the Transferor to Enterprise
pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee
Letter.
"Purchased Interest" means the interest in the Receivables acquired by a
Liquidity Provider through purchase pursuant to the terms of the Liquidity
Provider Agreement to which it is a party.
"Purchaser" means any of Enterprise, Sheffield or any Conduit Assignee, as
the context requires, and "Purchasers" means all of Enterprise, Sheffield and
all Conduit Assignees.
"Purchaser Agent" means any of the Enterprise Agent, the Sheffield Agent or
the agent for any Conduit Assignee, as the context requires. "Purchaser Agents"
means all of the Enterprise Agent, the Sheffield Agent and any agent for a
Conduit Assignee.
"Rating Agencies" means, collectively, Standard & Poor's, Moody's and
Fitch.
"Receivable" means all of the indebtedness of any Obligor to the
Transferor, whether now existing or hereafter created, under an Account,
including the right to receive payment of any interest or finance charges and
other obligations of such Obligor with respect thereto. Each Receivable
includes, without limitation, all rights of the Transferor under the applicable
Account Agreement.
19
<PAGE>
"Receivable Systems" shall have the meaning set forth in Section 3.1(v)(ii)
hereof.
"Records" means all right, title and interest of the Transferor in and to
all Account Agreements and other documents, books, records and other information
(including, without limitation, computer programs, tapes, discs, punch cards,
data processing software and related property and rights) maintained with
respect to Receivables and the related Obligors.
"Recoveries" means all amounts received or collected by the Collection
Agent with respect to Defaulted Receivables.
"Reinvestment Termination Date" means the second Business Day after the
delivery by a Purchaser to the Transferor of written notice that such Purchaser
elects to assign its Net Investment to the Bank Investors pursuant to (i)
Section 9.7, in the case of Enterprise or (ii) the Sheffield Agreement, in the
case of Sheffield.
"Related Account" shall mean an Account having each of the following
characteristics: (i) such Related Account is being established in accordance
with the Credit and Collection Policy; (ii) the Obligor or Obligors with respect
to such Related Account are the same Person or Persons as the Obligor or
Obligors of an Account; (iii) such Related Account is originated as a result of
(x) the credit card with respect thereto being lost or stolen or (y) the
Obligor's requesting a VISA account rather than a MasterCard account and (iv)
such Related Account can be traced or identified as a successor account to an
Account by reference to or by way of the computer or other records of the
Collection Agent or the Transferor.
"Related Commercial Paper" shall mean Commercial Paper issued by a
Purchaser the proceeds of which were used to acquire, or refinance the
acquisition of, its interest in Receivables with respect to the Transferor.
"Related Security" means all of the Transferor's right, title and interest
in, to and under:
(i) all guarantees, indemnities, warranties, insurance (and proceeds
and premium refunds thereof), credit enhancement, reimbursement agreement,
Loss Sharing Agreements or other agreements or arrangements of any kind
from time to time directly or indirectly supporting or securing payment of
a Receivable or holding harmless or assuring any Person against loss in
connection with a Receivable, whether pursuant to the Account related to
such Receivable or otherwise;
(ii) all Records related to the Receivables (which, if necessary to
comply with applicable law applicable to the Collection Agent or
Transferor, the Transferor or Collection Agent may remove therefrom the
names, addresses, Social Security numbers or other personal identifiers of
Obligors);
20
<PAGE>
(iii) all rights and remedies of the Transferor under or in connection
with the GE Agreement including all financing statements filed in
connection therewith on which the Purchaser Agents are listed as assignees;
(iv) all right, title and interest of the Transferor under each
Interest Rate Cap Agreement; and
(v) all Proceeds of any of the foregoing.
"Remittance Date" means the fifteenth day of each calendar month, or if
such day is not a Business Day, the next succeeding Business Day; provided,
however, that the first Remittance Date shall be August 16, 1999.
"Required Purchaser Agents" means, for so long as (i) two Purchaser Agents
are parties to this Agreement, either of such Purchaser Agents, (ii) more than
two Purchaser Agents are parties to this Agreement, Purchaser Agents
representing holders of at least 66 and 2/3% of the Net Investment at the time
of any determination thereof and (iii) if only one Purchaser Agent is a party to
this Agreement, such Purchaser Agent.
"Section 8.2 Costs" has the meaning specified in Section 8.2(d) hereof.
"Servicing Fee" means the fee payable to the Collection Agent in an amount
equal to 2% per annum on the average daily amount of the Principal Receivables;
provided, however, after the occurrence of a Collection Agent Default and in the
event the Collection Agent is replaced, such fee may be increased, at the
discretion of the Administrative Agent to an amount determined by the
Administrative Agent to be the then current market rate, not to exceed 3% per
annum on the average daily amount of the Principal Receivables. Such fee shall
accrue from the date of the initial purchase of an interest in the Receivables
to the date on which the Buyer's Percentage Factor is reduced to zero. Such fee
shall be payable only from Collections pursuant to, and subject to the priority
of payments set forth in, Section 2.5 hereof.
"Sheffield" shall have the meaning set forth in the preamble to this
Agreement.
"Sheffield Agent" means Barclays or any other entity which has been
appointed as administrator of Sheffield and agent for the Sheffield Bank
Investors.
"Sheffield Agreement" means that certain Revolving Asset Purchase
Agreement, dated as of the Closing Date, by and among the Sheffield Agent, the
Sheffield Bank Investors and Sheffield, as the same may from time to time be
amended, supplemented or otherwise modified and in effect.
"Sheffield Bank Investors" shall mean each financial institution that
becomes a Bank Investor with respect to any Transferred Interest held by
Sheffield, pursuant to an Assignment and Assumption Agreement, together with its
successors and permitted assigns.
21
<PAGE>
"Sheffield Fee Letter" means that certain Fee Letter, dated as of the
Closing Date, between the Transferor and the Sheffield Agent, as the same may
from time to time be amended, supplemented or otherwise modified and in effect.
"Sheffield Wind-Down Event" means the occurrence of any of the following
events:
(a) the fifth (5th) Business Day prior to the Commitment Termination Date;
(b) any provider of Sheffield's liquidity and/or program enhancement shall
have given notice that an event of default has occurred and is continuing under
its agreement with Sheffield;
(c) Sheffield has notified the Transferor that it no longer wishes to, or
is unable to, issue Commercial Paper with respect to this Agreement;
(d) Sheffield's Commercial Paper shall not be rated at least A-1+/P-1 by
Standard & Poor's and Moody's, respectively; and
(e) a Termination Event or Potential Termination Event shall have occurred
and be continuing.
"Special Pro Rata Share" means, for a Bank Investor, the Commitment of such
Bank Investor divided by the sum of the Commitments of all Bank Investors
related to the same Purchaser.
"Special Termination Date" means (a) with respect to Enterprise or the
related Bank Investors, (i) the date of termination of the Commitment of the
Liquidity Provider under the Liquidity Provider Agreement with respect to
Enterprise's commercial paper program or (ii) the date of termination of the
Commitment of the Credit Support Provider under the Credit Support Agreement
with respect to Enterprise's commercial paper program, and (b) with respect to
any Purchaser and related Bank Investors, five Business Days prior to the
Commitment Termination Date if such Purchaser or Bank Investor does not agree to
extend the Commitment Termination Date.
"Spread Account" shall have the meaning assigned to that term in Section
2.12(b).
"Spread Account Cap Percentage Amount", as of any Determination Date, means
the product of the Net Investments on such Determination Date and the applicable
"Spread Account Cap Percentage" determined as set forth in the chart immediately
below, subject to the following: (a) any decrease in the Spread Account Cap
Percentage will take effect only after three consecutive Determination Dates
during which such decrease (or any greater decrease) shall have prevailed; (b)
any calculation of the "Spread Account Percentage" based on the Collection
Periods ending in April 1999 and May 1999 shall assume that, for each such
22
<PAGE>
Collection Period, (x) Excess Spread was 5.30% and 5.91%, respectively and (y)
the Payment Rate was 7.67% and 8.16%, respectively.
The Spread Account Cap Percentage Amount applicable on the Closing Date
shall be $0.
<TABLE>
<CAPTION>
Average Excess Spread for the three
consecutive Collection Periods immediately Spread Account Cap Percentage(1) Spread Account Cap Percentage(2)
preceding the Determination Date
<S> <C> <C>
Greater than 4.50% 0% 1%
Greater than 4.00% and less than or equal 1% 2%
to 4.50%
Greater than 3.00% and less than or equal 2% 3%
to 4.00%
Greater than 2.00% and less than or equal 3% 4%
to 3.00%
2.00% and less 4% 5%
</TABLE>
(1) Spread Account Cap Percentage in effect if average Payment Rate for the
three consecutive Collection Periods immediately preceding the
Determination Date is greater than 6%.
(2) Spread Account Cap Percentage in effect if average Payment Rate for the
three consecutive Collection Periods immediately preceding the
Determination Date is less than or equal to 6%.
"Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and its successors and assigns.
"Structuring Fee" means the fee payable by the Transferor to the Enterprise
Agent pursuant to Section 4.1 hereof, the terms of which are set forth in the
Fee Letter.
"Subsidiary" of a Person means any Person more than 50% of the outstanding
voting interests of which shall at any time be owned or controlled, directly or
indirectly, by such Person or by one or more Subsidiaries of such Person or any
similar business organization which is so owned or controlled.
"Taxes" shall have the meaning specified in Section 8.3 hereof.
23
<PAGE>
"Termination Date" means the earlier of (i) the Business Day designated by
the Transferor to the Purchaser Agents as the Termination Date at any time
following 60 days' written notice to the Purchaser Agents and (ii) the day upon
which the Termination Date is declared or automatically occurs pursuant to
Section 7.2(a) hereof.
"Termination Event" means an event described in Section 7.1 hereof.
"Transaction Costs" has the meaning specified in Section 8.4(a) hereof.
"Transaction Documents" means, collectively, this Agreement, the GE
Agreement, the Fee Letter, the Sheffield Fee Letter, the Certificates, the
Transfer Certificate, each Interest Rate Cap Agreement and all of the other
instruments, documents and other agreements executed and delivered by the
Transferor in connection with any of the foregoing, in each case, as the same
may be amended, restated, supplemented or otherwise modified from time to time.
"Transfer" means a conveyance, transfer and assignment by the Transferor to
a Purchaser or the Bank Investors, as applicable, of an undivided percentage
ownership interest in Receivables hereunder (including, without limitation, as a
result of any reinvestment of Collections in Transferred Interests pursuant to
Sections 2.2(e) and 2.5 hereof).
"Transfer Certificate" has the meaning specified in Section 2.2(c) hereof.
"Transfer Date" means, with respect to each Transfer, the Business Day on
which such Transfer is made.
"Transfer Price" means with respect to any Incremental Transfer, the amount
paid to the Transferor by a Purchaser or the Bank Investors as described in the
applicable Transfer Certificate.
"Transfer Price Deficit" has the meaning specified in Section 2.2(d)(iii)
hereof.
"Transferor" means DMCCB and its successors and permitted assigns.
"Transferor's Percentage Interest" means, on any date of determination,
100% minus the Buyer's Percentage Factor on such date.
"Transferred Interest" means, at any time of determination, an undivided
percentage ownership interest in (i) each and every then outstanding Receivable,
(ii) all Related Security, (iii) all Collections with respect thereto, and (iv)
other Proceeds of the foregoing, which undivided ownership interest shall be
equal to the Buyer's Percentage Factor at such time, and only at such time
(without regard to prior calculations). The Transferred Interest in each
Receivable, together with Related Security, Collections and Proceeds with
respect thereto, shall at all times be equal to the Transferred Interest in each
other Receivable, together with Related Security, Collections and Proceeds with
respect thereto. To the extent that the Transferred
24
<PAGE>
Interest shall decrease as a result of a recalculation of the Buyer's Percentage
Factor, each of the Purchaser Agents, on behalf of each of their respective
Purchasers or Bank Investors shall be considered to have reconveyed the
Transferor an undivided percentage ownership interest in each Receivable,
together with Collections and Proceeds with respect thereto, in an amount equal
to its Pro Rata Share of such decrease such that in each case the Transferred
Interest in each Receivable shall be equal to the Transferred Interest in each
other Receivable.
"UCC" means, with respect to any state, the Uniform Commercial Code as from
time to time in effect in such state.
"U.S." or "United States" means the United States of America.
"Valuation Date" means June 21, 1999.
"Year 2000 Compliant" shall have the meaning set forth in Section 3.1(v)(i)
hereof.
"Year 2000 Problem" shall have the meaning set forth in Section 3.1(v)(i)
hereof.
SECTION 1.2. Other Terms.
All accounting terms not specifically defined herein shall be construed in
accordance with GAAP. All terms used in Article 9 of the UCC in the State of New
York, and not specifically defined herein, are used herein as defined in such
Article 9.
SECTION 1.3. Computation of Time Periods.
Unless otherwise stated in this Agreement, in the computation of a period
of time from a specified date to a later specified date, the word "from" means
"from and including", the words "to" and "until" each means "to but excluding",
and the word "within" means "from and excluding a specified date and to and
including a later specified date".
SECTION 1.4. NationsBank/Bank of America Merger.
The parties hereto (i) acknowledge that on or about July 23, 1999,
NationsBank will be merged with Bank of America National Trust and Savings
Association, a national banking association, and the combined entity will be
renamed "Bank of America, National Association", and (ii) acknowledge and agree
that upon such merger, without any further action, the combined entity will be a
party hereto in place of NationsBank, and each reference to NationsBank will
mean and be a reference to such combined entity.
25
<PAGE>
ARTICLE II
PURCHASES AND SETTLEMENTS
SECTION 2.1. Facility.
Upon the terms and subject to the conditions herein set forth, (x) the
Transferor may, at its option, convey, transfer and assign to the Purchaser
Agents, on behalf of their related Purchasers or Bank Investors, as applicable,
and (y) (i) each of the Enterprise Agent, on behalf of and at the option of
Enterprise (prior to an Enterprise Wind-Down Event) and the Sheffield Agent, on
behalf of and at the option of Sheffield (prior to a Sheffield Wind-Down Event),
may or (ii) the Purchaser Agents, on behalf of their respective Bank Investors
shall, unless a Termination Date or Special Termination Date with respect to
such Bank Investors shall have occurred, severally but not jointly, accept such
conveyance, transfer and assignment from the Transferor, without recourse except
as provided herein, of an undivided percentage ownership interest in the
Affected Assets, from time to time. By accepting any conveyance, transfer and
assignment hereunder, none of the Purchasers, any Bank Investor, the
Administrative Agent or any of the Purchaser Agents assumes or shall have any
obligations or liability under any of the Accounts, all of which shall remain
the obligations and liabilities of the Transferor.
SECTION 2.2. Transfers; Certificates; Eligible Receivables.
(a) Upon the terms and subject to the conditions herein set forth
(including pursuant to Section 3.2 hereof), (x) the Transferor may, at its
option, convey, transfer and assign to the Purchaser Agents, on behalf of their
related Purchasers or Bank Investors, as applicable, and (y) the Enterprise
Agent, on behalf of Enterprise (prior to an Enterprise Wind-Down Event) and the
Sheffield Agent, on behalf of Sheffield (prior to a Sheffield Wind-Down Event),
may, at each such Purchaser's option, or (z) the Purchaser Agents, on behalf of
their related Bank Investors, provided that the Termination Date or a Special
Termination Date with respect to such Bank Investors shall not have occurred and
that the Bank Investors shall have previously accepted the assignment by the
applicable Purchaser of all of its interest in the Affected Assets, shall (in
accordance with Section 9.7(a) hereof), if so requested by the Transferor,
accept such conveyance, transfer and assignment from the Transferor, without
recourse except as provided herein, of undivided percentage ownership interests
in the Affected Assets (each, an "Incremental Transfer"); provided, however,
that after giving effect to the payment to the Transferor of the Transfer Price
by each Purchaser Agent, (i) the sum of the Net Investments plus, in the case
where the Transferred Interest is held on behalf of the Purchasers, the Interest
Component of all outstanding Related Commercial Paper, would not exceed the
Facility Limit; (ii) a Purchaser's applicable Net Investment, plus, in the case
where the Transferred Interest is held on behalf of the Purchasers, the Interest
Component of all outstanding Related Commercial Paper issued by such Purchaser,
would not exceed its Applicable Purchaser Percentage of the Facility Limit, and
the share of any Bank Investor therein would not exceed its Special Pro Rata
Share of such amount, and (iii) the Buyer's Percentage Factor shall not exceed
the Maximum Buyer's Percentage Factor. With respect to Enterprise and the
Enterprise Bank Investors, the parties
26
<PAGE>
hereto understand that in no event shall the Net Investment be held by the
Enterprise Agent on behalf of Enterprise and the Enterprise Bank Investors
simultaneously, except in the case of an assignment, if any, to an Enterprise
Bank Investor in accordance with Section 9.7(g) hereof.
(b) The Transferor shall, by notice to the Purchaser Agents given by no
later than 1:00 p.m. (New York City time) at least one (1) Business Day (and, in
the case of any Incremental Transfer for which the initial funding period will
be based on the Adjusted LIBOR Rate, three (3) Business Days) prior to the
proposed date of any Incremental Transfer by telecopy, offer to convey, transfer
and assign to the Purchaser Agents, on behalf of their related Purchasers or the
Bank Investors, as applicable, undivided percentage ownership interests in the
Receivables and the other Affected Assets relating thereto. Each such notice
shall specify (w) the Purchaser Agents to which such request is being made,
which shall make a Transfer, at the sole discretion of such Purchaser Agents, on
behalf of the applicable Purchaser or on behalf of the applicable Bank
Investors, (x) the desired Transfer Price (which shall be, for each Purchaser,
at least $1,000,000 or integral multiples of $250,000 in excess thereof) or, to
the extent that the then available unused portion of the Facility Limit is less
than $250,000, such lesser amount, (y) the desired date of such Incremental
Transfer and (z) with respect to Sheffield, the desired funding periods and
allocations of its Net Investment of such Incremental Transfer thereto as
required by Section 2.3. The Purchaser Agents will promptly notify the
applicable Purchaser or each of the applicable Bank Investors, as the case may
be, of any of the Purchaser Agents' receipt of any request for an Incremental
Transfer to be made to any of the Purchaser Agents on behalf of such Person. To
the extent that any such Incremental Transfer is requested of any of the
Purchaser Agents, on behalf of the Purchasers, the Purchasers shall instruct the
applicable Purchaser Agent to accept or reject such offer by notice given to the
Transferor and the applicable Purchaser Agents by telephone or telecopy by no
later than the close of its business on the Business Day following its receipt
of any such request. Each notice of proposed Transfer shall be irrevocable and
binding on the Transferor and the Transferor shall indemnify the Purchasers and
each Bank Investor against any loss or expense incurred by the Purchasers or any
Bank Investor, either directly or indirectly (including, in the case of the
Purchasers, through the Liquidity Provider Agreement) as a result of any failure
by the Transferor to complete such Incremental Transfer including, without
limitation, any loss (including loss of anticipated profits) or expense incurred
by the Purchasers or any Bank Investor, either directly or indirectly
(including, in the case of the Purchasers, pursuant to the Liquidity Provider
Agreement) by reason of the liquidation or reemployment of funds acquired by the
Purchasers (or the Liquidity Providers) or any Bank Investor (including, without
limitation, funds obtained by issuing commercial paper or promissory notes or
obtaining deposits as loans from third parties) for the Purchasers or any Bank
Investor to fund such Incremental Transfer.
(c) On the date of the initial Incremental Transfer, each Purchaser Agent,
on behalf of its applicable Purchaser or Bank Investors, as applicable, shall
deliver written confirmation to the Transferor of its Transfer Price and the
Transferor shall deliver to each of the Purchaser Agents a Transfer Certificate
in the form of Exhibit F hereto (each, a "Transfer Certificate"). Each Purchaser
Agent shall indicate the Pro Rata Share of the related Purchaser or Bank
Investor, as applicable, of the amount of the initial Incremental Transfer
together with the
27
<PAGE>
date thereof on the grid attached to its Transfer Certificate. On the date of
each subsequent Incremental Transfer, the Purchaser Agents shall (i) with
respect to Enterprise, send written confirmation to the Transferor of its
Transfer Price applicable to such Incremental Transfer and (ii) with respect to
Sheffield, send written confirmation to the Transferor of its Transfer Price,
the Transfer Date and the funding period(s) applicable to such Incremental
Transfer. Each Purchaser Agent shall indicate the applicable Pro Rata Share of
the amount of the Incremental Transfer together with the date thereof as well as
the Pro Rata Share of any decrease in the applicable Net Investment on the grid
attached to its Transfer Certificate. The Transfer Certificates shall evidence
the Incremental Transfers. Following each Incremental Transfer, each Purchaser
Agent shall deposit to the Transferor's account at the location indicated in
Section 10.3 hereof, on behalf of the applicable Purchaser or Bank Investor, in
immediately available funds, its Transfer Price for such Incremental Transfer.
(d) (i) By no later than 1:00 p.m. (New York time) on any Transfer Date,
each Purchaser shall remit an amount equal to its Transfer Price for such
Transfer (and, in the case of a Bank Investor, such Bank Investor shall remit
its Special Pro Rata Share of such amount) to the account of the applicable
Purchaser Agents, specified therefor from time to time by the Purchaser Agent by
notice to the applicable Persons; provided, that, the face amount of Commercial
Paper issued by any Purchaser (minus the Interest Component thereon with respect
to such Purchaser) to fund its Transfer Price shall not exceed $1,000,000 more
or less than its Applicable Purchaser Percentage of the aggregate amount of all
Commercial Paper issued on such Transfer Date (minus the Interest Component
thereon with respect to such Purchaser) to fund such Transfer. The obligation of
each Purchaser and Bank Investor to remit its Transfer Price shall be several
from that of each other Purchaser and Bank Investor, and the failure of any
Purchaser or Bank Investor to so make such amount available to the applicable
Purchaser Agent shall not relieve any other Purchaser or Bank Investor of its
obligation hereunder. Following each Incremental Transfer and each Purchaser
Agent's receipt of funds from the applicable Purchaser or Bank Investors as
aforesaid, each Purchaser Agent shall remit such funds received in respect of
the Transfer Price to the Transferor's account at the location indicated in
Section 10.3 hereof, in immediately available funds. Unless a Purchaser Agent
shall have received notice from a related Purchaser or Bank Investor, that such
Person will not make its Transfer Price relating to any Incremental Transfer
available on the applicable Transfer Date therefor, such Purchaser Agent may
(but shall have no obligation to) make such Purchaser's or any such Bank
Investor's Transfer Price available to the Transferor in anticipation of the
receipt by such Purchaser Agent of such amount from such Purchaser or such Bank
Investor. To the extent such Purchaser or any such Bank Investor fails to remit
any such amount to the applicable Purchaser Agent after any such advance by such
Purchaser Agent on such Transfer Date, such Purchaser or such Bank Investor, on
the one hand, and the Transferor, on the other hand, shall be required to pay
such amount, together with interest thereon at a per annum rate equal to the
Federal funds rate (as determined in accordance with clause (ii) of clause (x)
or (y), as applicable, of the definition of "Base Rate"), in the case of such
Purchaser, any such Bank Investor, or the Transferor, to the applicable
Purchaser Agent upon its demand therefor (provided that such Purchaser shall
have no obligation to pay such interest amounts except to the extent that it
shall have sufficient funds to pay the face amount of its Commercial Paper in
full). Until such amount
28
<PAGE>
shall be repaid, such amount shall be deemed to be Net Investment paid by the
applicable Purchaser Agent, and the applicable Purchaser Agent shall be deemed
to be the owner of a Transferred Interest hereunder. Upon the payment of such
amount to the applicable Purchaser Agent (x) by the Transferor, the amount of
the aggregate Net Investment shall be reduced by such amount or (y) by such
Purchaser or such Bank Investor, such payment shall constitute such Person's
payment of its share of the applicable Transfer Price for such Transfer.
(ii) Notwithstanding anything contained in this Section 2.2(d) or elsewhere
in this Agreement to the contrary, no Bank Investor shall be obligated to
provide its related Purchaser Agent or the Transferor with aggregate funds in
connection with an Incremental Transfer in an amount that would exceed such Bank
Investor's unused Commitment then in effect. The failure of any Bank Investor to
make its Special Pro Rata Share of the Transfer Price available to the
applicable Purchaser Agent shall not relieve any other Bank Investor of its
obligations hereunder.
(iii) If, by 2:00 p.m. (New York time) on any Transfer Date, one or more
Enterprise Bank Investors (each, a "Defaulting Bank Investor", and each
Enterprise Bank Investor other than the Defaulting Bank Investor being referred
to as a "Non-Defaulting Bank Investor") fails to make its Special Pro Rata Share
of the Transfer Price available to the Enterprise Agent pursuant to Section
2.2(d) or the Assignment Amount payable by it pursuant to Section 9.7 (the
aggregate amount not so made available to the Enterprise Agent being herein
called in either case the "Transfer Price Deficit"), then the Enterprise Agent
shall, by no later than 2:30 p.m. (New York time), instruct each Non-Defaulting
Bank Investor to pay, by no later than 3:00 p.m. (New York time), in immediately
available funds, to the account designated by the Enterprise Agent, an amount
equal to the lesser of (x) such Non-Defaulting Bank Investor's proportionate
share (based upon the relative Commitments of the Non-Defaulting Bank Investors)
of the Transfer Price Deficit and (y) its unused Commitment. A Defaulting Bank
Investor shall forthwith, upon demand, pay to the Enterprise Agent for the
ratable benefit of the Non-Defaulting Bank Investors all amounts paid by each
Non-Defaulting Bank Investor on behalf of such Defaulting Bank Investor,
together with interest thereon, for each day from the date a payment was made by
a Non-Defaulting Bank Investor until the date such Non-Defaulting Bank Investor
has been paid such amounts in full, at a rate per annum equal to the sum of Base
Rate plus 2%.
(e) On each Business Day occurring after the initial Incremental Transfer
hereunder, the Transferor hereby agrees to convey, transfer and assign to the
Purchaser Agents, on behalf of their related Purchasers or Bank Investors, and
the Purchaser Agents, on behalf of their related Purchasers, may, provided there
is no Enterprise Wind-Down Event or Sheffield Wind-Down Event, as applicable,
and the Purchaser Agents, on behalf of their related Bank Investors, shall,
provided there is no Termination Date or applicable Special Termination Date,
agree to purchase from the Transferor an undivided percentage ownership
interests in each and every Receivable, together with Collections, Proceeds and
Related Security with respect thereto, to the extent that Collections are
available for such Transfer in accordance with Section 2.5 hereof, such that
after giving effect to such Transfer, (i) the amount of the Net Investments at
the close of business on such Business Day shall be equal to the amount of the
Net Investments at the
29
<PAGE>
close of the business on the Business Day immediately preceding such Business
Day plus the aggregate Transfer Price paid by the Purchaser Agents (on behalf of
their Purchasers or related Bank Investors) of any Incremental Transfer made on
such day, if any, and (ii) the Transferred Interest in each Receivable, together
with Collections, Proceeds and Related Security with respect thereto, shall be
equal to the Transferred Interest in each other Receivable, together with
Collections, Proceeds and Related Security with respect thereto.
(f) Each Transfer shall constitute a transfer to the Purchaser Agents, on
behalf of their related Purchasers or Bank Investors, of undivided percentage
ownership interests in each and every Receivable, together with Collections,
Proceeds and Related Security with respect thereto, then existing, as well as in
each and every Receivable, together with Collections, Proceeds and Related
Security with respect thereto, which arises at any time after the date of such
Transfer. The Purchaser Agents' aggregate undivided percentage ownership
interest in the Receivables, together with Collections, Proceeds and Related
Security with respect thereto, held on behalf of the Purchasers or the Bank
Investors, as applicable, shall equal the Buyer's Percentage Factor in effect
from time to time. The Purchaser Agents shall hold the Transferred Interests on
behalf of each applicable Purchaser and each applicable Bank Investor in
accordance with each of the Purchaser's and each Bank Investor's percentage
interest in the Transferred Interest (determined on the basis of the
relationship that the portion of the applicable Net Investment funded by such
Person bears to the aggregate Net Investments of the Purchasers and all of the
Bank Investors at such time).
(g) The Transferor shall issue to each Purchaser Agent a Certificate, in
the form of Exhibit E, on or prior to the date hereof.
(h) The Buyer's Percentage Factor shall be initially computed as of the
opening of business of the Collection Agent on the date of the initial
Incremental Transfer hereunder. Thereafter until the later of the Termination
Date or Special Termination Date, the Buyer's Percentage Factor shall be
automatically recomputed as of the close of business of the Collection Agent on
each day (other than a day after the later of the Termination Date or Special
Termination Date). The Buyer's Percentage Factor shall remain constant from the
time as of which any such computation or recomputation is made until the time as
of which the next such recomputation, if any, shall be made.
SECTION 2.3. Selection of Interest Rates and Interest Periods; LIBOR
Protection; Illegality.
(a) Prior to a Wind-Down Event; Transferred Interest Held on Behalf of the
Purchasers. At all times hereafter, but prior to the occurrence of an Enterprise
Wind-Down Event or Sheffield Wind-Down Event, as applicable, and not with
respect to any portion of the Transferred Interest held on behalf of the Bank
Investors (or any of them), the Transferor may, subject to the approval of each
Purchaser and the limitations described below, request that the applicable Net
Investment of such Purchaser be allocated among one or more funding periods, so
30
<PAGE>
that the aggregate amounts so allocated at all times shall equal the Net
Investments held on behalf of the Purchasers. The Transferor shall give the
Purchaser Agents irrevocable notice by telephone of the new requested funding
period(s) by 1:00 p.m. at least one (1) Business Day prior to the expiration of
any then existing funding period; provided, however, that each of the Purchaser
Agents may select, in its sole discretion, any such new funding period with
respect to its respective Purchaser's Net Investment if (i) the Transferor fails
to provide such notice on a timely basis or (ii) the applicable Purchaser Agent
determines, in its sole discretion, that the funding period requested by the
Transferor is unavailable or for any reason commercially undesirable. Each
Purchaser confirms that it is its intention to fund all or substantially all of
its Net Investment by issuing Related Commercial Paper (in the case of (A)
Enterprise, prior to an Enterprise Wind-Down Event and (B) Sheffield, prior to a
Sheffield Wind-Down Event); provided that a Purchaser may determine, from time
to time, in its sole discretion, that funding its Net Investment by means of
Related Commercial Paper is not possible or is not desirable for any reason. If
a Liquidity Provider acquires from a Purchaser a Purchased Interest with respect
to the Receivables pursuant to the terms of a Liquidity Provider Agreement,
NationsBank or Barclays, as applicable, on behalf of the Liquidity Provider, may
exercise the right of selection granted to such Purchaser hereby. The initial
funding period applicable to any such Purchased Interest shall be a period of
not greater than 14 days and shall accrue Carrying Costs on the basis of the
Base Rate. Thereafter, provided that the Termination Date or a Special
Termination Date shall not have occurred, Carrying Costs shall accrue on the
basis of either the Base Rate or the Adjusted LIBOR Rate, as determined by
NationsBank or Barclays, as applicable. In the case of any funding period
outstanding upon the Termination Date or a Special Termination Date, such
funding period shall end on such date. Any funding made by Sheffield hereunder
by issuing its Commercial Paper shall accrue Carrying Costs on the basis of the
Interest Component with respect thereto.
(b) After a Wind-Down Event; Transferred Interest Held on Behalf of the
Purchasers. At all times on and after an Enterprise Wind-Down Event or a
Sheffield Wind-Down Event, with respect to any portion of the Transferred
Interest which shall be held by the Purchaser Agents on behalf of the
Purchasers, the affected Purchaser Agent, shall select all funding periods and
rates applicable thereto.
(c) Prior to the Termination Date or Special Termination Date; Transferred
Interest Held on Behalf of Bank Investors. At all times with respect to any
portion of the Transferred Interest held on behalf of the Bank Investors, but
prior to the earlier of a Termination Date or Special Termination Date, the
initial funding period applicable to such portion of the applicable Net
Investment allocable thereto shall be a period of not greater than (i) 14 days,
with respect to the Enterprise Bank Investors or (ii) 3 days with respect to the
Sheffield Bank Investors, and shall accrue Carrying Costs on the basis of the
Base Rate. Thereafter, with respect to such portion, and with respect to any
other portion of the Transferred Interest held on behalf of the Bank Investors
(or any of them), provided that the Termination Date or Special Termination Date
shall not have occurred, Carrying Costs shall accrue with respect thereto at
either the Base Rate or the Adjusted LIBOR Rate, at the Transferor's option. The
Transferor shall give the Purchaser Agents irrevocable notice by telephone of
the new requested funding period at least
31
<PAGE>
three (3) Business Days prior to the expiration of any then existing funding
period. In the case of any funding period outstanding upon the occurrence of the
Termination Date or Special Termination Date, such funding period shall end on
the date of such occurrence.
(d) After the Termination Date or Special Termination Date; Transferred
Interest Held on behalf of Bank Investor. At all times on and after the
Termination Date or Special Termination Date, with respect to any portion of the
Transferred Interest held by any of the Purchaser Agents on behalf of the Bank
Investors, the affected Purchaser Agent shall select all funding periods and
rates applicable thereto.
(e) Conversion and Continuation of Outstanding Funding Periods Funded by
the Bank Investors. Subject to paragraph (c) of this Section 2.3, the Transferor
may (a) convert each funding period during which the applicable interest rate is
the Base Rate hereunder to a funding period during which the applicable interest
rate is the Adjusted LIBOR Rate and (b)(i) continue each funding period during
which the applicable interest rate is the Adjusted LIBOR Rate as a funding
period during which the applicable interest rate is the Adjusted LIBOR Rate or
(ii) convert each funding period during which the applicable interest rate is
calculated at the Adjusted LIBOR Rate to a funding period during which the
applicable interest rate is the Base Rate. If a Termination Event or a Potential
Termination Event has occurred and is continuing, then (x) no outstanding
funding period funded by the Bank Investors may be converted to, or continued
as, a funding period during which the applicable interest rate is the Adjusted
LIBOR Rate and (y) unless repaid, each funding period during which the
applicable interest rate is the Adjusted LIBOR Rate shall be converted to a
funding period during which the applicable interest rate is the Base Rate on the
last day of the funding period related thereto. The Transferor shall give any of
the Purchaser Agents, as applicable, irrevocable notice (each, a
"Conversion/Continuation Notice") of such request not later than 12:30 p.m. (New
York time) (i) in the case of a conversion described in clause (a) above, or a
continuation described in clause (b)(i) above, three (3) Business Days before
the date of such conversion or continuation, as applicable, and (ii) following
the occurrence and continuation of a Termination Event or Potential Termination
Event, in the case of a conversion as described in clause (b)(ii) above or a
continuation of a funding period during which the applicable interest rate is
the Base Rate as a funding period during which the applicable interest rate is
the Base Rate, on the Business Day of such conversion. If a
Conversion/Continuation Notice has not been timely delivered with respect to any
funding period during which the applicable interest rate is the Base Rate or
funding period during which the applicable interest rate is the Adjusted LIBOR
Rate, such funding shall be automatically continued as, or converted to, a
funding period during which the applicable interest rate is the Base Rate. Each
Conversion/Continuation Notice shall specify (a) the requested date (which shall
be a Business Day) of such conversion or continuation, (b) the aggregate amount
and rate option applicable to the funding period which is to be converted or
continued and (c) the amount and rate option(s) of funding period(s) into which
such funding period is to be converted or continued.
(f) LIBOR Rate Protection; Illegality.
32
<PAGE>
(i) Notwithstanding any other provision of this Section 2.3, if any of
the Purchaser Agents is unable to obtain on a timely basis the information
necessary to determine the applicable LIBOR Rate for any proposed funding
period, then
(A) such Purchaser Agent shall forthwith notify the applicable
Purchaser or Bank Investors, as applicable, and the Transferor that
the Adjusted LIBOR Rate cannot be determined for such funding period,
and
(B) while such circumstances exist, none of the affected
Purchasers, the Bank Investors or any of the Purchaser Agents shall
allocate its Net Investment of any additional Transferred Interests
purchased during such period or reallocate its Net Investment
allocated to any then existing funding period ending during such
period, to a funding period which accrues Carrying Costs on the basis
of the Adjusted LIBOR Rate.
(ii) If, with respect to any outstanding funding period which accrues
Carrying Costs on the basis of the Adjusted LIBOR Rate, a Purchaser or any
of the Bank Investors on behalf of which any of the Purchaser Agents holds
any Transferred Interest therein notifies the applicable Purchaser Agent
that it is unable to obtain matching deposits in the London inter-bank
market to fund its purchase or maintenance of such Transferred Interest or
that the Adjusted LIBOR Rate applicable to such Transferred Interest will
not adequately reflect the cost to the Person of funding or maintaining its
respective Transferred Interest for such funding period then the applicable
Purchaser Agent shall forthwith so notify the Transferor, whereupon none of
the affected Purchaser Agents, the affected Purchasers or the affected Bank
Investors, as applicable, shall, while such circumstances exist, allocate
its Net Investment of any additional Transferred Interest purchased during
such period or reallocate the applicable Net Investment allocated to any
funding period ending during such period, to a funding period which accrues
Carrying Costs on the basis of the Adjusted LIBOR Rate.
(iii) Notwithstanding any other provision of this Agreement, if a
Purchaser or any of the Bank Investors shall notify any of the Purchaser
Agents that such Person has determined (or has been notified by any
Liquidity Provider) that the introduction of or any change in or in the
interpretation of any law or regulation after the Closing Date makes it
unlawful (either for such Purchaser, such Bank Investor, or such Liquidity
Provider, as applicable), or any central bank or other governmental
authority asserts that it is unlawful, for such Purchaser, such Bank
Investor or such Liquidity Provider, as applicable, to fund the purchases
or maintenance of Transferred Interests with respect to which the interest
is calculated by reference to the Adjusted LIBOR Rate, then (x) as of the
effective date of such notice from such Person to the applicable Purchaser
Agent, the obligation or ability of such Purchaser or such Bank Investor to
fund its purchase or maintenance of Transferred Interests with respect to
which the interest is calculated by reference to the Adjusted LIBOR Rate
shall be suspended until such Person notifies the applicable Purchaser
Agent that the circumstances causing such suspension no longer exist and
(y) the applicable Net Investment allocated to each funding period which
33
<PAGE>
accrues Carrying Costs on the basis of the Adjusted LIBOR Rate in which
such Person owns an interest shall either (1) if such Person may lawfully
continue to maintain such Transferred Interest at the Adjusted LIBOR Rate
until the last day of the applicable funding period, be reallocated on the
last day of such funding period to another funding period in respect of
which the applicable Net Investment allocated thereto which accrues
Carrying Costs on a basis other than the Adjusted LIBOR Rate or (2) if such
Person shall determine that it may not lawfully continue to maintain such
Transferred Interest at the Adjusted LIBOR Rate until the end of the
applicable funding period, such Person's Net Investment allocated to such
funding period shall be deemed to accrue Carrying Costs on the basis of the
Base Rate from the effective date of such notice until the end of such
funding period.
SECTION 2.4. Carrying Costs, Fees and Other Costs and Expenses.
The Transferor agrees to pay, as and when due in accordance with this
Agreement, each Early Collection Fee and all Carrying Costs and Servicing Fees.
On each Remittance Date, the Transferor shall pay to the Purchaser Agents, on
behalf of their related Purchasers or Bank Investors, as applicable, an amount
equal to the accrued and unpaid Carrying Costs of such Purchasers or Bank
Investors for the related Collection Period; provided that (i) in the event of
any repayment or prepayment of a funding period during which the applicable
interest rate is the Base Rate or a funding period during which the applicable
interest rate is the Adjusted LIBOR Rate, interest on the principal amount
repaid or prepaid shall be payable on the date of such repayment or prepayment,
(ii) in the event of any conversion of a funding period during which the
applicable interest rate is the Base Rate or a funding period during which the
applicable interest rate is the Adjusted LIBOR Rate, accrued interest on such
funding periods shall be payable by the Transferor to each Purchaser Agent on
the effective date of such conversion and (iii) on the last day of each funding
period, the Transferor shall pay to each Purchaser Agent an amount equal to
accrued and unpaid interest for such funding period (together with the Interest
Component accrued on any Commercial Paper issued to fund any transfer hereunder,
including the Interest Component in excess of any Transfer Price of an
Incremental Transfer). Interest shall accrue with respect to each funding period
on each day occurring during such funding period. The Transferor shall pay to
the Enterprise Agent, on behalf of Enterprise, on each day on which Related
Commercial Paper is issued by Enterprise, the Dealer Fee with respect to such
Related Commercial Paper. All payments referred to in this Section shall be made
solely out of Collections, and amounts paid to the Transferor pursuant to each
Interest Rate Cap Agreement, except for the amounts described in clause (i)(e)
of the definition of "Carrying Costs," which shall be paid directly by the
Transferor to the extent Collections are not available therefor. Payment of the
amounts described herein may be made from amounts on deposit in the Collection
Account at the time payment of such amounts is due.
SECTION 2.5. Allocations of Collections; Non-Liquidation Settlement and
Reinvestment Procedures.
(a) On each Determination Date, the Collection Agent shall allocate all
Collections received during the preceding Collection Period as Principal
Collections or Finance
34
<PAGE>
Charge Collections. Principal Collections shall be applied by the Collection
Agent as described in subsection (d) below. On each Remittance Date, (A) the
product of (i) the daily average of the Buyer's Percentage Factor over the
preceding Collection Period and (ii) the aggregate Finance Charge Collections
for such preceding Collection Period (plus any investment earnings on the Excess
Funding Account) plus (B) any amounts deposited in the Collection Account with
respect to proceeds received by the Transferor under an Interest Rate Cap
Agreement, shall be applied by the Collection Agent, without duplication, in the
following order of priority, provided, that, if there shall be insufficient
funds on deposit to pay in full the amounts specified in any clause below, then
payments shall be made pursuant to each such clause as between each group of
Purchasers, and their related Bank Investors, on a pro rata basis:
(i) first, an amount equal to any accrued and unpaid Carrying Costs
(except for the costs described in clause (i)(e) of the
definition thereof) for such Collection Period, shall be paid, as
applicable, to each Purchaser Agent for the account of the
applicable Purchasers and the Bank Investors; provided, however,
in the case of the final Remittance Date, Carrying Costs in
respect of the period commencing on the day following the last
day of the related Collection Period and ending on the final
Remittance Date shall also be paid on the final Remittance Date;
(ii) second, to the payment to the Collection Agent of the Buyer's
Percentage Factor of any Servicing Fee due and owing;
(iii) third, an amount equal to each Purchaser's Pro Rata Share of the
Buyer's Percentage Factor of Defaulted Receivables for the
related Collection Period plus an amount equal to such
Purchaser's Pro Rata Share of the Buyer's Percentage Factor of
any unpaid amount of Principal Receivables which are Defaulted
Receivables from prior Collection Periods shall be applied as
Principal Collections in accordance with Section 2.5(d) hereof;
(iv) fourth, to the payment of any Adjustment Payments which the
Transferor was required, but failed, to make under Section 2.9(a)
or any payment which the Transferor was required, but failed, to
make under Section 2.9(b), in each case during the related
Collection Period or any prior Collection Period, which payment
shall be applied as Principal Collections in accordance with
Section 2.5(d) below;
(v) fifth, an amount equal to any accrued and unpaid Carrying Costs
pursuant to clause (i)(e) of the definition thereof; and
(vi) sixth, to the extent any Finance Charge Collections remain after
application in accordance with clauses (i) through (v) above, (A)
if prior to the earlier of the Termination Date and Special
Termination Date, such excess amounts shall be (i) deposited in
the Spread Account, up to the
35
<PAGE>
Spread Account Cap Percentage Amount and (ii) thereafter, paid to
the Transferor and (B) if on or after the earlier of the
Termination Date and Special Termination Date, such excess
amounts shall be paid to each Purchaser Agent, in accordance with
such Purchaser's Pro Rata Share thereof, in reduction of the
applicable Net Investment, until the applicable Net Investment
has been reduced to zero and thereafter to the Transferor.
(b) On each Remittance Date, the product of (A) the daily average of the
Transferor's Percentage Interest during the preceding Collection Period and (B)
the aggregate Finance Charge Collections for the preceding Collection Period
shall be applied to the payment to the Collection Agent of the Transferor's
Percentage Interest of any Servicing Fee due and owing, and the remainder of
such amount shall be applied, subject to Section 2.5(c), as follows:
(i) first, an amount equal to the Transferor's Percentage Interest of
any Defaulted Receivables for the related Collection Period and any such
amount unpaid for prior Collection Periods shall be applied as Principal
Collections in accordance with Section 2.5(d) below; and
(ii) second, any remaining amounts shall be remitted to the
Transferor.
(c) In the event that, on any Remittance Date, the Buyer's Percentage
Factor of Finance Charge Collections is insufficient to pay the sum of the
amounts due and payable pursuant to Section (a)(i) above, then, in such event,
on such Remittance Date the entire amount of Finance Charge Collections
distributable or allocable to the Transferor (after payment of the Transferor's
Percentage Interest of any Servicing Fee in accordance with Section 2.5(b)), up
to the amount of any such insufficiency, shall be reduced by the amount of such
insufficiency, and to the extent any such insufficiency continues to remain, the
amounts then on deposit in the Spread Account, then the amounts on deposit in
the Excess Funding Account, and then the amounts distributable to the Transferor
pursuant to Section 2.5(d), shall be reduced by the amount of such
insufficiency. In the event that, on any Remittance Date, the Buyer's Percentage
Factor of Finance Charge Collections is insufficient to pay the sum of the
amounts due and payable pursuant to clauses (a)(ii) through (a)(vi) of Section
2.5 above, then, in such event, on such Remittance Date the amount of Finance
Charge Collections distributable or allocable to the Transferor pursuant to
clauses (b)(i) and (b)(ii) of Section 2.5 above, up to the amount of any such
insufficiency, and to the extent any such insufficiency continues to remain, the
amounts then on deposit in the Spread Account, then the amounts on deposit in
the Excess Funding Account, and then the amounts distributable to the Transferor
pursuant to Section 2.5(d), shall be reduced by the amount of such
insufficiency, in each case after giving effect to the application of funds in
the preceding sentence. All amount(s) against which any insufficiency described
in this paragraph is to be applied shall be applied as Finance Charge
Collections and distributed in accordance with the priority set forth in clauses
(i) through (vi) of Section 2.5(a).
(d) On each Remittance Date prior to the Termination Date or a Special
Termination Date (i) the Collection Agent shall allocate to the applicable
Purchasers and/or the
36
<PAGE>
Bank Investors their Pro Rata Share of the Buyer's Percentage Factor of
Principal Collections received during the related Collection Period and not
previously accounted for or applied toward reinvestment in new Receivables or
reduction of the applicable Net Investment, and, at the Transferor's option, (A)
pay such amount to the Transferor, for the benefit of the applicable Purchasers
and/or the Bank Investors, and the Transferor shall apply such amount toward the
purchase of additional undivided percentage interests in each Receivable
pursuant to Section 2.2(b), or (B) pay such amount plus, at the Transferor's
option, subject to Section 2.5(f) below, all or a portion of the amount on
deposit in the Excess Funding Account, to each of the Purchaser Agents in
reduction of the related Purchaser's applicable Net Investment and (ii) the
Collection Agent shall pay to the Transferor the portion of such Principal
Collections not allocated to the Transferred Interest and remaining after any
reallocations pursuant to Section 2.5(c) above.
On each Remittance Date on or subsequent to the Termination Date or a
Special Termination Date, the Collection Agent shall allocate to the applicable
Purchasers or the Bank Investors, as applicable, their respective Pro Rata
Shares of the Buyer's Percentage Factor of all Principal Collections received
during the related Collection Period and not previously applied or accounted
for, plus all amounts on deposit in the Excess Funding Account, and pay such
amount to each of the Purchaser Agents in reduction of the related Purchaser's
applicable Net Investment. In the event the Termination Date occurred as a
result of a Termination Event, the portion of such Principal Collections not
allocated to the Transferred Interest and remaining after any reallocations
pursuant to Section 2.5(c) above shall be distributed to each of the Purchaser
Agents in reduction of the related Purchaser's applicable Net Investment and, in
the case of any other Termination Date or a Special Termination Date, the
portion of such Principal Collections not allocated to the Transferred Interest
and remaining after any allocations pursuant to Section 2.5(c) above shall be
distributed to the Transferor.
(e) The Transferor shall have the option to designate a fixed or variable
percentage (the "Discount Percentage") of all Principal Receivables to be
treated as Finance Charge Receivables ("Discount Receivables") in accordance
with the provisions of this Section 2.5(e), and shall be applied in accordance
with Section 2.5(a), which percentage shall remain fixed and in effect until
such time as the Transferor has provided a subsequent designation to the
Purchaser Agents and all shall consent thereto. The initial Discount Percentage
shall equal 3%, and such percentage shall not be increased or decreased by more
than 2% unless the Transferor shall have obtained written confirmation from each
Rating Agency then rating the commercial paper of any Purchaser that such change
will not result in a reduction or withdrawal of any such rating.
(f) On any Business Day prior to the Termination Date on which the Buyer's
Percentage Factor of the aggregate Principal Receivables is equal to or greater
than the Net Investments, the Transferor or Collection Agent may request that
any or all amounts in the Excess Funding Account be distributed to the
Transferor.
37
<PAGE>
SECTION 2.6. Liquidation Settlement Procedures.
On each Remittance Date occurring on and following the earlier of a
Termination Date or a Special Termination Date, Principal Collections shall be
applied in accordance with Section 2.5(d). Each Purchaser Agent, as applicable,
upon its receipt of such amounts in its account, shall distribute such amounts
to the applicable Purchasers and/or Bank Investors entitled thereto as set forth
above; provided that if the Collection Agent shall have insufficient funds to
pay all of the above amounts in full on any such date, the Collection Agent
shall pay such amounts in the order of priority set forth above and, with
respect to any such category above for which the Collection Agent shall have
insufficient funds to pay all amounts owing on such date, ratably (based on the
amounts in such categories owing to such Persons) among all such Persons
entitled to payment thereof.
Following the date on which the Net Investments have been reduced to zero
and all other Aggregate Unpaids have been paid in full, (i) the Collection Agent
shall recompute the Buyer's Percentage Factor as zero, (ii) the Purchaser
Agents, on behalf of their related Purchasers and Bank Investors shall be deemed
to have reconveyed to the Transferor all of the Purchaser Agents' right, title
and interest in and to the Affected Assets (including the Transferred Interest),
(iii) the Collection Agent shall pay to the Transferor any remaining Collections
held by any of the Purchaser Agents or the Collection Agent pursuant to Section
2.5 or 2.12 and (iv) the Purchaser Agents, on behalf of their related Purchasers
and Bank Investors shall execute and deliver to the Transferor, at the
Transferor's expense, such documents or instruments as are necessary to
terminate the applicable Purchase Agent's interests in the Affected Assets. Any
such documents shall be prepared by or on behalf of the Transferor.
SECTION 2.7. Fees.
On each Remittance Date the Transferor shall pay (which payments shall be
made from Collections in the order of priority set forth in Section 2.5), with
respect to the preceding Collection Period, (i) to Enterprise solely for its own
account, the Program Fee and the Administrative Fee, and to the Enterprise
Agent, for distribution to the Enterprise Bank Investors, the Facility Fee and
(ii) to Sheffield, the fees specified in the Sheffield Fee Letter.
SECTION 2.8. Protection of Ownership Interest of the Purchasers and the
Bank Investors.
(a) The Transferor agrees that it will, from time to time, at Transferor's
expense, promptly execute and deliver all instruments and documents and take all
actions as may be necessary or as the Administrative Agent or any of the
Purchaser Agents may reasonably request in order to perfect or protect the
Transferred Interest or to enable the Administrative Agent, each of the
Purchaser Agents, the Purchasers or the Bank Investors to exercise or enforce
any of their respective rights hereunder. Without limiting the foregoing, the
Transferor will, upon the request of the Administrative Agent, any of the
Purchaser Agents, a Purchaser or any of the Bank Investors, in order to
accurately reflect this purchase and sale transaction, execute and
38
<PAGE>
file such financing or continuation statements or amendments thereto or
assignments thereof (as permitted, as applicable, pursuant to Section 9.7 hereof
or the Sheffield Agreement) as may be requested by the Administrative Agent, any
of the Purchaser Agents, a Purchaser or any of the Bank Investors. The
Transferor shall, upon request of the Administrative Agent or any of the
Purchaser Agents (on behalf of the related Purchaser or Bank Investors) obtain
such additional search reports as the Administrative Agent or such Purchaser
Agents shall reasonably request. To the fullest extent permitted by applicable
law, the Administrative Agent and the Purchaser Agents shall be permitted to
sign and file continuation statements and assignments thereof without the
Transferor's signature. Carbon, photographic or other reproduction of this
Agreement or any financing statement shall be sufficient as a financing
statement. The Transferor shall not change its respective name, identity or
corporate structure (within the meaning of Section 9-402(7) of the UCC as in
effect in the States of New York and Arizona, as applicable) or relocate its
respective chief executive office unless it shall have: (i) given the
Administrative Agent and the Purchaser Agents at least ten (10) days prior
notice thereof and (ii) prepared at Transferor's expense and delivered to the
Administrative Agent and the Purchaser Agents all financing statements,
instruments and other documents necessary to preserve and protect the
Transferred Interest or as otherwise requested by the Administrative Agent and
the Purchaser Agents in connection with such change or relocation. Any filings
under the UCC or otherwise that are occasioned by such change in name or
location shall be made at the expense of Transferor. The Transferor shall notify
the Administrative Agent promptly after it relocates any office where Records
are kept of any such new location.
(b) The Transferor agrees that it will, and will cause each other Person
having possession of any Records to, at Transferor's expense, on or prior to the
Closing Date indicate clearly and unambiguously in its master data processing
records and on any storage containers containing Records that the Receivables
created in connection with the Accounts have been conveyed to the Transferor and
transferred to the Purchaser Agents, for the benefit of the Purchasers and the
Bank Investors. The Transferor further agrees to deliver by no later than July
9, 1999, or to cause the Collection Agent to deliver to the Administrative Agent
by such date, (x) a computer file or microfiche list containing a true and
complete list of all such Accounts, identified by account number and by
Receivable balance as of the Cut-Off Date and (y) an officer's certificate
setting forth as of the Cut-Off Date (i) the aggregate outstanding balance of
the Receivables and (ii) a computation of the Buyer's Percentage Factor. Such
file or list shall be marked as the Account Schedule delivered to the
Administrative Agent as confidential and proprietary, and is hereby incorporated
into and made a part of this Agreement. The Transferor agrees to deliver or to
cause the Collection Agent to deliver to the Administrative Agent within five
(5) Business Days of the request therefor by any of the Purchaser Agents and in
any event promptly after any conversion of record-keeping and servicing
functions related to the ongoing activity of the Accounts from GE to the
Collection Agent, a computer file or microfiche list containing a true and
complete list of all Accounts, including all Related Accounts created on or
after the Cut-Off Date, in existence as of the last day of the prior Collection
Period, identified by account number and by Receivable balance as of the last
day of the prior Collection Period. Such file or list shall be marked as the
Account Schedule delivered to the Administrative Agent as confidential and
proprietary, shall replace the previously delivered Account Schedule and shall
39
<PAGE>
be incorporated into and made a part of this Agreement. The Collection Agent
agrees, on behalf of the Transferor, at its own expense, by the end of each
Collection Period in which any Accounts or Related Accounts have been originated
to indicate clearly and unambiguously in its master data processing records and
any storage containers containing Records that the Receivables created in
connection with such Accounts have been conveyed to the Transferor and
transferred to the Purchaser Agents, for the benefit of the Purchasers and the
Bank Investors, pursuant to this Agreement.
SECTION 2.9. Application of Payments.
(a) If on any day any Receivable is either (x) reduced or canceled as a
result of any defective, rejected or returned merchandise or services, any
discount, credit, rebate, dispute, warranty claim, chargeback, allowance or any
billing or other adjustment, or (y) reduced or canceled as a result of a setoff
or offset in respect of any claim by any Person (whether such claim arises out
of the same or a related transaction or an unrelated transaction and whether
such reduction or cancellation is effected through the granting of credits
against the applicable Receivables or by the issuance of a check or other
payment in respect of, and as payment for, such reduction) or (z) any other
downward adjustments to the balance of such Receivable without receiving
Collections therefor and prior to such Receivable becoming a Defaulted
Receivable, then such amount shall thereafter be deducted from the aggregate
balance of the Receivables and the Principal Receivables. If such reduction
would result in a Buyer's Percentage Factor greater than the Maximum Buyer's
Percentage Factor, the Transferor shall pay (or direct the Collection Agent to
pay from Collections otherwise distributable to the Transferor) to each of the
Purchaser Agents its respective Purchaser's or Bank Investor's Pro Rata Share of
an amount (the payment of such amount is herein referred to as an "Adjustment
Payment") equal to the amount that, when (A) deposited into the Excess Funding
Account or (B) applied in reduction of the related Purchaser's applicable Net
Investment, will result in a Buyer's Percentage Factor less than or equal to the
Maximum Buyer's Percentage Factor. At the Transferor's election, such amount
shall be (A) deposited into the Excess Funding Account or (B) applied by the
applicable Purchaser Agent to the reduction of the related Purchaser's
applicable Net Investment.
(b) If on any day any of the representations or warranties set forth in (x)
Section 3.1 (d), (j) or (l) or Section 3.3(f) was or becomes untrue with respect
to a Receivable or (y) Section 3.1(e) or Section 3.3(d) was or becomes untrue
with respect to the existence or amount of any Receivable (whether, in any case,
on or after the date of any transfer of an interest therein to any of the
Purchaser Agents, the Purchasers or the Bank Investors as contemplated
hereunder), then such Receivable shall thereafter not be included in any
calculation of the outstanding Receivables or the Principal Receivables;
provided, however, that if such representations and warranties shall on any day
thereafter be true and correct in all material respects as if such Receivable
had then been created, such Receivable shall be eligible for purchase hereunder.
If such reduction would result in a Buyer's Percentage Factor greater than the
Maximum Buyer's Percentage Factor, the Transferor shall pay (or direct the
Collection Agent to pay from Collections otherwise distributable to the
Transferor) to each of the Purchaser
40
<PAGE>
Agents its respective Purchaser's or Bank Investor's Pro Rata Share of an amount
equal to the amount that, when (A) deposited into the Excess Funding Account or
(B) applied in reduction of the applicable Net Investment, will result in a
Buyer's Percentage Factor less than or equal to the Maximum Buyer's Percentage
Factor. At the Transferor's election, such amount shall be (A) deposited into
the Excess Funding Account or (B) applied by the applicable Purchaser Agent to
the reduction of the applicable Net Investment.
SECTION 2.10. Payments and Computations, Etc.
All amounts to be paid or deposited by the Transferor or the Collection
Agent hereunder shall be paid or deposited in accordance with the terms hereof
no later than 11:00 a.m. (New York City time) on the day when due in immediately
available funds; if such amounts are payable to the Purchaser Agents (whether on
behalf of a Purchaser or any Bank Investor or otherwise) they shall be paid or
deposited in the account indicated in Section 10.3 hereof, until otherwise
notified by the Purchaser Agents. The Transferor shall, to the extent permitted
by law, pay to the Purchaser Agents, for the benefit of the Purchasers and the
Bank Investors upon demand, interest on all amounts not paid or deposited when
due hereunder at a rate equal to 2% per annum plus the Base Rate. All
computations of interest and all per annum fees hereunder shall be made on the
basis of a year of 360 days for the actual number of days (including the first
but excluding the last day) elapsed, provided, that any interest which accrues
at the Base Rate shall be computed on the basis of a year of 365 or 366 days, as
applicable, for such actual number of days elapsed. Any computations by the
Administrative Agent or any of the Purchaser Agents of amounts payable by the
Transferor hereunder shall create a rebuttable presumption of correctness.
SECTION 2.11. Reports.
(a) Prior to each Determination Date after the Closing Date, beginning with
the August 1999 Determination Date, the Collection Agent shall prepare and
forward to the Purchaser Agents (i) an Investor Report as of the end of the last
day of the immediately preceding month, (ii) if requested by any of the
Purchaser Agents, a listing by Obligor Account Number of all Receivables
together with an aging of such Receivables for any month and (iii) such other
information as any of the Purchaser Agents may reasonably request.
(b) On or before the date of an Incremental Transfer, the Transferor shall
prepare and forward to the Purchaser Agents an Additional Investment
Certificate, reporting the Principal Receivables, the Buyer's Percentage Factor,
the most recent Spread Account Cap Percentage Amount, the amount on deposit in
the Spread Account and such other information as any of the Purchaser Agents may
request as of the close of business on the Business Day preceding the date of
the requested Incremental Transfer.
41
<PAGE>
SECTION 2.12. Collection Account, Spread Account and Excess Funding
Account.
(a) There shall be established on the day of the initial Incremental
Transfer hereunder and maintained with the Administrative Agent (or a designee
thereof), a segregated account (the "Collection Account"), bearing a designation
clearly indicating that the funds deposited therein are held for the benefit of
the Administrative Agent and the Purchaser Agents. The Collection Agent shall
remit daily to the Collection Account but in any event within seventy-two hours
after receipt, from the Closing Date through the Conversion Date and, after the
Conversion Date, forty-eight hours of receipt, (a) if prior to the occurrence of
a Termination Event, the Buyer's Percentage Factor of all Finance Charge
Collections, and (b) if on or after the occurrence of a Termination Event, all
Collections received with respect to any Receivables. In addition, the
Transferor shall remit or cause to be remitted to the Collection Account all
proceeds received by it under each Interest Rate Cap Agreement, on the same
Business Day received by it pursuant to such agreement. For purposes of this
Section 2.12(a), the Buyer's Percentage Factor during any Collection Period
shall be the Buyer's Percentage Factor at the opening of business on the first
day of such Collection Period. Funds on deposit in the Collection Account (other
than investment earnings) shall be invested by the Administrative Agent in
Eligible Investments that will mature so that such funds will be available prior
to the Remittance Date following such investment (or any earlier date on which
such funds are needed pursuant to Section 2.4 hereof). On each Remittance Date,
all interest and earnings (net of losses and investment expenses) on funds on
deposit in the Collection Account shall be applied as if such amounts were the
Buyer's Percentage Factor of Finance Charge Collections. In addition, amounts on
deposit in the Collection Account may be applied toward payments to be made
pursuant to Section 2.4. On the date on which the Net Investments and all
Aggregate Unpaids have been paid in full, any funds remaining on deposit in the
Collection Account shall be paid to the Transferor.
(b) (i) There shall be established on the Closing Date hereunder and
maintained with the Administrative Agent (or a designee thereof), a segregated
account (the "Spread Account"), bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the Administrative Agent
and the Purchaser Agents. On each Determination Date, the Spread Account Cap
Percentage Amount for such Determination Date shall be calculated by the
Purchaser Agents. If the funds on deposit in the Spread Account on such
Determination Date are less than the Spread Account Cap Percentage Amount,
Collections shall be deposited into the Spread Account on the next succeeding
Remittance Date in accordance with Section 2.5 up to the Spread Account Cap
Percentage Amount.
(ii) Funds on deposit in the Spread Account (other than investment
earnings) shall be invested by the Administrative Agent in Eligible
Investments that will mature so that funds will be available prior to the
Remittance Date following such investment. On each Remittance Date, all
interest and earnings (net of losses and investment expenses) on funds on
deposit in the Spread Account shall be applied as if such amounts were the
Buyer's Percentage Factor of Finance Charge Collections. On the date on
which the Net Investments and all
42
<PAGE>
Aggregate Unpaids have been paid in full, any funds remaining on deposit in
the Spread Account shall be paid to the Transferor.
(c) (i) There shall be established on the Closing Date hereunder and
maintained with the Administrative Agent (or a designee thereof), either a
separate, segregated account or a subaccount of the Collection Account (the
"Excess Funding Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the Administrative Agent and
the Purchaser Agents. In the event that on any day the Buyer's Percentage Factor
exceeds the Maximum Buyer's Percentage Factor, the Collection Agent shall remit
to the Excess Funding Account an amount of Principal Collections which would
cause the Buyer's Percentage Factor not to exceed the Maximum Buyer's Percentage
Factor.
(ii) Funds on deposit in the Excess Funding Account (other than
investment earnings) shall be invested by the Administrative Agent at the
direction of the Collection Agent in Eligible Investments that will mature
so that funds will be available prior to the Remittance Date following such
investment. On each Remittance Date, all funds on deposit in the Excess
Funding Account shall be available to make any payments required to be made
from the Excess Funding Account in accordance with Section 2.5. On the date
on which the Net Investments and all Aggregate Unpaids have been paid in
full, any funds remaining on deposit in the Excess Funding Account shall be
paid to the Transferor.
(d) All payments to be made out of funds on deposit in the Collection
Account, Spread Account and Excess Funding Account pursuant to Sections 2.4, 2.5
and 2.6 shall be remitted by the Administrative Agent pursuant to instructions
and computations provided by the Collection Agent, including pursuant to the
Investor Reports. The Administrative Agent shall have no responsibility
whatsoever for the accuracy of any such computations or information provided
pursuant to the Investor Reports.
SECTION 2.13. Sharing of Payments, Etc.
If a Purchaser or any Bank Investor (for purposes of this Section only,
being a "Recipient") shall obtain any payment (whether voluntary, involuntary,
through the exercise of any right of setoff, or otherwise) on account of the
Transferred Interest owned by it (other than pursuant to Section 2.7, or Article
VIII and other than as a result of the differences in the timing of the
applications of Collections pursuant to Section 2.5 or 2.6) in excess of its
ratable share of payments on account of Transferred Interest obtained by the
Purchasers and/or the Bank Investors entitled thereto, such Recipient shall
forthwith purchase from the Purchasers and/or the Bank Investors entitled to a
share of such amount participations in the Percentage Interests owned by such
Persons as shall be necessary to cause such Recipient to share the excess
payment ratably with each such other Person entitled thereto; provided, however,
that if all or any portion of such excess payment is thereafter recovered from
such Recipient, such purchase from each such other Person shall be rescinded and
each such other Person shall repay to the Recipient the purchase price paid by
such Recipient for such participation to the extent of such recovery, together
with an amount equal to such other Person's ratable share (according to the
proportion
43
<PAGE>
of (a) the amount of such other Person's required payment to (b) the
total amount so recovered from the Recipient) of any interest or other amount
paid or payable by the Recipient in respect of the total amount so recovered.
SECTION 2.14. Right of Setoff.
(a) Without in any way limiting the provisions of Section 2.13, each of the
Purchasers and the Bank Investors is hereby authorized (in addition to any other
rights it may have) at any time after the occurrence of the earlier of a Special
Termination Date or Termination Date or during the continuance of a Potential
Termination Event to setoff, appropriate and apply (without presentment, demand
or protest, which are hereby expressly waived, but with notice (which may be
given after such setoff, provided that failure to give such notice shall not
impair any right of setoff, appropriation or application hereunder)) any
deposits held by such Purchaser or such Bank Investor in the Collection Account,
the Excess Funding Account or the Spread Account to, or for the account of, the
Transferor against the amount of the Aggregate Unpaids owing by the Transferor
to such Person or to any Purchaser Agent, on behalf of such Person.
(b) Each of the Transferor and the Collection Agent hereby waives any right
of setoff it may have or to which it may be entitled under this Agreement or the
other Transaction Documents from time to time against any of the other parties
to this Agreement or any of their assets.
SECTION 2.15. Special Termination Date with Respect to a Particular
Purchaser.
Notwithstanding anything to the contrary contained in this Agreement, if
there shall occur a Special Termination Date with respect to a Purchaser or
related Bank Investors, then, from and after such Termination Date, (a) no
further Transfers shall be made to such Purchaser or Bank Investor, (b) the Pro
Rata Share of such Purchaser or Bank Investor of the Buyer's Percentage Factor
shall remain constant until the Net Investment owing to such Purchaser or Bank
Investor has been reduced to zero and the Aggregate Unpaids owing to such
Purchaser or Bank Investor have been paid in full, (c) the Collection Agent
shall distribute Collections to such Purchaser or Bank Investor in accordance
with the provisions of Sections 2.5 and 2.6 applicable to a Termination Date,
(d) in all respects, the provisions of this Agreement with respect to a
Termination Date shall be deemed to apply only to such Purchaser or Bank
Investor, and (e) all provisions of this Agreement shall continue to apply to
the other Purchasers and Bank Investors as if no Termination Date has occurred
with respect thereto unless and until a Termination Date shall occur separately
with respect thereto.
44
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Transferor.
On the Closing Date and on the date of each Transfer, the Transferor
represents and warrants to the Administrative Agent, Purchaser Agents, each
Purchaser and the Bank Investors that:
(a) Corporate Existence and Power.
The Transferor is a national banking association duly organized, validly
existing and in good standing under the laws of the United States and has all
corporate power and all material governmental licenses, authorizations, consents
and approvals required to carry on its business in each jurisdiction in which
its business is now conducted. The Transferor is duly qualified to do business
in, and is in good standing in, every other jurisdiction in which the nature of
its business requires it to be so qualified, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by the Transferor of this
Agreement, the Fee Letter, the Sheffield Fee Letter, the Certificates, the
Transfer Certificates and the other Transaction Documents to which the
Transferor is a party (i) are within the Transferor's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any Official Body or official thereof (except as
contemplated by Section 2.8 hereof) and (ii) do not contravene, or constitute a
default under, any provision of applicable law, rule or regulation or of the
Articles of Association or Bylaws of the Transferor or of any agreement,
judgment, injunction, order, writ, decree or other instrument binding upon the
Transferor or result in the creation or imposition of any Adverse Claim on the
assets of the Transferor or any of its Subsidiaries (except as contemplated by
Section 2.8 hereof).
(c) Binding Effect.
Each of this Agreement, the Fee Letter, the Sheffield Fee Letter, the
Certificates and the other Transaction Documents to which the Transferor is a
party has been duly executed and delivered and constitutes, and the Transfer
Certificates upon payment of the Transfer Price set forth therein by each
Purchaser Agent will constitute, the legal, valid and binding obligation of the
Transferor, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws affecting
the rights of creditors generally and as such enforceability may be limited by
general principles of equity (whether considered in a proceeding at law or in
equity).
45
<PAGE>
(d) Perfection.
Immediately preceding each Transfer hereunder, the Transferor shall be the
lawful owner of all of the Receivables and the Related Security and Collections,
free and clear of all Adverse Claims. On or prior to each Transfer and each
recomputation of the Transferred Interest, all financing statements and other
documents required to be recorded or filed in order to perfect and protect the
Transferred Interest against all creditors of and purchasers from the Transferor
will have been duly filed in each filing office necessary for such purpose and
all filing fees and taxes, if any, payable in connection with such filings shall
have been paid in full.
(e) Accuracy of Information.
All information heretofore furnished by or on behalf of the Collection
Agent or the Transferor (including without limitation, the Account Schedule, the
Investor Reports, any reports delivered pursuant to Section 2.11 hereof and the
Transferor's financial statements) to a Purchaser, any Bank Investors, the
Administrative Agent or any of the Purchaser Agents for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by the Transferor to a Purchaser, any
Bank Investors, the Administrative Agent or any of the Purchaser Agents will be,
true, accurate and complete in every material respect, and the Transferor has
not omitted to disclose any information which is material to the transactions
contemplated hereby, on the date such information is stated or certified.
(f) Tax Status.
The Transferor has filed all tax returns (federal, state and local)
required to be filed and has paid or made adequate provision for the payment of
all taxes, assessments and other governmental charges, except to the extent it
is contesting any such payment in good faith, through appropriate proceedings
and after having set aside adequate reserves therefor.
(g) No Actions, Suits.
There are no actions, suits or proceedings pending or, to the knowledge of
the Transferor, threatened against or affecting the Transferor or its
properties, in or before any court, arbitrator or other body, which question the
validity of the transactions contemplated hereby or which, individually or in
the aggregate, have or could reasonably be expected to have a Material Adverse
Effect. The Transferor is not in violation of any order of any court, arbitrator
or Official Body.
(h) Use of Proceeds.
No proceeds of any Transfer will be used by the Transferor to acquire any
security in any transaction which is subject to Section 13 or 14 of the
Securities Exchange Act of
46
<PAGE>
1934, as amended, or for any purpose that violates any applicable law, rule or
regulation, including Regulation T, U or X of the Federal Reserve Board.
(i) Place of Business.
The principal place of business and chief executive office (within the
meaning of the UCC) of the Transferor are located at the address of the
Transferor indicated in Section 10.3 hereof and the offices where the Transferor
keeps all its Records, are located in Arizona, Nebraska, Oklahoma, Florida and
Minnesota and such other addresses as are described on Exhibit G or such other
locations notified to the Purchasers in accordance with Section 2.8 hereof in
jurisdictions where all action required by Section 2.8 hereof has been taken and
completed.
(j) Good Title.
Upon each Transfer and each recomputation of the Transferred Interest, the
Purchaser Agents shall acquire a valid and perfected first priority undivided
percentage ownership interest to the extent of the Transferred Interest or a
first priority perfected security interest in each Receivable that exists on the
date of such Transfer and recomputation and in the Collections with respect
thereto free and clear of any Adverse Claim.
(k) Tradenames, Etc.
Except as set forth on Exhibit H, as amended from time to time, (i) the
Transferor's chief executive office is located at the address for notices set
forth in Section 10.3 hereof; (ii) as of the Closing Date, the Transferor has no
subsidiaries; and (iii) the Transferor has, within the last five (5) years,
operated only under its legal name, and, within the last five (5) years, has not
changed its name, merged with or into or consolidated with any other corporation
or been the subject of any insolvency proceeding or similar proceeding under the
FDIA, except for the merger in July 1998 into DMCCB of Direct Merchants Credit
Card Bank, National Association, a national banking association, with its
principal place of business in Utah.
(l) Nature of Receivables.
Each Receivable (x) represented by the Transferor or the Collection Agent
to be an Eligible Receivable (including in any Investor Report or other report
delivered pursuant to Section 2.11 hereof) or (y) included in the calculation of
Principal Receivables in fact satisfies at such time the definition thereof.
(m) Coverage Requirement; Amount of Receivables.
The Buyer's Percentage Factor does not exceed the Maximum Buyer's
Percentage Factor. As of the Valuation Date, the aggregate outstanding balance
of the Principal Receivables in existence was $1,168,762,778.00.
47
<PAGE>
(n) Collections and Servicing; Material Adverse Effect.
Since December 31, 1998, there has been no material adverse change in the
ability of the Collection Agent (to the extent it is the Transferor or any
Subsidiary or Affiliate of any of the foregoing) to service and collect the
Receivables or a Material Adverse Effect.
(o) No Termination Event.
No event has occurred and is continuing and no condition exists which
constitutes a Termination Event or a Potential Termination Event.
(p) Not an Investment Company.
The Transferor is not, and is not controlled by, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or is
exempt from all provisions thereof.
(q) ERISA.
Each of the Transferor and its ERISA Affiliates is in compliance in all
material respects with ERISA and no lien exists in favor of the Pension Benefit
Guaranty Corporation on any of the Receivables.
(r) Bulk Sales.
No transaction contemplated hereby requires compliance with any bulk sales
act or similar law.
(s) MasterCard and Visa Member.
The Transferor is qualified to participate in, and is a member in good
standing of either or both of the MasterCard and Visa credit card programs, as
is necessary for the operation of its business.
(t) Preference; Voidability.
The Transferor has given reasonably equivalent value to GE, in
consideration for the transfer to the Transferor of the Receivables from GE, and
such transfer shall not have been made for or on account of an antecedent debt
owed by GE to the Transferor and no such transfer is or may be voidable under
any provision of the FDIA.
(u) Representations and Warranties.
Each of the representations and warranties of the Transferor in each other
Transaction Document (other than the GE Agreement) to which it is a party are
true and correct in all material respects and the Transferor hereby remakes all
such representations and warranties
48
<PAGE>
for the benefit of the Purchasers, the Bank Investors, the Administrative Agent
and the Purchaser Agents. Any document, instrument, certificate or notice
delivered to the Purchasers hereunder shall be deemed a representation and
warranty by the Transferor.
(v) Year 2000 Compliance.
(i) The Transferor has (x) initiated a review and assessment of all
areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers, vendors and customers) that could
be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications used by the Transferor or any of its Subsidiaries (or
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
date after December 31, 1999), (y) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (z) to date,
implemented that plan in accordance with that timetable. Based on the
foregoing, the Transferor believes that all computer applications
(including those of its suppliers, vendors and customers) that are material
to its or any of its Subsidiaries' business and operations are reasonably
expected on a timely basis to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "Year
2000 Compliant"), except to that extent that a failure to do so could not
reasonably be expected (A) to have a Material Adverse Effect or (B) to
result in a Termination Event.
(ii) The Transferor (x) has completed a review and assessment of all
computer applications (including, but not limited to those of its
suppliers, vendors, customers and any third party servicers but excluding
GE and its suppliers, vendors, customers and third party servicers) (the
"Receivable Systems"), which are related to or involved in the collection,
management or servicing of the Receivables and (y) has determined in its
reasonable judgment based upon current information that such Receivable
Systems are Year 2000 Compliant, except to the extent that a failure to be
Year 2000 Compliant could not reasonably be expected (A) to have a Material
Adverse Effect or (B) to result in a Termination Event.
(iii) The costs of all assessment, remediation, testing and
integration related to the Transferor's plan for becoming Year 2000
Compliant will not have a Material Adverse Effect.
(w) FDIC Requirements.
(i) The resolutions of the Board of Directors of the Transferor
approving this Agreement and all documents related hereto are reflected in
the minutes of the Board of Directors, (ii) this Agreement, the other
Transaction Documents and all documents related hereto and thereto are and
have continuously been official records of the Transferor and (iii) the
Transferor is a member of the FDIC.
49
<PAGE>
(x) Transaction Documents.
Each of the Transaction Documents and the transactions contemplated
thereby is not (i) subject to any order of the type described in 12 U.S.C.
1818(b)(6)(D) and (ii) inconsistent with any formal or informal enforcement
action by a bank regulatory agency relating to the Transferor.
(y) Insolvency Considerations.
The Transferor did not (i) execute any Transaction Document to which
it is a party, (ii) convey the Transferred Interest hereunder, (iii) cause,
permit or suffer the perfection or attachment of such Transferred Interest
or (iv) otherwise effectuate or consummate any transfer pursuant to this
Agreement, in each case: (A) in contemplation of insolvency, (B) after
committing an act of insolvency, (C) with any intent to hinder, delay or
defraud itself or its creditors or (D) with a view to preferring one
creditor over another or to preventing the application of its assets in the
manner required by applicable law or regulations.
SECTION 3.2. Reaffirmation of Representations and Warranties by the
Transferor.
On each day that a Transfer is made hereunder, the Transferor, by accepting
the proceeds of such Transfer, whether delivered to the Transferor pursuant to
Section 2.2(a) or Section 2.5 hereof, shall be deemed to have certified that all
representations and warranties described in Section 3.1 hereof are correct on
and as of such day as though made on and as of such day both immediately before
and immediately after giving effect to any such Transfer. Each Incremental
Transfer shall be subject to the further conditions precedent that: (a) prior to
the date of such Incremental Transfer, the Collection Agent shall have delivered
to each of the Purchaser Agents, in form and substance satisfactory to the
Purchaser Agents, a completed Additional Investment Certificate, together with
such additional information as may be reasonably requested by any of the
Purchaser Agents; and the Transferor shall be deemed to have represented and
warranted that such conditions precedent have been satisfied, (b) all
representations and warranties of the Collection Agent shall be true and correct
on and as of the date of such Incremental Transfer and, (c) no Potential
Termination Event or Termination Event shall occur as a result of such
Incremental Transfer and (d) the amount on deposit in the Spread Account will be
equal to the Spread Account Cap Percentage Amount, calculated by using the
"Spread Account Cap Percentage" (as determined for the preceding Determination
Date pursuant to the definition of "Spread Account Cap Percentage Amount") and
taking into account the Incremental Transfer as part of the "Net Investments"
used in such calculation.
SECTION 3.3. Representations and Warranties of the Collection Agent.
On the Closing Date and on the date of each Transfer, the Collection Agent
represents and warrants to the Administrative Agent, Purchaser Agents, each
Purchaser and the Bank Investors that:
50
<PAGE>
(a) Corporate Existence and Power.
The Collection Agent is a national banking association duly organized,
validly existing and in good standing under the laws of the United States and
has all corporate power and all material governmental licenses, authorizations,
consents and approvals required to carry on its business in each jurisdiction in
which its business is now conducted. The Collection Agent is duly qualified to
do business in, and is in good standing (or is exempt from such requirements)
in, every other jurisdiction in which the nature of its business requires it to
be so qualified, except where the failure to be so qualified or in good standing
would not have a Material Adverse Effect.
(b) Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by the Collection Agent of this
Agreement are within the Collection Agent's corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in respect
of, or filing with, any Official Body or official thereof, and do not
contravene, or constitute a default under, any provision of applicable law, rule
or regulation or of the Articles of Association or Bylaws of the Collection
Agent or of any agreement, judgment, injunction, order, writ, decree or other
instrument binding upon the Collection Agent or result in the creation or
imposition of any Adverse Claim on the assets of the Collection Agent or any of
its Subsidiaries (except as contemplated by Section 2.8).
(c) Binding Effect.
This Agreement and each other Transaction Document to which the Collection
Agent is a party has been duly executed and delivered and constitutes the legal,
valid and binding obligation of the Collection Agent, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors and as such enforceability
may be limited by general principles of equity (whether considered in a
proceeding at law or in equity).
(d) Accuracy of Information.
All information heretofore furnished by the Collection Agent to a
Purchaser, any Bank Investor, the Administrative Agent or any of the Purchaser
Agents for purposes of or in connection with this Agreement or any transaction
contemplated hereby is, and all such information hereafter furnished by the
Collection Agent to a Purchaser, any Bank Investor, the Administrative Agent and
the Purchaser Agents will be, true and accurate in every material respect and
the Collection Agent has not omitted to disclose any information which is
material to the transactions contemplated hereby, on the date such information
is stated or certified.
51
<PAGE>
(e) Actions, Suits.
There are no actions, suits or proceedings pending, or to the knowledge of
the Collection Agent threatened, against or affecting the Collection Agent or
its properties, in or before any court, arbitrator or other body, which have or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. The Collection Agent is not in violation of any order
of any court, arbitrator or Official Body.
(f) Nature of Receivables.
Each Receivable included in the calculation of the Principal Receivables in
fact satisfies at such time the definition of "Eligible Receivable". Each
Account is either a VISA or MasterCard account.
(g) Amount of Receivables.
As of the Valuation Date, the aggregate outstanding balance of the
Principal Receivables in existence was $1,168,762,778.00.
(h) Collections and Servicing.
Since December 31, 1998, there has been no material adverse change in the
ability of the Collection Agent to service and collect the Receivables or a
Material Adverse Effect.
(i) Not an Investment Company.
The Collection Agent is not, and is not controlled by, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or is exempt from all provisions thereof.
(j) Tax Status.
The Collection Agent has filed all tax returns (federal, state and local)
required to be filed and has paid or made adequate provision for the payment of
all taxes, assessments and other governmental charges, except to the extent it
is contesting any such payment in good faith, through appropriate proceedings
and after having set aside adequate reserves therefor.
(k) ERISA.
The Collection Agent is in compliance in all material respects with ERISA.
52
<PAGE>
(l) Chief Executive Office.
Its chief executive office for purposes of Article 9 of the UCC is located
as specified below its name in Section 10.3.
(m) Year 2000 Compliance.
(i) The Collection Agent has (x) initiated a review and assessment of
all areas within its and each of its Subsidiaries' business and operations
(including those affected by suppliers, vendors and customers) that could
be adversely affected by the Year 2000 Problem, (y) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (z) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Collection Agent believes that all computer applications
(including those of its suppliers, vendors and customers) that are material
to its or any of its Subsidiaries' business and operations are reasonably
expected on a timely basis to be Year 2000 Compliant, except to the extent
that a failure to do so could not reasonably be expected (A) to have a
Material Adverse Effect or (B) to result in a Termination Event.
(ii) The Collection Agent (x) has completed a review and assessment of
all the Receivable Systems and (y) has determined in its reasonable
judgment based on current information that such Receivable Systems are Year
2000 Compliant except to the extent that a failure to be Year 2000
Compliant could not be reasonably expected (A) to have a Material Adverse
Effect or (B) to result in a Termination Event.
(iii) The costs of all assessment, remediation, testing and
integration related to the Collection Agent's plan for becoming Year 2000
Compliant will not have a Material Adverse Effect.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1 Conditions to Closing.
On or prior to the date of execution hereof, the Transferor shall deliver
to the Administrative Agent and the Purchaser Agents the following documents,
instruments and fees, all of which shall be in a form and substance acceptable
to the Administrative Agent and the Purchaser Agents:
(a) A copy of the resolutions of the Board of Directors of the Transferor
certified by its Secretary approving the execution, delivery and performance by
the Transferor of this Agreement and the other Transaction Documents to be
delivered by the Transferor hereunder or thereunder and all other documents
evidencing necessary corporate action and governmental approvals, if any.
53
<PAGE>
(b) The Articles of Association and the bylaws of the Transferor, certified
by its corporate secretary.
(c) A Certificate of the Comptroller of the Currency as to the
authorization of the Transferor to conduct the business of banking, dated a date
reasonably prior to the Closing Date.
(d) A Certificate of an officer of the Transferor as to the truth of
representations and warranties on the Closing Date, and a certificate of the
Secretary of the Transferor as to the incumbency of all officers signing
Transaction Documents on its behalf, with such attachments, and including such
other matters, as are requested by the Administrative Agent or any of the
Purchaser Agents.
(e) Acknowledgment copies of proper financing statements (Form UCC-1)
naming the Transferor as the debtor in favor of the Purchaser Agents, for the
benefit of the Purchasers and the Bank Investors, as secured party or other
similar instruments or documents as may be necessary or in the reasonable
opinion of the Purchaser Agents desirable under the UCC of all appropriate
jurisdictions or any comparable law to perfect the Purchaser Agents' undivided
percentage interest in all Receivables, Related Security, Collections and
Proceeds relating thereto.
(f) Copies of proper financing statements (Form UCC-3), if any, necessary
to terminate all security interests and other rights of any person in
Receivables previously granted by Transferor.
(g) Copies of proper financing statements (Form UCC-3), if any, necessary
to terminate all security interests and other rights of any person in
Receivables previously granted by GE and copies of proper financing statements
(Form UCC-1) naming the Transferor as the secured party against GE, as debtor,
to be filed in all appropriate jurisdictions in order to perfect the
Transferor's interest in all property purchased by it pursuant to the GE
Agreement.
(h) Certified copies of request for information (Form UCC-11) (or a similar
search report certified by parties acceptable to the Administrative Agent and
the Purchaser Agents) dated a date reasonably near the date of the initial
Incremental Transfer listing all effective financing statements which name the
Transferor (under its present name and any previous names) as debtor and which
are filed in jurisdictions in which the filings were made pursuant to item (e)
above together with copies of such financing statements (none of which shall
cover any Receivables or Accounts.
(i) An opinion of in-house counsel to the Transferor and the Collection
Agent, covering the matters requested by the Administrative Agent and the
Purchaser Agents.
(j) A copy of an executed notice to MCI from the Transferor excluding the
Receivables from being conveyed pursuant to the Bank Receivables Purchase
Facility.
54
<PAGE>
(k) An executed copy of the GE Agreement pursuant to which all conditions
precedent shall have been satisfied or waived (with the prior consent of the
Administrative Agent and the Purchaser Agents), and all other documents,
instruments and agreements executed in connection therewith.
(l) An opinion of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears,
special Arizona counsel to the Transferor, as to the perfection and priority of
the ownership or security interests created hereunder.
(m) An opinion of Dorsey & Whitney LLP, counsel to the Transferor, as to
(i) the enforceability of any security interest created hereunder
notwithstanding any insolvency of the Transferor, (ii) creation of the ownership
or security interests under this Agreement and (iii) the characterization of the
Receivables as accounts or general intangibles.
(n) Opinions of counsel to GE (or letters with respect thereto entitling
the Administrative Agent and the Purchaser Agent to rely thereupon) regarding
(i) the enforceability of the GE Agreement against GE and (ii) perfection and
priority of the ownership or security interests under the GE Agreement.
(o) A computer tape (to the Administrative Agent only) setting forth as of
the Valuation Date all Receivables and the Receivables balances thereon and such
other information as the Administrative Agent or any Purchaser Agent may
reasonably request.
(p) An executed copy of this Agreement, the Fee Letter, the Sheffield Fee
Letter, the Sheffield Agreement and each of the other Transaction Documents to
be executed by the Transferor.
(q) The Transfer Certificates, duly executed by the Transferor.
(r) The Certificates, duly executed by the Transferor and appropriately
completed.
(s) The Additional Investment Certificate, duly executed by the Transferor.
(t) Evidence that the fees due and owing on the Closing Date under the Fee
Letter and the Sheffield Fee Letter have been paid.
(u) Evidence that the Spread Account, the Excess Funding Account and the
Collection Account have been established in accordance with Section 2.12 hereof.
(v) An opinion of in-house counsel to MCI to the effect that (i) the
execution, delivery, and performance by the Transferor of this Agreement, the GE
Agreement and the transactions contemplated hereby and thereby will not create a
default under, or a violation of, the Credit Agreement and (ii) the amendments
to the Credit Agreement described in Section 4.1(x) hereof have been, assuming
due authorization by the other parties thereto and the
55
<PAGE>
genuineness of all signatures, in each case other than those of MCI, approved in
accordance with the provisions thereof.
(w) Sheffield shall have received a letter from Moody's confirming the
rating of Sheffield's Commercial Paper after taking into effect Sheffield's
execution and performance of this Agreement.
(x) Copies of (i) the amendment dated as of May 7, 1999 to the Credit
Agreement and (ii) the amendment dated as of June 10, 1999 to the Credit
Agreement, in each case, duly executed by each party thereto.
(y) A draft confirmation with respect to the Interest Rate Cap, which shall
be in effect on the Closing Date.
(z) Copies of proper financing statements (Form UCC-2) amending any
existing financing statements naming the Transferor as debtor in favor of MCI as
secured party, having the effect that the Receivables, Related Security
Collections and Proceeds relating thereto will be excluded from the liens
described in any such financing statements.
(aa) A certificate of an officer of MCI to the effect that: (i) the
amendments to the Credit Agreement described in clause 4.1(x) have been executed
and delivered by the requisite number of lenders to the Credit Agreement and are
in full force and effect and (ii) the execution, delivery and performance by the
Transferor of the Transaction Documents to which it is a party do not breach and
will not result in or constitute a default under the Credit Agreement.
(bb) Such other documents, approvals, instruments, certificates and
opinions as the Administrative Agent and the Purchaser Agents shall reasonably
request.
ARTICLE V
COVENANTS
SECTION 5.1 Affirmative Covenants of Transferor.
At all times from the date hereof to the latest to occur of (i) the
Termination Date, (ii) the last Special Termination Date with respect to all
Purchasers and (iii) the date on which the Net Investments have been reduced to
zero and all other Aggregate Unpaids shall have been paid in full, in cash,
unless the Purchaser Agents shall otherwise consent in writing:
(a) Financial Reporting and Other Information.
The Transferor will maintain, for itself and each of its Subsidiaries, a
system of accounting established and administered in accordance with GAAP, and
furnish or cause to be furnished to the Purchaser Agents:
56
<PAGE>
(i) Annual Reporting.
Within one hundred (100) days after the close of MCI's and the
Transferor's fiscal years, (i) in the case of MCI, audited financial
statements, prepared in accordance with GAAP on a consolidated basis for
MCI and its Subsidiaries, in each case, including balance sheets as of the
end of such period, related statements of income and cash flows,
accompanied by an opinion (which shall not be qualified in any material
respect) of a "Big Five" independent certified public accounting firm,
prepared in accordance with generally accepted auditing standards and (ii)
in the case of the Transferor, its annual call report filed with the Office
of the Comptroller of the Currency, accompanied by a certificate of said
accountants that, in the course of the foregoing, they have obtained no
knowledge of any Termination Event or Potential Termination Event, or if,
in the opinion of such accountants, any Termination Event or Potential
Termination Event shall exist, stating the nature and status thereof.
(ii) Quarterly Reporting.
Within fifty (50) days after the close of the first three quarterly
periods of MCI's and the Transferor's fiscal years (i) in the case of MCI,
for MCI and its Subsidiaries, in each case, consolidated unaudited balance
sheets as at the close of each such period and consolidated related
statements of income and cash flows for the period from the beginning of
such fiscal year to the end of such quarter, all as contained in MCI's
filing with the Securities and Exchange Commission on Form 10-Q and (ii) in
the case of the Transferor, the call report filed for such quarterly period
with the Office of the Comptroller of the Currency.
(iii) Compliance Certificate.
Together with the call reports required to be delivered hereunder, a
compliance certificate signed by the Transferor's chief financial officer
stating that (x) the attached call reports have been prepared in accordance
with GAAP, except to the extent regulatory accounting principles applicable
to national banking associations require different treatment, and
accurately reflect the financial condition of the Transferor and its
Subsidiaries, if any, as applicable, and (y) in the case of the Transferor
only, to the best of such Person's knowledge, no Termination Event or
Potential Termination Event exists, or if any Termination Event or
Potential Termination Event exists, stating the nature and status thereof.
(iv) Notice of Termination Events or Potential Termination Events.
As soon as possible and in any event within two (2) Business Days
after the occurrence of each Termination Event or each Potential
Termination Event, a statement of the chief financial officer or chief
accounting officer of the Transferor setting forth details of such
Termination Event or Potential Termination Event and the action which the
Transferor proposes to take with respect thereto.
57
<PAGE>
(v) Debt Ratings.
Within five (5) days after the date of any change in the Transferor's
or MCI's public or private debt ratings, if any, a written certification of
the Transferor's or MCI's public and private debt ratings after giving
effect to any such change.
(vi) ERISA.
Promptly after the filing or receiving thereof, copies of all reports
and notices with respect to any Reportable Event (as defined in Article IV
of ERISA) which the Transferor, MCI or any ERISA Affiliate of the
Transferor files under ERISA with the Internal Revenue Service, the Pension
Benefit Guaranty Corporation or the U.S. Department of Labor or which the
Transferor, MCI or any ERISA Affiliates of the Transferor receives from the
Internal Revenue Service, the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor.
(vii) Year 2000 Reporting.
The certificate referred to in Section 5.1(m)(ii) as and when required
to be delivered and shall cause the Collection Agent to deliver the
certificate referred to in Section 5.3(e) as and when required to be
delivered.
(viii) Litigation.
Promptly upon the commencement thereof, notice of all legal or
arbitral proceedings and of all proceedings by or before any governmental
or regulatory authority or agency, and (promptly upon the occurrence
thereof) of any material development in respect of such legal or other
proceedings, affecting the Transferor.
(ix) Change in Accountants or Accounting Policy.
Promptly, notice of any change in accountants or accounting policy of
either the Transferor or MCI.
(x) Notice of Changes.
The Transferor shall promptly, and in any event within 5 days of such
occurrence, notify the Administrative Agent of any change with respect to
any matters regarding (A) the location of Transferor's chief executive
office, (B) the Transferor's Subsidiaries, if any, or (C) the Transferor's
legal name, insolvency proceedings with respect to the Transferor or any
merger or consolidation with respect to the Transferor.
58
<PAGE>
(xi) Amendments.
The Transferor shall notify the Administrative Agent of any amendment
to the GE Agreement or any Loss Sharing Agreement within at least 10 days
prior to the contemplated effective date of such amendment.
(xii) Other Information.
Such other information (including non-financial information) as the
Administrative Agent or the Purchaser Agents may from time to time
reasonably request with respect to MCI, the Transferor or any Subsidiary of
either of the foregoing.
(b) Conduct of Business.
The Transferor will carry on and conduct its business in substantially the
same manner and in substantially the same fields of enterprise as it is
presently conducted, and will do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted.
(c) Compliance with Laws.
The Transferor will comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it or its respective properties may be subject, where the failure to comply with
the foregoing could be reasonably expected to have a Material Adverse Effect.
(d) Furnishing of Information and Inspection of Records.
The Transferor will furnish to the Administrative Agent and the Purchaser
Agents from time to time such information with respect to the Receivables as the
Administrative Agent or any of the Purchaser Agents may reasonably request,
including, without limitation, listings identifying the Obligor and the
outstanding balance for each Receivable. The Transferor will at any time and
from time to time during regular business hours and after reasonable notice
permit the Administrative Agent and the Purchaser Agents, or their respective
agents or representatives, (i) to examine and make copies of and take abstracts
from all Records and (ii) to visit the offices and properties of the Transferor
for the purpose of examining such Records, and to discuss matters relating to
Receivables or the Transferor's performance hereunder and under the other
Transaction Documents to which such Person is a party with any of the officers,
directors, employees or independent public accountants of the Transferor having
knowledge of such matters.
59
<PAGE>
(e) Keeping of Records and Books of Account.
The Transferor will maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain, all documents, books, records and other
information reasonably necessary or advisable for the collection of all
Receivables (including, without limitation, records adequate to permit the daily
identification of each new Receivable and all Collections of and adjustments to
each existing Receivable).
(f) Performance and Compliance with Receivables and Accounts.
The Transferor, at its expense, will timely and fully perform and comply
with all material provisions, covenants and other promises required to be
observed by the Transferor under the Accounts related to the Receivables.
(g) Credit and Collection Policies.
The Transferor will and will cause the Collection Agent to, comply with the
Credit and Collection Policy in regard to the Receivables and the related
Accounts, except insofar as any failure to so comply could not be reasonably
expected to impair the collectibility of the Receivables, on the whole, or a
substantial amount thereof, or otherwise have a Material Adverse Effect.
(h) Collections Received.
The Transferor shall, and shall cause the Collection Agent to, hold in
trust, and deposit, immediately, but in any event not later than seventy-two
hours of its receipt thereof from the Closing Date through the Conversion Date,
and after the Conversion Date, forty-eight hours of its receipt thereof, to the
Collection Account all Collections received from time to time by the Transferor
in accordance with Section 2.12(a).
(i) Sale Treatment.
The Transferor will not account for, or otherwise treat, the transactions
contemplated by the GE Agreement in any manner other than as a sale of
Receivables by GE to the Transferor or account for (other than for tax purposes
or for the calculation of risk based capital requirements applicable to the
Transferor) or otherwise treat the transactions contemplated hereby in any
manner other than as a sale of Receivables by the Transferor to the Purchaser
Agents, on behalf of the Purchasers or the Bank Investors, as applicable. In
addition, the Transferor shall disclose (in a footnote or otherwise) in all of
its statements (including any such financial statements consolidated with any
other Persons' financial statements) the existence and nature of the transaction
contemplated hereby and the interest of the Transferor and the Purchaser Agents,
on behalf of the Purchasers and the Bank Investors, in the Affected Assets.
60
<PAGE>
(j) FDIC Requirements.
The resolutions of the Board of Directors of the Transferor approving this
Agreement and all documents related hereto shall continuously be reflected in
the minutes of the Board of Directors of the Transferor and this Agreement, the
other Transaction Documents, and all documents related hereto and thereto shall
continuously from the time of their respective execution by the Transferor, be
maintained as official records of the Transferor.
(k) [Intentionally omitted]
(l) Ownership Interest.
The Transferor shall, at its expense, take all action necessary or
desirable to establish and maintain a valid and enforceable undivided percentage
ownership or security interest, to the extent of the Transferred Interest, in
the Receivables, the Related Security, Collections and Proceeds with respect
thereto, and a first priority perfected security interest in the Affected
Assets, in each case free and clear of any Adverse Claim, in favor of the
Purchaser Agents for the benefit of the Purchasers and the Bank Investors,
including taking such action to perfect, protect or more fully evidence the
interest of the Purchaser Agents, as any Purchaser Agent may reasonably request.
(m) Year 2000 Compliance.
(i) The Transferor will promptly notify the Administrative Agent and
the Purchaser Agents in the event the Transferor discovers or determines
that any computer application (including those of its suppliers, vendors
and customers) (x) that is necessary for the origination, collection,
management, or servicing of the Receivables is not Year 2000 Compliant, or
(y) that is otherwise material to its or any of its Subsidiaries' business
and operations will not be Year 2000 Compliant on a timely basis, except to
the extent that, in the case of (y) above, such failure could not
reasonably be expected (A) to have a Material Adverse Effect or (B) to
result in a Termination Event.
(ii) Further, the Transferor will deliver simultaneously with any
quarterly or annual financial statements or reports to be delivered under
this Agreement, a certificate signed by its chief financial officer that no
material event, problems or conditions have occurred which in the opinion
of management would (x) prevent or materially delay the Transferor's plan
to become Year 2000 Compliant or (y) cause or be likely to cause the
Transferor's representations and warranties with respect to being or
becoming Year 2000 Compliant no longer to be true.
(n) Interest Rate Cap.
(i) The Transferor will, on or prior to the Closing Date, obtain and
at all times prior to a date (the "Cap Termination Date") which is
forty-two months after the Closing Date, maintain one or more interest rate
caps (collectively, "Interest Rate Cap"), the
61
<PAGE>
notional amounts of which, individually or in the aggregate, shall equal or
exceed $800,000,000 (the "Initial Notional Amount") until the first
anniversary of the Closing Date and thereafter, such notional amount shall
decrease for each month until the Cap Termination Date by an amount equal
to one-thirtieth of the Initial Notional Amount. Pursuant to the Interest
Rate Cap, on each Remittance Date on which the LIBOR Cap Rate for a related
Collection Period exceeds 11%, the Interest Rate Cap Provider will make a
payment to the Transferor in an amount equal to the product of (i) such
excess, (ii) the notional amount as of such Remittance Date and (iii) the
actual number of days in the related Collection Period divided by 360. The
Interest Rate Cap will terminate on the Cap Termination Date; provided,
however, that the Interest Rate Cap may be terminated at an earlier date if
the Transferor has obtained a substitute interest rate cap or entered into
an alternative arrangement satisfactory to the Purchaser Agents and each
Rating Agency then rating the Commercial Paper of any Purchaser, which in
each case will not result in the reduction or withdrawal of the rating of
any such Commercial Paper (such substitute interest rate cap, a
"Replacement Interest Rate Cap"; such alternative arrangement, a "Qualified
Substitute Arrangement").
(ii) In the event that the rating of an Interest Rate Cap Provider is
reduced or withdrawn, as specified in the Interest Rate Cap, the Transferor
will obtain for each such Interest Rate Cap a Replacement Interest Rate
Cap, or enter into a Qualified Substitute Arrangement. It shall be a
condition to any such Replacement Interest Rate Cap or Qualified Substitute
Arrangement that there be delivered to the Purchaser Agents an Officer's
Certificate by the Transferor stating that the conditions to such
substitution set forth in this Section 5.1(n) have been satisfied.
(iii) Each Interest Rate Cap Agreement will provide that payments due
to the Transferor shall be deposited into the Collection Account.
(iv) The Transferor agrees to notify the Rating Agencies rating the
Commercial Paper of any Purchaser of any assignment by an Interest Rate Cap
Provider and shall, prior to amending any Interest Rate Cap Agreement,
obtain confirmation from each such Rating Agency that such assignment will
not result in the reduction or withdrawal of the rating of any such
Commercial Paper.
(v) Within five Business Days after the Closing Date, the Transferor
shall deliver to the Purchaser Agents and the Rating Agencies a fully
executed Interest Rate Cap Agreement satisfactory to the Rating Agencies
and all fees payable by the Transferor thereunder to the Interest Rate Cap
Provider shall have been paid by the Transferor to the Interest Rate Cap
Provider.
(o) Losses covered by Loss Sharing Agreements
(i) The Transferor shall diligently pursue all rights and remedies
with respect to the Accounts under any Loss Sharing Agreement, and shall
comply in a timely manner with all procedures set forth therein. In
connection therewith, the Transferor shall (i) promptly
62
<PAGE>
notify the Administrative Agent in writing upon the occurrence of any event
which could or would give rise to a payment obligation in favor of the
Transferor thereunder; (ii) take any and all action and cause GE or any
other relevant party to take any and all actions pursuant to the related
agreement necessary to obtain all amounts payable in connection therewith;
and (iii) cause all amounts received in connection therewith immediately to
be deposited in the Collection Account.
(ii) Upon the occurrence of a Termination Event or Potential
Termination Event, with notice to the Transferor, the Administrative Agent
shall have the exclusive right to enforce all rights of the Transferor
under any Loss Sharing Agreement; provided, however, failure by the
Administrative Agent to provide such notice shall not impair its rights in
respect of any Loss Sharing Agreement.
(iii) The Transferor shall take any action reasonably requested by the
Administrative Agent or the Purchaser Agents in connection with any Loss
Sharing Agreement and shall furnish to such Persons all information
requested thereby.
(iv) The Transferor shall deliver to the Administrative Agent copies
of all notices and other material communications delivered by or to the
Transferor, GE or any other relevant party under any Loss Sharing
Agreement.
SECTION 5.2. Negative Covenants of the Transferor.
At all times from the date hereof to the latest to occur of (i) the
Termination Date, (ii) the last Special Termination Date with respect to all
Purchasers and (iii) the date on which the Net Investments have been reduced to
zero and all other Aggregate Unpaids shall have been paid in full, in cash,
unless the Purchaser Agents shall otherwise consent in writing:
(a) No Sales, Liens, Etc.
Except as otherwise provided herein the Transferor will not sell, assign
(by operation of law or otherwise) or otherwise dispose of, or create or suffer
to exist any Adverse Claim upon (or the filing of any financing statement) or
with respect to any of the Affected Assets, or assign any right to receive
income in respect thereof.
(b) No Extension or Amendment of Receivables.
The Transferor will not extend, amend or otherwise modify the terms of any
Receivable, or amend, modify or waive any term or condition of any Account
related thereto if such action could have a Material Adverse Effect. The
Transferor further covenants that, except as otherwise required by law, it shall
not, and shall not cause or otherwise permit the Collection Agent at any time to
reduce the periodic finance charges assessed on any Receivable or other fees on
any Account if, as a result of such reduction, the reasonable expectation of the
Excess Spread as of such date would be less than 2.00% and unless (i) such
reduction is made applicable to the comparable segment of the consumer revolving
credit accounts owned and
63
<PAGE>
serviced by the Collection Agent that have characteristics the same as, or
substantially similar to, the Accounts that are the subject of such change or
(ii) if it does not own such a comparable segment, it will not make any such
change with the intent to materially benefit itself over the Purchasers and the
Bank Investors.
(c) No Change in Business or Credit and Collection Policy.
The Transferor will not make any change in the character of its business or
in the Credit and Collection Policy, which change would, in either case, impair
the collectibility of the Receivables or otherwise have a Material Adverse
Effect.
(d) No Mergers, Etc.
The Transferor will not (i) consolidate or merge with or into any other
Person, or (ii) sell, lease or transfer all or substantially all of its assets
to any other Person.
(e) Change of Name, Etc.
The Transferor will not change its name, identity or structure or the
location of its chief executive office, unless at least 10 days prior to the
effective date of any such change the Transferor delivers to the Administrative
Agent and the Purchaser Agents such documents, instruments or agreements,
executed by the Transferor as are necessary to reflect such change and to
continue the perfection of the Purchaser Agents' ownership interests or security
interests in the Affected Assets.
(f) Amendment to Transaction Documents.
The Transferor will not amend, modify, or supplement the Transaction
Documents (excluding the GE Agreement) or waive any provision thereof, in each
case except with the prior written consent of the Administrative Agent and the
Purchaser Agents (which shall not be unreasonably withheld or delayed); nor
shall the Transferor take any other action under the Transaction Documents
(excluding the GE Agreement) that shall have a material adverse affect on the
Administrative Agent, any of the Purchaser Agents, a Purchaser or any Bank
Investor or which is inconsistent with the terms of this Agreement.
(g) [Reserved]
(h) ERISA Matters.
The Transferor will not (i) engage or permit any of its respective ERISA
Affiliates to engage in any prohibited transaction (as defined in Section 4975
of the Code and Section 406 of ERISA) for which an exemption is not available or
has not previously been obtained from the U.S. Department of Labor; (ii) permit
to exist any accumulated funding deficiency (as defined in Section 302(a) of
ERISA and Section 412(a) of the Code) or funding deficiency with respect to any
Benefit Plan other than a Multiemployer Plan; (iii) fail to make
64
<PAGE>
any payments to any Multiemployer Plan that the Transferor or any ERISA
Affiliate of the Transferor is required to make under the agreement relating to
such Multiemployer Plan or any law pertaining thereto; (iv) terminate any
Benefit Plan so as to result in any liability; or (v) permit to exist any
occurrence of any reportable event described in Title IV of ERISA which
represents a material risk of a liability to the Transferor or any ERISA
Affiliate of the Transferor under ERISA or the Code.
(i) Performance of Account Agreements.
The Transferor shall not fail to comply with and perform its obligations
under the applicable Account Agreements relating to the Accounts and the Credit
and Collection Policy except insofar as any such failure to comply or perform
would not materially and adversely affect the rights of a Purchaser, the
Administrative Agent, any of the Purchaser Agents or any Bank Investor in the
Receivables or the collectibility of the Receivables. The Transferor shall not
change the terms and provisions of the Account Agreement or the Credit and
Collection Policy in any respect (including, without limitation, the calculation
of the amount, and the timing, of uncollectible Receivables) with the intent to
materially benefit itself over a Purchaser, the Administrative Agent, any of the
Purchaser Agents or any Bank Investor, unless such change does not materially
and adversely affect the rights of a Purchaser, the Administrative Agent, any of
the Purchase Agents or any Bank Investor in the Receivables or the
collectibility of the Receivables.
(j) Actions Under GE Agreement and Loss Sharing Agreement.
(i) The Transferor shall not, nor will it permit GE to take, any
action under the GE Agreement which could reasonably be expected to have a
Material Adverse Effect or which is inconsistent with the material terms of
this Agreement. (ii) The Transferor shall not, nor will it permit any
relevant party to take, any action under any Loss Sharing Agreement which
could reasonably be expected to have a Material Adverse Effect or which is
inconsistent with the material terms of this Agreement.
SECTION 5.3. Affirmative Covenants of the Collection Agent.
At all times from the date hereof to the latest to occur of (i) the
Termination Date, (ii) the last Special Termination Date with respect to all
Purchasers and (iii) the date on which the Net Investments have been reduced to
zero and all other Aggregate Unpaids shall have been paid in full, in cash,
unless the Purchaser Agents shall otherwise consent in writing:
(a) Conduct of Business.
The Collection Agent shall carry on and conduct its business in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted and do all things necessary to remain duly
chartered, validly existing and in good standing as a national banking
association and maintain all requisite authority to conduct its business in each
jurisdiction in which its business is conducted.
65
<PAGE>
(b) Compliance with Laws.
The Collection Agent shall comply in all material respects with all laws,
rules, regulations, orders, writs, judgments, injunctions, decrees or awards to
which it or its properties may be subject which pertain to its duties hereunder
and shall maintain in effect all material qualifications required by law to
service the Receivables and Accounts properly.
(c) Furnishing of Information and Inspection of Records.
The Collection Agent shall furnish to the Administrative Agent and the
Purchaser Agents from time to time such information with respect to the
Receivables as the Administrative Agent and the Purchaser Agents may reasonably
request, including, without limitation, listings identifying the Obligor by
Account number and the outstanding balance for each Receivable. The Collection
Agent shall, at any time and from time to time during regular business hours and
upon reasonable notice permit the Administrative Agent, any of the Purchaser
Agents, or its agents or representatives, (i) to examine and make copies of and
take abstracts from all Records and (ii) to visit the offices and properties of
the Collection Agent for the purpose of examining such Records, and to discuss
matters relating to Receivables or the Transferor's or the Collection Agent's
performance hereunder and under the other Transaction Documents to which such
Person is a party with any of the officers, directors, employees or independent
public accountants of the Collection Agent having knowledge of such matters.
(d) Keeping of Records and Books of Account.
The Collection Agent shall maintain and implement operating procedures
(including, without limitation, an ability to recreate records evidencing
Receivables in the event of the destruction of the originals thereof), and keep
and maintain, all documents, books, records and other information reasonably
necessary or advisable for the collection of all Receivables (including, without
limitation, records adequate to permit the daily identification of each new
Receivable and all Collections of and adjustments to each existing Receivable).
The Collection Agent will give the Administrative Agent notice of any material
change in its administrative and operating procedures referred to in the
previous sentence.
(e) Year 2000 Compliance.
(i) The Collection Agent will promptly notify the Administrative Agent
and the Purchaser Agents in the event the Collection Agent discovers or
determines that any computer application (including those of its suppliers,
vendors and customers) (x) that is necessary for the origination,
collection, management, or servicing of the Receivables is not Year 2000
Compliant, or (y) that is otherwise material to its or any of its
Subsidiaries' business and operations will not be Year 2000 Compliant on a
timely basis, except to the extent that, in the case of (y) above, such
failure could not reasonably be expected (A) to have a Material Adverse
Effect or (B) to result in a Termination Event.
66
<PAGE>
(ii) Further, the Collection Agent will deliver simultaneously with
any quarterly or annual financial statements or reports to be delivered
under this Agreement, a certificate signed by its chief financial officer
that no material event, problems or conditions have occurred which in the
opinion of management would (x) prevent or materially delay the
Transferor's plan to become Year 2000 Compliant or (y) cause or be likely
to cause the Transferor's representations and warranties with respect to
being or becoming Year 2000 Compliant no longer to be true.
(f) Credit and Collection Policies.
The Collection Agent shall comply with the Credit and Collection Policy in
regard to the Receivables and each related Account, except insofar as any
failure to so comply could not be reasonably expected to impair the
collectibility of the Receivables, on the whole, or a substantial amount
thereof, or otherwise have a Material Adverse Effect.
(g) No Rescission or Cancellation.
The Collection Agent shall not permit any rescission or cancellation of a
Receivable except as ordered by a court of competent jurisdiction or other
governmental authority or in the ordinary course of its business and in
accordance with the Credit and Collection Policy.
(h) Protection of Purchasers' Rights.
The Collection Agent shall take no action, nor omit to take any action,
which would impair the rights of the Purchasers in the Receivables or the
related Accounts.
(i) Litigation.
Promptly upon the commencement thereof, the Collection Agent shall give to
the Purchaser Agents notice of all legal or arbitral proceedings and of all
proceedings by or before any governmental or regulatory authority or agency,
affecting the Collection Agent or any of its respective Subsidiaries (i)
involving amounts in excess of $10,000,000, (ii) which could reasonably be
expected to have a Material Adverse Effect, or (iii) which could otherwise
result in a Termination Event or Potential Termination Event, and (promptly upon
the occurrence thereof) notice of any material development in respect of any
such legal or other proceedings.
(j) Notice of Termination Events, Potential Termination Events or
Collection Agent Default.
As soon as possible and in any event within two (2) Business Days after the
occurrence of each Termination Event, Potential Termination Event or Collection
Agent Default, the Collection Agent shall deliver to the Administrative Agent
and the Purchaser Agents a statement of the chief financial officer or chief
accounting officer of the Collection Agent
67
<PAGE>
setting forth details of such Termination Event, Potential Termination Event or
Collection Agent Default and the action which the Collection Agent proposes to
take with respect thereto.
(k) Conversion Date.
The Collection Agent shall use its best efforts to cause the Conversion
Date to occur by no later than October 31, 1999.
(l) The GE Agreement.
(i) The Collection Agent shall deliver to the Purchaser Agents copies
of all notices and other communications delivered by or to the Collection
Agent under the GE Agreement after the Closing Date, promptly upon such
delivery or receipt thereof, as the case may be, involving any claim
against GE in excess of $1,000,000. The Collection Agent shall notify the
Purchaser Agents of any breach by GE of any term of the GE Agreement which
involves an amount in excess of $1,000,000, upon its knowledge thereof.
(ii) The Collection Agent shall take all commercially reasonable
actions necessary to collect payments due to it under the GE Agreement and
shall exercise diligently and promptly all its rights and remedies
thereunder unless and until the Administrative Agent provides the notice to
the Collection Agent pursuant to clause (iii) below.
(iii) The Administrative Agent may, in its discretion, provide to the
Collection Agent a notice that it desires to exercise directly against GE
all rights and remedies of DMCCB under the GE Agreement upon the occurrence
of any one or more of the following: (A) the occurrence of a Termination
Event which involves an amount in excess of $1,000,000 that is caused by or
related to a breach by GE under the GE Agreement or would be cured by a
payment made by GE under the GE Agreement, (B) a Collection Agent Default
or Termination Event with respect to the Collection Agent which involves an
amount in excess of $1,000,000, or (C) an Event of Bankruptcy with respect
to the Transferor.
(iv) In the event that the Administrative Agent agrees to settle any
claim against GE for an amount that is less than the original amount of the
claim (the difference between such original amount and the amount of such
settlement being the "Claim Amount") (x) any such claim shall be settled by
the Administrative Agent consistent with the manner of a prudent business
entity in the position of owning a portfolio of receivables similar to the
Receivables in the conduct of such entity's own affairs, and (y) the
Administrative Agent and the Purchaser Agents agree that the Transferor, to
the extent it was liable therefor, shall remain liable for the payment
thereof.
(v) The Collection Agent shall, within one Business Day after the
Collection Agent's receipt thereof, remit to the Collection Account any
payment received by the Collection Agent pursuant to the GE Agreement which
relates to an amount due and owing under this Agreement, unless otherwise
previously paid by the Collection Agent or Transferor hereunder or by GE
directly to the Administrative Agent.
68
<PAGE>
SECTION 5.4. Negative Covenants of the Collection Agent.
At all times from the date hereof to the latest to occur of (i) the
Termination Date, (ii) the last Special Termination Date with respect to all
Purchasers and (iii) the date on which the Net Investments have been reduced to
zero and all other Aggregate Unpaids shall have been paid in full, in cash,
unless the Purchaser Agents shall otherwise consent in writing.
(a) No Sales, Liens, Etc.
Except as otherwise provided herein, the Collection Agent shall not sell,
assign (by operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Adverse Claim upon (or the filing of any financing
statement) or with respect to (x) any of the Affected Assets or (y) any account
to which any Collections of any Receivable are sent, or assign any right to
receive income in respect thereof.
(b) No Change in Business or Credit Collection Policy. The Collection Agent
shall not make any change in the character of its business or in the Credit and
Collection Policy, which change would, in either case, impair the collectibility
of the Receivables, on the whole, or otherwise have a Material Adverse Effect.
(c) No Extension or Amendment of Receivables.
Except as otherwise permitted in Section 6.2 hereof, the Collection Agent
shall not extend, amend or otherwise modify the terms of any Receivable, or
amend, modify or waive any term or condition of any Account related thereto if
such action could have a Material Adverse Effect.
(d) No Mergers, Etc.
The Collection Agent shall not (i) consolidate or merge with or into any
other Person, or (ii) sell, lease or transfer all or substantially all of its
assets to any other Person, unless (a) the Collection Agent is the surviving
corporation, or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Collection Agent) or to which such
sale, lease or transfer shall have been made is a national bank organized or
existing under the laws of the United States; (b) the entity or Person formed by
or surviving any such consolidation or merger (if other than the Collection
Agent) or the entity or Person to which such sale, lease or transfer shall have
been made assumes all the obligations of the Collection Agent under this
Agreement and the other Transaction Documents pursuant to an agreement in form
and substance satisfactory to the Administrative Agent and each Purchaser Agent;
and (c) immediately after such transaction, no Potential Termination Event or
Termination Event will result therefrom.
69
<PAGE>
ARTICLE VI
ADMINISTRATION AND COLLECTIONS
SECTION 6.1 Appointment of Collection Agent.
The servicing, administering and collection of the Receivables shall be
conducted by such Person (the "Collection Agent") so designated from time to
time in accordance with this Section 6.1. The Collection Agent shall be paid a
Servicing Fee in accordance with Section 2.5 hereof. Until the Administrative
Agent gives notice to the Transferor of the designation of a new Collection
Agent, under the circumstances set forth below, the Transferor is hereby
designated as, and hereby agrees to perform the duties and obligations of, the
Collection Agent pursuant to the terms hereof. The Collection Agent may not
delegate any of its material rights, duties or obligations hereunder without
prior notice to the Administrative Agent and the Purchaser Agents or designate a
substitute Collection Agent, without the prior written consent of the
Administrative Agent and the Purchaser Agents, and provided that in all events
the Collection Agent shall continue to remain solely liable for the performance
of the duties as Collection Agent hereunder notwithstanding any such delegation
hereunder. The Administrative Agent shall, after the occurrence of a Collection
Agent Default or any other Termination Event, and at the direction of the
Required Purchaser Agents, or if there are only two Purchaser Agents, both
Purchaser Agents, designate as Collection Agent any Person (including itself)
approved by such Required Purchaser Agents, or both Purchaser Agents, as the
case may be, to succeed the Transferor or any successor Collection Agent, on the
condition in each case that any such Person so designated shall agree to perform
the duties and obligations of the Collection Agent pursuant to the terms hereof.
The Collection Agent may notify any Obligor of the Transferred Interest.
SECTION 6.2. Duties of Collection Agent.
(a) The Collection Agent shall take or cause to be taken all such action as
may be necessary or advisable to collect each Receivable from time to time, all
in accordance with applicable laws, rules and regulations, with reasonable care
and diligence, and in accordance with the Credit and Collection Policy. Each of
the Transferor, the Purchasers, the Purchaser Agents and the Bank Investors
hereby appoints as its agent the Collection Agent, from time to time designated
pursuant to Section 6.1 hereof, to enforce its respective rights and interests
in and under the Affected Assets. To the extent permitted by applicable law, the
Transferor (to the extent not then acting as Collection Agent hereunder) hereby
grants to any Collection Agent appointed hereunder an irrevocable power of
attorney to take any and all steps in the Transferor's name and on behalf of the
Transferor necessary or desirable, in the reasonable determination of the
Collection Agent, to collect all amounts due under any and all Receivables,
including, without limitation, endorsing the Transferor's name on checks and
other instruments representing Collections and enforcing such Receivables and
the related Account Agreements. The Collection Agent shall set aside for the
account of the Transferor and the Purchaser Agents their respective allocable
shares of the Collections of Receivables in accordance with Sections 2.5 and 2.6
hereof. The Collection Agent shall segregate and deposit to each Purchaser
Agent's account
70
<PAGE>
its allocable share of Collections of Receivables when required pursuant to
Article II hereof. So long as no Termination Event resulting from a Collection
Agent Default shall have occurred and be continuing, the Collection Agent may,
in accordance with the Credit and Collection Policy, extend the maturity of
Receivables and extend the maturity or adjust the outstanding balance as the
Collection Agent may determine to be appropriate to maximize Collections
thereof; provided, however, that such extension or adjustment shall not alter
the status of such Receivable as a Defaulted Receivable. The Transferor shall
deliver to the Collection Agent or its designee(s) and the Collection Agent or
its designees shall hold in trust for the Transferor and the Purchaser Agents,
on behalf of their related Purchasers and Bank Investors, in accordance with
their respective interests, all Records which evidence or relate to Receivables.
The Collection Agent shall not make the Administrative Agent, any of the
Purchaser Agents, a Purchaser or any of the Bank Investors a party to any
litigation with respect to the Receivables without the prior written consent of
such Person, unless such joinder is required by law and such Person would not
become subject to any liability for which it is not indemnified hereunder.
(b) The Collection Agent shall, as soon as practicable following receipt
thereof, turn over to the Transferor any collections of any indebtedness of any
Person which is not on account of a Receivable. If the Collection Agent is not
the Transferor or an Affiliate of the Transferor, the Collection Agent, by
giving three Business Days' prior written notice to the Purchaser Agents, may
revise the percentage used to calculate the Servicing Fee so long as the revised
percentage will not result in a Servicing Fee that exceeds 110% of the
reasonable and appropriate out-of-pocket costs and expenses of such Collection
Agent incurred in connection with the performance of its obligations hereunder
as documented to the reasonable satisfaction of the Purchaser Agents; provided,
however, that at any time after the Buyer's Percentage Factor equals or exceeds
100%, any compensation to the Collection Agent in excess of the Servicing Fee
initially provided for herein shall be an obligation of the Transferor and shall
not be payable, in whole or in part, from Collections allocated to the
Purchasers or the Bank Investors, as applicable. The Collection Agent, if other
than the Transferor or an Affiliate of the Transferor, shall as soon as
practicable upon demand, deliver to the Transferor all Records in its possession
which evidence or relate to indebtedness of an Obligor which is not a
Receivable.
(c) On or before 100 days after the end of each fiscal year of the
Collection Agent, beginning with the fiscal year ending December 31, 1999, the
Collection Agent shall cause a firm of nationally recognized independent public
accountants (who may also render other services to the Collection Agent, the
Transferor or any Affiliates of any of the foregoing) to furnish a report to the
Purchaser Agents to the effect that they have (i) applied certain procedures,
agreed upon with the Collection Agent and the Purchaser Agents and substantially
as set forth in Exhibit C hereto, which would re-perform certain accounting
procedures performed by the Collection Agent pursuant to certain documents and
records relating to the servicing of the Accounts under this Agreement; in
addition, each report shall set forth the agreed upon procedures performed and
the results of such procedures; and (ii) compared the amounts and percentages
set forth in the Investor Reports forwarded by the Collection Agent pursuant to
Section 2.11 during the period covered by such report with the computer reports
which may include personal computer generated reports that summarize data from
the computer reports
71
<PAGE>
generated by either the Transferor or Collection Agent which are used to prepare
the Investor Reports) which were the source of such amounts and percentages and
that on the basis of such comparison, such amounts and percentages are in
agreement except as shall be set forth in such report.
(d) Notwithstanding anything to the contrary contained in this Article VI,
the Collection Agent, if not the Transferor or any Affiliate of the Transferor,
shall have no obligation to collect, enforce or take any other action described
in this Article VI with respect to any indebtedness that is not included in the
Transferred Interest other than to deliver to the Transferor the collections and
documents with respect to any such indebtedness as described in Section 6.2(b)
hereof.
SECTION 6.3. Rights After Designation of New Collection Agent.
At any time following the designation of a Collection Agent (other than the
Transferor or any Affiliate of the Transferor) pursuant to Section 6.1 hereof:
(i) The Administrative Agent may or shall, at the direction of the
Purchaser Agents, direct that payment of all amounts payable under any
Receivable be made directly to the Administrative Agent or its designee, to
be applied in accordance with Sections 2.5, 2.6 and 2.12(d), as applicable.
(ii) In the event that a Termination Event has occurred, the
Transferor shall, at the Administrative Agent's request and at the
Transferor's expense, direct that payments be made directly by each Obligor
to the Administrative Agent or its designee, and, if necessary, give notice
of any of the Purchaser Agents', the Transferor's and/or the Bank
Investors' ownership of Receivables to each Obligor.
(iii) The Transferor shall, at the Administrative Agent's request, (A)
assemble all of the Records, and shall make the same available to the
Administrative Agent or its designee at a place selected by the
Administrative Agent or its designee, and (B) segregate all cash, checks
and other instruments received by it from time to time constituting
Collections of Receivables in a manner acceptable to the Administrative
Agent and shall, promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of transfer,
to the Administrative Agent or its designee.
(iv) The Transferor hereby authorizes the Administrative Agent to take
any and all lawful steps in the Transferor's name and on behalf of the
Transferor necessary or desirable and reasonable, in the determination of
the Administrative Agent, to collect all amounts due under any and all
Receivables, including, without limitation, endorsing the Transferor's name
on checks and other instruments representing Collections and enforcing such
Receivables and the related Account Agreements, and the Transferor shall
request any third party holding any Records to provide the
72
<PAGE>
Administrative Agent with access to such Records to same extent as the
Transferor have such access.
SECTION 6.4. Collection Agent Default.
The occurrence of any one or more of the following events shall constitute
a Collection Agent Default:
(a) the Collection Agent or, to the extent that the Transferor or any
Affiliate of the Transferor is then acting as Collection Agent, the Transferor
or such Affiliate, as applicable, shall fail to (i) observe or perform any term,
covenant or agreement to be observed or performed under Section 5.3(a), (f), (g)
or (h) or Section 5.4(b), (c) or (d), and any such failure to observe Section
5.3(a), (g) or (h) or Section 5.4(c) shall have a Material Adverse Effect, or
(ii) observe or perform any term, covenant or agreement hereunder (other than as
referred to in clause (i) or (iii) of this Section 6.4(a)) or under any of the
other Transaction Documents to which such Person is a party or by which such
Person is bound, which failure shall have a Material Adverse Effect and shall
remain unremedied for ten (10) days, or (iii) make any payment or deposit
required to be made by it hereunder when due or the Collection Agent shall fail
to observe or perform any term, covenant or agreement on the Collection Agent's
part to be performed under Section 2.8(b) hereof; or
(b) any representation, warranty, certification or statement made by the
Collection Agent (in the event that the Transferor or such Affiliate is then
acting as the Collection Agent) in this Agreement or in any other Transaction
Documents or in any certificate or report delivered by it pursuant to any of the
foregoing shall prove to have been incorrect in any material adverse respect
when made or deemed made; or
(c) any event of default by the Collection Agent or any of its Subsidiaries
in the performance of any term, provision or condition contained in any
agreement under which any Indebtedness greater than $10,000,000 was created or
is governed, if the effect of such event of default is to cause that
Indebtedness to become or be declared due and payable prior to its stated
maturity or the stated maturity of any underlying obligation, as the case may
be; or
(d) any Event of Bankruptcy shall occur with respect to the Collection
Agent or any of its Subsidiaries; or
(e) there shall have occurred any material adverse change in the operations
of the Collection Agent since the end of the last fiscal year ending prior to
the date of its appointment as Collection Agent hereunder which, in the
commercially reasonable judgment of the Required Purchaser Agents, materially
and adversely affects the Collection Agent's ability to either collect the
Receivables or to perform under this Agreement; or
(f) a final judgment or judgments for the payment of money in excess of
$10,000,000 individually or in the aggregate shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction against the
Collection Agent and the
73
<PAGE>
same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within 30 days
from the date of entry thereof.
SECTION 6.5. Responsibilities of the Transferor.
Anything herein to the contrary notwithstanding, the Transferor shall (i)
perform all of its obligations under the Accounts related to the Receivables to
the same extent as if interests in such Receivables had not been sold hereunder
and under the GE Agreement and the exercise by the Administrative Agent, the
Purchaser Agents, the Purchasers and the Bank Investors of their rights
hereunder and under the GE Agreement shall not relieve the Transferor from such
obligations and (ii) pay when due any taxes, including without limitation, any
sales taxes payable in connection with the Receivables and their creation and
satisfaction. Neither the Administrative Agent, any of the Purchaser Agents, the
Purchasers nor any of the Bank Investors shall have any obligation or liability
with respect to any Receivable or related Accounts, nor shall it be obligated to
perform any of the obligations of the Transferor thereunder.
ARTICLE VII
TERMINATION EVENTS
SECTION 7.1 Termination Events.
The occurrence of any one or more of the following events shall constitute
a Termination Event:
(a) the Transferor or the Collection Agent shall fail to make any payment
or deposit to be made by it hereunder (including, without limitation, any
payment received under any Loss Sharing Agreement) when due hereunder or
thereunder, and such failure shall continue for 2 Business Days; or
(b) any representation, warranty, certification or statement made by (x)
the Transferor in this Agreement, any other Transaction Document to which it is
a party or in any other document delivered pursuant hereto or thereto or (y) MCI
in the officer's certificate described in Section 4.1(aa) hereof, shall prove to
have been incorrect in any material adverse respect when made or deemed made
and, if susceptible of being remedied, has not been remedied within 30 days
thereafter; or
(c) the Transferor or the Collection Agent, shall default in the
performance of any payment, covenant or undertaking (other than those covered by
clause (a) above): (i) to be performed or observed under Sections 5.1(a)(iv),
5.1(b), 5.1(f), 5.1(g), 5.1(i), 5.1(j), 5.2(a), 5.2(c), 5.2(d) or 5.2(g); (ii)
to be performed or observed under Section 5.1(a)(vi) or Section 5.3, and such
default in the case of this clause (ii) shall continue for two (2) Business
Days; and (iii) to be performed or observed under any other provision hereof or
any other Transaction Document and such default in the case of this clause (iii)
shall continue for ten (10) days; or
74
<PAGE>
(d) any event of default by the Transferor, MCI or any Subsidiary of the
Transferor or MCI in the performance of any term, provision or condition
contained in any agreement to which any such Person is a party or under which
any Indebtedness owing by the Transferor or any Subsidiary of the Transferor
greater than $10,000,000 was created or is governed if the effect of such event
of default is to cause that Indebtedness to become or be declared due and
payable prior to its stated maturity or the stated maturity of any underlying
obligation, as the case may be; or
(e) an Event of Bankruptcy shall occur with respect to the Transferor, the
Collection Agent, MCI or any Subsidiary of any of the foregoing (which, in the
case of such Subsidiary, could reasonably be expected to have a Material Adverse
Effect); or
(f) the Transferor shall, for any reason, fail to have a valid ownership
interest in the Affected Assets or any of the Purchaser Agents, on behalf of
their related Purchasers and Bank Investors shall, for any reason, fail or cease
to have a valid and perfected first priority ownership or security interest in
the Affected Assets free and clear of any Adverse Claims; or
(g) a Collection Agent Default shall have occurred; or
(h) (x) the GE Agreement shall have terminated other than pursuant to its
terms or a default shall occur thereunder, in either case, which has a Material
Adverse Effect; (y) any Loss Sharing Agreement shall have terminated, other than
pursuant to its terms; or (z) any payment default or defaults shall occur under
any Loss Sharing Agreement, and so long as no other Termination Event has
occurred or is then continuing, such payment default or defaults shall be
continuing uncured for a period of (i) if Excess Spread, determined by reference
to the most recent Investor Report, is greater than 4%, 45 days after the party
obligated to make payments under such Loss Sharing Agreement receives the
documentation required thereunder from the Transferor or GE, or (ii) if Excess
Spread, determined by reference to the most recent Investor Report, is less than
or equal to 4%, 30 days after the party obligated to make payments under such
Loss Sharing Agreement receives the documentation required thereunder from the
Transferor or GE; or
(i) the Transferor or the Collection Agent (if at the time DMCCB or an
Affiliate thereof is serving as such) (except as permitted under Section
5.4(d)), shall enter into any transaction or merger whereby it is not the
surviving entity; or
(j) there shall have occurred any material adverse change in the operations
of the Transferor or MCI since December 31, 1998 or any other Material Adverse
Effect shall have occurred; or
(k) on any date (i) the Buyer's Percentage Factor shall exceed the Maximum
Buyer's Percentage Factor and shall not be cured within one Business Day
thereafter or (ii) the Buyer's Percentage Factor shall equal or exceed 100% at
any time; or
75
<PAGE>
(l) on any Remittance Date, the Spread Account balance shall be less than
the Spread Account Cap Percentage Amount and such deficiency shall continue to
exist unremedied at the close of business on the second Remittance Date
thereafter; or
(m) the average Excess Spread (not including any amounts received under any
Loss Sharing Agreement) for any three rolling consecutive Collection Periods
shall be less than or equal to 2% but greater than 0%; or
(n) MCI shall cease to own, directly or indirectly, all of the outstanding
capital stock of DMCCB; or
(o) any failure by the Transferor or any of its ERISA Affiliates to
maintain its Benefit Plans in accordance with ERISA or the occurrence of any
event of the type set forth in clauses (i) through (v) of Section 5.2(h) with
respect to any such entity which, in any case, results in a lien on the
Receivables or otherwise has a Material Adverse Effect; or
(p) (i) the Net Investments plus, in the case where the Transferred
Interest is held by a Purchaser, the Interest Component of all outstanding
Related Commercial Paper, shall exceed the Facility Limit or (ii) any
Purchaser's applicable Net Investment (together with the Interest Component of
all its outstanding Related Commercial Paper) shall exceed its Applicable
Purchaser Percentage of the Facility Limit; or
(q) a final judgment or judgments for the payment of money in excess of
$10,000,000 individually or in the aggregate shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction against the
Collection Agent (if at the time, DMCCB or an Affiliate thereof is serving as
such) or any of its Subsidiaries and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof; or
(r) the Interest Rate Cap Agreement shall not be in full force and effect
and no substitute shall have been obtained therefor within 10 days thereafter,
or an Event of Bankruptcy shall have occurred with respect to the Interest Rate
Cap Provider or the Interest Rate Cap Provider shall repudiate the Interest Rate
Cap Agreement or refuse to make a payment thereunder; or
(s) the Interest Rate Cap Provider is downgraded below the ratings
specified in the definition thereof by either Standard & Poor's or Moody's,
respectively, and is not replaced with a substitute Interest Rate Cap Provider
within 10 days; or
(t) the average Excess Spread (not including any amounts received hereunder
under any Loss Sharing Agreement) for any three rolling consecutive Collection
Periods shall be 0% or less; or
(u) (i) the Transferor or GE shall amend, modify, supplement or waive any
provision of the GE Agreement in any manner which could reasonably be expected
to have a
76
<PAGE>
Material Adverse Effect or which is inconsistent with the material terms of this
Agreement; or (ii) the Transferor or any relevant party shall amend, modify,
supplement or waive any provision of any Loss Sharing Agreement which could
reasonably be expected to have a Material Adverse Effect or which is
inconsistent with the material terms of this Agreement; or
(v) the computer applications of GE, its suppliers, vendors, customers or
third-party servicers related to or involved in the collection, management or
servicing of the Receivables shall fail to be Year 2000 Compliant, and such
failure (i) has, or could reasonably be expected to have, a Material Adverse
Effect or (ii) results in, or could reasonably be expected to result in, another
Termination Event.
SECTION 7.2. Termination.
(a) Upon the occurrence of any Termination Event, the Required Purchaser
Agents may, by notice to the other Purchaser Agent and to the Transferor and the
Collection Agent, declare the Termination Date to have occurred; provided,
however, that in the case of any event described in Section 7.1(e), 7.1(f),
7.1(k)(ii), 7.1(p), 7.1(r), 7.1(s) or 7.1(t) above, the Termination Date shall
be deemed to have occurred automatically upon the occurrence of such event. Upon
any such declaration or automatic occurrence, the Purchaser Agents shall have,
in addition to all other rights and remedies under this Agreement or otherwise,
all other rights and remedies provided under the UCC of the applicable
jurisdiction and other applicable laws, all of which rights shall be cumulative.
(b) At all times after the declaration or automatic occurrence of the
Termination Date pursuant to Section 7.2(a), interest shall thereafter be
calculated on the basis of the Base Rate plus 2.00% and all other Carrying Costs
shall accrue interest on the basis of the Base Rate plus 2.00% until, in each
case, such interest and Carrying Costs are paid in full.
ARTICLE VIII
INDEMNIFICATION; EXPENSES; RELATED MATTERS
SECTION 8.1 Indemnities by the Transferor.
Without limiting any other rights which the Administrative Agent, any of
the Purchaser Agents, the Purchasers or the Bank Investors may have hereunder or
under applicable law, each of the Transferor and the Collection Agent hereby
severally agrees to indemnify the Purchasers, the Bank Investors, the
Administrative Agent, the Purchaser Agents, the Collateral Agent, each Liquidity
Provider and each Credit Support Provider and any successors and permitted
assigns and their respective officers, directors, employees and agents
(collectively, "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, costs and expenses, including, without limitation,
reasonable attorneys' fees (which such attorneys may be employees of a Liquidity
Provider, a Credit Support Provider, the Administrative Agent, any of the
Purchaser Agents or the Collateral Agent, as applicable) and disbursements (all
of the
77
<PAGE>
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them in any action or proceeding between the
Transferor (including, in its capacity as the Collection Agent, except for
indemnification which is being sought against the Collection Agent) and any of
the Indemnified Parties or between any of the Indemnified Parties and any third
party or otherwise arising out of or as a result of this Agreement, the other
Transaction Documents, the ownership or maintenance, either directly or
indirectly, by the Administrative Agent, any of the Purchaser Agents, a
Purchaser or any Bank Investor of the Transferred Interest or any of the other
transactions contemplated hereby or thereby, excluding, however, (i) Indemnified
Amounts to the extent resulting from gross negligence or willful misconduct on
the part of an Indemnified Party or (ii) recourse (except as otherwise
specifically provided in this Agreement) for uncollectible Receivables.
Notwithstanding the foregoing, the indemnity of the Collection Agent pursuant to
this Section shall be limited to Indemnified Amounts relating to or resulting
from any of the following which relate to the failure, breach or other action of
the Collection Agent. Without limiting the generality of the foregoing, the
Transferor shall indemnify each Indemnified Party for Indemnified Amounts
relating to or resulting from all matters set forth below (other than those
described in the preceding sentence):
(i) any representation or warranty made by the Transferor (including,
in its capacity as the Collection Agent) or any officers of the Transferor
(including, in its capacity as the Collection Agent) under or in connection
with this Agreement, the GE Agreement, any of the other Transaction
Documents, any Investor Report or any other information or report delivered
by the Transferor or the Collection Agent pursuant hereto, which shall have
been false or incorrect in any material respect when made or deemed made;
(ii) the failure by the Transferor (including, in its capacity as the
Collection Agent) to comply with any applicable law, rule or regulation
with respect to any Receivable or the related Account, or the nonconformity
of any Receivable or the related Account with any such applicable law, rule
or regulation;
(iii) the failure (x) to vest and maintain vested in the Purchaser
Agents, on behalf of their related Purchasers and Bank Investors, an
undivided first priority, perfected percentage ownership interest (to the
extent of the Transferred Interest) in the Affected Assets free and clear
of any Adverse Claim or (y) to create or maintain a valid and perfected
first priority security interest in favor of the Purchaser Agents, for the
benefit of their related Purchasers and Bank Investors, in the Affected
Assets as contemplated pursuant to Section 10.11 hereof, free and clear of
any Adverse Claim, except that any ownership interest or security interest
created hereunder with respect to Related Security shall be a first
priority perfected interest only to the extent possible by filing the
financing statements contemplated to be filed hereunder on the Closing Date
(and any amendments thereto or continuations thereof);
78
<PAGE>
(iv) the failure to file, or any delay in filing, financing
statements, continuation statements, or other similar instruments or
documents under the UCC of any applicable jurisdiction or other applicable
laws with respect to any of the Affected Assets;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy) of the Obligor to the payment of any Receivable (including,
without limitation, a defense based on such Receivable or the related
Account not being the legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms);
(vi) any failure of the Collection Agent to perform its duties or
obligations in accordance with the provisions hereof;
(vii) any products liability claim or personal injury or property
damage suit or other similar or related claim or action of whatever sort
arising out of or in connection with merchandise or services which are the
subject of any Receivable;
(viii) the transfer of an ownership interest in any Receivable other
than an Eligible Receivable;
(ix) the failure by the Transferor (individually or as Collection
Agent) to comply with any term, provision or covenant contained in this
Agreement or any of the other Transaction Documents to which it is a party
or to perform any of its respective duties under the Account Agreements;
(x) [Reserved]
(xi) the failure of GE to pay when due any taxes, including without
limitation, sales, excise or personal property taxes payable in connection
with any of the Receivables;
(xii) any repayment by any Indemnified Party of any amount previously
distributed in reduction of Net Investments which such Indemnified Party
believes in good faith is required to be made;
(xiii) the commingling by the Transferor or the Collection Agent of
Collections of Receivables at any time with other funds;
(xiv) any investigation, litigation or proceeding related to this
Agreement, any of the other Transaction Documents, the use of proceeds of
Transfers by the Transferor, the ownership of Transferred Interests, or any
Receivable or Account;
(xv) any inability to obtain any judgment in or utilize the court or
other adjudication system of, any state in which an Obligor may be located
as a result of the
79
<PAGE>
failure of the Transferor to qualify to do business or file any notice of
business activity report or any similar report;
(xvi) any failure of the Transferor to give reasonably equivalent
value to GE in consideration of the transfer by GE of any Receivable, or
any attempt by any Person to void, rescind or set aside any such transfer
under statutory provisions or common law or equitable action, including,
without limitation, any provision of the Bankruptcy Code;
(xvii) any action taken by the Transferor or the Collection Agent (if
the Transferor or any Affiliate or designee of the Transferor) in the
enforcement or collection of any Receivable; or
(xviii) the failure of any information contained in the Investor
Report and other reports delivered pursuant to Section 2.11 to be true and
correct;
provided, however, that if a Purchaser enters into agreements for the purchase
of interests in receivables from one or more Other Transferors, such Purchaser
shall allocate such Indemnified Amounts which are in connection with the
Liquidity Provider Agreement, the Credit Support Agreement or the credit support
furnished by the Credit Support Provider to the Transferor and each Other
Transferor; and, provided, further, that if such Indemnified Amounts are
attributable to the Transferor or the Collection Agent and not attributable to
any Other Transferor, the Transferor shall be solely liable for such Indemnified
Amounts or if such Indemnified Amounts are attributable to Other Transferors and
not attributable to the Transferor or the Collection Agent, such Other
Transferors shall be solely liable for such Indemnified Amounts.
SECTION 8.2. Indemnity for Taxes, Reserves and Expenses.
(a) If after the date hereof, the adoption of any Law or bank regulatory
guideline or any amendment or change in the interpretation of any existing or
future Law or bank regulatory guideline by any Official Body charged with the
administration, interpretation or application thereof, or the compliance with
any directive of any Official Body (in the case of any bank regulatory
guideline, whether or not having the force of Law):
(i) shall subject any Indemnified Party (or its applicable lending
office) to any tax, duty or other charge (other than Excluded Taxes) with
respect to this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest, the Receivables or
payments of amounts due hereunder, or shall change the basis of taxation of
payments to any Indemnified Party of amounts payable in respect of this
Agreement, the other Transaction Documents, the ownership,
80
<PAGE>
maintenance or financing of the Transferred Interest, the Receivables or
payments of amounts due hereunder or its obligation to advance funds
hereunder, under a Liquidity Provider Agreement or the credit support
furnished by a Credit Support Provider or otherwise in respect of this
Agreement, the other Transaction Documents, the ownership, maintenance or
financing of the Transferred Interest or the Receivables (except for
changes in the rate of general corporate, franchise, net income or other
income tax imposed on such Indemnified Party by the jurisdiction in which
such Indemnified Party's principal executive office is located);
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, any Indemnified Party or shall impose on any Indemnified Party
or on the United States market for certificates of deposit or the London
interbank market any other condition affecting this Agreement, the other
Transaction Documents, the ownership, maintenance or financing of the
Transferred Interest, the Receivables or payments of amounts due hereunder
or its obligation to advance funds hereunder under the Liquidity Provider
Agreement or the credit support provided by a Credit Support Provider or
otherwise in respect of this Agreement, the other Transaction Documents,
the ownership, maintenance or financing of the Transferred Interest or the
Receivables; or
(iii) imposes upon any Indemnified Party any other condition or
expense (including, without limitation, reasonable attorneys' fees and
expenses, and expenses of litigation or preparation therefor in contesting
any of the foregoing) with respect to this Agreement, the other Transaction
Documents, the ownership, maintenance or financing of the Transferred
Interest, the Receivables or payments of amounts due hereunder or its
obligation to advance funds hereunder under a Liquidity Provider Agreement
or the credit support furnished by a Credit Support Provider or otherwise
in respect of this Agreement, the other Transaction Documents, the
ownership, maintenance or financing of the Transferred Interests or the
Receivables,
and the result of any of the foregoing is to increase the cost to or to reduce
the amount of any sum received or receivable by such Indemnified Party with
respect to this Agreement, the other Transaction Documents, the ownership,
maintenance or financing of the Transferred Interest, the Receivables, the
obligations hereunder, the funding of any purchases hereunder, the Liquidity
Provider Agreement or the Credit Support Agreement, by an amount deemed by such
Indemnified Party to be material, then, within ten (10) days after demand by
such Indemnified Party, the Transferor shall pay to such Indemnified Party, such
additional amount or amounts as will compensate such Indemnified Party for such
increased cost or reduction.
(b) If any Indemnified Party shall have determined that after the date
hereof, the adoption of any applicable Law or bank regulatory guideline
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Official Body, or any request or
directive regarding capital adequacy (in the case of any bank regulatory
guideline, whether or not having the force of law) of any such Official Body,
has or would have the effect of reducing the rate of return on capital of such
Indemnified Party (or its parent) as a consequence of such Indemnified Party's
obligations hereunder or with respect hereto to a level
81
<PAGE>
below that which such Indemnified Party (or its parent) could have achieved but
for such adoption, change, request or directive (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by such
Indemnified Party to be material, then from time to time, within ten (10) days
after demand by such Indemnified Party through any of the Purchaser Agents, the
Transferor shall pay to the applicable Purchaser Agent, for the benefit of such
Indemnified Party, such additional amount or amounts as will compensate such
Indemnified Party (or its parent) for such reduction.
(c) The applicable Purchaser Agent will promptly notify the Transferor of
any event of which it has knowledge, occurring after the date hereof, which will
entitle an Indemnified Party to compensation pursuant to this Section 8.2. A
notice by any of the Purchaser Agents or the applicable Indemnified Party
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, any of the Purchaser Agents or any
applicable Indemnified Party may use any reasonable averaging and attributing
methods.
(d) Anything in this Section 8.2 to the contrary notwithstanding, if a
Purchaser enters into agreements for the acquisition of interests in receivables
from one or more Other Transferors, such Purchaser shall allocate the liability
for any amounts under this Section 8.2 which are in connection with the
Liquidity Provider Agreement, the Credit Support Agreement or the credit support
provided by the Credit Support Provider ("Section 8.2 Costs") to the Transferor
and each Other Transferor; provided, however, that if such Section 8.2 Costs are
attributable to the Transferor or the Collection Agent and not attributable to
any Other Transferor, the Transferor shall be solely liable for such Section 8.2
Costs or if such Section 8.2 Costs are attributable to Other Transferors and not
attributable to the Transferor or the Collection Agent, such Other Transferors
shall be solely liable for such Section 8.2 Costs.
SECTION 8.3. Taxes.
All payments made hereunder by the Transferor or the Collection Agent
(each, a "payor") to a Purchaser, any Bank Investor, the Administrative Agent or
any of the Purchaser Agents (each, a "recipient") shall be made free and clear
of and without deduction for any present or future income, excise, stamp or
franchise taxes and any other taxes, fees, duties, withholdings or other charges
of any nature whatsoever imposed by any taxing authority on any recipient (or
any assignee of such parties) (such nonexcluded items being called "Taxes"), but
excluding franchise taxes and taxes imposed on or measured by the recipient's
net income or gross receipts ("Excluded Taxes"). In the event that any
withholding or deduction from any payment made by the payor hereunder is
required in respect of any Taxes, then such payor shall:
(a) pay directly to the relevant authority the full amount required to be
so withheld or deducted;
82
<PAGE>
(b) promptly forward to the Purchaser Agents an official receipt or other
documentation satisfactory to the Purchaser Agents evidencing such payment to
such authority; and
(c) pay to the recipient such additional amount or amounts as is necessary
to ensure that the net amount actually received by the recipient will equal the
full amount such recipient would have received had no such withholding or
deduction been required.
Moreover, if any Taxes are directly asserted against any recipient with respect
to any payment received by such recipient hereunder, the recipient may pay such
Taxes and the payor will promptly pay such additional amounts (including any
penalties, interest or expenses) as shall be necessary in order that the net
amount received by the recipient after the payment of such Taxes (including any
Taxes on such additional amount) shall equal the amount such recipient would
have received had such Taxes not been asserted.
If the payor fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the recipient the required receipts or other
required documentary evidence, the payor shall indemnify the recipient for any
incremental Taxes, interest, or penalties that may become payable by any
recipient as a result of any such failure.
SECTION 8.4. Other Costs, Expenses and Related Matters.
(a) The Transferor agrees, upon receipt of a written invoice, to pay or
cause to be paid, and to save the Purchasers, the Bank Investors, the
Administrative Agent and the Purchaser Agents harmless against liability for the
payment of, all reasonable out-of-pocket expenses (including, without
limitation, attorneys', accountants', rating agencies' and other third parties'
fees and expenses, any filing fees and expenses incurred by officers or
employees of the Purchasers, the Bank Investors, the Administrative Agent and/or
any of the Purchaser Agents) or intangible, documentary or recording taxes
incurred by or on behalf of a Purchaser, any Bank Investor, the Administrative
Agent and the Purchaser Agents (i) in connection with the negotiation,
execution, delivery and preparation of this Agreement, the other Transaction
Documents and any documents or instruments delivered pursuant hereto and thereto
and the transactions contemplated hereby or thereby (including, without
limitation, the perfection or protection of the Transferred Interest) whether or
not the transactions contemplated hereby are consummated and (ii) from time to
time (a) relating to any amendments, waivers or consents under this Agreement
and the other Transaction Documents, (b) arising in connection with a
Purchaser's, any Bank Investor's, the Administrative Agent's, any of the
Purchaser Agents' or the Collateral Agent's enforcement or preservation of
rights (including, without limitation, the perfection and protection of the
Transferred Interest under this Agreement), or (c) arising in connection with
any audit, dispute, disagreement, litigation or preparation for litigation
involving this Agreement or any of the other Transaction Documents (all of such
amounts, collectively, "Transaction Costs").
83
<PAGE>
(b) The Transferor shall pay the Purchaser Agents, for the account of the
Purchasers and the Bank Investors, as applicable, on demand any Early Collection
Fee, including interest thereon, due on account of the receipt by a Purchaser or
any Bank Investor of any amounts applied in reduction of the applicable Net
Investment on any day other than the next Remittance Date or the last day of any
applicable funding period (in the case of any LIBOR-based funding).
SECTION 8.5. Reconveyance Under Certain Circumstances.
The Transferor agrees to accept the reconveyance from the Purchaser Agents,
on behalf of the applicable Purchaser and/or applicable Bank Investors, of the
Transferred Interest if any of the Purchaser Agents notifies Transferor of a
breach of any representation or warranty made or deemed made pursuant to
Sections 3.1(a), (b), (c), (d) or (j) hereof and Transferor shall fail to cure
such breach (including, without limitation, pursuant to Section 2.9(b)) within
15 days (or, in the case of the representations and warranties in Sections
3.1(d) and 3.1(j) hereof 3 days) of such notice. The reconveyance price shall be
paid by the Transferor to the applicable Purchaser Agent for the account of the
related Purchasers and the Bank Investors, as applicable, in immediately
available funds on such 15th day (or 3rd day, if applicable) in an amount equal
to the Aggregate Unpaids.
ARTICLE IX
THE ADMINISTRATIVE AGENT; BANK COMMITMENT;
PURCHASER AGENTS
SECTION 9.1 Authorization and Action of Administrative Agent.
(a) Each of the Purchaser Agents hereby appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Transaction Documents as are
expressly delegated to the Administrative Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. In furtherance,
and without limiting the generality, of the foregoing, each of the Purchaser
Agents hereby appoints the Administrative Agent as its agent to execute and
deliver all further instruments and documents, and take all further action that
the Administrative Agent may deem necessary or appropriate or that the Purchaser
Agents may reasonably request in order to perfect, protect or more fully
evidence the interests transferred or to be transferred from time to time by the
Transferor hereunder, or to enable any of them to exercise or enforce any of
their respective rights hereunder, including, without limitation, the execution
by the Administrative Agent as secured party/assignee of such financing or
continuation statements, or amendments thereto or assignments thereof, relative
to all or any of the Receivables now existing or hereafter arising, and such
other instruments or notices, as may be necessary or appropriate for the
purposes stated herein above. With respect to any actions which are incidental
to the actions specifically delegated to the Administrative Agent hereunder,
84
<PAGE>
and in any event with respect to any action taken or to be taken by the
Administrative Agent with respect to any Loss Sharing Agreement, the
Administrative Agent shall not be required to take any such incidental action
hereunder, but shall be required to act or to refrain from acting (and shall be
fully protected in acting or refraining from acting) upon the direction of the
Purchaser Agents; provided, however, that the Administrative Agent shall not be
required to take any action hereunder if the taking of such action, in the
reasonable determination of the Administrative Agent, shall be in violation of
any applicable law, rule or regulation or contrary to any provision of this
Agreement or shall expose the Administrative Agent to liability hereunder or
otherwise.
(b) The Administrative Agent shall exercise such rights and powers vested
in it by this Agreement and the other Transaction Documents, and use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.
SECTION 9.2. Administrative Agent's Reliance, Etc.
Neither the Administrative Agent nor any of its directors, officers, agents
or employees shall be liable for any action taken or omitted to be taken by it
or them as Administrative Agent under or in connection with this Agreement or
any of the other Transaction Documents, except for its or their own gross
negligence or willful misconduct. Without limiting the foregoing, the
Administrative Agent: (i) may consult with legal counsel (including counsel for
the Transferor), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (ii) makes no warranty or representation, and shall not be responsible
for, any statements, warranties or representations made in or in connection with
this Agreement; (iii) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
this Agreement or any of the other Transaction Documents on the part of the
Transferor or the Collection Agent to inspect the property (including the books
and records) of the Transferor, the Collection Agent; (iv) shall not be
responsible for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, any of the other
Transaction Documents or any other instrument or document furnished pursuant
hereto or thereto; and (v) shall incur no liability under or in respect of this
Agreement or any of the other Transaction Documents by acting upon any notice
(including notice by telephone), consent, certificate or other instrument or
writing (which may be by telex) believed by it to be genuine and signed or sent
by the proper party or parties.
SECTION 9.3. Credit Decision With Respect to Administrative Agent.
Each of the Purchaser Agents, and each of their related Purchasers and Bank
Investors, acknowledges that it has, independently and without reliance upon the
Administrative Agent, or any of the Administrative Agent's Affiliates, and based
upon such documents and information as it has deemed appropriate, made its own
evaluation and decision to enter into this Agreement and the other Transaction
Documents to which it is a party and, if it so determines, to
85
<PAGE>
accept the transfer of any undivided ownership interest in the Affected Assets
hereunder. Each of the Purchaser Agents, and each of their related Purchasers
and Bank Investors, also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any of the Administrative Agent's
Affiliates, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under this Agreement and the other Transaction Documents to which
it is a party.
SECTION 9.4. Indemnification of the Administrative Agent.
Each of the Purchaser Agents and Bank Investors agrees to indemnify the
Administrative Agent (to the extent not reimbursed by or on behalf of the
Transferor or the Collection Agent under the Transaction Documents, and without
limiting the obligation of such Persons to do so in accordance with the
Transaction Documents), ratably in accordance with its Pro Rata Share, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any action taken or omitted by the Administrative Agent, any of the other
Transaction Documents hereunder or thereunder; provided, however, that none of
the Purchaser Agents shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each of
the Purchaser Agents agrees to reimburse the Administrative Agent, ratably as
above described, promptly upon demand for any out-of-pocket expenses (including
counsel fees) incurred by the Administrative Agent in connection with the
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and the other Transaction
Documents, to the extent that such expenses are incurred in the interests of or
otherwise in respect of the Purchaser Agents hereunder and/or thereunder and to
the extent that the Administrative Agent is not reimbursed for such expenses by
the Transferor.
SECTION 9.5. Successor Administrative Agent.
The Administrative Agent may resign at any time by giving five (5) days'
prior written notice thereof to each of the Purchaser Agents and the Transferor,
such resignation to be effective when the Administrative Agent is discharged
from its duties and obligations as set forth below, and may be removed at any
time with cause by the Purchaser Agents. Upon any such resignation or removal,
the Purchaser Agents shall appoint a successor Administrative Agent. Each of the
Purchaser Agents agrees that it shall not unreasonably withhold or delay its
approval of the appointment of a successor Administrative Agent. If no such
successor Administrative Agent shall have been so appointed, and shall have
accepted such appointment, within 30 days after the retiring Administrative
Agent's giving of notice of resignation or the removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Purchaser Agents, appoint a successor Administrative Agent which successor
Administrative Agent shall be either (i) a commercial bank organized under the
laws of the United States or of
<PAGE>
any state thereof and have a combined capital and surplus of at least
$50,000,000 or (ii) an Affiliate of such a bank. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative Agent,
the provisions of this Article IX shall continue to inure to its benefit as to
any actions taken or omitted to be taken by it while it was Administrative Agent
under this Agreement.
SECTION 9.6. Payments by the Administrative Agent.
Unless specifically allocated to the Purchaser Agents pursuant to the terms
of this Agreement, all amounts (if any) received by the Administrative Agent on
behalf of the Purchaser Agents shall be paid by the Administrative Agent to the
Purchaser Agents (at their respective accounts specified in their respective
Assignment and Assumption Agreements) in accordance with their respective
related pro rata interests in the applicable Net Investment on the Business Day
received by the Administrative Agent, unless such amounts are received after
12:00 noon on such Business Day, in which case the Administrative Agent shall
use its reasonable efforts to pay such amounts to the Purchaser Agents on such
Business Day, but, in any event, shall pay such amounts to the Purchaser Agents
in accordance with their respective related pro rata interests in the applicable
Net Investment not later than the following Business Day.
SECTION 9.7. Bank Commitment; Assignment to Bank Investors.
(a) Bank Commitment.
At any time on or prior to the Commitment Termination Date, in the event
that Enterprise does not effect an Incremental Transfer as requested under
Section 2.2(a), then at any time, the Transferor shall have the right to require
Enterprise to assign its interest in the Transferred Interest and the Net
Investment in whole to the Enterprise Bank Investors pursuant to this Section
9.7. In addition, at any time on or prior to the Commitment Termination Date (i)
upon the occurrence of an Enterprise Wind-Down Event or (ii) upon the occurrence
of a Termination Event that results in the Termination Date or Special
Termination Date with respect to Enterprise or (iii) Enterprise elects to give
notice to the Transferor of a Reinvestment Termination Date or (iv) after
Enterprise elects to amortize its Net Investment or elects not to make an
additional Incremental Transfer, the Transferor hereby requests and directs that
Enterprise assign its Net Investment in whole to the Enterprise Bank Investors
pursuant to this Section 9.7 and the Transferor hereby agrees to pay the amounts
described in Section 9.7(d) below. No further documentation or action on the
part of Enterprise shall be required to exercise the rights set forth in the
immediately preceding sentence, other than, in the case of clause (i) of such
sentence, receipt of notice by the Enterprise Bank Investors from the Enterprise
Agent that a Termination Date has occurred or, in the case of clause (ii) of
such sentence, the giving of the notice set forth in such clause and the
delivery by the Enterprise Agent of a copy of such notice
87
<PAGE>
to each Enterprise Bank Investor (the date of the receipt of a notice referred
to in such clauses being the "Effective Date"). Each Enterprise Bank Investor
hereby agrees, unconditionally and irrevocably and under all circumstances,
without setoff, counterclaim or defense of any kind, to pay the full amount of
its Assignment Amount on such Effective Date to Enterprise in immediately
available funds to an account designated by the Enterprise Agent. Upon payment
of its Assignment Amount, each Enterprise Bank Investor shall acquire its
Special Pro Rata Share of the Transferred Interest and the Investment and shall
assume its respective portion of Enterprise's obligations hereunder, and
Enterprise shall be released from such portion of such obligations. If, by 2:00
P.M. (New York time) on the Effective Date, one or more Enterprise Bank
Investors (each, a "Defaulting Bank Investor", and each Enterprise Bank Investor
other than any Defaulting Bank Investor being referred to as a "Non-Defaulting
Bank Investor") fails to pay its Assignment Amount (the aggregate amount not so
made available to Enterprise being herein called the "Assignment Amount
Deficit"), then the Enterprise Agent shall, by no later than 2:30 P.M. (New York
time) on the Effective Date, instruct each Non-Defaulting Bank Investor to pay,
by no later than 3:00 P.M. (New York time) on the Effective Date, in immediately
available funds, to the account designated by Enterprise, an amount equal to the
lesser of (x) such Non-Defaulting Bank Investor's proportionate share (based
upon the relative Commitments of the Non-Defaulting Bank Investors) of the
Assignment Amount Deficit and (y) its unused Commitment. A Defaulting Bank
Investor shall forthwith, upon demand, pay to the Enterprise Agent for the
ratable benefit of the Non-Defaulting Bank Investors all amounts paid by each
Non-Defaulting Bank Investor on behalf of such Defaulting Bank Investor,
together with interest thereon for each day from the date a payment was made by
a Non-Defaulting Bank Investor until the date such Non-Defaulting Bank Investor
has been paid such amounts in full at a rate per annum equal to the rate
determined in accordance with clause (i) of the definition of "Base Rate" plus
two percent (2%). In addition, if, after giving effect to the provisions of the
immediately preceding sentence, any Assignment Amount Deficit continues to
exist, each such Defaulting Bank Investor shall pay interest to the Enterprise
Agent on such Defaulting Bank Investor's portion of such remaining Assignment
Amount Deficit, at a rate per annum equal to the rate determined in accordance
with clause (i) of the definition of "Base Rate" plus two percent (2%), for each
day from the Effective Date until the date such Defaulting Bank Investor shall
pay its portion of such remaining Assignment Amount Deficit in full to
Enterprise. Upon any assignment by Enterprise to the Enterprise Bank Investors
contemplated hereunder, Enterprise shall cease to make any additional
Incremental Transfers hereunder.
(b) Assignment.
No Enterprise Bank Investor may assign all or a portion of its interests in
its Commitment the applicable Net Investment, the Receivables, and Collections,
Proceeds and Related Security with respect thereto and its rights and
obligations hereunder to any Person unless approved in writing by the
Transferor, the Administrative Agent, and the Enterprise Agent. In connection
with any such assignment by an Enterprise Bank Investor to another Person, the
assignor shall deliver to the assignee(s) an Assignment and Assumption
Agreement, substantially in the form of Exhibit B hereto, duly executed,
assigning to the assignee all of any portion of (A) such assignor's Commitment
and other obligations hereunder and (B) such
88
<PAGE>
assignor's pro rata interest in its Net Investment, the Receivables, and
Collections, Proceeds and Related Security with respect thereto and other rights
hereunder, and such assignor shall promptly execute and deliver all further
instruments and documents, and take all further action, that the assignee may
reasonably request, in order to protect, or more fully evidence the assignee's
right, title and interest in and to such interest and to enable the Enterprise
Agent, on behalf of such assignee, to exercise or enforce any rights hereunder
and under the other Transaction Documents to which such assignor is or,
immediately prior to such assignment, was a party. Upon any such assignment, (i)
the assignee shall have all of the rights and obligations of the assignor
hereunder and under the other Transaction Documents to which such assignor is
or, immediately prior to such assignment, was a party with respect to such
assignor's Commitment and interest in its Net Investment, the Receivables, and
Collections, Related Security and Proceeds with respect thereto for all purposes
of this Agreement and under the other Transaction Documents to which such
assignor is or immediately prior to such assignment was a party and (ii) the
assignor shall have no further obligations with respect to the portion of its
Commitment hereunder which has been assigned and shall relinquish its rights
with respect to such interest for all purposes of this Agreement and under the
other Transaction Documents to which such assignor is or, immediately prior to
such assignment, was a party. No such assignment shall be effective unless a
fully executed copy of the related Assignment and Assumption Agreement shall be
delivered to the Administrative Agent, the Enterprise Agent and the Transferor.
All costs and expenses of the Administrative Agent, the Enterprise Agent and the
assignor and assignee incurred in connection with any assignment hereunder shall
be borne by the Transferor and not by the assignor or any such assignee. No
Enterprise Bank Investor shall assign any portion of its Commitment hereunder
without also simultaneously assigning an equal portion of its interest in the
related Liquidity Provider Agreement.
(c) Effects of Assignment.
By executing and delivering an Assignment and Assumption Agreement, the
assignor and assignee thereunder confirm to and agree with each other and the
other parties hereto as follows: (i) other than as provided in such Assignment
and Assumption Agreement, the assignor makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, the other
Transaction Documents or any other instrument or document furnished pursuant
hereto or thereto or the execution, legality, validity, enforceability,
genuineness, sufficiency or value or this Agreement, the other Transaction
Documents or any such other instrument or document; (ii) the assignor makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Transferor or the Collection Agent or the performance
or observance by the Transferor or the Collection Agent of any of their
respective obligations under this Agreement, the other Transaction Documents or
any other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement and such other
instruments, documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Assumption
Agreement and to purchase such interest; (iv) such assignee will, independently
and without reliance upon the Administrative Agent, the Enterprise Agent or any
of their Affiliates, or the assignor and based
89
<PAGE>
on such agreements, documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Transaction Documents; (v) such
assignee appoints and authorizes the Enterprise Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement, the other
Transaction Documents and any other instrument or document furnished pursuant
hereto or thereto as are delegated to such agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto and to enforce
its respective rights and interests in and under this Agreement, the other
Transaction Documents, the Receivables, Related Security and the Account
Agreements; (vi) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement and the
other Transaction Documents are required to be performed by it as the assignee
of the assignor; and (vii) such assignee agrees that it will not institute
against Enterprise any proceeding of the type referred to in Section 10.9 hereof
prior to the date which is one year and one day after the payment in full of all
Commercial Paper issued by Enterprise.
(d) Transferor's Obligation to Pay Certain Amounts; Additional Assignment
Amount.
The Transferor shall pay to the Enterprise Agent for the account of
Enterprise, in connection with any assignment by Enterprise to the Enterprise
Bank Investors pursuant to this Section 9.7, an aggregate amount equal to all
Carrying Costs to accrue through the end of each outstanding funding period plus
all other Aggregate Unpaids (other than the Net Investment). To the extent that
such Carrying Costs relate to interest or discount on Related Commercial Paper,
if the Transferor fails to make payment of such amounts at or prior to the time
of assignment by Enterprise to the Enterprise Bank Investors, such amount shall
be paid by the Enterprise Bank Investors (in accordance with their respective
Special Pro Rata Shares) to Enterprise as additional consideration for the
interests assigned to the Enterprise Bank Investors and the amount of the "Net
Investments" hereunder held by the Enterprise Bank Investors shall be increased
by an amount equal to the additional amount so paid by the Enterprise Bank
Investors.
(e) Administration of Agreement After Assignment.
After any assignment by Enterprise to the Enterprise Bank Investors
pursuant to this Section 9.7 (and the payment of all amounts owing to Enterprise
in connection therewith), all rights of the Enterprise Agent and the Collateral
Agent set forth herein shall be deemed to be afforded to the Enterprise Agent on
behalf of the Enterprise Bank Investors instead of either such party.
(f) Payments.
After any assignment by Enterprise to the Enterprise Bank Investors
pursuant to this Section 9.7, all payments to be made hereunder by the
Transferor or the Collection Agent to Enterprise shall be made to the account of
the Enterprise Agent, as such
90
<PAGE>
account shall have been notified to the Transferor and the Collection Agent. In
the event that the Assignment Amount paid by the Enterprise Bank Investors
pursuant to Section 9.7(a) is less than the sum of the applicable Net Investment
plus the Interest Component of all outstanding Related Commercial Paper, then to
the extent payments made hereunder in respect of the applicable Net Investment
(excluding interest) exceed the Assignment Amount, such excess amounts shall be
remitted by the Enterprise Agent to Enterprise.
(g) Downgrade of Bank Investor.
If at any time prior to any assignment by Enterprise to the Enterprise Bank
Investors as contemplated pursuant to this Section 9.7, the short term debt
rating of any Enterprise Bank Investor shall be "A-2" or "P-2" from Standard &
Poor's or Moody's, respectively, with negative credit implications, such
Enterprise Bank Investor, upon request of the Enterprise Agent, shall, within 30
days of such request, assign its rights and obligations hereunder to another
financial institution (which institution's short term debt shall be rated at
least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and
which shall not be so rated with negative credit implications). If the short
term debt rating of an Enterprise Bank Investor shall be "A-3" or "P-3", or
lower, from Standard & Poor's or Moody's, respectively (or such rating shall
have been withdrawn by Standard & Poor's or Moody's), such Bank Investor, upon
request of the Enterprise Agent, shall, within five (5) Business Days of such
request, assign its rights and obligations hereunder to another financial
institution (which institution's short term debt shall be rated at least "A-2"
and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not
be so rated with negative credit implications and which is acceptable to
Enterprise and the Enterprise Agent). In either such case, if any such
Enterprise Bank Investor shall not have assigned its rights and obligations
under this Agreement within the applicable time period described above,
Enterprise shall have the right to require such Enterprise Bank Investor to pay
to the Enterprise Agent an amount equal to such Enterprise Bank Investor's
Commitment for deposit by the Enterprise Agent into an account, in the name of
the Enterprise Agent, which shall be in satisfaction of such Enterprise Bank
Investor's obligation to make Incremental Purchases to accept an assignment from
Enterprise in accordance with this Section 9.7 and to pay its Assignment Amount.
The amount on deposit in such account shall be invested by the Enterprise Agent
in Eligible Investments and such Eligible Investments shall have a term selected
by the Enterprise Agent, in the Enterprise Agent's sole discretion. The
Enterprise Agent shall remit to such Enterprise Bank Investor, monthly, the
income thereon. Nothing in the three preceding sentences shall affect or
diminish in any way any such downgraded Enterprise Bank Investor's Commitment to
the Transferor, Enterprise or such downgraded Enterprise Bank Investor's other
obligations and liabilities hereunder and under the other Transaction Documents.
(h) Bank Investor Consent.
Upon the occurrence and during the continuance of any Termination Event or
Potential Termination Event, the Enterprise Agent shall take no action hereunder
(other than ministerial actions or such actions as are specifically provided for
herein) without the prior consent of the Enterprise Majority Investors (which
consent shall not be unreasonably withheld
91
<PAGE>
or delayed). The Enterprise Agent shall not, without the prior written consent
of all Enterprise Bank Investors, agree to (i) amend, modify or waive any
provision of this Agreement in any way which would (A) reduce or impair
Collections or the payment of interest or fees payable hereunder to such Bank
Investors or delay the scheduled dates for payment of such amounts, (B) increase
the Servicing Fee (other than as permitted pursuant to Section 6.2(b)), (C)
modify any provisions of this Agreement relating to the timing of payments
required to be made by the Transferor or the application of the proceeds of such
payments, (D) permit the appointment of any Person (other than the
Administrative Agent) as successor Collection Agent, (E) release any property
from the lien provided by this Agreement (other than as expressly contemplated
herein) or (F) extend or permit the extension of the Commitment Termination Date
without the consent of each such Enterprise Bank Investor. The Enterprise Agent
shall not agree to any amendment of this Agreement which increases the dollar
amount of an Enterprise Bank Investor's Commitment without the prior consent of
such Enterprise Bank Investor. In addition, the Enterprise Agent shall not agree
to any amendment of this Agreement not specifically described in the two
preceding sentences without the consent of the Enterprise Majority Investors
(which consent shall not be unreasonably withheld or delayed). "Enterprise
Majority Investors" shall mean at any time, the Enterprise Agent and those
Enterprise Bank Investors which hold Commitments aggregating in excess of 66 and
2/3% of Enterprise's Pro Rata Share of the Facility Limit as of such date. In
the event the Enterprise Agent requests an Enterprise Bank Investor's consent
pursuant to the foregoing provisions and the Enterprise Agent does not receive a
consent (either positive or negative) from such Enterprise Bank Investor within
10 Business Days of such Enterprise Bank Investor's receipt of such request,
then such Enterprise Bank Investor (and its percentage interest hereunder) shall
be disregarded in determining whether the Enterprise Agent shall have obtained
sufficient consent hereunder.
SECTION 9.8. Authorization and Action of Enterprise Agent.
(a) Enterprise and each Enterprise Bank Investor hereby appoints and
authorizes the Enterprise Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Transaction Documents
as are delegated to the Enterprise Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. In furtherance,
and without limiting the generality, of the foregoing, Enterprise and each
Enterprise Bank Investor hereby appoints the Enterprise Agent as its agent to
execute and deliver all further instruments and documents, and take all further
action that the Enterprise Agent may deem necessary or appropriate or that
Enterprise or an Enterprise Bank Investor may reasonably request in order to
perfect, protect or more fully evidence the interests transferred or to be
transferred from time to time by the Transferor hereunder, or to enable any of
them to exercise or enforce any of their respective rights hereunder, including,
without limitation, the execution by the Enterprise Agent as secured
party/assignee of such financing or continuation statements, or amendments
thereto or assignments thereof, relative to all or any of the Receivables now
existing or hereafter arising, and such other instruments or notices, as may be
necessary or appropriate for the purposes stated herein above. Enterprise and
the Enterprise Majority Investors may direct the Enterprise Agent to take any
such incidental action hereunder. With respect to other actions which are
incidental to the actions specifically delegated to the
92
<PAGE>
Enterprise Agent hereunder, the Enterprise Agent shall not be required to take
any such incidental action hereunder, but shall be required to act or to refrain
from acting (and shall be fully protected in acting or refraining from acting)
upon the direction of Enterprise and the Enterprise Majority Investors;
provided, however, that the Enterprise Agent shall not be required to take any
action hereunder if the taking of such action, in the reasonable determination
of the Enterprise Agent, shall be in violation of any applicable law, rule or
regulation or contrary to any provision of this Agreement or shall expose the
Enterprise Agent to liability hereunder or otherwise.
(b) The Enterprise Agent shall exercise such rights and powers vested in it
by this Agreement and the other Transaction Documents, and use the same degree
of care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
SECTION 9.9. Reliance, Etc. of Enterprise Agent.
Neither the Enterprise Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
them as Enterprise Agent under or in connection with this Agreement or any of
the other Transaction Documents, except for its or their own gross negligence or
willful misconduct. Without limiting the foregoing, the Enterprise Agent: (i)
may consult with legal counsel (including counsel for the Transferor),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (ii) makes
no warranty or representation to Enterprise or any Enterprise Bank Investor and
shall not be responsible to Enterprise or any Enterprise Bank Investor for any
statements, warranties or representations made in or in connection with this
Agreement; (iii) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any of the other Transaction Documents on the part of the
Transferor or the Collection Agent or to inspect the property (including the
books and records) of the Transferor or the Collection Agent; (iv) shall not be
responsible to a Purchaser or any Bank Investor for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
any of the other Transaction Documents or any other instrument or document
furnished pursuant hereto or thereto; and (v) shall incur no liability under or
in respect of this Agreement or any of the other Transaction Documents by acting
upon any notice (including notice by telephone), consent, certificate or other
instrument or writing (which may be by telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 9.10. Credit Decision with respect to Enterprise.
Enterprise and each Enterprise Bank Investor acknowledges that it has,
independently and without reliance upon the Enterprise Agent, any of the
Enterprise Agent's Affiliates, any other Enterprise Bank Investor or Enterprise
(in the case of any Enterprise Bank Investor) and based upon such documents and
information as it has deemed appropriate, made its
93
<PAGE>
own evaluation and decision to enter into this Agreement and the other
Transaction Documents to which it is a party and, if it so determines, to accept
the transfer to the Enterprise Agent on its behalf of any undivided ownership
interest in the Affected Assets hereunder. Enterprise and each Enterprise Bank
Investor also acknowledges that it will, independently and without reliance upon
the Enterprise Agent, any of the Enterprise Agent's Affiliates, any other
Enterprise Bank Investor or Enterprise (in the case of any Enterprise Bank
Investor) and based on such documents and information as it shall deem
appropriate at the time, continue to make its own decisions in taking or not
taking action under this Agreement and the other Transaction Documents to which
it is a party.
SECTION 9.11. Indemnification of Enterprise Agent.
The Enterprise Bank Investors agree to indemnify the Enterprise Agent (to
the extent not reimbursed by the Transferor), ratably in accordance with their
Special Pro Rata Shares, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including attorneys' fees) or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against the Enterprise Agent
(including by Enterprise or any Enterprise Bank Investor in any way relating to
or arising out of this Agreement or any other Transaction Document or the
transactions contemplated thereby or any action taken or omitted by the
Enterprise Agent under this Agreement or any other Transaction Document;
provided, however, that the Enterprise Bank Investors shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of such person. Without limitation of the foregoing, the Enterprise
Bank Investors agree to reimburse the Enterprise Agent, ratably in accordance
with their Special Pro Rata Shares, promptly upon demand for any out-of-pocket
expenses (including counsel fees) incurred by the Enterprise Agent in connection
with the administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and the other Transaction
Documents, to the extent that such expenses are incurred in the interests of or
otherwise in respect of the Enterprise Bank Investors hereunder and/or
thereunder and to the extent that the Enterprise Agent is not reimbursed for
such expenses by the Transferor. The agreements contained in this section shall
survive payment in full of the Net Investments and all other amounts payable
hereunder.
SECTION 9.12. Successor Agent to Enterprise Agent.
The Enterprise Agent may resign at any time by giving notice thereof to
each Enterprise Bank Investor, Enterprise, the Administrative Agent and the
Transferor. Upon any such resignation, Enterprise and the Enterprise Majority
Investors shall have the right to appoint a successor Enterprise Agent. If no
such successor Enterprise Agent shall have been so appointed, and shall have
accepted such appointment, within 30 days after the retiring Enterprise Agent's
giving of notice of resignation, then the retiring Enterprise Agent may, on
behalf of Enterprise and the Enterprise Bank Investors, appoint a successor
Enterprise Agent which successor Enterprise Agent shall be a commercial bank
organized under the laws of the United
94
<PAGE>
States and have a combined capital and surplus of at least $100,000,000. Upon
the acceptance of any appointment as Enterprise Agent hereunder by a successor
Enterprise Agent, such successor Enterprise Agent shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the retiring Enterprise Agent, and the retiring Enterprise Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Enterprise Agent's resignation hereunder as Enterprise Agent, the
provisions of this Article IX shall continue to inure to its benefit as to any
actions taken or omitted to be taken by it while it was Enterprise Agent under
this Agreement.
SECTION 9.13. Payments by the Purchaser Agents.
Unless specifically allocated to a Bank Investor pursuant to the terms of
this Agreement, all amounts received by the applicable Purchaser Agent on behalf
of the Bank Investors shall be paid by such Purchaser Agent to the Bank
Investors (at their respective accounts specified in their respective Assignment
and Assumption Agreements) in accordance with their respective related pro rata
interests in the applicable Net Investment on the Business Day received by such
Purchaser Agent, unless such amounts are received after 12:00 noon on such
Business Day, in which case such Purchaser Agent shall use its reasonable
efforts to pay such amounts to the Bank Investors on such Business Day, but, in
any event, shall pay such amounts to the Bank Investors in accordance with their
respective related pro rata interests in the applicable Net Investment not later
than the following Business Day.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Term of Agreement.
This Agreement shall terminate on the date following the later of a
Termination Date and a Special Termination Date upon which the Net Investments
have been reduced to zero and all other Aggregate Unpaids have been paid in
full, in each case, in cash; provided, however, that (i) the rights and remedies
of the Administrative Agent, the Purchaser Agents, the Purchasers and the Bank
Investors with respect to any representation and warranty made or deemed to be
made by the Transferor pursuant to this Agreement, (ii) the indemnification and
payment provisions of Article VIII, and (iii) the agreement set forth in Section
10.9 hereof, shall be continuing and shall survive any termination of this
Agreement.
SECTION 10.2. Waivers; Amendments.
No failure or delay on the part of the Administrative Agent, any of the
Purchaser Agents, a Purchaser or any Bank Investor in exercising any power,
right or remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or remedy preclude
any other further exercise thereof or the exercise of any other power, right or
remedy. The rights and remedies herein provided shall be cumulative and
95
<PAGE>
nonexclusive of any rights or remedies provided by law. Any provision of this
Agreement may be amended or waived if, but only if, in the case of any
amendment, such amendment is in writing and is signed by the Transferor, the
Purchasers, the Administrative Agent, the Purchaser Agents and the Bank
Investors holding Commitments aggregating 66 and 2/3 % of the Pro Rata Share of
its related Purchaser's Facility Limit and in the case of any waiver, such
waiver is granted in writing by the Administrative Agent, Purchaser Agents and
such Bank Investors. The Transferor shall notify each Rating Agency then rating
the Commercial Paper of any Purchaser of any waiver or amendment with respect to
this Agreement, and, as to each material waiver or amendment (other than any
extension of the Commitment Termination Date or decrease in the Facility Limit),
shall obtain confirmation by such Rating Agency that such material waiver or
amendment shall not result in a reduction or withdrawal of any such rating.
SECTION 10.3. Notices.
Except as provided below, all communications and notices provided for
hereunder shall be in writing (including telecopy or electronic facsimile
transmission or similar writing) and shall be given to the other party at its
address or telecopy number set forth below or at such other address or telecopy
number as such party may hereafter specify for the purposes of notice to such
party. Each such notice or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this Section 10.3 and confirmation is received, (ii) if given by mail 3
Business Days following such posting, postage prepaid, U.S. certified or
registered, (iii) if given by overnight courier, one (1) Business Day after
deposit thereof with a national overnight courier service, or (iv) if given by
any other means, when received at the address specified in this Section 10.3.
However, anything in this Section to the contrary notwithstanding, the
Transferor hereby authorizes the Purchasers to effect Transfers and funding
period selections based on telephonic notices made by any Person which the
Purchasers in good faith believe to be acting on behalf of the Transferor. The
Transferor agrees to deliver promptly to the Purchasers a written confirmation
of each telephonic notice signed by an authorized officer of Transferor.
However, the absence of such confirmation shall not affect the validity of such
notice. If the written confirmation differs in any material respect from the
action taken by the Purchasers, the records of the Purchasers shall govern
absent manifest error.
If to Enterprise:
Enterprise Funding Corporation
c/o Global Securitization Services, LLC
25 West 43rd Street Suite 704 New York, NY 10036
Attention: Andrew Stidd, Vice President
Telephone: (212) 346-9006
Telecopy: (212) 246-9012
96
<PAGE>
(with a copy to the Enterprise Agent)
Payment Information:
Bankers Trust Company
New York, New York
ABA: 021 001 033
BNF: BTCo as Depository for EFC
Account #: 000 362 917
Ref: Metris - GE
Attention: Stacy Coulon
If to Sheffield:
Sheffield Receivables Corporation
c/o Barclays Bank plc
222 Broadway, 7th Floor
New York, New York 10038
Attention: Mike Wade
Telephone: (212) 412-2812
Telecopy: (212) 412-6846
(with a copy to the Sheffield Agent)
Payment Information:
Barclays Bank plc
New York, New York 10038
ABA: 026 0025-74
Account #: 050 791 516
Ref: Sheffield Funding Account/Metris
If to the Transferor:
Direct Merchants Credit Card Bank, N.A.
6909 East Greenway Parkway
Scottsdale, AZ 85254
Telephone: (602) 718-4600
Telecopy: (602) 718-4830
Payment Information:
Bank: Norwest Bank, N.A. Minnesota
ABA: 091000019
Account #: 6355021385
Reference: EFC/GE
97
<PAGE>
If to the Collection Agent:
Direct Merchants Credit Card Bank, N.A.
6909 East Greenway Parkway
Scottsdale, AZ 85254
Telephone: (602) 718-4600
Telecopy: (602) 718-4830
If to the Collateral Agent:
NationsBank, N.A.
Bank of America Corporate Center -- 10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath, Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
If to the Sheffield Agent:
Barclays Bank plc,
222 Broadway, 7th Floor
New York, New York 10038
Attention: Mary Logan
Telephone: (212) 412-3266
Telecopy: (212) 412-6846
If to the Enterprise Agent or the Administrative Agent:
NationsBank, N.A.
Bank of America Corporate Center, -- 10th Floor
Charlotte, North Carolina 28255
Attention: Michelle M. Heath, Structured Finance
Telephone: (704) 386-7922
Telecopy: (704) 388-9169
Payment Information:
NationsBank, N.A.
ABA: 053000196
for the account of IBG Operations/Admin.
Account #: 1093601650000
Ref: GE Capital
Attention: Jennifer Luhia
If to the Bank Investors, at their respective addresses set forth on the
signature pages hereto or of the Assignment and Assumption Agreement pursuant to
which it became a party hereto.
98
<PAGE>
SECTION 10.4. Governing Law; Submission to Jurisdiction; Integration.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES THEREOF. EACH OF THE TRANSFEROR AND THE COLLECTION AGENT HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE
CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each of the
Collection Agent and the Transferor hereby irrevocably waives, to the fullest
extent it may effectively do so, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. Nothing in this Section 10.4 shall affect the right of
the Purchasers to bring any action or proceeding against the Transferor, the
Collection Agent or their respective property in the courts of other
jurisdictions.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR
THE OTHER TRANSACTION DOCUMENTS.
(c) This Agreement contains the final and complete integration of all prior
expressions by the parties hereto with respect to the subject matter hereof and
shall constitute the entire Agreement among the parties hereto with respect to
the subject matter hereof superseding all prior oral or written understandings.
(d) Each of the parties hereto irrevocably consents to service of process
in the manner provided for notices in Section 10.3. Nothing in this Agreement
will affect the right of any party hereto to serve process in any other manner
permitted by law.
SECTION 10.5. Severability; Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same Agreement. Any provisions of this Agreement
which are prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
99
<PAGE>
SECTION 10.6. Successors and Assigns.
(a) This Agreement shall be binding on the parties hereto and their
respective successors and assigns; provided, however, that the Transferor may
not assign any of its rights or delegate any of its duties hereunder or under
the GE Agreement or under any of the other Transaction Documents to which it is
a party without the prior written consent of the Administrative Agent and the
Purchaser Agents. Notwithstanding any other provision of this Agreement to the
contrary, no provision of this Agreement shall in any manner restrict the
ability of a Purchaser or any Bank Investor to assign, participate, grant
security interests in, or otherwise transfer any portion of the Transferred
Interest.
(b) Without limiting the foregoing, a Purchaser may, from time to time,
with prior or concurrent notice to Transferor and Collection Agent, in one
transaction or a series of transactions, assign all or a portion of its Net
Investment and its rights and obligations under this Agreement and any other
Transaction Documents to which it is a party to a Conduit Assignee. Upon and to
the extent of such assignment by such Purchaser to a Conduit Assignee, (i) such
Conduit Assignee shall be the owner of the assigned portion of the applicable
Net Investment, (ii) the related administrative or managing agent for such
Purchaser will act as the agent hereunder for such Conduit Assignee, with all
corresponding rights and powers, express or implied, granted to the Purchaser
Agent hereunder or under the other Transaction Documents, (iii) such Conduit
Assignee and its liquidity support provider(s) and credit support provider(s)
and other related parties shall have the benefit of all the rights and
protections provided to such Purchaser and its Liquidity Provider(s) and Credit
Support Provider(s), respectively, herein and in the other Transaction Documents
(including, without limitation, any limitation on recourse against such
Purchaser or related parties, any agreement not to file or join in the filing of
a petition to commence an insolvency proceeding against such Purchaser, and the
right to assign to another Conduit Assignee as provided in this paragraph), (iv)
such Conduit Assignee shall assume all (or the assigned or assumed portion) of
such Purchaser's obligations, if any, hereunder or any other Transaction
Document, and such Purchaser shall be released from such obligations, in each
case to the extent of such assignment, and the obligations of such Purchaser and
such Conduit Assignee shall be several and not joint, (v) all distributions in
respect of the Net Investments shall be made to the applicable Purchaser Agent
or administrative agent, as applicable, on behalf of such Purchaser and such
Conduit Assignee on a pro rata basis according to their respective interests,
(vi) the definition of the term "Interest Component" with respect to the portion
of the Net Investments funded with commercial paper issued by such Purchaser
from time to time shall be determined in the manner set forth in the definition
of " Interest Component" applicable to such Purchaser on the basis of the
interest rate or discount applicable to commercial paper issued by such Conduit
Assignee (rather than such Purchaser), (vii) the defined terms and other terms
and provisions of this Agreement and the other Transaction Documents shall be
interpreted in accordance with the foregoing, and (viii) if requested by any of
the Purchaser Agents or the administrative agent with respect to the Conduit
Assignee, the parties will execute and deliver such further agreements and
documents and take such other actions as the applicable Purchaser Agent or such
administrative agent may reasonably request to evidence and give effect to the
foregoing. No Assignment by such Purchaser to a Conduit
100
<PAGE>
Assignee of all or any portion of the applicable Net Investment shall (A) in any
way diminish the related Bank Investors' obligation pursuant to Section 9.7, in
the case of Enterprise Bank Investors, and pursuant to the Sheffield Agreement,
in the case of the Sheffield Bank Investors, to fund any Incremental Transfer
not funded by such Purchaser or such Conduit Assignee or to acquire from such
Purchaser or such Conduit Assignee all or any portion of the applicable Net
Investment or (B) result in the liability of the Transferor for any Section 8.2
Costs which are higher than those then applicable to such Purchaser. In
connection with any assignment to a Conduit Assignee, the Transferor and
Collection Agent agree to any amendments to this Agreement and the exhibits and
schedules hereto reasonably required by the Administrative Agent, the Purchaser
Agents and such Conduit Assignee in order to implement such assignment.
(c) Each of the Transferor and the Collection Agent hereby agrees and
consents to the assignment by a Purchaser from time to time of all or any part
of its rights under, interest in and title to this Agreement and the Transferred
Interest to any Liquidity Provider or to any Conduit Assignee as set forth in
Section 10.6(b). In addition, each of the Transferor and the Collection Agent
hereby consents to and acknowledges the assignment by such Purchaser of all of
its rights under, interest in and title to this Agreement and the Transferred
Interest to the Collateral Agent, in the case of Enterprise, and the collateral
agent for each of the other Purchasers in the case of such other Purchasers.
SECTION 10.7. Waiver of Confidentiality.
Each of the Transferor and the Collection Agent hereby consents to the
disclosure of any nonpublic information with respect to it received by a
Purchaser, the Administrative Agent, any of the Purchaser Agents or any Bank
Investor to any of a Purchaser, the Administrative Agent, any of the Purchaser
Agents, any nationally recognized rating agency rating such Purchaser's
Commercial Paper, the Collateral Agent, any Bank Investor or potential Bank
Investor, the Liquidity Provider, the Credit Support Provider or any dealers of
Commercial Paper in relation to this Agreement; provided, that each Purchaser
Agent will notify the Transferor in advance of its sending nonpublic information
to a potential related Bank Investor and will use its best efforts to obtain
executed confidentiality agreements covering the disclosure of any such
information to any Bank Investor, potential Bank Investor, Liquidity Provider or
Credit Support Provider other than the Purchaser Agents.
SECTION 10.8. Confidentiality Agreement.
Each of the Transferor and the Collection Agent hereby agrees that it will
not disclose the contents of this Agreement or any other proprietary or
confidential information of a Purchaser, the Administrative Agent, any of the
Purchaser Agents, the Collateral Agent, any Liquidity Provider or any Bank
Investor to any other Person except (i) its auditors and attorneys, employees or
financial advisors (other than any commercial bank) and any nationally
recognized rating agency, provided such auditors, attorneys, employees,
financial advisors or rating agencies are informed of the highly confidential
nature of such information or (ii) as otherwise required by
101
<PAGE>
applicable law (including any disclosure required to be made under the rules of
the Securities and Exchange Commission) or order of a court of competent
jurisdiction.
SECTION 10.9. No Bankruptcy Petition Against the Purchasers.
(a) Each of the Transferor and the Collection Agent hereby covenants and
agrees that, prior to the date which is one year and one day after the payment
in full of all outstanding Commercial Paper or other indebtedness of Enterprise,
it will not institute against, or join any other Person in instituting against,
Enterprise any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings or other similar proceeding under the laws of the United
States or any state of the United States.
(b) Each of the parties hereto (other than Sheffield) hereby covenants and
agrees that, prior to the date which is one year and one day after the payment
in full of all outstanding Commercial Paper or other indebtedness of Sheffield,
it will not institute against, or join any other Person in instituting against,
Sheffield any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceedings under the laws of the United States or
any state of the United States.
SECTION 10.10. No Recourse Against Stockholders, Officers or Directors.
(a) (i) No recourse under any obligation, covenant or agreement of
Enterprise contained in this Agreement shall be had against Global
Securitization Services, LLC, any stockholder, officer or director of
Enterprise, as such, by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise; it being expressly
agreed and understood that this Agreement is solely a corporate obligation of
Enterprise, and that no personal liability whatsoever shall attach to or be
incurred by Global Securitization Services, LLC, the stockholders, officers or
directors of such Purchaser, as such, or any of them, under or by reason of any
of the obligations, covenants or agreements of Enterprise contained in this
Agreement, or implied therefrom, and that any and all personal liability for
breaches by Enterprise of any of such obligations, covenants or agreements,
either at common law or at equity, or by statute or constitution, of Global
Securitization Services, LLC, every such stockholder, officer or director of
Enterprise is hereby expressly waived as a condition of and consideration for
the execution of this Agreement; provided that the foregoing shall not relieve
any such Person from any liability it might otherwise have as a result of its
fraudulent actions or omissions. The provisions of this Section 10.10(a)(i)
shall survive termination of this Agreement.
(ii) No recourse under any obligation, covenant or agreement of
Sheffield contained in this Agreement shall be had against any
incorporator, stockholder, officer, director, employee or agent of
Sheffield, the Sheffield Agent or any of their Affiliates (solely by virtue
of such capacity) by the enforcement of any assessment or by any legal or
equitable proceeding, by virtue of any statute or otherwise, it being
expressly agreed and understood that this Agreement is solely a corporate
obligation of Sheffield, and that no personal liability
102
<PAGE>
whatever shall attach to or be incurred by any incorporator, stockholder,
officer, director, employee or agent of Sheffield, the Sheffield Agent or
any of their Affiliates (solely by virtue of such capacity) or any of them
under or by reason of any of the obligations, covenants or agreements of
Sheffield contained in this Agreement, or implied therefrom, and that any
and all personal liability for breaches by Sheffield of any of such
obligations, covenants or agreements, either at common law or at equity, or
by statute, rule or regulation, of every such incorporator, stockholder,
officer, director, employee or agent is hereby expressly waived as a
condition of and in consideration for the execution of this Agreement;
provided that the foregoing shall not relieve any -------- such Person from
any liability it might otherwise have as a result of its fraudulent actions
or fraudulent omissions. The provisions of this Section 10.10(a)(ii) shall
survive termination of this Agreement.
(b) Notwithstanding anything to the contrary contained herein, the
obligations of each Purchaser under this Agreement and all other Transaction
Documents are solely the corporate obligations of such Purchaser and, in the
case of obligations of such Purchaser other than such Purchaser's Commercial
Paper, shall be payable at such time as funds are received by or are available
to such Purchaser in excess of funds necessary to pay in full all of such
Purchaser's outstanding Commercial Paper, as applicable, and, to the extent
funds are not available to pay such obligations, the claims relating thereto
shall not constitute a claim against such Purchaser but shall continue to
accrue. Each party hereto agrees that the payment of any claim (as defined in
Section 101 of Title 11 of the Bankruptcy Code) of any such party against any
Purchaser shall be subordinated to the payment in full of all of such
Purchaser's Commercial Paper.
SECTION 10.11. Characterization of the Transactions Contemplated by the
Agreement.
It is the intention of the parties that the transactions contemplated
hereby constitute the sale of the Transferred Interest, conveying good title
thereto free and clear of any Adverse Claims to the Purchaser Agents, on behalf
of their related Purchasers and Bank Investors, and that the Transferred
Interest not be part of the Transferor's estate in the event of an insolvency.
If, notwithstanding the foregoing, in the event that the transactions
contemplated hereby are deemed a financing, the Transferor hereby grants to the
Purchaser Agents, on behalf of their Related Purchasers and Bank Investors, and
the Transferor hereby grants to the Purchaser Agents, on behalf of their related
Purchasers and Bank Investors, a first priority perfected and continuing
security interest in all of the Transferor's right, title and interest in, to
and under the Receivables, together with Collections, Proceeds and (to the
extent that a security interest therein can be perfected and have first priority
by the filing of the financing statements contemplated to be filed hereunder on
the Closing Date, together with amendments thereto and continuations thereof)
Related Security with respect thereto, and together with all of the Transferor's
rights under the GE Agreement and any Loss Sharing Agreement with respect to the
Receivables and with respect to any obligations thereunder of the other parties
thereto with respect to the Receivables, and that this Agreement shall
constitute a security agreement under applicable law. The Transferor hereby
assigns to the Purchaser Agents, on behalf of their related Purchasers and
103
<PAGE>
Bank Investors, all of its rights and remedies under the GE Agreement and any
Loss Sharing Agreement with respect to the Receivables and with respect to any
obligations thereunder of the other parties thereto with respect to the
Receivables.
SECTION 10.12. Conflict Waiver.
(a) NationsBank acts as Enterprise's administrative agent, as provider of
other facilities for Enterprise, and may provide other services or facilities
from time to time (the "NationsBank Roles"). Each party hereto hereby
acknowledges and consents to any and all NationsBank Roles, waives any
objections it may have to any actual or potential conflict of interest caused by
NationsBank's acting as the Enterprise Agent or as a Bank Investor hereunder and
acting as or maintaining any of the NationsBank Roles, and agrees that in
connection with any NationsBank Role, NationsBank may take, or refrain from
taking, any action which it in its discretion deems appropriate.
(b) Barclays acts as Sheffield's administrative agent, as issuing and
paying agent for Sheffield's Commercial Paper, as provider of other backup
facilities for Sheffield, and may provide other services or facilities from time
to time (the "Barclays Roles"). Each party hereto hereby acknowledges and
consents to any and all Barclays Roles, waives any objections it may have to any
actual or potential conflict of interest caused by Barclays' acting as the
Sheffield Agent or as a Bank Investor hereunder and acting as or maintaining any
of the Barclays Roles, and agrees that in connection with any Barclays Role,
Barclays may take, or refrain from taking, any action which it in its discretion
deems appropriate.
SECTION 10.13. Limitation of Liability.
Notwithstanding any provision of this Agreement or any other Transaction
Document: (i) none of the Purchaser Agents shall have any obligations under this
Agreement or any other Transaction Document other than those specifically set
forth herein and therein, and no implied obligations of any of the Purchaser
Agents shall be read into this Agreement or any other Transaction Document; and
(ii) in no event shall any of the Purchaser Agents be liable under or in
connection with this Agreement or any other Transaction Document for indirect,
special, or consequential losses or damages of any kind, including lost profits,
even if advised of the possibility thereof and regardless of the form of action
by which such losses or damages may be claimed. None of the Purchaser Agents nor
any of its respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken in good faith by it or them under or
in connection with this Agreement or any other Transaction Document, except for
its or their own gross negligence or willful misconduct. Without limiting the
foregoing, each Purchaser Agent (a) may consult with legal counsel (including
counsel for the Purchasers), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, (b) shall not be responsible to any party to this
Agreement for any statements, warranties or representations made in or in
connection with this Agreement or the other Transaction Documents (other than
its own), (c) shall not be responsible to any party to
104
<PAGE>
this Agreement for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or the other Transaction
Documents (except with respect to itself), (d) shall incur no liability under or
in respect of any of the Commercial Paper or other obligations of any Purchaser
under this Agreement or the other Transaction Documents and (e) shall incur no
liability under or in respect of this Agreement or the other Transaction
Documents by acting upon any notice (including notice by telephone), consent,
certificate or other instrument or writing (which may be by facsimile) believed
by it to be genuine and signed or sent by the proper party or parties.
Notwithstanding anything else herein or in the other Transaction Documents, it
is agreed that where any of the Purchaser Agents may be required under this
Agreement or the other Transaction Documents to give notice of any event or
condition or to take any action as a result of the occurrence of any event or
the existence of any condition, the applicable Purchaser Agent agrees to give
such notice or take such action only to the extent that it has actual knowledge
of the occurrence of such event or the existence of such condition, and shall
incur no liability for any failure to give such notice or take such action in
the absence of such knowledge.
SECTION 10.14. Pari Passu Interests.
It is the intention of the parties hereto that the interests being acquired
hereunder by the Purchaser Agents, on behalf of their related Purchasers and
Bank Investors, shall rank equally in priority.
SECTION 10.15. Further Assurances.
Each of the Transferor and Collection Agent agrees to do and perform from
time to time any and all acts and to execute any and all further instruments
required or reasonably requested by the Administrative Agent or the Purchaser
Agents more fully to effect the purposes of this Agreement and the other
Transaction Documents in a manner consistent with this Agreement and such other
Transaction Documents, including, without limitation, to take any actions or
execute any amendments or other documents required in connection with any
assignment by a Purchaser to a Conduit Assignee.
105
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered the
Transfer and Administration Agreement as of the date first written above.
ENTERPRISE FUNDING CORPORATION,
as Purchaser
By: /s/Andrew L. Stidd
Name: Andrew L. Stidd
Title: President
SHEFFIELD RECEIVABLES CORPORATION,
as Purchaser
By: /s/ Michael Wade
Name: Michael Wade
Title: Director
DIRECT MERCHANTS CREDIT CARD BANK,
NATIONAL ASSOCIATION,
as Transferor and Collection Agent
By: /s/ Paul Runice
Name: Paul Runice
Title: Assistant Treasurer and Cashier
Commitment NATIONSBANK, N.A.,
$450,000,000 as a Bank Investor, Enterprise Agent and
Administrative Agent
By: /s/ Robert R. Wood
Name: Robert R. Wood
Title: Vice President
BARCLAYS BANK PLC,
as Sheffield Agent
By: ______________________________________
Name:
Title:
106
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Metris Companies Inc.:
We consent to the use of our report incorporated by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KMPG LLP
October 8, 1999
<PAGE>
EXHIBIT 24.1
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Z. Jill Barclift and David
Wesselink and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign a Registration Statement on Form
S-4 with respect to an offer to exchange registered 10 1/8% Senior Notes for
unregistered 10 1/8% Senior Notes due 2006 of Metris Companies Inc., and any and
all amendments thereto, including a registration statement under Rule 462 and
post-effective amendments, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission and any necessary state securities commissions or other agencies,
each of said attorneys and agents to have the power to act with or without the
other, and granting unto said attorney-in-fact and agent, full power and
authority to do and perform to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or the substitutes for such attorney-in-fact and
agent, duly lawfully do or cause to be done by virtue hereof.
SIGNATURE DATE
--------- ----
By: /s/ Theodore Deikel Dated: August 31, 1999
----------------------------------------
Theodore Deikel
Chairman of the Board of Directors
By: /s/ Dudley C. Mecum Dated: August 31, 1999
----------------------------------------
Dudley C. Mecum
Director
By: /s/ Frank D. Trestman Dated: August 31, 1999
----------------------------------------
Frank D. Trestman
Director
By: /s/ Derek V. Smith Dated: August 31, 1999
----------------------------------------
Derek V. Smith
Director
By: /s/ Lee R. Anderson, Sr. Dated: August 31, 1999
----------------------------------------
Lee R. Anderson, Sr.
Director
<PAGE>
By: /s/ John A. Cleary Dated: August 31, 1999
----------------------------------------
John A. Cleary
Director
By: /s/ Thomas H. Lee Dated: August 31, 1999
----------------------------------------
Thomas H. Lee
Director
By: /s/ David V. Harkins Dated: August 31, 1999
----------------------------------------
David V. Harkins
Director
By: Dated:
----------------------------------------
C. Hunter Boll
Director
By: /s/ Thomas M. Hagerty Dated: August 31, 1999
----------------------------------------
Thomas M. Hagerty
Director
2
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------
METRIS COMPANIES INC.
(Exact name of obligor as specified in its charter)
Delaware 41-1849591
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
(Address of principal executive offices) (Zip code)
----------
METRIS DIRECT, INC.
(Exact name of obligor as specified in its charter)
Minnesota 41-1111974
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
(Address of principal executive offices) (Zip code)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks 2 Rector Street, New York,
of the State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 1st day of October, 1999.
THE BANK OF NEW YORK
By: /s/ MICHELE L. RUSSO
-----------------------------
Name: MICHELE L. RUSSO
Title: ASSISTANT TREASURER
-3-
<PAGE>
EXHIBIT 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,a member of the Federal Reserve
System, at the close of business June 30, 1999, published in accordance with a
call made by the Federal Reserve Bank of this District pursuant to the
provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS In Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.. $5,597,807
Interest-bearing balances........................... 4,075,775
Securities:
Held-to-maturity securities......................... 785,167
Available-for-sale securities....................... 4,159,891
Federal funds sold and Securities purchased under
agreements to resell................................ 2,476,963
Loans and lease financing receivables:
Loans and leases, net of unearned
income............................................ 38,028,772
LESS: Allowance for loan and
lease losses...................................... 568,617
LESS: Allocated transfer risk
reserve........................................... 16,352
Loans and leases, net of unearned income,
allowance, and reserve............................ 37,443,803
Trading Assets......................................... 1,563,671
Premises and fixed assets (including capitalized
leases)............................................. 683,587
Other real estate owned................................ 10,995
Investments in unconsolidated subsidiaries and
associated companies................................ 184,661
Customers' liability to this bank on acceptances
outstanding......................................... 812,015
Intangible assets...................................... 1,135,572
Other assets........................................... 5,607,019
-----------
Total assets........................................... $64,536,926
===========
LIABILITIES
Deposits:
In domestic offices................................. $26,488,980
Noninterest-bearing................................. 10,626,811
Interest-bearing.................................... 15,862,169
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 20,655,414
Noninterest-bearing................................. 156,471
Interest-bearing.................................... 20,498,943
Federal funds purchased and Securities sold under
agreements to repurchase............................ 3,729,439
Demand notes issued to the U.S.Treasury................ 257,860
Trading liabilities.................................... 1,987,450
Other borrowed money:
With remaining maturity of one year or less......... 496,235
With remaining maturity of more than one year
through three years............................... 465
With remaining maturity of more than three years.... 31,080
Bank's liability on acceptances executed and
outstanding......................................... 822,455
Subordinated notes and debentures...................... 1,308,000
Other liabilities...................................... 2,846,649
-----------
Total liabilities...................................... 58,624,027
-----------
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 815,314
Undivided profits and capital reserves................. 4,001,767
Net unrealized holding gains (losses) on
available-for-sale securities....................... (7,956)
Cumulative foreign currency translation adjustments.... (31,510)
-----------
Total equity capital................................... 5,912,899
-----------
Total liabilities and equity capital................... $64,536,926
===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni
Alan R. Griffith Directors
Gerald L. Hassell
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
METRIS COMPANIES, INC.
Offer for Outstanding
10 1/8% Senior Notes due 2006
Which Were Issued in a Private Offering
In Exchange For
10 1/8% Senior Notes due 2006
Which Have Been Registered Under the Securities Act of 1933
Pursuant to the Prospectus, dated October __, 1999
================================================================================
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON NOVEMBER __,
1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
================================================================================
The Exchange Agent for the Exchange Offer is The Bank of New York
By Registered or Certified Mail: Facsimile Transmissions:
(Eligible Institutions Only)
The Bank of New York
101 Barclay Street, 7E (212) 815-6339
New York, New York 10286
Attention: Gertrude Jean Pirre
By Hand or Overnight Delivery: Confirm by Telephone
or For Information Call:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window (212) 815-5920
Ground Level
New York, New York 10286
Attention: Gertrude Jean Pirre
----------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS
LETTER OF TRANSMITTAL.
<PAGE>
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated October __, 1999 (the "Prospectus"), of Metris Companies Inc.,
a Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange offer")
to exchange an aggregate principal amount of up to $150,000,000 of the Company's
10 1/8% Senior Notes due 2006 which have been registered under the Securities
Act of 1933, as amended (the "New Notes"), for a like principal amount of the
Company's issued and outstanding 10 1/8% Senior Notes due 2006 (the "Old Notes")
from the registered holders thereof (the "Holders").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from July 13, 1999. Accordingly, registered Holders of
New Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid or, if no interest has
been paid, from July 13, 1999. Old Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange offer.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of accrued interest on such Old Notes otherwise payable
on any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a holder of Old Notes either if (1)
certificates are to be forwarded herewith or (2) tenders are to be made by
book-entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter to the Exchange Agent on or prior to the
Expiration Date, must tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1. Delivery of documents
to the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
Tenders by book-entry transfer also may be made by delivering an Agent's
Message in lieu of this Letter. The term "Agent's Message" means a message
transmitted by the Book-Entry Transfer Facility and received by the Exchange
Agent and forming a part of a Book-Entry Confirmation, which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by this Letter and the Company may enforce this
Letter against such participant.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it acknowledges that it will
deliver a prospectus meeting the requirements of the Securities Act of 1933, as
amended, in connection with any resale of such New Notes; however, by so
acknowledging and by delivering such a prospectus the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933, as amended. If the undersigned is a broker-dealer that will receive
New Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired as a result of market-making activities or other trading
activities.
-2-
<PAGE>
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- -----------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) Aggregate
(Please fill in, if blank) Certificate Principal Amount Principal
Number(s)* of Old Note(s) Amount Tendered**
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total:
- -----------------------------------------------------------------------------------------------------------------
* Do not complete if Old Notes are being tendered by book-entry transfer.
- -----------------------------------------------------------------------------------------------------------------
** A Holder will be deemed to have tendered ALL Old Notes unless a lesser
amount is specified in this column. See Instruction 2. Old Notes tendered
hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof. See Instruction 1.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
Account Number ______________________ Transaction Code Number ____________
================================================================================
================================================================================
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)___________________________________________
Window Ticket Number (if any)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery________________________
Name of Institution Which Guaranteed Delivery_____________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number ______________________ Transaction Code Number ____________
================================================================================
================================================================================
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:_______________________________________________________________________
Address:____________________________________________________________________
================================================================================
-3-
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated on page 3. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among other
things, to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned hereby represents and warrants that the undersigned has full power
and authority to tender, sell, assign and transfer the Old Notes, and to acquire
New Notes issuable upon the exchange of such tendered Old Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that: (1) any New
Notes acquired in exchange for Old Notes tendered hereby will have been acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the undersigned, (2) neither the Holder of such
Old Notes nor any such other person is participating in, intends to participate
in or has an arrangement or understanding with any person to participate in the
distribution of such New Notes and (3) neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business, such Holders are not engaging in and do not intend to
engage in the distribution of such New Notes and such Holders have no
arrangement or understanding with any person to participate in the distribution
of such New Notes. However, the SEC has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the SEC would make a similar determination with respect to the Exchange Offer as
in other circumstances. If any Holder is an affiliate of the Company, or is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange offer, such Holder (i) could not rely on the applicable interpretations
of the staff of the SEC and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. If the undersigned is a broker-dealer that will receive New
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus meeting the requirements of the Securities Act, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
-4-
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
The undersigned, by completing the box entitled "Description of Old Notes"
on page 3 and signing this letter, will be deemed to have tendered the Old Notes
as set forth in such box on page 3.
-5-
<PAGE>
================================================================================
SPECIAL ISSUANCE INSTRUCTIONS (See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of someone other than the person or persons
whose signature(s) appear(s) on this Letter on page 7, or if Old Notes delivered
by book-entry transfer which are not accepted for exchange are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility other than
the account indicated above.
Issue: [ ] New Notes to:
[ ] Old Notes to:
Name(s)_________________________________________________________________________
(Please Type or Print)
_________________________________________________________________________
Address_________________________________________________________________________
_________________________________________________________________________
Tax Identification or
Social Security No._____________________________________________________________
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
________________________________________________________________________
(Book-Entry Transfer Facility Account Number, if applicable)
================================================================================
================================================================================
SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter or to such person or persons at an address
other than shown in the box entitled "Description of Old Notes" on this Letter.
Mail: [ ] New Notes to:
[ ] Old Notes to:
Name(s)________________________________________________________________________
________________________________________________________________________
(Please Type or Print)
Address________________________________________________________________________
________________________________________________________________________
================================================================================
-6-
<PAGE>
================================================================================
ALL TENDERING HOLDERS PLEASE SIGN HERE
(Complete Accompanying Substitute Form W-9 on next page)
x ____________________________________ __________________, 1999
x ____________________________________ __________________, 1999
Signature(s) of owner Date
Area Code and Telephone Number __________________________________
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) exactly as the name(s) appear(s) on the certificate(s) for
the Old Notes or on a security position listing or by any person(s) authorized
to become registered holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity, please
provide the following information.
Name(s): _________________________________________________________________
(Please Type or Print)
Capacity (full title):____________________________________________________
Address: _________________________________________________________________
_________________________________________________________________
Tax Identification or
Social Security No. _____________________________________________________
================================================================================
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:_________________________________________________
(Authorized Signature)
Title:___________________________________________________________________
Name and Firm:___________________________________________________________
Dated:_____________________ , 1999
================================================================================
IMPORTANT: This Letter (or a facsimile hereof), together with the certificates
for Old Notes or a Book-Entry Confirmation and all other required documents or
The Notice of Guaranteed Delivery, must be received by the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date.
-7-
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: THE BANK OF NEW YORK
SUBSTITUTE Payor's Request for
Taxpayer Identification
Form W-9 Number ("TIN") and
Certification
Department of the Treasury
Internal Revenue Service
- --------------------------------------------------------------------------------
Part 1
PLEASE PROVIDE YOUR TIN
IN THE BOX AT RIGHT AND CERTIFY TIN: _______________________________
BY SIGNING AND DATING BELOW. Social Security Number or
Employer Identification Number
- --------------------------------------------------------------------------------
Part 2
TIN Applied For [ ]
- --------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Tax Identification Number (or I
am waiting for a number to be issued to me);
(2) I am not subject to backup withholding either because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and correct.
SIGNATURE_______________________________________ DATE_____________________
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
================================================================================
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
================================================================================
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
________________________________________ __________________________
Signature Date
================================================================================
-8-
<PAGE>
SUBSTITUTE FORM W-8
CERTIFICATE OF FOREIGN STATUS
================================================================================
- --------------------------------------------------------------------------------
Name of Owner (If joint account, also give joint owner's name.)
- --------------------------------------------------------------------------------
Permanent address (Include apt. or suite no.)
(If you are an individual, provide the address of your permanent residence.
If you are a partnership or corporation, provide the address of your
principal office. If you are an estate or trust, provide the permanent
address or principal office of any fiduciary.)
- --------------------------------------------------------------------------------
City, province or state, postal code, and country
- --------------------------------------------------------------------------------
Current mailing address, if different from permanent address (Include apt.
or suite no., or P.O. box if mail is not delivered to street address.)
- --------------------------------------------------------------------------------
City, town or post office, state, and ZIP code (If foreign address, enter
city, province or state, postal code, and country.)
================================================================================
CERTIFICATION. -- Under penalties of perjury, I certify that I am an exempt
foreign person, for Backup Withholding purposes, under the U.S. Federal income
tax laws, because:
1. I am a nonresident alien individual or a foreign corporation, partnership,
estate or trust,
2. If an individual, I have not been, and do not plan to be, present in the
United States for a total of 183 days or more during the calendar year, and
3. I am neither engaged, nor plan to be engaged during the year, in a U.S.
trade or business that has effectively connected gains from transactions
with a broker or barter exchange.
- --------------------------------------------------------------------------------
Signature Date
================================================================================
-9-
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof), with any required signature guarantees, and any other
documents required by this Letter, must be received by the Exchange Agent at the
address set forth herein on or prior to the Expiration Date, or the tendering
holder must comply with the guaranteed delivery procedures set forth below. Old
Notes tendered hereby must be in denominations of principal amount of $1,000 and
any integral multiple thereof.
Holders who tender their Old Notes by delivering an Agent's Message do not
need to submit this Letter.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered stating that the tender
is being made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the Expiration Date, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
confirmation, as the case may be, and any other documents required by this
Letter will be deposited by the Eligible Institution with the Exchange Agent,
and (iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter, are received by the Exchange Agent within
three NYSE trading days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
In all cases, sufficient time should be allowed to ensure timely delivery.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to note holders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of non-tendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
-10-
<PAGE>
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever. If this Letter is signed
by a participant in DTC, the signature must correspond with the name as it
appears on the security position listing as the owner of the Old Notes.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) or bond
power must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company, must
submit proper evidence satisfactory to the Company of their authority to so act.
Endorsements on certificates for Old Notes or signatures on bond owners
required by this Instruction 3 must be guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution," including (as such terms are defined therein) (i) a bank, (ii)
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer, (iii) a credit union, (iv) a national securities exchange,
registered securities association or clearing agency, or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution
if the Old Notes are tendered: (i) by a registered holder of Old Notes (which
term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility whose name appears on a security position listing
as the holder of such Old Notes) who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on this Letter, or
(ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box on
page 6 the name and address to which New Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Old Notes not exchanged are to
be issued or sent, if different from the name or address of the person signing
this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Note holders tendering Old Notes by book-entry transfer may request
that Old Notes not exchanged be credited to such account maintained at the
Book-Entry Transfer Facility as such note holder may designate hereon. If no
such instructions are given, such Old Notes not exchanged will be returned to
the name and address of the person signing this Letter.
-11-
<PAGE>
5. Taxpayer Identification Number.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on the Substitute Form
W-9 on page 8, which in the case of a tendering holder who is an individual, is
his or her social security number. If the Company is not provided with the
current TIN or an adequate basis for an exemption from backup withholding, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, the Exchange Agent may be required to withhold 31% of the
amount of any reportable payments made after the exchange to such tendering
holder of New Notes. If withholding results in an overpayment of taxes, a refund
may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders, other than foreign individuals, should
furnish their TIN, write "Exempt" on the face of the Substitute Form W-9 and
sign, date and return the form to the Exchange Agent. See the enclosed
Guidelines of Certification of Taxpayer Identification Number on Substitute Form
W-9 (the "W-9 Guidelines") for additional instructions. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Exchange Agent a completed Form W-8,
Certificate of Foreign Status, a form of which is included on page 9.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 on page 8,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the Old Notes are in more than one name or are not in the name
of the actual owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN Note. Checking this box and writing "applied for" on the form
means that such holder has already applied for a TIN or that such holder intends
to apply for one in the near future. If the box in Part 2 of the Substitute Form
W-9 is checked, the Exchange Agent will retain 31% of reportable payments made
to a holder during the 60-day period following the date of the Substitute Form
W-9. If the holder furnishes the Exchange Agent with his or her TIN within 60
days of the Substitute Form W-9, the Exchange Agent will remit such amounts
retained during such 60-day period to such holder and no further amounts will be
retained or withheld from payments made to the holder thereafter. If, however,
such holder does not provide its TIN to the Exchange Agent within such 60-day
period, the Exchange Agent will remit such previously withheld amounts to the
Internal Revenue Service as backup withholding and will withhold 31% of all
reportable payments to the holder thereafter until such holder furnishes its TIN
to the Exchange Agent.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or it tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
-12-
<PAGE>
7. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
8. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose certificate(s) representing Old Notes have been mutilated,
lost, stolen or destroyed should contact the Exchange Agent at the address
indicated above for further instructions. This Letter and related documents
cannot be processed until the procedures for replacing mutilated, lost, stolen
or destroyed certificates have been followed.
9. Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal of a tender of Old
Notes to be effective, a written notice of withdrawal must be received by the
Exchange Agent at the address on page 1 prior to 5:00 P.M., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the name
of the person having tendered the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including certificate number or
numbers and the principal amount of such Old Notes), (iii) contain a statement
that such holder is withdrawing his election to have such Old Notes exchanged,
(iv) be signed by the holder in the same manner as the original signature on the
Letter by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes in the name of
the person withdrawing the tender and (v) specify the name in which such Old
Notes are registered, if different from that of the Depositor. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer set forth in
"The Exchange Offer--Book-Entry Transfer" section of the Prospectus, any notice
of withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Old Notes and otherwise
comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Old Notes so withdrawn are validly retendered. Any Old Notes that have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus, such Old Notes will be credited to an account maintained with the
Book-Entry Transfer Facility for the Old Note) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 P.M., New York City time, on the
Expiration Date.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus, this Letter, the Notice of Guaranteed
Delivery and other related documents may be directed to the Exchange Agent, at
the address and telephone number indicated on page 1.
-13-
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
10 1/8% SENIOR NOTES DUE 2006
OF
METRIS COMPANIES INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Metris Companies Inc. (the "Company") made pursuant to the
Prospectus, dated ___________________, 1999 (the Prospectus"), if certificates
for the outstanding 10 1/8% Senior Notes due 2006 of the Company (the "Old
Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach The Bank of New York, as exchange agent (the
"Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration Date
of the Exchange Offer. Such form may be delivered or transmitted by facsimile
transmission, overnight courier, mail or hand delivery to the Exchange Agent as
set forth below. In addition, in order to utilize the guaranteed delivery
procedure to tender Old Notes pursuant to the Exchange Offer, a completed,
signed and dated Letter of Transmittal (or facsimile thereof) must also be
received by the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date. Capitalized terms not defined herein are defined in the
Prospectus.
The Exchange Agent for the Exchange Offer is The Bank of New York
By Registered or Certified Mail: Facsimile Transmissions:
(Eligible Institutions Only)
The Bank of New York
101 Barclay Street, 7E (212) 815-6339
New York, New York 10286
Attention: Gertrude Jean Pirre
By Hand or Overnight Delivery: To Confirm by Telephone
or For Information Call:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window (212) 815-5920
Ground Level
New York, New York 10286
Attention: Gertrude Jean Pirre
----------
Delivery of this notice to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, the signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions set forth in the Prospectus
and the accompanying Letter of Transmittal, the undersigned hereby tenders to
the Company the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
- ------------------------------------- -------------------------------------
Total Principal Amount of Old Notes If Old Notes will be delivered by
Tendered:* book-entry transfer to The Depository
Trust Company, provide account number.
$_________________________________
Certificate Nos. (if available):
_________________________________ Account Number ______________________
- ------------------------------------- -------------------------------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
X____________________________________________ _________________________
X____________________________________________ _________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:___________________
Must be signed by the registered holder(s) of Old Notes as their name(s)
appear(s) on certificates for Old Notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, please provide the
following information.
Please print name(s) and address(es)
Name(s): ____________________________________________________________
____________________________________________________________
Capacity: ____________________________________________________________
Address(es): ____________________________________________________________
____________________________________________________________
____________________________________________________________
Telephone Number: ____________________________________________________________
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
Exchange Act as an "eligible guarantor institution" including (as such terms are
defined therein) (i) a bank, (ii) broker, dealer, municipal securities broker or
dealer or government securities broker or dealer, (iii) a credit union, (iv) a
national securities exchange, registered securities association or clearing
agency, or (v) a savings association that is a participant in a Securities
Transfer Association (an "Eligible Institution"), hereby guarantees that the
certificates representing the principal amount of Old Notes tendered hereby in
proper form for transfer, or timely confirmation of the book-entry transfer of
such Old Notes into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedures set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus, together with any required signature
guarantee and any other documents required by the Letter of Transmittal, will be
received by the Exchange Agent at the address set forth above, no later than
three New York Stock Exchange trading days after the Expiration Date.
__________________________________ __________________________________
Name of Firm Authorized Signature
__________________________________ __________________________________
Address Title
__________________________________ Name:_____________________________
Zip Code (Please Type or Print)
__________________________________ Dated:____________________________
Telephone Number
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
METRIS COMPANIES INC.
Instruction to Registered Holder and/or Depository
Trust Company Participant from Beneficial Owner
for
Offer to Exchange
10 1/8% Senior Notes due 2006
which have been registered under the Securities Act
for any and all outstanding
10 1/8% Senior Notes due 2006
which were issued in a private offering
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999,
UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
To Registered Holder and/or Depository Trust Company Participant:
The undersigned hereby acknowledges receipt of the Prospectus dated
__________________________, 1999 (the "Prospectus") of Metris Companies Inc., a
Delaware corporation (the "Company"), and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its 10 1/8% Senior Notes due 2006 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for all of its outstanding 10 1/8% Senior Notes due 2006
(the "Old Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or Depository Trust
Company Participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate principal amount of Old Notes held by you for the account of
the undersigned is (Fill in amount):
$_________________________ of the 10 1/8% Senior Notes due 2006.
With respect to the Exchange Offer, the undersigned hereby instructs you
(Check appropriate box):
[ ] To TENDER the following Old Notes held by you for the account
of the undersigned (Insert principal amount of Old Notes to be
tendered, if less than all):
$______________________
[ ] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender Old Notes held by you for the
account of the undersigned, it is understood that you are authorized to make, on
behalf of the undersigned (and the undersigned, by its signature below, hereby
makes to you), the representations and warranties contained in the Letter of
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations, that (i) any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving such New Notes, (ii)
neither the Holder of such Old Notes nor any such other person is participating
in, intends to participate in or has any arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of New Notes and (iii) neither the Holder of such Old Notes nor any such
other person is an "affiliate" of the Company.
<PAGE>
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for New Notes were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
- --------------------------------------------------------------------------------
SIGN HERE
Name of beneficial owner(s)___________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Signature(s)__________________________________________________________________
______________________________________________________________________________
Name(s) (please print)________________________________________________________
______________________________________________________________________________
Address_______________________________________________________________________
Telephone Numbers_____________________________________________________________
Taxpayer Identification or Social Security No.________________________________
Date__________________________________________________________________________
2
<PAGE>
EXHIBIT 99.4
___________, 1999
EXCHANGE AGENT AGREEMENT
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Ladies and Gentlemen:
Metris Companies Inc., a Delaware corporation (the "Company") proposes to
make an offer (the "Exchange Offer") to exchange all of its outstanding 10 1/8%
Senior Notes due 2006 (the "Old Notes") for its 10 1/8% Senior Notes due 2006
which have been registered under the Securities Act of 1933, as amended (the
"New Notes"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated ___________ (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Notes. The Old Notes and the New Notes are collectively referred to herein as
the "Notes."
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or about
_____________. The Letter of Transmittal accompanying the Prospectus (or in the
case of book-entry Notes, the Automated Tender Offer Program ("ATOP") of the
Book-Entry Transfer Facility (as defined below)) is to be used by the holders of
the Old Notes to accept the Exchange Offer and contains instructions with
respect to the delivery of certificates for Old Notes tendered in connection
therewith.
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
_________ or on such subsequent date or time to which the Company may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set
forth in the Prospectus, the Company expressly reserves the right to extend the
Exchange Offer from time to time and may extend the Exchange Offer by giving
oral (promptly confirmed in writing) or written notice to you before 9:00 a.m.,
New York City time, on the business day following the previously scheduled
Expiration Date.
The Company expressly reserves the right to amend or terminate the Exchange
<PAGE>
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified in the Prospectus under the caption "The Exchange Offer --
Conditions." The Company will give oral (promptly confirmed in writing) or
written notice of any amendment, termination or nonacceptance to you as promptly
as practicable.
In carrying out your duties as Exchange Agent, you are to act
in accordance with the following instructions:
1. You will perform such duties and only such duties as are specifically set
forth in the section of the Prospectus captioned "The Exchange Offer," the
Letter of Transmittal and herein; provided, however, that in no way will
your general duty to act in good faith be discharged by the foregoing.
2. You will establish a book-entry account with respect to the Old Notes at
The Depository Trust Company (the "Book-Entry Transfer Facility") for
purposes of the Exchange Offer within two business days after the date of
the Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of the
Old Notes by causing the Book-Entry Transfer Facility to transfer such Old
Notes into your account in accordance with the Book-Entry Transfer
Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and certificates for
Old Notes (or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility) and any other documents delivered or mailed
to you by or for holders of the Old Notes to ascertain whether: (i) the
Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein; and
(ii) the Old Notes have otherwise been properly tendered. In each case
where the Letter of Transmittal or any other document has been improperly
completed or executed or any of the certificates for Old Notes are not in
proper form for transfer or some other irregularity in connection with the
acceptance of the Exchange Offer exists, you will endeavor to inform the
presenters of the need for fulfillment of all requirements and to take any
other action as may be reasonably necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of the President, Senior Vice President, Executive Vice
President, or any Vice President of the Company (such approval, if given
orally, to be promptly confirmed in writing) or any other party designated
in writing by such an officer, you are authorized to waive any
irregularities in connection with any tender of Old Notes pursuant to the
Exchange Offer.
-2-
<PAGE>
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange
Offer", and Old Notes shall be considered properly tendered to you only
when tendered in accordance with the procedures set forth therein.
Notwithstanding the provisions of this Section 5, Old Notes which the
President, Senior Vice President, Executive Vice President, or any Vice
President of the Company shall approve as having been properly tendered
shall be considered to be properly tendered (such approval, if given
orally, shall be promptly confirmed in writing).
6. You shall advise the Company as soon as possible with respect to any Old
Notes received after the Expiration Date and accept its instructions with
respect to disposition of such Old Notes.
7. You shall accept tenders:
a. in cases where the Old Notes are registered in two or more names only
if signed by all named holders;
b. in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is
submitted; and
c. from persons other than the registered holder of Old Notes, provided
that customary transfer requirements, including payment of any
applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old Notes to
the registrar for split-up and return any untendered Old Notes to the holder (or
such other person as may be designated in the Letter of Transmittal) as promptly
as practicable after expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will notify you (such notice, if given orally, to be promptly
confirmed in writing) of its acceptance, promptly after the Expiration
Date, of all Old Notes properly tendered and you, on behalf of the Company,
will exchange such Old Notes for New Notes and cause such Old Notes to be
cancelled. Delivery of New Notes
-3-
<PAGE>
will be made on behalf of the Company by you at the rate of $1,000
principal amount of New Notes for each $1,000 principal amount of the
corresponding series of Old Notes tendered promptly after notice (such
notice if given orally, to be promptly confirmed in writing) of acceptance
of said Old Notes by the Company; provided, however, that in all cases, Old
Notes tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by you of certificates for such Old Notes (or confirmation
of book-entry transfer into your account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantees
and any other required documents. You shall issue New Notes only in
denominations of $1,000 or any integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, Old Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Notes tendered if any
of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Old Notes tendered shall be
given (if given orally, to be promptly confirmed in writing) by the Company
to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus
under the caption "The Exchange Offer -- Conditions" or otherwise, you
shall as soon as practicable after the expiration or termination of the
Exchange Offer return those certificates for unaccepted Old Notes (or
effect appropriate book-entry transfer), together with any related required
documents and the Letters of Transmittal relating thereto that are in your
possession, to the persons who deposited them.
12. All certificates for reissued Old Notes, unaccepted Old Notes or for New
Notes shall be forwarded by (a) first-class mail, postage prepaid under a
surety bond protecting you and the Company from loss or liability arising
out of the nonreceipt or nondelivery of such certificates or (b) by
registered mail insured separately for the replacement value of each of
such certificates.
13. You are not authorized to pay or offer to pay any concessions, commissions
or solicitation fees to any broker, dealer, bank or other persons or to
engage or utilize any person to solicit tenders.
-4-
<PAGE>
14. As Exchange Agent hereunder you:
a. shall not be liable for any action or omission to act unless the same
constitutes your own gross negligence, willful misconduct or bad
faith, and in no event shall you be liable to a securityholder, the
Company or any third party for special, indirect or consequential
damages, or lost profits, arising in connection with this Agreement.
b. shall have no duties or obligations other than those specifically set
forth in the Prospectus, the Letter of Transmittal and herein or as
may be subsequently agreed to in writing between you and the Company;
c. will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness
of any of the certificates or the Old Notes represented thereby
deposited with you pursuant to the Exchange Offer, and will not be
required to and will make no representation as to the validity, value
or genuineness of the Exchange Offer;
d. shall not be obligated to take any legal action hereunder which might
in your judgment involve any expense or liability, unless you shall
have been furnished with reasonable indemnity satisfactory to you;
e. may rely on and shall be protected in acting in reliance upon any
certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and reasonably believed by you
to be genuine and to have been signed or presented by the proper
person or persons;
f. may act upon any tender, statement, request, document, agreement,
certificate or other instrument whatsoever not only as to its due
execution and validity and effectiveness of its provisions, but also
as to the truth and accuracy of any information contained therein,
which you shall in good faith reasonably believe to be genuine or to
have been signed or presented by the proper person or persons;
g. may rely on and shall be protected in acting upon written or oral
instructions from any authorized officer of the Company;
-5-
<PAGE>
h. may consult with counsel of your selection with respect to any
questions relating to your duties and responsibilities and the advice
or opinion of such counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted to
be taken by you hereunder in good faith and in accordance with the
advice or opinion of such counsel; and
i. shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the
market value or decline or appreciation in market value of any Old
Notes.
15. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may deem appropriate)
to furnish copies of the Prospectus, Letter of Transmittal and the Notice
of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons
requesting such documents and to accept and comply with telephone requests
for information relating to the Exchange Offer, provided that such
information shall relate only to the procedures for accepting (or
withdrawing from) the Exchange Offer. The Company will furnish you with
copies of such documents on your request. All other requests for
information relating to the Exchange Offer shall be directed to the
Company, Attention: ____________________.
16. You shall advise by facsimile transmission, and promptly thereafter confirm
in writing, to ______ of the Company, Kathleen Prudhomme, Esq. of Dorsey &
Whitney, counsel for the Company, and such other person or persons as the
Company may request, daily (and more frequently during the week immediately
preceding the Expiration Date if requested) up to and including the
Expiration Date, as to the number of Old Notes which have been tendered
pursuant to the Exchange Offer and the items received by you pursuant to
this Agreement, separately reporting and giving cumulative totals as to
items properly received and items improperly received. In addition, you
will also inform, and cooperate in making available to, the Company or any
such other person or persons upon oral request made from time to time prior
to the Expiration Date of such other information as they may reasonably
request. Such cooperation shall include, without limitation, the granting
by you to the Company and such person as the Company may request of access
to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the
Company shall have received information in sufficient detail to enable it
to decide whether to extend the Exchange Offer. You shall prepare a final
list of all persons whose tenders were accepted, the aggregate principal
amount of Old Notes tendered, the aggregate principal amount of Old Notes
accepted and deliver said list to the Company.
-6-
<PAGE>
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped
by you as to the date and, after the expiration of the Exchange Offer, the
time, of receipt thereof and shall be preserved by you for a period of time
at least equal to the period of time you preserve other records pertaining
to the transfer of Notes. You shall dispose of unused Letters of
Transmittal and other surplus materials by returning them to the Company.
18. For services rendered as Exchange Agent hereunder, you shall be entitled to
such compensation as set forth on Schedule I attached hereto. The
provisions of this section shall survive the termination of this Agreement.
19. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal. Any inconsistency between this Agreement, on the one hand, and
the Prospectus and the Letter of Transmittal (as they may be amended from
time to time), on the other hand, shall be resolved in favor of the latter
two documents, except with respect to your duties, liabilities and
indemnification as Exchange Agent which shall be controlled by this
Agreement.
20. The Company covenants and agrees to fully indemnify and hold you harmless
against any and all loss, liability, cost or expense, including reasonable
attorneys' fees and expenses, incurred without gross negligence, bad faith
or willful misconduct on your part, arising out of or in connection with
any act, omission, delay or refusal made by you in reliance upon any
signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document believed by you in good faith
to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of Old Notes believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders
or effect any transfer of Old Notes. In each case, the Company shall be
notified by you, by letter or facsimile transmission confirmed by letter,
of the written assertion of a claim against you or of any other action
commenced against you, promptly after you shall have received any such
written assertion or shall have been served with a summons in connection
therewith. The Company shall be entitled to participate at its own expense
in the defense of any such claim or other action and, if the Company so
elects, the Company
-7-
<PAGE>
shall assume the defense of any suit brought to enforce any such claim. In
the event that the Company shall assume the defense of any such suit, the
Company shall not be liable for the fees and expenses of any additional
counsel thereafter retained by you, so long as the Company shall retain
counsel reasonably satisfactory to you to defend such suit, and so long as
you have not determined, in your reasonable judgment, that representation
of both you and the Company in such suit by the same legal counsel would
result in a conflict of interest between you and the Company. The
provisions of this section shall survive the termination of this Agreement.
21. You shall arrange to comply with all requirements under the tax laws of the
United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate reports with the Internal Revenue
Service.
22. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect
of the exchange of Old Notes, your check in the amount of all transfer
taxes so payable, and the Company shall reimburse you for the amount of all
transfer taxes payable; provided, however, that you shall reimburse the
Company for amounts refunded to you in respect of your payment of any such
transfer taxes, at such time as such refund is received by you.
23. This Agreement and your appointment as Exchange Agent hereunder shall be
construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure
to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
24. This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
25. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
26. This Agreement shall not be deemed or construed to be modified, amended,
rescinded, cancelled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
-8-
<PAGE>
27. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed
to it, at its address or telecopy number set forth below:
If to the Company:
Metris Companies Inc.
600 S. Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
Facsimile: (612) 593-4733
Attention: __________________
With a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile: (612) 340-8738
Attention: Kathleen Prudhomme
If to the Exchange Agent:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
28. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Sections 18, 19 and 21 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly
deliver to the Company any certificates for Notes, funds or property then
held by you as Exchange Agent under this Agreement.
29. This Agreement shall be binding and effective as of the date hereof.
-9-
<PAGE>
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
METRIS COMPANIES INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:
----------------------------------
Name:
Title:
-10-
<PAGE>
SCHEDULE I
COMPENSATION OF EXCHANGE AGENT:
[$5,000] PLUS $500 PER EXTENSION OF OFFER
PLUS REIMBURSEMENT OF REASONABLE OUT-OF POCKET EXPENSES,
INCLUDING WITHOUT LIMITATION,
LEGAL FEES AND EXPENSES.
-11-
<PAGE>
EXHIBIT 99.5
METRIS COMPANIES INC.
Offer to Exchange
10 1/8% Senior Notes due 2006
Which Have Been Registered Under the Securities Act of 1933
for Any and All Outstanding
10 1/8% Senior Notes due 2006
Which Were Issued in a Private Offering
To Our Clients:
Enclosed for your consideration is a Prospectus, dated October ___, 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal", relating to the offer (the "Exchange Offer") of Metris Companies,
Inc. (the "Company") to exchange its 10 1/8% Senior Notes due 2006, which have
been registered under the Securities Act of 1933, as amended (the "New Notes"),
for its outstanding 10 1/8% Senior Notes due 2006 (the "Old Notes"), upon the
terms and subject to the conditions described in the Prospectus and the Letter
of Transmittal. The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreement dated July 13, 1999, by and among the Company, the subsidiary
guarantors referred to therein and the initial purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange offer. The Exchange Offer will expire at 5:00 p.m.
New York City time, on November ___, 1999, unless extended by the Company. Any
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
If you wish to have us tender your Old Notes, please instruct us by
completing, executing and returning to us the instruction form enclosed with
this letter. The Letter of Transmittal is furnished to you for information only
and may not be used directly by you to tender Old Notes.
If we do not receive written instructions in accordance with the procedures
presented in the Prospectus and the Letter of Transmittal, we will not tender
any of the outstanding Old Notes on your account.
