<PAGE>
As filed with the Securities and Exchange Commission on June 30, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
___________
Metris Companies Inc.
(Exact name of the Registrant 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, MN 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
600 South Highway 169
Suite 1800
St. Louis Park, MN 55426
(612) 525-5020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
___________
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective, as
determined by market conditions.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<PAGE>
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
___________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered Per Unit Offering Price Fee
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<S> <C> <C> <C> <C>
Series C Perpetual Convertible Preferred
Stock, $.01 par value 1,501,647 shares (1) $693.20 (2) $1,040,941,700 $ 289,382
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Common Stock, $.01 par value 30,225,190 shares (3)(4) $ 34.66 (5) $6,663,385 (5) $1,852 (5)
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Series D Junior Participating Convertible
Preferred Stock $.01 par value 100,000 shares (6) (7) (7) (7)
====================================================================================================================================
</TABLE>
(1) Includes additional shares of Series C Perpetual Convertible Preferred
Stock that may be issued from time to time as dividends on the Series C
Perpetual Convertible Preferred Stock.
(2) The Series C Perpetual Convertible Preferred Stock is convertible into
Common Stock at a conversion rate of 20-to-one, as adjusted in certain
circumstances. Accordingly, the proposed maximum offering price is
estimated solely for the purpose of calculating the registration fee and,
pursuant to Rule 457(c) under the Securities Act, based upon the average
high and low sale prices of the Common Stock as quoted on the New York
Stock Exchange on June 24, 1999.
(3) Includes: (a) 192,250 shares of Common Stock to be issued to Mr. Rakesh
Kaul upon exercise of an option; (b) 30,032,940 shares of Common Stock
which represents the Company's good-faith estimate of the number of shares
of Common Stock that may be issued upon conversion of the Series C
Perpetual Convertible Preferred Stock and the Series D Junior Participating
Convertible Preferred Stock registered hereunder; (c) pursuant to Rule 416
under the Securities Act, additional shares of Common Stock that may be
issued as a result of the "anti-dilution" provisions of the Series C
Perpetual Convertible Preferred Stock; and (d) pursuant to Rule 416 under
the Securities Act, shares of Common Stock that may become issuable due to
adjustments for changes resulting from a stock split, stock dividend or
other similar event.
(4) Reflects a two-for-one stock split of the Common Stock effected by the
Company on June 15, 1999.
(5) Estimated solely for the purpose of the registration fee and, pursuant to
Rule 457(c) under the Securities Act, based upon the average of the high
and low sale prices of the Common Stock as quoted on the New York Stock
Exchange on June 24, 1999. Pursuant to Rule 457(i) under the Securities
Act, this amount does not include any registration fee in respect of the
Common Stock issuable by the Company pursuant to (b), (c) or (d) of (3)
above, as the Registrant will not receive any separate consideration in
respect of such Common Stock.
(6) Represents the Company's good-faith estimate of the number of shares of
Series D Junior Participating Convertible Preferred Stock that may be
issued upon conversion of the Series C Perpetual Convertible Preferred
Stock and pursuant to Rule 416 under the Securities Act, includes
additional shares of Series D Junior Participating Convertible Preferred
Stock that may be issued as a result of the "anti-dilution" provisions of
the Series C Perpetual Convertible Preferred Stock and Series D Junior
Participating Convertible Preferred Stock.
(7) Pursuant to Rule 457(i), no registration fee is required, as the Registrant
will not receive any separate consideration in respect of the Series D
Junior Participating Convertible Preferred Stock.
___________
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 this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. Metris
Companies Inc. has filed a registration statement relating to these securities
with the Securities and Exchange Commission. We may not sell or accept offers to
buy these securities before the registration statement becomes effective. This
prospectus is not an offer to sell and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted. Any sale
of these securities must be accompanied by a supplement to this prospectus.
SUBJECT TO COMPLETION, DATED JUNE 30, 1999
PROSPECTUS
METRIS COMPANIES INC.
Series C Perpetual Convertible Preferred Stock, Common Stock and
Series D Junior Participating Convertible Preferred Stock
This prospectus relates to shares of Series C Perpetual Convertible
Preferred Stock, Common Stock and Series D Junior Participating Convertible
Preferred Stock of Metris Companies Inc., a Delaware corporation, that may be
offered for sale from time to time by the selling stockholders. We will refer to
the Series C Preferred Stock, Common Stock and the Series D Preferred Stock as
the "Securities."
The following summarizes the terms of the Series C Preferred Stock:
Dividends
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. We will pay dividends at an annual rate of 9%, payable quarterly in
additional shares of Series C Preferred Stock.
. We will pay dividends at an annual rate of 15% after December 9, 2008.
. Dividend rate increases and becomes payable in cash in some events
following a change of control.
. Holders are also entitled to any dividends or distributions paid on the
Common Stock.
Voting Rights
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. Holders have the right to vote on all matters voted on by holders of
Common Stock on an as-converted basis, except the election of directors.
. Holders have the right to elect four directors as a class.
Redemption
- ----------
. Prior to December 9, 2008, we may redeem the Series C Preferred Stock only
in limited circumstances.
. After December 9, 2008, we may redeem the Series C Preferred Stock at any
time.
Conversion
- ----------
. Holders may convert into Common Stock or, if applicable, Series D
Preferred Stock at any time.
. Series C Preferred Stock automatically converts in some circumstances
after December 9, 2005.
. For each share of Series C Preferred Stock, the holder receives shares of
Common Stock worth $372.50 + accrued dividends + premium amount designed
to guarantee seven years' worth of dividends at the 9% annual rate.
. The premium amount is reduced in some circumstances if conversion occurs
prior to January 1, 2004.
The Series D Preferred Stock will be issued in lieu of Common Stock upon
conversion of the Series C Preferred Stock in the event that the issuance of
Common Stock would cause a Triggering Event, as described herein. Holders of the
Series D Preferred Stock will receive the same dividends and distributions paid
to holders of Common Stock, unless the distribution includes a voting security,
in which case the holders of the Series D Preferred Stock will receive a
substantially equivalent security without voting rights. The Series D Preferred
Stock will automatically convert into Common Stock at the time such conversion
will not cause a Triggering Event.
The Common Stock is listed on the New York Stock Exchange under the symbol
"MXT." On June 29, 1999, the last reported sale price of the Common Stock on the
New York Stock Exchange was $36.63 per share.
We originally issued the Securities in transactions exempt from
registration under the Securities Act of 1933. We will not receive any of the
proceeds from the sale of any Securities offered hereby.
Investing in the Securities involves some risks. See "Risk Factors" on page 3 of
this prospectus.
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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.
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The date of this Prospectus is , 1999
<PAGE>
About this Prospectus
This prospectus is part of a registration statement that we have filed
with the SEC using a "shelf" registration process. Under this shelf registration
process, the selling stockholders may, from time to time, sell the Series C
Preferred Stock, Common Stock and Series D Preferred Stock in one or more
offerings. This prospectus provides you with a general description of the
Securities. Each time any of the selling stockholders sells Securities, to the
extent required by law, we will provide you with a prospectus supplement that
will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information in this
prospectus. Please carefully read both this prospectus and any applicable
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities in any jurisdiction where it is unlawful to do so. You should
not assume that the information contained in this prospectus is accurate as of
any date other than its date, and neither the delivery of this prospectus nor
the sale of securities hereunder shall create any implication to the contrary.
In this prospectus, the "Company," "we," "us" and "our" refer to Metris
Companies Inc., a Delaware corporation, and our subsidiaries. Unless the context
otherwise requires or as otherwise expressly stated, all numbers in this
prospectus reflect the two-for-one stock split of Common Stock which we effected
on June 15, 1999.
Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary
Statement
This prospectus and the documents incorporated by reference herein contain
certain forward-looking statements and information relating to the Company that
are based on the beliefs of management, as well as assumptions made by, and
information currently available to, management. These forward-looking statements
involve risks and uncertainties that could cause our actual results to differ
materially from such statements. You should not place undue reliance on these
forward-looking statements, as they speak only of our views as of the date the
statement was made and are not a guarantee of future performance.
Forward-looking statements include statements and information as to our
strategies and objectives, growth in earnings per share, return on equity,
growth in our managed loan portfolio, net interest margins, funding costs,
operating costs and marketing expenses, delinquencies and charge-offs and
industry comparisons or projections. Forward-looking statements may be
identified by the use of terminology such as "may," "will," "believes," "does
not believe," "no reason to believe," "expects," "plans," "intends,"
"estimates," "anticipated" or "anticipates" and similar expressions, as they
relate to the Company or our management. These statements reflect management's
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions.
The factors discussed under "Risk Factors" on page 3 of this prospectus,
among others, could cause our actual results to differ materially from those
expressed in any forward-looking statements. Though we have attempted to list
comprehensively these important factors, we caution you that other factors may
prove in the future to be important in affecting our results of operations. New
factors emerge from time to time and it is not possible for us to predict all of
such factors, nor can we assess the impact of each such factor on the business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statement.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Securities Exchange Act of 1934 (the "Exchange Act") requires us to
file reports, proxy statements and other information with the SEC. You may
inspect and copy our reports, proxy statements and other information at the
public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of this material at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549. For more information about these public reference facilities, call
the SEC at 1-800-SEC-0330. In addition, you may access our reports, proxy
statements and other information electronically by means of the SEC's Web site
at http://www.sec.gov. The Common Stock is listed on the New York Stock
Exchange, and you may also inspect copies of any documents filed with the SEC at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, NY
10005.
We have filed a Registration Statement related to the offering described
in this prospectus. As allowed by SEC rules, this prospectus does not contain
all of the information which you can find in the Registration Statement. For
further information pertaining to the Company and the Securities, you are
referred to the Registration Statement and its exhibits, which you may inspect
or obtain as indicated above. This prospectus is qualified in its entirety by
such other information.
The Exchange Act allows us to "incorporate by reference" information into
this prospectus, which means that we can disclose important information to you
by referring you to another document filed separately with the SEC. This
prospectus incorporates by reference the following documents that we have
previously filed with the SEC:
1. our Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
2. our Quarterly Report on Form 10-Q for the period ended March 31,
1999;
3. our Current Report on Form 8-K dated June 22, 1999;
4. our Definitive Proxy Statement for the Special Meeting of
Stockholders held on March 12, 1999, filed with the SEC on February
1, 1999;
5. our Definitive Proxy Statement for the Annual Meeting of Stockholders
held on May 11, 1999, filed with the SEC on March 30, 1999; and
6. the description of our Common Stock which is contained in our
Registration Statement filed with the SEC under Section 12 of the
Exchange Act, including any subsequent amendment or any report filed
for the purpose of updating such description.
This prospectus also incorporates by reference additional documents we may
file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between
the date of this prospectus and the date the offering of the Securities is
completed.
You may obtain copies of the documents which are incorporated by reference
in this prospectus (other than exhibits to such documents which are not
specifically incorporated by reference in such documents), without charge, upon
written or oral request to Metris Companies Inc., 600 South Highway 169, Suite
1800, St. Louis Park, Minnesota 55426, Attention: Investor Relations (telephone
number (612) 593-4820).
2
<PAGE>
THE COMPANY
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 Credit Card Bank, National Association ("Direct Merchants
Bank"). Our customers and prospects include individuals for whom credit bureau
information is available and customers of a former affiliate, Fingerhut
Corporation ("Fingerhut"), from the Fingerhut database. We market our fee-based
services, including debt waiver programs, membership clubs and extended service
plans, as well as third-party insurance, to our credit card customers and
customers of third parties.
Our principal executive offices are located at 600 South Highway 169,
Suite 1800, St. Louis Park, Minnesota 55426, and our telephone number is (612)
525-5020. Our Web site is located at http://www.metriscompanies.com.
RISK FACTORS
You should carefully consider the following risk factors, in addition to
other information contained or incorporated by reference in this prospectus,
before investing in the Securities being offered hereby.
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, accounting and tax environment for these
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 this 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 of 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. For example, the
acquisition of a credit card portfolio from GE Capital is being funded in part
by the proceeds of deposits received to date. To maintain our current level of
access to the jumbo certificate of deposit market, Direct Merchants Bank must
maintain a "well capitalized" rating. 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.
3
<PAGE>
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 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 not be able 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 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 March 31, 1999, 72% 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 March 31, 1999, 8.3% 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 quarter ended March 31, 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.
4
<PAGE>
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 continue
to incur higher borrowing expense 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 such 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.
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 not be able 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.
5
<PAGE>
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 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.
6
<PAGE>
Changes in the Relationship With FCI Could Materially Impact Our Business
Upon a Change of Control of the 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 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 March 31, 1999, Fingerhut customers in the Fingerhut
database represented 36% 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 the 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.
Recent Acquisition of Fingerhut Could Negatively Impact 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 impact 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 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 begun testing such 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 March 31, 1999, the project is on schedule.
The project team has developed high-level 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 are 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.
7
<PAGE>
Our Stock Price May Be Volatile
Factors such as actual or anticipated fluctuations in our operating
results, regulatory developments, conditions and trends in the consumer credit
industry, general market conditions and other factors beyond our control may
significantly affect the market price of our Common Stock. In addition, the
market has, from time to time, experienced significant price and volume
fluctuations that often have been unrelated to the operating performance of
particular companies. These broad fluctuations may also adversely affect the
market price of our Common Stock.
Lack of a Public Market for the Series C Preferred Stock and the Series D
Preferred Stock May Affect Your Ability to Resell Those Securities
There is no established trading market for the Series C Preferred Stock or
the Series D Preferred Stock, and we cannot assure you that a trading market for
the Series C Preferred Stock or the Series D Preferred Stock will develop.
Moreover, if a market for the Series C Preferred Stock or the Series D Preferred
Stock does develop, the Series C Preferred Stock or the Series D Preferred Stock
could trade below the price at which the selling stockholders are offering their
shares. If a market for the Series C Preferred Stock or the Series D Preferred
Stock does not develop, purchasers may be unable to resell the Series C
Preferred Stock or the Series D Preferred Stock for an extended period of time,
or at all. Future trading process of the Series C Preferred Stock or the Series
D Preferred Stock will depend upon many factors, including our consolidated
operating results and the market for the Common Stock. The market for the Common
Stock is subject to various pressures, including the issuance of additional
preferred stock, Common Stock or securities convertible or exchangeable into
Common Stock.
Our Anti-Takeover Provisions Could Negatively Impact the Value of Your
Securities
Our Amended and Restated Certificate of Incorporation, as amended (the
"Certificate") and Amended and Restated By-Laws, as amended (the "By-Laws")
contain restrictions that may discourage other persons from attempting to
acquire control of the Company. These restrictions include, without limitation,
a Board of Directors that has staggered terms for some of its members, specified
notice and supermajority voting provisions and "fair price" provisions. Only a
majority of our Board of Directors may call a special meeting of stockholders,
and the Board may issue preferred stock in one or more series without the
specific approval of the holders of the Common Stock. The terms of the Series C
Preferred Stock also contain some anti-takeover implications. For example, the
dividend rate on the Series C Preferred Stock will increase upon the occurrence
of specified events following a change of control. In addition, some of our
agreements with Fingerhut and FCI, including the agreement under which we use
the Fingerhut database, contain provisions allowing Fingerhut or FCI to
terminate if a third party acquires control of the Company. These devices may
discourage or render more difficult a change of control of the Company or the
removal of incumbent management, which could reduce the market value of the
Securities.
8
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth our ratios of earnings to fixed charges and
preferred dividends and our ratios of earnings to fixed charges for the periods
indicated. Because we did not have any preferred stock outstanding prior to
December 9, 1998, our ratios of earnings to fixed charges and preferred
dividends for periods prior to that date are the same as our ratios of earnings
to fixed charges.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year 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 2.6 3.6 3.7 5.7 8.3 6.9 134.2
Ratio of earnings to fixed charges 4.4 3.6 3.9 5.7 8.3 6.9 134.2
</TABLE>
For 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 are calculated on an owned
basis (i.e. excluding securitized assets).
USE OF PROCEEDS
We will not receive any proceeds from the sale of Securities by the
selling stockholders.
SELLING STOCKHOLDERS
On October 24, 1996, we issued an option to purchase 192,250 shares (post-
split) of Common Stock to Rakesh Kaul in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act").
On June 1, 1999, we issued 840,646.7 shares of Series C Preferred Stock to
certain affiliates of Thomas H. Lee Company (the "Lee Investors") in exchange
for all of our outstanding Series B Perpetual Preferred Stock (including accrued
dividends), 12% Senior Notes due 2006 and ten-year warrants to purchase
3,750,000 shares (pre-split) of Common Stock that we had issued and sold to the
Lee Investors on December 9, 1998. The original issuance of securities to the
Lee Investors, as well as the issuance of Series C Preferred Stock in exchange
therefor, constituted transactions exempt from the registration requirements of
the Securities Act. The Lee Investors and Rakesh Kaul are collectively referred
to herein as the "selling stockholders." Mr. Kaul has no affiliation with the
Lee Investors.
We are registering the Securities to permit public secondary trading of
the Securities, and the selling stockholders may offer the Securities for resale
from time to time. We have filed with the SEC, under the Securities Act, a
Registration Statement on Form S-3, of which this prospectus forms a part, with
respect to the resale of the Securities from time to time pursuant to Rule 415
of the Securities Act and have agreed to use our reasonable best efforts to keep
such Registration Statement effective until the resale of all of the Securities
is complete, or, with respect to Mr. Kaul, until June 30, 2001, whichever is
earlier.
Because a selling stockholder may sell all or part of its Securities
offered hereby, we cannot estimate the number or percentage of any of the
Securities such selling stockholder will hold upon the completion of any
offering made hereby. We will include such information, as well as any changed
information concerning the selling stockholders, in supplements to this
prospectus.
9
<PAGE>
The following table sets forth, as of June 1, 1999, certain information
with respect to the Securities beneficially owned by each selling stockholder.
The term "selling stockholders" includes those holders listed below as the
beneficial owners of the Securities, as well as their transferees, pledgees,
donees or successors.
<TABLE>
<CAPTION>
Shares of Percentage Shares of Percentage
Series C of Series C Shares of Percentage Series D of Series D
Preferred Preferred Common of Common Preferred Preferred
Name Stock Stock Stock (1) Stock Stock Stock
---- ------ ----- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Rakesh Kaul -- -- 192,250 (2) * -- --
Thomas H. Lee Equity Fund IV, L.P. 778,723.8 92.6% 15,574,476 28.0% -- --
Thomas H. Lee Foreign Fund IV, L.P. 26,851.3 3.2% 537,026 1.0% -- --
1997 Thomas H. Lee Nominee Trust 10,866.1 1.3% 217,322 * -- --
David V. Harkins 2,504.1 * 50,082 * -- --
The 1995 Harkins Gift Trust 279.3 * 5,586 * -- --
Scott A. Schoen 2,087.4 * 41,748 * -- --
C. Hunter Boll 2,087.4 * 41,748 * -- --
Scott M. Sperling 2,087.4 * 41,748 * -- --
Anthony J. DiNovi 2,087.4 * 41,748 * -- --
Thomas M. Hagerty 2,087.4 * 41,748 * -- --
Warren C. Smith, Jr. 2,087.4 * 41,748 * -- --
Seth W. Lawry 871.8 * 17,436 * -- --
Kent R. Weldon 580.6 * 11,612 * -- --
Terrence M. Mullen 463.1 * 9,262 * -- --
Todd M. Albrecht 463.1 * 9,262 * -- --
Charles A. Brizius 346.6 * 6,932 * -- --
Scott Jaeckel 132.5 * 2,650 * -- --
Soren Oberg 132.5 * 2,650 * -- --
Thomas R. Shepherd 244.1 * 4,882 * -- --
Wendy L. Masler 53.3 * 1,066 * -- --
Andrew D. Flaster 53.3 * 1,066 * -- --
Kristina A. Watts 35.2 * 704 * -- --
Robert Schiff Lee 1998 Irrevocable Trust 209.9 * 4,198 * -- --
Stephen Zachary Lee 209.9 * 4,198 * -- --
Charles W. Robins as Custodian for Jesse
Albert Lee 137.7 * 2,754 * -- --
Charles W. Robins 53.3 * 1,066 * -- --
James Westra 53.3 * 1,066 * -- --
Thomas H. Lee Charitable Investment L.P. 4,630.5 * 92,610 * -- --
THL-CCI Investors Limited Partnership 207.0 * 4,140 * -- --
</TABLE>
- ----------
* Less than 1%.
(1) Except with respect to Rakesh Kaul, all shares of Common Stock
beneficially owned by the selling stockholders are shares that may be
issued upon conversion of the Series C Preferred Stock at the current
conversion rate of 20-to-one.
(2) Shares to be issued upon exercise of an option.
On June 25, 1999, Thomas H. Lee, David V. Harkins, C. Hunter Boll and
Thomas M. Hagerty, each a beneficial owner of Series C Preferred Stock, were
appointed to serve on our Board of Directors with the consent of the holders of
the Series C Preferred Stock.
10
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is necessarily general and
is qualified in its entirety by reference to our Certificate (including the
Certificates of Designation establishing the Series C Preferred Stock and the
Series D Preferred Stock) and By-Laws, copies of which are included as exhibits
to the Registration Statement of which this prospectus is a part.
General
Under the Certificate, our authorized capital stock consists of
100,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000
shares of Preferred Stock, par value $.01 per share.
Common Stock
Dividend and Voting Rights
Holders of Common Stock are entitled to one vote per share of Common Stock
on each matter submitted to a vote of stockholders, including the election of
directors, and have no preemptive rights to subscribe for additional shares from
the Company. Voting rights are not cumulative, with the result that holders of
more than 50% of the shares of Common Stock are able to elect all of the
Company's directors elected by the holders of Common Stock. Subject to the prior
rights of creditors and the holders of any Preferred Stock which may be
outstanding from time to time, including the Series C Preferred Stock and the
Series D Preferred Stock, holders of Common Stock are entitled to receive
dividends out of funds legally available therefor when, as and if declared by
the Board of Directors and to receive pro rata the net assets of the Company
legally available for distribution upon liquidation or dissolution. Our credit
facility places certain restrictions on the payment of dividends.
Liquidation and Redemption Rights
We have granted our lenders security interests in a substantial portion of
our assets under the credit facility. Subject to the prior rights of creditors
and the holders of any Preferred Stock which may be outstanding from time to
time, including the Series C Preferred Stock and the Series D Preferred Stock,
holders of Common Stock are entitled to share pro rata in the distribution of
any remaining assets in the event of liquidation, dissolution or winding up of
the Company. We may redeem shares of Common Stock at fair market value (as
defined in the Certificate) if the Board of Directors determines that such
redemption is necessary to prevent the loss or secure the restatement of any
license or franchise from any governmental agency, which license or franchise is
conditional upon some or all holders meeting certain prescribed qualifications.
Options to Purchase Common Stock
We have granted options to purchase shares of Common Stock to certain
employees and directors pursuant to our employee and non-employee director stock
option plans.
Other
All shares of Common Stock offered hereby are fully paid and
nonassessable. The Common Stock is listed on the New York Stock Exchange under
the symbol "MXT."
Preferred Stock
Our Certificate authorizes our Board of Directors to issue up to an
aggregate of 10,000,000 shares of Preferred Stock in one or more series, with
such voting rights, liquidation preferences, dividend rights, repurchase rights,
conversion rights, redemption rights and terms and certain other rights and
preferences, as shall be determined by the Board of Directors in a resolution or
resolutions providing for the issuance of such Preferred Stock. The Board of
Directors may issue any or all of such shares without the approval of the
holders of Common Stock.
We have designated 2,400,000 shares of such Preferred Stock as Series B
Perpetual Preferred Stock, 2,000,000 shares of such Preferred Stock as Series C
Preferred Stock and 100,000 shares of such Preferred Stock as Series D Preferred
Stock. No shares of Series B Perpetual Preferred Stock or Series D Preferred
Stock are currently outstanding.
Series C Preferred Stock
The following summarizes certain terms of the Series C Preferred Stock.
This discussion is necessarily general and is qualified in its entirety by the
Certificate of Designation establishing the Series C Preferred Stock, a copy of
which is included as an exhibit to the Registration Statement of which this
prospectus is a part.
11
<PAGE>
The Series C Certificate of Designation fixes a purchase price of $372.50
per share of Series C Preferred Stock. The Series C Preferred Stock ranks senior
(with respect to dividends and liquidation payments) to any future Preferred
Stock of the Company.
Dividends
We pay dividends on the Series C Preferred Stock quarterly, on a
cumulative basis, in additional shares of Series C Preferred Stock at an annual
rate of 9%, compounded quarterly. In addition, holders of the Series C Preferred
Stock are entitled to receive all dividends paid with respect to the Common
Stock (other than dividends payable in additional shares of Common Stock) on an
as-converted basis. We have paid a quarterly dividend of $.005 per share
(post-split) on the Common Stock each of the last nine quarters. After December
9, 2008, the annual dividend rate on the Series C Preferred Stock will increase
to 15%, compounded quarterly. However, on or after such date, we will have the
option to redeem the Series C Preferred Stock at par plus accrued dividends. In
certain circumstances following a change of control, the dividends on the Series
C Preferred Stock will be subject to further increase, as discussed below.
If the Board of Directors determines in good faith for any legal, tax,
regulatory or other good reason that it is inappropriate or inadvisable to pay
one or more dividends in-kind as described above, our Board may, by a vote of
80% of its members (including a majority of the directors elected by, or
appointed with the consent of, the holders of Series C Preferred Stock or, if
there are no such directors, the holders of a majority of the outstanding shares
of Series C Preferred Stock), determine to pay such dividend in cash, debt
securities or other securities of the Company. In order to make such a
substitution, our Board must reasonably believe that the dividend would be
substantially economically equivalent to the in-kind dividend that otherwise
would have been declared.
Notwithstanding the two preceding paragraphs, we may not pay dividends on
the Series C Preferred Stock, other than dividends in-kind, dividends paid in
shares of Common Stock or non-voting stock or dividends declared and paid only
out of our net earnings for the year in which the declaration is made, prior to
the payment in full of our 10% Senior Notes due 2004 ("10% Notes") and our
Senior Notes due 2006, issued in July 1999. If, as a result of the preceding
sentence, we cannot pay cash dividends to the holders of Series C Preferred
Stock, we may not declare and pay cash dividends on the Common Stock except to
the extent that cash dividends can also be declared and paid on the Series C
Preferred Stock. In addition, if we cannot pay cash dividends to the holders of
Series C Preferred Stock upon certain events following a change of control as
described below, we will pay such dividends in additional shares of Series C
Preferred Stock valued at $372.50 per share.
Conversion at the Option of the Holder
Holders of the Series C Preferred Stock may convert it to Common Stock at
any time. For each share of Series C Preferred Stock converted into Common
Stock, the holder will receive that number of shares of Common Stock (valued at
the conversion price, which is currently $18.63 per share) worth $372.50 plus
accrued dividends and a premium amount designed to guarantee that the holder
receives the benefit of seven years' worth of dividends at the 9% annual rate
(the "Conversion Value"). However, in the event of an optional conversion by any
holder of the Series C Preferred Stock prior to January 1, 2004 not effected in
connection with a change of control, proposed redemption of shares, or
liquidation or winding up of the Company, the premium amount will be reduced. If
any such optional conversion occurs prior to January 1, 2000, the holder will
not receive any premium amount. If any such optional conversion occurs on or
after January 1, 2000 and prior to January 1, 2004, the premium amount related
to each share so converted will be reduced so that the total number of shares of
Common Stock to be received by the holders approximately equals the amount
indicated in the following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Holders will receive a total number of shares of
Common Stock (including the Premium
For an optional conversion of all shares between: Amount) of approximately:
- -----------------------------------------------------------------------------------------------------------
<S> <C>
January 1, 2000 through December 31, 2000 19.4 million
- -----------------------------------------------------------------------------------------------------------
January 1, 2001 through December 31, 2001 23.7 million
- -----------------------------------------------------------------------------------------------------------
January 1, 2002 through December 31, 2002 26.0 million
- -----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
January 1, 2003 through December 31, 2003 28.4 million
- -----------------------------------------------------------------------------------------------
January 1, 2004 through December 31, 2004 30.0 million
- -----------------------------------------------------------------------------------------------
</TABLE>
The conversion price is subject to adjustment upon the occurrence of
certain events, including:
. the issuance of Common Stock as a dividend or distribution on the
Common Stock;
. a subdivision, combination, consolidation or reclassification of the
Common Stock;
. the issuance of Common Stock (or options, rights, warrants or other
securities convertible into or exchangeable for shares of Common Stock)
at a price per share less than the conversion price in effect on the date
of issuance (except for issuances authorized by certain of our employee
benefit plans and other options); and
. any reductions in the conversion price as we deem advisable to prevent
any distribution which would be treated for federal income tax purposes
as a dividend of stock or stock rights from being taxable to the holders
of Common Stock.
The Series C Preferred Stock is normally convertible into Common Stock.
However, in the event that such conversion would result in a stockholder or
group (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act)
obtaining 35% or more of the outstanding voting stock of the Company (a
"Triggering Event"), the indenture which governs our outstanding 10% Notes
requires us to make an offer to purchase those notes. Accordingly, for so long
as any of our 10% Notes remain outstanding, in the event that the conversion of
the Series C Preferred Stock into Common Stock would cause a Triggering Event,
the excess number of shares of Series C Preferred Stock will be convertible into
Series D Preferred Stock.
Mandatory Conversion
The Series C Preferred Stock will automatically convert into Common Stock
or Series D Preferred Stock at any time after December 9, 2005 when the average
trading price of the Common Stock equals or exceeds $32 per share (as adjusted)
for at least 20 consecutive trading days.
Optional Redemption
At any time after December 31, 2001, we will have the option to redeem all
of the outstanding Series C Preferred Stock at a redemption price of $383.68
(103% of the par value of $372.50) per share including all accrued dividends to
the date of redemption if both (i) the 20-day average trading price of the
Common Stock equals or exceeds $32 per share (as adjusted) and (ii) the Company
becomes "investment grade" as evidenced by the fact that our unsecured debt
securities are rated equal to or better than "Baa3" by Moody's Investor Services
and "BBB-" by Standard & Poor's Corporation. A holder of the Series C Preferred
Stock has the right, however, to convert its shares into Common Stock rather
than having them redeemed by us.
At any time from and after December 9, 2008, we will have the right to
redeem all of the outstanding Series C Preferred Stock at a redemption price of
$372.50 per share plus all accrued dividends to the date of redemption,
regardless of the trading price of the Common Stock. If a redemption of less
than all of the shares of Series C Preferred Stock would not cause such payment
to be treated for tax purposes as a dividend (as opposed to a capital
transaction), we may make a partial redemption of the Series C Preferred Stock
pro rata from each of the holders. A holder of the Series C Preferred Stock has
the right, however, to convert its shares into Common Stock rather than having
them redeemed by us.
Voting Rights
Holders of Series C Preferred Stock are entitled to vote on all matters
voted on by holders of Common Stock, voting as a single class, except the
election of directors. With respect to a vote on any matter other than the
election of directors, each share of Series C Preferred Stock entitles its
holder to cast the same number of votes he or she would have been able to cast
if such share of Series C Preferred Stock was converted into Common Stock on the
record date. With respect to the election of directors:
. So long as the Lee Investors or their affiliates own at least 25% of the
originally issued Series C Preferred Stock (or any shares of Common Stock
issued upon conversion thereof), the holders of a majority of the shares
of Series C Preferred Stock will be entitled to elect four of eleven
directors of the Board;
13
<PAGE>
. So long as the Thomas H. Lee Equity Fund IV, L.P. owns any shares of
Series C Preferred Stock (or any shares of Common Stock issued upon
conversion thereof), and the holders of the Series C Preferred Stock are
entitled to elect four directors, the Thomas H. Lee Equity Fund IV, L.P.
will have the right to appoint one of the four directors; and
. So long as the Lee Investors or their affiliates own at least 10% but less
than 25% of the originally issued Series C Preferred Stock (or any shares
of Common Stock issued upon conversion thereof), the holders of a majority
of the shares of Series C Preferred Stock will be entitled to elect one
director.
For so long as any shares of Series C Preferred Stock remain outstanding,
the vote of the holders of a majority of the outstanding shares of Series C
Preferred Stock (in addition to any other consent or approval required by law)
is required to:
. authorize, create or issue any class of stock having any preference or
priority over the Series C Preferred Stock ("Senior Stock");
. authorize, create or issue any stock ranking equally with the Series C
Preferred Stock with respect to voting, dividends or upon redemption,
liquidation, dissolution or winding up of the Company ("Parity Stock");
. reclassify any shares of capital stock of the Company into Senior Stock or
Parity Stock;
. authorize any security exchangeable for, convertible into or evidencing
the right to purchase any shares of Senior Stock or Parity Stock;
. alter or change the rights, preferences or privileges of the Series C
Preferred Stock;
. increase or decrease the authorized number of shares of Series C Preferred
Stock or issue shares of Series C Preferred Stock other than to holders of
Series C Preferred Stock pursuant to its terms; or
. waive or amend any provision of our Certificate or By-Laws in a manner
adverse in any material respect to the holders of the Series C Preferred
Stock.
Regardless of the above, we may distribute rights pursuant to a
shareholder rights plan approved by the Board of Directors without the consent
of the holders of Series C Preferred Stock.
In addition, in the event of a shareholder vote relating to matters which
could result in the acceleration of dividends on the Series C Preferred Stock,
including a change of control, liquidation, dissolution or winding up of the
Company, holders of the Series C Preferred Stock are entitled to the number of
votes that could be cast by virtue of the shares he or she currently owns, as
well as the shares of Series C Preferred Stock he or she would receive as
accelerated dividends (through receipt of the "Dividend Shares" described below)
as a result of such event.
Consolidation or Merger
In the event of any transaction which causes holders of Common Stock to
receive other securities or property, including a capital reorganization or
reclassification (other than a reclassification which causes an adjustment of
the conversion price), a consolidation or merger of the Company with or into
another corporation, or a sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, prior to
the consummation of such transaction, each share of Series C Preferred Stock
then outstanding will be convertible into (in lieu of the Common Stock issuable
upon such conversion) the kind and amount of shares of stock and other
securities and property (including cash) receivable upon consummation of such
transaction by a holder of that number of shares of Common Stock into which one
share of Series C Preferred Stock was convertible immediately prior to such
transaction.
Change of Control
Within five days of the occurrence of a "change of control," we may, but
are not required to, offer to purchase all of the outstanding Series C Preferred
Stock for 101% of the Series C Preferential Payment (as defined below). If we do
not make such an offer:
. each holder of Series C Preferred Stock will receive additional shares of
Series C Preferred Stock so that the total number of shares of Series C
Preferred Stock he or she holds equals the Series C Preferential Payment
divided by $372.50;
14
<PAGE>
. dividends on the Series C Preferred Stock become payable in cash;
. the annual dividend rate on the Series C Preferred Stock will increase by
2 1/2% to 11 1/2%;
. we will become subject to a covenant which, subject to certain exceptions,
prohibits us from incurring additional indebtedness unless the ratio of
our indebtedness (not including our hedging obligations) to consolidated
stockholders' equity, after taking into account the incurrence, would be
less than 2 to 1;
. we will be subject to a covenant which restricts the ratio of our
indebtedness to consolidated tangible net worth from exceeding 6 to 1; and
. we will be subject to a covenant which restricts our unsecured
indebtedness (except (1) indebtedness outstanding prior to the change of
control, (2) indebtedness that refinances such indebtedness on
substantially the same terms and (3) indebtedness represented by bank
deposits at our subsidiary credit card bank) from exceeding $25 million at
any time.
In the event a change of control occurs, if we do not make an offer to
purchase all of the outstanding Series C Preferred Stock and subsequently fail
to pay a cash dividend on the Series C Preferred Stock or violate any of the
covenants imposed under the Series C Certificate of Designation, the dividend
rate then in effect on the Series C Preferred Stock will increase by an
additional 2% to 13 1/2%, and at any time following the 91st day after maturity
or redemption of our outstanding 10% Notes, the holders of the Series C
Preferred Stock may put their shares to us for 101% of the Series C Preferential
Payment.
"Change of control" means any of the following:
. the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (an "Acquiring Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 35% or more of the combined voting power of our then
outstanding voting securities entitled to vote generally in the election of
directors, other than an acquisition by us, any of our subsidiaries, any of
our or our subsidiaries' employee benefit plans or related trusts or the
Thomas H. Lee Equity Fund IV, L.P. or its affiliates;
. during any period of 12 consecutive months after December 9, 1998, the
individuals who at the beginning of such 12-month period constituted the
Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided that (i)
any director whose election, or nomination for election by our
stockholders, was approved by a vote of the stockholders having the right
to designate such director (including, without limitation, the exercise by
the holders of a majority of the outstanding shares of Series C Preferred
Stock of their right to elect directors) and (ii) any director whose
election, or nomination for election by our stockholders, was approved by
majority vote of the Board of Directors of the Company shall, in each case,
be considered as though such director were a member of the Incumbent Board,
but excluding, as a member of the Incumbent Board, any such individual
whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of
the Company (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) and any person who is an affiliate or
associate (as those terms are defined in the General Rules and Regulations
under the Exchange Act) of an Acquiring Person having or proposing to
acquire beneficial ownership of 25% or more of the continued voting power
of our then outstanding voting securities entitled to vote generally in the
election of directors;
. the approval by our stockholders of a reorganization, merger or
consolidation following which all or substantially all of the beneficial
owners of our voting securities immediately prior to such reorganization,
merger or consolidation do not beneficially own, directly or indirectly,
more than 50% of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of the
entity resulting from such reorganization, merger or consolidation;
. we cease to own, directly or indirectly, 100% of the capital stock of
Direct Merchants Credit Card Bank, National Association;
. the sale or other disposition of all or substantially all the assets of the
Company in one transaction or series of related transactions;
15
<PAGE>
. so long as any of our 10% Notes remain outstanding, the occurrence of a
change of control as defined in the indenture pursuant to which such notes
are issued (but only if we are obligated to make an offer to purchase
outstanding notes governed thereby); or
. if our existing agreements with Fingerhut remain in effect, the occurrence
of a change of control permitting Fingerhut to terminate such agreements,
unless such change of control has been waived.
Notwithstanding the preceding paragraphs, a change of control will not be
deemed to occur if both a majority of the Board and the holders of a majority of
the outstanding shares of Series C Preferred Stock so otherwise determine or if
the acquisition by a person or group of 35% or more of the voting power or the
change in composition of the Board described above is the result of a sale by a
holder of the Series C Preferred Stock.
Series C Preferential Payment
Upon the occurrence of certain events, the holders of the Series C
Preferred Stock will be entitled to receive certain preferential payments (which
are defined in the Series C Certificate of Designation as the Liquidation
Preference) (the "Series C Preferential Payment"). If any of these events occurs
prior to December 9, 2005, a holder of the Series C Preferred Stock will be
entitled to receive the Series C Preferential Payment both in respect of the
shares of Series C Preferred Stock he or she then owns ("Owned Shares") and in
respect of the shares of Series C Preferred Stock he or she would have received
as dividends from the date of such event through December 9, 2005 (the "Dividend
Shares"). The table below outlines the Series C Preferential Payment to be
received by holders of Series C Preferred Stock in certain specified events:
- --------------------------------------------------------------------------------
Event Series C Preferential Payment
- --------------------------------------------------------------------------------
Change of control prior to The greatest of:
December 9, 2005 . the Conversion Value (i.e. $372.50 plus
accrued dividends plus the Premium Amount)
OR
. the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares and Dividend Shares
into Common Stock and sold such shares for the
then-current market price
OR
. the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares and Dividend Shares
into Common Stock and received the amount paid
per share of Common Stock by the Acquiring
Person in the change of control.
- --------------------------------------------------------------------------------
Change of control after The greatest of:
December 9, 2005 . the Conversion Value
OR
. the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares into Common Stock and
sold such shares for the then-current market
price
OR
. the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares into Common Stock and
received the amount paid per share of Common
Stock by the Acquiring Person in the change of
control.
- --------------------------------------------------------------------------------
Redemption prior to The greater of:
December 9, 2005 . the Conversion Value
OR
. the amount the holders of Series C Preferred
Stock would have received had they converted
all of the Owned Shares and Dividend Shares
into Common Stock and sold such shares for the
then-current market price.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
Event Series C Preferential Payment
- --------------------------------------------------------------------------------
Redemption after December 9, The greater of:
2005 . the Conversion Value
OR
. the amount the holders of Series C
Preferred Stock would have received had
they converted all of the Owned Shares
into Common Stock and sold such shares
for the then-current market price.
- --------------------------------------------------------------------------------
Liquidation or winding up The greater of:
prior to December 9, 2005 . the Conversion Value
OR
. the amount the holders of Series C
Preferred Stock would have received had
they converted all of the Owned Shares
and Dividend Shares into Common Stock
immediately prior to such liquidation or
winding up.
- --------------------------------------------------------------------------------
Liquidation or winding up The greater of:
after December 9, 2005 . the Conversion Value
OR
. the amount the holders of Series C
Preferred Stock would have received had
they converted all of the Owned Shares
into Common Stock immediately prior to
such liquidation or winding up.
- --------------------------------------------------------------------------------
All shares of Series C Preferred Stock offered hereby are fully paid and
nonassessable.
Series D Preferred Stock
The following summarizes certain terms of the Series D Preferred Stock.
This discussion is necessarily general and is qualified in its entirety by the
Certificate of Designation establishing the Series D Preferred Stock, a copy of
which is included as an exhibit to the Registration Statement of which this
prospectus is a part.
The terms of the Series D Preferred Stock are essentially the same as the
terms of the Common Stock, except that the Series D Preferred Stock has a
liquidation preference of $.01 per share and is non-voting, except as required
by law. In addition, the Series D Preferred Stock will automatically convert
into Common Stock at the time such conversion will not cause a Triggering Event,
as described above.
Certain Provisions of Our Certificate and By-Laws
The following discussion is a summary of certain provisions of our
Certificate and By-Laws relating to stockholder voting rights, advance notice
requirements and other provisions which may have an "anti-takeover" effect.
These and other provisions affect stockholder rights and should be given careful
attention. The following description of certain of these provisions is
necessarily general and is qualified in its entirety by reference to our
Certificate and By-Laws, copies of which are included as exhibits to the
Registration Statement of which this prospectus is a part.
Directors' Liability
Our Certificate provides that, to the fullest extent permitted by the
Delaware General Corporation Law ("DGCL"), a director of the Company shall not
be personally liable to us or our stockholders for monetary damages for any
breach of the director's fiduciary duty as a director to us or our stockholders.
In addition, the Certificate and By-Laws include certain provisions whereby our
directors and officers generally shall be indemnified against certain
liabilities to the fullest extent permitted or required by the DGCL. Insofar as
these provisions permit indemnification for liabilities arising under the
Securities Act, we have been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable.
As a result of these provisions, both we and our stockholders may be unable
to obtain monetary damages from a director for breach of his or her duty of
care. Although our stockholders may continue to seek injunctive or other
equitable relief for an alleged breach of fiduciary duty by a director,
stockholders may not have any effective remedy against the challenged conduct if
equitable remedies are unavailable.
Anti-Takeover Effects of Provisions of Our Certificate and By-Laws
17
<PAGE>
Certain provisions of our Certificate and By-Laws could have an
anti-takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of our Board of Directors and in the
policies formulated by the Board. They are also designed to discourage an
unsolicited takeover of the Company if the Board determines that such takeover
is not in our best interests and the best interests of our stockholders. These
provisions, however, could have the effect of discouraging certain attempts to
acquire the Company or remove incumbent management even if some or a majority of
stockholders deem such an attempt to be in their best interests.
Pursuant to our Certificate, directors elected by the holders of Common
Stock are divided into three classes serving staggered three-year terms. Such
directors may be removed from office only for cause and only by the affirmative
vote of the holders of a majority of the then outstanding shares of Common
Stock. Except with respect to directors elected by the holders of Series C
Preferred Stock, vacancies on the Board of Directors may be filled only by the
remaining directors and not by the stockholders.
Our By-Laws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors, as well as for other stockholder proposals to be
considered at the annual meeting of stockholders. In general, we must receive
notice not less than 50 days nor more than 75 days prior to the meeting, and
such notice must contain certain specified information concerning the persons to
be nominated or the matters to be brought before the meeting and the stockholder
submitting the proposal.
Certain transactions with the Company may be subject to Section 203 of the
DGCL. Section 203 prohibits certain "business combinations" between an
"interested stockholder" and a corporation for three years after a stockholder
becomes interested, unless one of the statute's exceptions applies. Section
203(c)(5) defines an interested stockholder as a person, broadly defined to
include a group, who owns at least 15% of a company's outstanding voting stock.
The statute defines business combinations expansively to include any merger or
consolidation of, with, or caused by the interested stockholder. Section 203(a)
provides three exceptions to the business combination prohibition. First, there
is no constraint if the interested stockholder obtains prior board approval for
the business combination or the transaction resulting in ownership of 15% of the
target's voting stock. Second, the statute does not apply if, in completing the
transaction that crosses the 15% threshold, the stockholder becomes the owner of
85% of the corporation's voting stock outstanding as of the time the transaction
commenced. The statute provides that any shares owned by directors who are
officers, and shares owned by certain stock option plans are excluded from the
calculation; this exception applies most particularly to a tender offeror who
has less than 15% of the target's stock and receives tenders that satisfy the
85% requirement. Finally, the statute does not apply if the interested
stockholder's business combination is approved by the board of directors and
affirmed by at least 66 2/3% of the outstanding voting stock not owned by the
interested stockholder. On November 13, 1998, the Board of Directors, by
unanimous vote, exempted the sale of the Series C Preferred Stock, along with
any securities of the Company into which the Series C Preferred Stock is
convertible, from the provisions of Section 203 of the DGCL.
Transfer Agent and Registrar
We have appointed Norwest Bank Minnesota, N.A. to act as transfer agent and
registrar with respect to our Common Stock.
18
<PAGE>
PLAN OF DISTRIBUTION
We are registering the Securities at the request of the selling
stockholders.
The Securities may be offered and sold from time to time by the selling
stockholders. The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. Sales of the
Securities are, in general, expected to be made at the market price prevailing
at the time of each such sale; however, prices in negotiated transactions may
differ considerably. The selling stockholders may sell their Securities on terms
to be determined at the time of sale at market prices prevailing at the time of
sale or at negotiated prices.
None of the selling stockholders has advised us of the manner in which it
currently intends to sell the Securities pursuant to this prospectus. The
selling stockholders may choose to sell all or a portion of such Securities from
time to time in any manner described herein.
The methods by which the Securities may be sold by the Lee Investors
include:
. through brokers, acting as principal or agent, in transactions (which
may involve block transactions) on the New York Stock Exchange or such
other national securities exchange or interdealer quotation system on
which the Securities are then listed, at market prices obtainable at the
time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices;
. to underwriters who will acquire Securities for their own account and
resell them in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices
determined at the time of sale (any public offering price of and any
discount or concessions allowed or reallowed or paid to dealers may be
changed from time to time);
. directly by the selling stockholders or through brokers or agents in
private sales at negotiated prices; or
. by any other legally available means.
The methods by which the Common Stock may be sold by Mr. Kaul include all
of the above, except that Mr. Kaul is subject to certain limitations in the case
of sales to underwriters.
In addition, any Securities covered by this prospectus that qualify for
sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus.
Offers to purchase Securities may also be solicited by agents designated
by the selling stockholders from time to time. Underwriters or other agents
participating in an offering made pursuant to this prospectus (as amended or
supplemented from time to time) may receive underwriting discounts and
commissions under the Securities Act, and discounts or concessions may be
allowed or reallowed or paid to dealers, and brokers or agents participating in
such transactions may receive brokerage or agents' commissions or fees.
There is currently no established trading market for the Series C
Preferred Stock or the Series D Preferred Stock, and it is uncertain whether
there will be a trading market for the Series C Preferred Stock or the Series D
Preferred Stock. We do not presently anticipate that the Series C Preferred
Stock or the Series D Preferred Stock will be listed for trading on the New York
Stock Exchange or otherwise.
At the time a particular offering of any Securities is made hereunder, to
the extent required by law, we will distribute a prospectus supplement which
will set forth the number of Securities being offered, the selling stockholders
offering such Securities and the terms of the offering, including the purchase
price or public offering price, the name or names of any underwriters, dealers
or agents, the purchase price paid by any underwriter for any Securities
purchased from the selling stockholders, any discounts, commissions and other
items constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or paid to dealers.
In order to comply with the securities laws of certain jurisdictions, the
Securities offered hereby will be offered and sold hereunder in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions, the Securities offered hereby may not be
offered or sold hereunder unless the Securities have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and complied with.
19
<PAGE>
We have been advised that, as of the date hereof, the selling stockholders
have not made an arrangement with any broker for the sale of their Securities.
The selling stockholders and any underwriters, brokers or dealers involved in
the sale of the Securities hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, and any compensation
received by them and any profit on any resale of the Securities as principals
may be deemed to be underwriting discounts and commissions under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Common Stock offered hereby may not
simultaneously engage in market-making activities with respect to the Common
Stock for a period of two business days prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules 10b-6
and 10b-7, which may limit the timing of purchases and sales by the selling
stockholders. The foregoing may limit the marketability of the shares of Common
Stock and the ability of any underwriter, broker, dealer or agent to engage in
market-making activities.
We will pay certain of the expenses incurred by us and the selling
stockholders incident to the offering. The registration rights agreement entered
into with the Lee Investors provides that we will pay all out-of-pocket costs in
connection with the registration of the Securities owned by the Lee Investors,
as well as underwriting commissions and similar fees not to exceed 3.3% of the
gross proceeds received by the Lee Investors. The registration rights agreement
entered into with Mr. Kaul provides that Mr. Kaul will pay 2% of all general
out-of-pocket costs which we incur directly in connection with the registration
of the Securities (except those expenses which we would incur notwithstanding
the registration). We will not pay the registration and filing fees or
out-of-pocket expenses directly attributable to the sale of Mr. Kaul's
securities.
In addition, pursuant to the registration rights agreements with the Lee
Investors and Mr. Kaul, we have agreed to indemnify the selling stockholders,
their officers, directors and agents and any person who controls such selling
stockholder (and each underwriter and selling broker) against certain
liabilities, including liabilities under the Securities Act, which may be
incurred in connection with the sale of the Series C Preferred Stock, Common
Stock and the Series D Preferred Stock under this prospectus. In return, the
selling stockholders have agreed to indemnify us against certain liabilities.
We have informed the selling stockholders of the need for delivery of
copies of this prospectus under certain circumstances.
We may suspend the use of this prospectus and any supplements hereto in
certain circumstances due to pending corporate developments, public filings with
the SEC or similar events. We are obligated in the event of such suspension to
use our reasonable efforts to ensure that the use of this prospectus (as amended
or supplemented as necessary) may be resumed as soon as practicable.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for us by Sidley &
Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, have been incorporated by reference herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, which report
is also incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 291,234
The New York Stock Exchange fee......................................... 35,000
Legal fees and expenses................................................. 25,000
Accounting fees and expenses............................................ 5,000
Printing and engraving expenses......................................... 3,000
Blue Sky fees........................................................... 15,000
Miscellaneous........................................................... 15,766
--------------
Total............................................................. $ 390,000
==============
</TABLE>
Except for the SEC registration fee, all of the foregoing fees and
expenses are estimates and will vary depending upon the Securities sold pursuant
to this Registration Statement.
Item 15. 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
II-1
<PAGE>
provide coverage for its officers and directors in certain situations where the
Company cannot directly indemnify such officers or directors.
Item 16. Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company is
incorporated herein by reference to Exhibit 3.a. to the Company's
Registration Statement on Form S-1 (File No. 333-10831).
3.2* Certificate of Amendment to the Amended and Restated Certificate of
Incorporation.
3.3* Amended Certificate of Designation of Series C Perpetual Convertible
Preferred Stock.
3.4 Certificate of Designation of Series D Junior Participating
Convertible Preferred Stock is incorporated herein by reference to
Exhibit 4.3 to the Company's Current Report on Form 8-K dated
December 22, 1998.
3.5* Amended and Restated By-Laws, as amended, of the Company.
4.1 Form of certificate for shares of Common Stock is incorporated herein
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-3/A (File No. 333-60973).
4.2* Form of certificate for shares of Series C Preferred Stock.
4.3* Form of certificate for shares of Series D Preferred Stock.
5.1* Opinion of Sidley & Austin.
10.1 Registration Rights Agreement dated as of December 9, 1998 between the
Company and the investors named therein is incorporated herein by
reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
dated December 22, 1998.
10.2* Registration Rights Agreement dated as of April 23, 1999 between the
Company and Rakesh Kaul.
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 Sidley & Austin (included in Exhibit 5.1 hereto).
23.3* Consent of KPMG Peat Marwick LLP with respect to the financial
statements of the Company.
24.1* Powers of Attorney.
- -----------
* Filed herewith.
Item 17. Undertakings
(a) 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-2
<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.
(b) 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.
(c) 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.
(d) 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this 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 June 29, 1999.
METRIS COMPANIES INC.
By: /s/ Ronald N. Zebeck
-----------------------------
Ronald N. Zebeck
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<S> <C> <C>
By: /s/ Ronald N. Zebeck President, Chief Executive Officer Dated: June 29, 1999
----------------------------
Ronald N. Zebeck and Director
(Principal Executive Officer)
By: /s/ David Wesselink Executive Vice President, Chief Dated: June 29, 1999
----------------------------
David Wesselink Financial Officer
(Principal Financial Officer)
By: /s/ Jean C. Benson Senior Vice President of Finance, Dated: June 29, 1999
------------------------------
Jean C. Benson Corporate Controller
(Principal Accounting Officer)
By: ---------------------------- Chairman of the Board of Directors
Theodore Deikel
*
By: ---------------------------- Director
Dudley C. Mecum
*
By: ---------------------------- Director
Frank D. Trestman
By: ---------------------------- Director
Derek V. Smith
By: ---------------------------- Director
Lee R. Anderson
*
By: --------------------------- Director
John A. Cleary
</TABLE>
II-4
<PAGE>
*
By: --------------------------- Director
Thomas H. Lee
*
By: ---------------------------- Director
David V. Harkins
*
By: ---------------------------- Director
C. Hunter Boll
*
By: ---------------------------- Director
Thomas M. Hagerty
*By: /s/ Z. Jill Barclift Dated: June 29, 1999
------------------------------
Z. Jill Barclift
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
TO REGISTRATION STATEMENT
ON FORM S-3
METRIS COMPANIES INC.
<TABLE>
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Exhibit
Number Description of Exhibit
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<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the
Company is incorporated herein by reference to Exhibit 3.a. to
the Company's Registration Statement on Form S-1 (File No.
333-10831).
3.2* Certificate of Amendment to the Amended and Restated Certificate
of Incorporation.
3.3* Amended Certificate of Designation of Series C Perpetual
Convertible Preferred Stock.
3.4 Certificate of Designation of Series D Junior Participating
Convertible Preferred Stock is incorporated herein by reference
to Exhibit 4.3 to the Company's Current Report on Form 8-K dated
December 22, 1998.
3.5* Amended and Restated By-Laws, as amended, of the Company.
4.1 Form of certificate for shares of Common Stock is incorporated
herein by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-3/A (File No. 333-60973)
4.2* Form of certificate for shares of Series C Preferred Stock.
4.3* Form of certificate for shares of Series D Preferred Stock.
5.1* Opinion of Sidley & Austin.
10.1 Registration Rights Agreement dated as of December 9, 1998
between the Company and the investors named therein is
incorporated herein by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K dated December 22, 1998.
10.2* Registration Rights Agreement dated as of April 23, 1999 between
the Company and Rakesh Kaul.
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 Sidley & Austin (included in Exhibit 5.1 hereto).
23.3* Consent of KPMG Peat Marwick LLP with respect to the financial
statements of the Company.
24.1* Powers of Attorney.
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* Filed herewith.
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EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
METRIS COMPANIES INC.
________________________________
Pursuant to Section 242
of the General Corporation Law
of the State of Delaware
________________________________
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, Metris Companies Inc., a Delaware corporation (the "Corporation"),
DOES HEREBY CERTIFY:
1. That Sections 1 and 2 of Article III of the Corporation's Amended
and Restated Certificate of Incorporation (the "Certificate") are hereby deleted
and Article III is hereby amended to read in its entirety as follows:
The purpose of the Corporation is to engage in any lawful act or
activity and to exercise any powers permitted to corporations under the
General Corporation Law of Delaware.
2. That Article XIII of the Certificate is hereby deleted in its
entirety.
3. That, in accordance with Section 242(b) of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation has duly adopted a resolution approving the foregoing amendment to
the Certificate (the "Amendment") and directing that the Amendment be submitted
to the holders of the outstanding capital stock of the Corporation entitled to
vote thereon for its consideration and approval.
4. That, in accordance with Section 242(b) of the General
Corporation Law of the State of Delaware, the Amendment has been duly approved
by the affirmative vote of the holders of a majority of the outstanding capital
stock of the Corporation entitled to vote thereon.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be duly executed and acknowledged this 24th day of March, 1999.
METRIS COMPANIES INC.
By: /s/ Z. Jill Barclift
-----------------------------------
Z. Jill Barclift
Secretary
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EXHIBIT 3.3
AMENDED
CERTIFICATE OF DESIGNATION
OF
SERIES C PERPETUAL
CONVERTIBLE PREFERRED STOCK
OF
METRIS COMPANIES INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Metris Companies Inc., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation, as amended, and in accordance with the provisions of Section 151
of the General Corporation Law of the State of Delaware, its Board of Directors
(the "Board of Directors") has adopted the following resolution creating a
series of its Preferred Stock, par value $.01 per share, designated as Series C
Perpetual Convertible Preferred Stock:
RESOLVED, that a series of authorized Preferred Stock, par value $.01 per
share, of the Corporation be hereby created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof are as follows:
Section 1. Designation and Amount.
----------------------
The shares of such series shall be designated as the "Series C Perpetual
Convertible Preferred Stock" (the "Series C Preferred Stock") and the number of
shares constituting such series shall be 2,000,000 shares of Series C Preferred
Stock. Section 10 below contains the definitions of certain defined terms used
herein.
Section 2. Dividends and Distributions.
---------------------------
(a) The holders of shares of Series C Preferred Stock, in
preference to the holders of shares of the Series A Junior Participating
Preferred Stock, Common Stock, Non-Voting Stock and of any other capital stock
of the Corporation ranking junior to the Series C Preferred Stock as to payment
of dividends, shall be entitled to receive on the last day of each calendar
quarter, cumulative dividends on the Series C Preferred Stock accruing on a
daily basis
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(computed on the basis of a 360-day year of twelve 30-day months) at the rate
per annum equal to the Dividend Rate (as defined herein) per share of Series C
Preferred Stock calculated as a percentage of $372.50, compounded quarterly,
from and including December 9, 1998 until the redemption or conversion of the
Series C Preferred Stock. Such dividends shall be paid in kind as herein
provided, except as otherwise provided in this Section 1(a) or in Sections 5 and
7 hereof, and will be paid whether or not they have been declared and whether or
not there are profits, surplus or other funds of the Corporation legally
available for the payment of dividends. Dividends on the Series C Preferred
Stock shall be paid in additional shares of Series C Preferred Stock valued at
$372.50 per share; provided that with respect to periods following a Change in
Control Triggering Event, dividends shall be paid quarterly in cash. For
purposes hereof, except as otherwise provided in Section 5(b) or 5(c), the
"Dividend Rate" shall mean (i) 9% per annum from the date of initial issuance of
the Series C Preferred Stock until the occurrence of a Change in Control
Triggering Event or December 9, 2008, (ii) 11 1/2% following a Change in Control
Triggering Event and prior to December 9, 2008, and (iii) 15% per annum from and
after December 9, 2008, regardless of whether a Change in Control Triggering
Event has occurred. Notwithstanding the foregoing, if the Board of Directors
determines in good faith for legal, tax or regulatory reasons or other good
reason that it is inappropriate or inadvisable to pay one or more dividends in
kind as described above, the Board of Directors of the Corporation, by a vote of
80% of the members of the Board of Directors (which 80% must include a majority
of the directors elected by the holders of Series C Preferred Stock, if there
are any such directors so elected), may determine to pay such dividend in cash,
debt securities, convertible securities or other securities or property of the
Corporation or any combination thereof so long as, in the reasonable opinion of
the Board of Directors, such dividends, at the time of declaration, shall be
substantially economically equivalent to the in kind dividend that would have
been declared; provided, however, that if there are no directors elected or
designated by the holders of Series C Preferred Stock, no such determination to
pay dividends other than in kind shall be permitted without the affirmative
consent of the holders of a majority of the Series C Preferred Stock then
outstanding. In making such determination, the Board may rely upon the advice or
report of independent legal and financial advisors or other experts.
(b) In case the Corporation or any Subsidiary of the Corporation shall
at any time or from time to time declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of stock or other
securities or property or rights or warrants to subscribe for securities of the
Corporation or any of its Subsidiaries by way of dividend or spin off) on the
Common Stock or Non-Voting Stock, other than any dividend or distribution of
shares of Common Stock or Non-Voting Stock covered by paragraph (b)(i) of
Section 8 hereof and other than a redemption of rights to purchase Series A
Junior Participating Preferred Stock for a redemption amount not greater than
$.01 per right attached to each share of Common Stock, then, and in each such
case (a "Triggering Distribution"), the holders of shares of Series C Preferred
Stock shall be entitled to receive from the Corporation, with respect to each
share of Series C Preferred Stock held, in addition to the dividends payable
under paragraph (a) of this Section 2, the same dividend or distribution
received by a holder of the number of shares of Common Stock or Non-Voting Stock
into which such share of Series C Preferred Stock is
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convertible on the record date for such dividend or distribution. Any such
dividend or distribution shall be declared, ordered, paid or made on the Series
C Preferred Stock at the same time such dividend or distribution is declared,
ordered, paid or made on the Common Stock or Non-Voting Stock and shall be in
addition to any dividends payable under paragraph (a) of this Section 2.
(c) Notwithstanding the provisions of paragraph (a) and paragraph
(b) of this Section 2 or any other applicable provisions hereof, the holders of
the shares of Series C Preferred Stock shall not be entitled to receive from the
Corporation dividends on the Series C Preferred Stock, other than pay-in-kind
dividends pursuant to paragraph (a) of Section 2 or the last sentence of this
paragraph (c) or dividends paid in Common Stock or Non-Voting Stock or dividends
declared and paid only out of the net earnings in respect of the year of such
declaration; provided, however, that this paragraph (c) shall not apply at any
time following the payment in full of the Corporation's 10% Senior Notes due
2004 and the Corporation's Senior Notes due 2006, issued in July, 1999. If the
holders of the shares of Series C Preferred Stock will not receive cash
dividends on the Series C Preferred Stock pursuant to paragraph (b) of this
Section 2, cash dividends shall not be declared and paid on the Common Stock
except to the extent that cash dividends can also be declared and paid on the
Series C Preferred Stock in accordance with such paragraph (b). If cash
dividends payable pursuant to paragraph (a) of this Section 2 following a Change
in Control Triggering Event are not paid in cash by reason of the provisions of
this paragraph (c), then such dividends shall be paid in additional shares of
Series C Preferred Stock valued at $372.50 per share.
Section 3. Voting Rights.
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In addition to any voting rights provided elsewhere herein, and any voting
rights provided by law, the holders of shares of Series C Preferred Stock shall
have the following voting rights:
(a) So long as the Series C Preferred Stock is outstanding, each
share of Series C Preferred Stock shall entitle the holder thereof to vote on
all matters voted on by holders of the capital stock of the Corporation into
which such share of Series C Preferred Stock is convertible, voting together as
a single class with the other shares entitled to vote, at all meetings of the
stockholders of the Corporation, except that with respect to the election of
directors of the Corporation, holders of the Series C Preferred Stock shall have
only those voting rights specified in paragraphs (c) and (d) hereof. With
respect to any such vote, each share of Series C Preferred Stock shall entitle
the holder thereof to cast the number of votes equal to the number of votes
which could be cast in such vote by a holder of the shares of capital stock of
the Corporation into which such share of Series C Preferred Stock is convertible
on the record date for such vote or, if no such record date is established, on
the date any written consent of stockholders is solicited; provided, however,
that if such vote relates to a Change in Control, the liquidation, dissolution
or winding up of the Corporation or any other matter which, if approved would
entitle the holder thereof to receive on an accelerated basis any additional
shares of Series C Preferred Stock, then the number of votes such holder shall
be entitled to cast shall be the number of votes equal to the number of votes
which could be cast in such vote by a holder of shares of capital stock of the
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Corporation into which such share of Series C Preferred Stock (and any Series C
Preferred Stock that would be so received on an accelerated basis) would be
convertible (or, in the event of a Change in Control or liquidation, dissolution
or winding up, the number of shares of Common Stock that would be used to
determine the Liquidation Preference pursuant to clause (i)(A) of the definition
thereof if such Change in Control or liquidation, dissolution or winding up were
to occur).
(b) So long as any shares of Series C Preferred Stock shall be
outstanding and unless the consent or approval of a greater number of shares
shall then be required by law, without first obtaining the consent or approval
of the Requisite Holders (as defined below), voting as a single class, given in
person or by proxy at a meeting at which the holders of such shares shall be
entitled to vote separately as a class, or by written consent, the Corporation
shall not: (i) authorize, create or issue any class or series, or any shares of
any class or series, of stock having any preference or priority as to voting,
dividends or upon redemption, liquidation, dissolution, or winding up over the
Series C Preferred Stock ("Senior Stock"); (ii) authorize, create or issue any
class or series, or any shares of any class or series, of stock ranking on a
parity as to voting, dividends or upon redemption, liquidation, dissolution or
winding up with the Series C Preferred Stock ("Parity Stock"); (iii) reclassify
any shares of stock of the Corporation into shares of Senior Stock or Parity
Stock; (iv) authorize any security exchangeable for, convertible into, or
evidencing the right to purchase any shares of Senior Stock or Parity Stock; (v)
alter or change the rights, preferences or privileges of the Series C Preferred
Stock; (vi) increase or decrease the authorized number of shares of Series C
Preferred Stock or issue shares of Series C Preferred Stock other than to
holders of Series C Preferred Stock pursuant to its terms; or (vii) amend or
waive any provision of the Corporation's Certification of Incorporation or
bylaws in a manner adverse in any material respect to the holders of Series C
Preferred Stock; provided, however, that nothing herein shall prohibit the
Company from distributing rights pursuant to the terms of that certain Rights
Agreement, dated as of September 10, 1998 between the Company and Norwest Bank
Minnesota, National Association, as Rights Agent, as such Agreement is in effect
on the Closing Date of the Securities Purchase Agreement or pursuant to a
similar rights plan approved by the Board of Directors of the Corporation. For
purposes hereof, the "Requisite Holders" shall mean the holders of a majority of
the then-outstanding shares of Series C Preferred Stock.
(c) So long as the initial purchasers of Series C Preferred Stock or
their Affiliates own at least 25% of the shares of Series C Preferred Stock
purchased by them under the Securities Purchase Agreement or shares of Common
Stock issued upon conversion thereof, then the size of the Company's Board of
Directors shall be set at eleven (11) and the Requisite Holders shall be
entitled to elect four (4) directors. So long as the initial purchasers of the
Series C Preferred Stock or their Affiliates own less than 25% of the shares but
at least 10% of the shares of Series C Preferred Stock purchased by them under
the Securities Purchase Agreement or the shares of Common Stock issuable upon
conversion thereof, then the Requisite Holders shall be entitled to elect one
(1) director. At such time as the initial purchasers of the Series C Preferred
Stock or their Affiliates own less than 10% of the shares of Series C Preferred
Stock purchased
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by them under the Securities Purchase Agreement or the shares of Common Stock
issuable upon conversion thereof, then the right of the Requisite Holders to
elect directors under this Section 3(c) shall terminate, except as provided
below. So long as it shall own any shares of Series C Preferred Stock or any
shares of Common Stock issued upon conversion thereof, and the holders of
Preferred Shares shall be entitled to elect at least four directors, Thomas H.
Lee Equity Fund IV, L.P. ("Fund IV") shall have the right to appoint one (1) of
the four directors. If Fund IV does not exercise such right, the Requisite
Holders shall be entitled to elect all four directors. In the event that within
90 days of the Exchange Date (as defined in the certain Securities Purchase
Agreement), the initial purchasers thereunder sell or transfer Series C
Preferred Stock with an original aggregate Conversion Value equal to or greater
than $25 million to an unaffiliated person or group, then such original
purchasers and such unaffiliated person or group shall be treated as though they
were the original purchasers under the Securities Purchase Agreement of that
number of shares of Series C Preferred Stock owned by them immediately following
such sale and, if consented to by the Requisite Holders at the time of such
transfer, for so long as such person or group owns Series C Preferred Stock with
an aggregate Conversion Value equal to or greater than $10 million then such
person or group shall be entitled to designate one of the directors elected by
the Series C Preferred Stock during any period the Series C Preferred Stock is
entitled to elect four or more directors. In the event of a default under the
Corporation's principal credit facility or any other instrument or instruments
governing more than $20,000,000 of indebtedness of the Corporation or its
Subsidiaries, which default, with the passage of time or the delivery of notice,
or both, entitles the holders of such indebtedness to accelerate the maturity of
such indebtedness and which default is not cured or waived within sixty (60)
days (a "Material Default"), the Requisite Holders shall be entitled to elect up
to a majority of the Corporation's Board of Directors for as long as such
Material Default remains uncured or waived and for a period of six months
thereafter; provided, however, that from and after the second Material Default
the Requisite Holders shall be entitled to elect up to a majority of the
Corporation's Board of Directors notwithstanding any cure or waiver. The
Corporation shall provide the holders of Series C Preferred Stock with prompt
notice of the Corporation becoming aware of any default which, after the passage
of time or the delivery of notice or both, could become a Material Default. In
the event of a Material Default, the Corporation shall take whatever actions are
necessary in order to allow the Requisite Holders to elect, as promptly as
practicable, a majority of the Board of Directors as contemplated hereby.
(d) Notwithstanding anything to the contrary contained herein, in no
event shall the Series C Preferred Stock permit a holder or holders thereof to
vote as part of a single class with the shares of capital stock into which the
Series C Preferred Stock is convertible to the extent that such voting right
would cause such holder or holders, including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act to which such holder belongs, to vote more than
the Maximum Percentage of the shares entitled to vote on such matter. In
addition, notwithstanding anything to the contrary set forth herein, in the
event holders of Series C Preferred Stock convert such shares into Common Stock,
and hold such Common Stock at a time when they also have a right to elect
directors, voting as a separate class, then the number of directors which they
may elect as a class
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shall be reduced to that number which, when added to the Cumulative Number of
Directors (as herein defined) is less than half of the total number of
Directors. The Cumulative Number of Directors shall mean that number of
Directors, rounded up to the nearest whole number, equal to the number of
directors subject to election by the holders of Common Stock (after giving
effect to any increase required by the immediately preceding sentence)
multiplied by a fraction, the numerator of which is the sum of all shares of
Common Stock held by holders of Series C Preferred Stock as of the date of
determination and, without duplication, the Reserved Shares and the denominator
of which is the sum of all outstanding shares of Common Stock as of the date of
determination and, without duplication, the Reserved Shares. "Reserved Shares"
shall mean that number of shares of Common Stock reserved as of September 25,
1998 by the Corporation for issuance with respect to options to purchase shares
of Common Stock from the Corporation, subject to appropriate adjustment for
stock splits, stock dividends and other events giving rise to adjustment of
shares subject to such options.
(e) Except as provided in this Amended Certificate of Designation of
Series C Preferred Stock (including, without limitation, the right to vote with
the Common Stock on all matters submitted to a vote of stockholders of the
Corporation as set forth in paragraphs (a) and (b) of this Section 3, subject to
the limitation contained in this paragraph (e)) or as required by law, the
holders of shares of Series C Preferred Stock shall have no voting rights and
their consent shall not be required for the taking of any corporate action.
Section 4. Certain Restrictions.
--------------------
(a) Whenever the Corporation shall have not redeemed the shares of
Series C Preferred Stock within five (5) Business Days of the date such
redemption is required by Section 5 (a "Redemption Default"), thereafter and
until all redemption payments shall have been made or all necessary funds shall
have been Set Apart for Payment, and at all times following a Change in Control
Triggering Event, if and so long as any shares of Series C Preferred Stock
remain outstanding, the Corporation shall not, nor shall it permit any of its
Subsidiaries to: (A) declare or pay dividends, or make any other distributions,
on any shares of Common Stock or Non-Voting Stock or other capital stock of the
Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock, other than dividends
or distribution payable in Junior Stock; (B) declare or pay dividends, or make
any other distributions, on any shares of Parity Stock, other than dividends or
distributions payable in Junior Stock, except dividends paid ratably on the
Series C Preferred Stock and all Parity Stock on which dividends are payable or
in arrears, in proportion to the total amounts to which the holders of all such
shares are then entitled; (C) redeem or purchase or otherwise acquire for
consideration (other than Junior Stock) any shares of Junior Stock or Parity
Stock (other than, with respect to Parity Stock, ratably with the Series C
Preferred Stock); or (D) purchase or otherwise acquire for consideration any
shares of Series C Preferred Stock, other than purchases ratably among all
holders of the Series C Preferred Stock.
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(b) The Corporation shall not permit any Subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
capital stock of the Corporation unless the Corporation could, pursuant to
paragraph (a) of this Section 4, purchase or otherwise acquire such shares at
such time and in such manner.
Section 5. Redemption.
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(a) Except as provided in this Section 5(a), the Corporation shall
have no right to redeem any shares of Series C Preferred Stock. If at any time
after December 31, 2001, both (i) the average Trading Price per share of Common
Stock equals or exceeds $64.00 (appropriately adjusted to reflect the occurrence
of any event described in subparagraph (i) of paragraph (b) of Section 8) for
the twenty Trading Days immediately preceding the date of determination and (ii)
the Corporation's unsecured debt securities shall have ratings equal to or
better than Baa3 from Moody's Investor Services and BBB- from Standard & Poor's
Corporation, then during such time as the criteria set forth as clauses (i) and
(ii) shall continue to be met, the Corporation shall have the right, at its
sole option and election, to redeem all, but not less than all, of the
outstanding shares of Series C Preferred Stock by paying therefor in cash 103%
of (x) $372.50 per share, plus (y) all Accrued Dividends thereon to the date of
redemption. In addition, from and after December 9, 2008, the Corporation shall
have the right, at its sole option and election, to redeem all, but not less
than all, of the outstanding shares of Series C Preferred Stock by paying
therefor in cash (x) $372.50 per share, plus (y) all Accrued Dividends thereon
to the date of redemption. Notwithstanding the foregoing requirement that any
such redemption shall be for all, but not less than all, shares of Series C
Preferred Stock, if any such redemption of less than all of the outstanding
shares of Series C Preferred Stock would not result in the Redemption Price
being treated as a dividend (as opposed to a capital transaction) by the holders
of Series C Preferred Stock, then the Corporation shall have the right to make
such a redemption of less than all of the outstanding shares of Series C
Preferred Stock pro rata from each of the holders thereof. Notwithstanding the
provisions of this Section 5(a), the Corporation shall have no right to redeem
the shares of Preferred Stock pursuant to this Section 5(a) until the
Corporation shall have reserved from its authorized and unissued Common Stock
and Non-Voting Stock such number of shares of Common Stock and Non-Voting Stock
as shall be sufficient to effect the conversion of all then outstanding shares
of Series C Preferred Stock into Common Stock or Non-Voting Stock, as the case
may be.
(b) In the event there occurs a Change in Control, the Corporation
shall have the right to offer to purchase from each holder all, but not less
than all, of the Series C Preferred Stock held by such holder for an amount
equal to 101% of the Liquidation Preference by delivery of a notice of such
offer (a "Change in Control Redemption Offer") within five days of the Change in
Control. In the event the Corporation makes a Change in Control Redemption
Offer, each holder of Series C Preferred Stock shall have the right (but not the
obligation) to require the Corporation to purchase all, but not less than all,
of the Series C Preferred Stock held by such holder for an amount equal to 101%
of the Liquidation Preference. In the event there occurs a Change in Control
and the Corporation does not make a Change in Control Redemption Offer in
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accordance with this paragraph (a "Change in Control Triggering Event"), then
effective as of the date of such Change in Control:
(i) Each holder of Series C Preferred Stock shall be entitled to
receive a distribution of additional shares of Series C Preferred Stock such
that the total number of shares of Series C Preferred Stock held by such holder
as of the date of the Change in Control shall equal the Liquidation Preference
divided by $372.50;
(ii) Without the consent of the holders of a majority of the
outstanding shares of the Series C Preferred Stock, the Corporation will not,
and will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and the Corporation and its Subsidiaries
will not issue any Disqualified Stock, and the Corporation will not permit any
of its Subsidiaries to issue any shares of preferred stock, provided, however,
that the Corporation and its Subsidiaries may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock or the Corporation's
Subsidiaries may issue shares of preferred stock if the Consolidated Leverage
Ratio of the Corporation, calculated on a pro forma basis after giving effect to
the incurrence of the additional Indebtedness to be incurred or the Disqualified
Stock or preferred stock to be issued and the application of the proceeds
therefrom, would have been less than 2 to 1. Notwithstanding this subparagraph
(ii), the Corporation may incur the following Indebtedness (collectively,
"Permitted Debt"):
A. Indebtedness of the Corporation under the Credit Agreement and
Guaranties thereof by the Corporations's Subsidiaries in an
aggregate amount not to exceed $300 million at any time
outstanding;
B. Indebtedness of the Corporation and its Subsidiaries existing on
December 9, 1998;
C. Indebtedness of any Subsidiary of the Corporation represented by
a guaranty of Indebtedness of the Corporation which constitutes
Permitted Debt;
D. Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance, defease, renew
or replace, any Indebtedness (other than intercompany
Indebtedness) that was permitted to be incurred under this
subparagraph (ii);
E. Intercompany Indebtedness of the Subsidiary of the Corporation
owing to the Corporation; provided, however, that any sale or
other transfer of any such Indebtedness to a person that is not
the Corporation shall be deemed,
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in each case, to constitute an incurrence of such Indebtedness by
such Subsidiary that was not permitted by this clause (E);
F. The issuance by a Subsidiary of the Corporation of preferred
stock to the Corporation; provided, however, that any subsequent
transfer of such preferred stock to a person other than the
Corporation shall be deemed to be an issuance of preferred stock
by such Subsidiary that was not permitted by this clause (F).
G. Hedging Obligations that are incurred in the ordinary course of
business;
H. Capital Lease Obligations and/or Purchase Money Indebtedness of
the Corporation or a Subsidiary of the Corporation incurred in
the ordinary course of business not to exceed $30.0 million at
any time outstanding;
I. The guarantee by the Corporation or any of its Subsidiaries of
Indebtedness of the Corporation or a Subsidiary of the
Corporation that was permitted to be incurred by another
provision of this clause (I);
J. Additional Indebtedness of the Corporation and its Subsidiaries
in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (J), not
to exceed $10.0 million at any time outstanding.
Notwithstanding anything in this subparagraph (ii) to the contrary,
consummation of a Securitization shall not be deemed to be the incurrence
of Indebtedness or the issuance of Disqualified Stock or preferred stock by
the Corporation or a Subsidiary of the Corporation. For purposes of
determining compliance with this subparagraph (ii), in the event that an
item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (A) through (J) above or is entitled
to be incurred pursuant to the first paragraph of this subparagraph (ii),
the Corporation shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this subparagraph (ii) and
such item of Indebtedness will be treated as having been incurred pursuant
to only one of such clauses or pursuant to the first paragraph hereof.
(iii) Without the consent of the holders of a majority of the
outstanding shares of Series C Preferred Stock, (i) the Corporation shall not
permit the Leverage Ratio at any time to exceed 6 to 1; and (ii) the Corporation
shall not permit the amount of Unsecured Indebtedness of the Corporation and its
subsidiaries to exceed $25,000,000 in the aggregate at any time outstanding.
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If the Corporation shall fail to comply with any one or more of the
provisions of this paragraph 5(b) or, following a Change in Control Triggering
Event, the provisions of paragraph 2(a) requiring the payment of a cash dividend
or the provisions of Section 4, then in any such event, (i) the Dividend Rate
shall be increased by 2% per annum above the Dividend Rate which otherwise would
be in effect and (ii) at any time following the 91st day after the maturity or
payment in full of the Corporation's 10% Senior Notes due 2004 issued pursuant
to the Indenture, the holders of a majority of the shares of Series C Preferred
Stock shall be entitled to require the Corporation to redeem all outstanding
shares of Series C Preferred Stock for an amount equal to 101% of the
Liquidation Preference.
(c) (i) Notice of any redemption of shares of Series C Preferred
Stock pursuant to paragraph (a) of this Section 5 shall be mailed at least
thirty, but no more than sixty, days prior to the date fixed for redemption to
each holder of shares of Series C Preferred Stock to be redeemed, at such
holder's address as it appears on the transfer books of the Corporation. No
redemption of shares of Series C Preferred Stock pursuant to paragraph (c) of
this Section 5 shall take place unless such notice shall have been mailed in
accordance with this subparagraph (c)(i). In order to facilitate the redemption
of shares of Series C Preferred Stock, the Board of Directors may fix a record
date for the determination of shares of Series C Preferred Stock to be redeemed,
not more than sixty days nor less than thirty days prior to the date fixed for
such redemption.
(ii) Within 20 Business Days of an event giving a holder of
shares of Series C Preferred Stock the right, pursuant to paragraph (b) of this
Section 5, to require the Corporation to redeem any of such shares, the
Corporation shall give notice by mail to each holder of Series C Preferred
Stock, at such holder's address as it appears on the transfer books of the
Corporation, of such event, which notice shall set forth each holder's right to
require the Corporation to redeem any or all shares of Series C Preferred Stock
held by it which are eligible for redemption pursuant to the terms of paragraph
(b) the redemption date (which date shall be thirty (30) Business Days following
the date of such mailed notice), and the procedures to be followed by such
holder in exercising its right to cause such redemption. In the event a record
holder of shares of Series C Preferred Stock shall elect to require the
Corporation to redeem any or all such shares of Series C Preferred Stock
pursuant to paragraph (b) of this Section 5, such holder shall deliver within
twenty Business Days of the mailing to it of the Corporation's notice described
in this subparagraph (ii), a written notice to the Corporation so stating,
specifying the number of shares to be redeemed pursuant to paragraph (b) of this
Section 5. The Corporation shall, in accordance with the terms hereof, redeem
the number of shares so specified on the date fixed for redemption, which will
be no later than thirty Business Days following receipt by the Corporation of a
holder's election to redeem the shares of Series C Preferred Stock. Failure of
the Corporation to give any notice required by this subparagraph (ii), or the
formal insufficiency of any such notice, shall not prejudice the rights of any
holders of shares of Series C Preferred Stock to cause the Corporation to redeem
any such shares held by them and, in the event of any such failure or
immediately after there has arisen a right on the part of the holders of Series
C Preferred Stock to compel redemption under Section 5(b) following a Change in
Control Triggering Event, the holders of a majority of the shares of Series C
Preferred Stock outstanding
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shall be entitled to exercise their right to cause the Corporation to redeem all
such shares held by delivery of written notice to such effect by such holders to
the Corporation and such shares shall be redeemed upon receipt of such notice by
the Corporation. Notwithstanding the foregoing, the Board of Directors of the
Corporation may modify any offer pursuant to this Section 5(c)(ii) to the extent
necessary to comply with the Exchange Act and the rules and regulations
thereunder.
(iii) The Corporation shall publish the fact that it is
redeeming, or offering to redeem, shares of Series C Preferred Stock through a
nationally prominent newswire service on the date of mailing any notice of
redemption or right of redemption. At any time after a notice of redemption
shall have been mailed and before such date of redemption the Corporation may
deposit for the benefit of the holders of the Series C Preferred Stock called
for redemption the funds necessary for such redemption with a bank or trust
company doing business in the Borough of Manhattan, the City of New York, and
having a capital and surplus of at least $1,000,000,000. Any interest allowed on
moneys so deposited shall be paid to the Corporation. Upon the deposit of such
funds or, if no such deposit is made, upon the date fixed for redemption (unless
the Corporation shall default in making payment of the appropriate redemption
amount), whether or not certificates for shares so called for redemption have
been surrendered for cancellation, the shares of Series C Preferred Stock to be
redeemed shall be deemed to be no longer outstanding and the holders thereof
shall cease to be stockholders with respect to such shares and shall have no
rights with respect thereto, except for the rights to receive the amount payable
upon redemption, but without interest, and, up to the close of business on the
date immediately preceding the date fixed for such redemption, the right to
convert such shares pursuant to Section 8 hereof. Such deposit in trust shall be
irrevocable except that any funds deposited by the Corporation which shall not
be required for the redemption for which they were deposited because of the
exercise of conversion rights shall be returned to the Corporation forthwith,
and any funds deposited by the Corporation which are unclaimed at the end of one
year from the date fixed for such redemption shall be paid over to the
Corporation upon its request, and upon such repayment the holders of the shares
of Series C Preferred Stock so called for redemption shall look only to the
Corporation for payment of the appropriate amount. Any such unclaimed amounts
paid over to the Corporation shall, for a period of six years from the date
fixed for such redemption, be set apart and held by the corporation in trust for
the benefit of the holders of such shares of Series C Preferred Stock, but no
such holder shall be entitled to interest thereon. At the expiration of such
six-year period, all right, title, interest and claim of such holders in or to
such unclaimed amounts shall be extinguished, terminated and discharged, and
such unclaimed amounts shall become part of the general funds of the Corporation
free of any claim of such holders. If the Corporation shall have not redeemed
the shares of Series C Preferred Stock within five Business Days of the date
such redemption is required by this Section 5, all redemption payments that are
past due shall accrue interest at an annual rate of fifteen percent (15%),
compounded quarterly.
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Section 6. Reacquired Shares.
-----------------
Any shares of Series C Preferred Stock converted, redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof, and, if necessary to
provide for the lawful redemption or purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the General
Corporation Law of the State of Delaware. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock, par value
$.01 per share, of the Corporation and may be reissued as part of another series
of Preferred Stock, par value $.01 per share, of the Corporation subject to the
conditions or restrictions on authorizing, or creating or issuing any class or
series, or any shares of any class or series, set forth in paragraph (b) of
Section 3.
Section 7. Liquidation, Dissolution or Winding Up.
--------------------------------------
If the Corporation shall adopt a plan of liquidation or of dissolution, or
commence a voluntary case under the Federal bankruptcy laws or any other
applicable state or Federal bankruptcy, insolvency or similar law, or consent to
the entry of an order for relief in any involuntary case under any such law or
to the appointment of a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of the Corporation or of any substantial part
of its property, or make an assignment for the benefit of its creditors, or
admit in writing its inability to pay its debts generally as they become due, or
if a decree or order for relief in respect of the Corporation shall be entered
by a court having jurisdiction in the premises in an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order shall be unstayed and
in effect for a period of 90 consecutive days and on account of such event the
Corporation shall liquidate, dissolve or wind up, or upon any other liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (i)
to the holders of shares of Junior Stock, unless prior thereto, the holders of
shares of Series C Preferred Stock shall have received in cash the Liquidation
Preference, or (ii) to the holders of shares of Parity Stock, except
distributions made ratably on the Series C Preferred Stock and all such Parity
Stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up of the
Corporation. For the purposes of this Section 7, the voluntary sale,
conveyance, exchange or transfer of all or substantially all of the property or
assets of the Corporation or the consolidation or merger of the Corporation with
or into one or more other corporations shall not be deemed to be a liquidation,
winding-up or dissolution of the Corporation.
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<PAGE>
Section 8. Conversion.
----------
Each share of Series C Preferred Stock may, at the option of the holder
thereof, be converted into shares of Common Stock or, if applicable, Non-Voting
Stock at any time, whether or not the Corporation has given notice of redemption
under Section 5, on the terms and conditions set forth in this Section 8. In
addition, if at any time after December 9, 2005, the Trading Price per share of
Common Stock equals or exceeds $64.00 (appropriately adjusted to reflect the
occurrence of any event described in subparagraph (ii) of paragraph (b) of
Section 8) for at least twenty (20) consecutive Trading Days, then all shares of
Series C Preferred Stock shall automatically be converted into shares of Common
Stock (and rights to acquire shares of Series A Junior Participating Preferred
Stock on a basis no less favorable than that which applies to any other shares
of Common Stock) or, if applicable, Non-Voting Stock on the terms and conditions
as set forth in this Section 8.
(a) Subject to paragraph (h) below and to the provisions for
adjustment hereinafter set forth, each share of Series C Preferred Stock shall
be convertible in the manner hereinafter set forth into a number of fully paid
and nonassessable shares of Common Stock equal to the product obtained by
multiplying the Applicable Conversion Rate by the number of shares of Series C
Preferred Stock being converted. The Applicable Conversion Rate shall be the
quotient obtained by dividing the Conversion Value on the date of conversion by
the applicable Conversion Price.
(b) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time or from time to
time after the original issuance of the Series C Preferred Stock declare a
dividend, or make a distribution, on the outstanding shares of Common Stock in
either case, in shares of Common Stock, or effect a subdivision, combination,
consolidation or reclassification of the outstanding shares of Common Stock into
a greater or lesser number of shares of Common Stock, then, and in each such
case, the Conversion Price in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted by multiplying the
Conversion Price by a fraction, the numerator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this clause (i)
shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification,
consolidation or combination, at the close of business on the day upon which
such corporate action becomes effective.
(ii) In case the Corporation shall issue shares of Common Stock
(or options, rights or warrants or other securities convertible into or
exchangeable for shares of
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<PAGE>
Common Stock) at a price per share (or having an exercise or conversion price
per share) less than the Conversion Price as of the date of issuance of such
shares (or of such options, rights, warrants or other convertible securities),
other than (x) in a transaction to which paragraph (b) of Section 2 or
subparagraph (i) of this paragraph (b) is applicable, (y) pursuant to any
employee benefit plan or program of the Corporation approved by the Requisite
Holders, or (z) pursuant to the exercise of the options, warrants or other
convertible securities set forth on Schedule 3.02 to the Securities Purchase
Agreement (the issuances under clauses (x), (y) and (z) being referred to as
"Excluded Issuances"), then, and in each such case, the Conversion Price in
effect immediately prior to such event shall be lowered so as to be equal to an
amount determined by dividing the aggregate consideration received by the
Corporation in connection with such issuance by the total number of shares of
Common Stock so issued (or into which the options, rights, warrants or other
convertible securities may convert). For purposes of this subparagraph, the
aggregate consideration receivable by the Corporation in connection with the
issuance of shares of Common Stock or of options, rights, warrants or other
convertible securities shall be deemed to be equal to the sum of the gross
offering price (before deduction of underwriting discounts or commissions and
expenses payable to third parties) of all such securities plus the minimum
aggregate amount, if any, payable upon conversion of any such options, rights,
warrants or other convertible securities into shares of Common Stock, less any
original issue discount, premiums and other similar incentives which have the
effect of reducing the effective price per share. Such adjustment shall become
effective immediately after the date of such issuance for purposes of this
clause (ii).
(iii) In addition to the foregoing adjustments in subsections (i)
and (ii) above, the Corporation will be permitted to make such reductions in the
Conversion Price as it considers to be advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights will not
be taxable to the holders of the shares of Common Stock.
(iv) In any case in which this Section 8 shall require that an
adjustment (including by reason of the last sentence of subsection (i) above) be
made immediately following a record date, the Corporation may elect to defer the
effectiveness of such adjustment (but in no event until a date later than the
effective time of the event giving rise to such adjustment), in which case the
Corporation shall, with respect to any share of Series C Preferred Stock
converted after such record date and on and before such adjustment shall have
become effective (i) defer paying any cash payment pursuant to Section 8(f)
hereof or issuing to the holder of such shares of Series C Preferred Stock the
number of shares of Common Stock and other capital stock of the Corporation (or
other assets or securities) issuable upon such conversion in excess of the
number of shares of Common Stock and other capital stock of the Corporation
issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (ii) not later than five Business Days after such adjustment
shall have become effective, pay to such holder the appropriate cash payment
pursuant to Section 8(f) hereof and issue to such holder the additional shares
of Common Stock and other capital stock of the Corporation issuable on such
conversion.
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<PAGE>
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 0.1% of
the Conversion Price; provided, that any adjustments which by reason of this
subsection (v) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section 8
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(c) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (b) (i) of this Section 8), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series C Preferred Stock then outstanding
shall thereafter be convertible into, in lieu of the Common Stock issuable upon
such conversion prior to the consummation of such Transaction, the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon the consummation of such transaction by a holder of that number
of shares of Common Stock into which one share of Series C Preferred Stock was
convertible immediately prior to such Transaction (including, on a pro rata
basis, the cash, securities or property received by holders of Common Stock in
any tender or exchange offer that is a step in such Transaction). In any such
case, if necessary, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 8 with respect to rights and interests thereafter of the holders of
shares of Series C Preferred Stock to the end that the provisions set forth
herein for the protection of the conversion rights of the Series C Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the shares of Series C Preferred Stock remaining outstanding (with
such adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine to be appropriate). In case securities or property
other than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this Section 8 shall be deemed to apply, so
far as appropriate and as nearly as may be, to such other securities or
property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person (as defined in Section 10) thereof shall assume, by written
instrument mailed to each record holder of shares of Series C Preferred Stock,
at such holder's address as it appears on the transfer books of the Corporation,
the obligation to deliver to such holder such cash and such securities to which,
in accordance with the foregoing provisions, such holder is entitled. Nothing
contained in this paragraph (c) shall limit the rights of holders of the Series
C Preferred Stock to convert the Series C Preferred Stock in connection with the
Transaction or to exercise their rights to require the redemption of the Series
C Preferred Stock under Section 5(b).
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<PAGE>
(d) The holder of any shares of Series C Preferred Stock may exercise
its right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other office
or agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series C Preferred Stock to be converted
duly endorsed to the Corporation in blank accompanied by a written notice
stating that such holder elects to convert all or a specified whole number of
such shares in accordance with the provisions of this Section 8. The
Corporation will pay any and all issue and other taxes (other than taxes based
on income) that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series C Preferred Stock pursuant hereto. As
promptly as practicable, and in any event within three Business Days after the
surrender of such certificate or certificates and the receipt of such notice
relating thereto and, if applicable, payment of all transfer taxes (or the
demonstration to the satisfaction of the Corporation that such taxes have been
paid), the Corporation shall deliver or cause to be delivered (i) certificates
registered in the name of such holder representing the number of validly issued,
fully paid and nonassessable full shares of Common Stock to which the holder of
shares of Series C Preferred Stock so converted shall be entitled and (ii) if
less than the full number of shares of Series C Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversion shall be deemed to have been made at the close of business on
the date of receipt of such notice and of such surrender of the certificate or
certificates representing the shares of Series C Preferred Stock to be converted
so that the rights of the holder thereof as to the shares being converted shall
cease except for the right to receive shares of Common Stock and any declared
but unpaid dividends in accordance herewith, and the person entitled to receive
the shares of Common Stock shall be treated for all purposes as having become
the record holder of such shares of Common Stock at such time.
(e) Shares of Series C Preferred Stock may be converted at any time
and, if subject to mandatory redemption, up to the close of business on the last
Business Day immediately preceding the date fixed for such mandatory redemption
of such shares.
(f) In connection with the conversion of any shares of Series C
Preferred Stock, no fractions of shares of Common Stock shall be issued, but in
lieu thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Current Market Price per share of Common Stock on the day on which such
shares of Series C Preferred Stock are deemed to have been converted.
(g) In case at any time or from time to time the Corporation shall
pay any dividend or make any other distribution to the holders of its Common
Stock, or shall offer for subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class or any other right, or there
shall be any capital reorganization or reclassification of the Common Stock of
the Corporation or consolidation or merger of the Corporation with or into
another corporation, or any sale or conveyance to another corporation of the
property of the
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<PAGE>
Corporation as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, then, in any one or more of said cases the Corporation shall give
at least 20 days' prior written notice (the time of mailing of such notice shall
be deemed to be the time of giving thereof) to the registered holders of the
Series C Preferred Stock at the addresses of each as shown on the books of the
Corporation of the date on which (i) the books of the corporation shall close or
a record shall be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale or conveyance, dissolution, liquidation or winding up shall take place, as
the case may be, provided that in the case of any Transaction to which paragraph
(c) applies the Corporation shall give at lest 30 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which the holders of
the Common Stock and of the Series C Preferred Stock of record shall participate
in said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock or Series C Preferred Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance, or participate in such dissolution, liquidation or
winding up, as the case may be.
(h) Notwithstanding any other provision contained in this Section (8) to
the contrary, no shares of Series C Preferred Stock may be converted by a holder
thereof into Common Stock unless, after giving effect to such conversion, such
holder, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, except that
such holder and any such group shall be deemed to beneficially own all shares
that such holder or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise) a number of shares of Common Stock which represents
greater than the Maximum Percentage of the voting power represented by the
shares of the Corporation entitled to vote with the Common Stock at all meetings
of the stockholders of the Corporation. In the event any shares of Series C
Preferred Stock are at any time unable to be converted into shares of Common
Stock pursuant to the restriction contained in this paragraph (h), then such
shares of Series C Preferred Stock shall be convertible instead into that number
of shares of Non-Voting Stock (as defined herein) as shall equal the number of
shares of Common Stock that such Series C Preferred Stock would have been
convertible if not for the restrictions contained in this paragraph (h).
Section 9. Reports as to Adjustments.
--------------------------
Whenever the number of shares of Common Stock into which each share of
Series C Preferred Stock is convertible (or the number of votes to which each
share of Series C Preferred Stock is entitled) is adjusted as provided in
Section 8 hereof, the Corporation shall promptly mail to the holders of record
of the outstanding shares of Series C Preferred Stock at their respective
addresses as the same shall appear in the Corporation's stock records a notice
stating that the number of shares of Common Stock into which the shares of
Series C Preferred Stock are convertible has been adjusted and setting forth the
new number of shares of Common Stock (or
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describing the new stock, securities, cash or other property) into which each
share of Series C Preferred Stock is convertible, as a result of such
adjustment, a brief statement of the facts requiring such adjustment and the
computation thereof, and when such adjustment became effective.
Section 10. Definitions.
-----------
For the purposes of the Amended and Restated Certificate of Designation of
Series C Perpetual Convertible Preferred Stock which embodies this resolution:
"Accrued Dividends" to a particular date (the "Applicable Date") means (i)
all dividends accrued but not paid on the Series C Preferred Stock pursuant to
paragraph (a) of Section 2, whether or not declared, accrued to the Applicable
Date, plus (ii) all dividends or distributions payable pursuant to paragraph (b)
of Section 2 for which the Triggering Distribution was declared, ordered, paid
or made on or prior to the Applicable Date.
"Acquired Debt" means, with respect to any specified person, (i)
Indebtedness of any other person existing at the time such other person is
merged with or into or became a Subsidiary of such specified person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person, and (ii) Indebtedness secured by a lien
encumbering any asset acquired by such specified person.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.
"Approval Date" shall have the meaning ascribed thereto in the Securities
Purchase Agreement.
"Business Day" means any day other than a Saturday, Sunday, or a day on
which commercial banks in the City of New York are authorized or obligated by
law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing person.
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<PAGE>
"Change in Control" shall mean any of the following:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the
Corporation, or any of its Subsidiaries, or any employee benefit plan or related
trust of the Corporation or any of its Subsidiaries or any Excluded Person or
Excluded Group (an "Acquiring Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent
(35%) or more of the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors; or
(b) during any period of 12 consecutive months after December 9,
1998, the individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Corporation (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board; provided
that (i) any individual becoming a director whose election, or nomination for
election by the Corporation's stockholders, was approved by a vote of the
stockholders having the right to designate such director (including, without
limitation, the exercise by the Requisite Holders of their right to elect
directors) and (ii) any director whose election to the Board or whose nomination
for election by the stockholders of the Corporation was approved by majority
vote of the Board of Directors of the Corporation, shall, in each such case, be
considered as though such individual were a member of the Incumbent Board, but
excluding, as a member of the Incumbent Board, any such individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Corporation (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) and further excluding any person who is an affiliate or associate (as those
terms are defined in the General Rules and Regulations under the Exchange Act)
of an Acquiring Person having or proposing to acquire beneficial ownership of
25% or more of the continued voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors; or
(c) the approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the individuals and entities who were the respective
beneficial owners of the voting securities of the Corporation immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than fifty percent (50%) of the combined voting power of the
--
then outstanding voting securities entitled to vote generally in the election of
directors of the Corporation resulting from such reorganization, merger or
consolidation; or
(d) the Corporation ceases to own, directly or indirectly, one
hundred percent (100%) of the capital stock of Direct Merchants Credit Card
Bank, National Association; or
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<PAGE>
(e) the sale or other disposition of all or substantially all the
assets of the Corporation in one transaction or series of related transactions;
or
(f) the occurrence of a "Change of Control" as defined in that
certain indenture (the "Indenture"), dated as of November 7, 1997, among Metris
Companies Inc., as issuer, the guarantors named therein and The First National
Bank of Chicago, as Trustee, but only if the Corporation is obligated to make an
Offer to Purchase outstanding 10% Notes governed thereby, so long as such
Indenture remains in effect; or
(g) the occurrence of a "Change of Control," as defined in the
Fingerhut Agreements (as defined in the Securities Purchase Agreement), which
has not been waived, so long as such Fingerhut Agreements remain in effect;
provided that the occurrence of any event identified in subparagraphs (a)
through (g) above that would otherwise be treated as a Change in Control shall
not constitute a Change in Control hereunder if (i) the Board of Directors of
the Corporation, by vote duly taken, and (ii) the holders of a majority of the
outstanding shares of Series C Preferred Stock, by written consent, shall so
determine.
Notwithstanding the foregoing, no Change in Control shall be deemed to
occur under paragraph (a) or (b) as a result of a sale by a holder of Series C
Preferred Stock to an acquiring person that causes the Acquiring Person to own
more than thirty-five percent (35%) of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors or permits the Acquiring Person to elect a majority of the
Board of Directors which is not approved by the Incumbent Board.
"Closing Price" per share of Common Stock on any date shall be the last
sale price, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported on the Nasdaq National
Market or in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or American Stock Exchange, as the case may be, or, if the Common Stock
is listed or admitted to trading on the New York Stock Exchange or American
Stock Exchange, or, if the Common Stock is not listed or admitted to trading on
any national securities exchange, the last quoted sale price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("NASDAQ") or such other system then in use, or, if
on any such date the Common Stock is not quoted by any such organization, the
average of the Closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock selected by the Board of
Directors and reasonably acceptable to the Requisite Holders.
"Consolidated Indebtedness" means, with respect to any person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such person and its Subsidiaries, plus (ii) the total amount of
Indebtedness of any other person, to the
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<PAGE>
extent that such Indebtedness has been Guaranteed by the referent person or one
or more of its Subsidiaries, plus (iii) the aggregate liquidation value of all
Disqualified Stock of such person and all preferred stock of Subsidiaries of
such person (other than, in the case of the Corporation, preferred stock of a
Subsidiary of the Corporation held by the Corporation or a Guarantor), in each
case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Leverage Ratio" means, with respect to any person, as of any
date of determination, the ratio of (i) the Consolidated Indebtedness of such
person as of such date excluding, however, all Hedging Obligations that
constitute Permitted Debt to (ii) the Consolidated Net Worth of such person as
of such date.
"Consolidated Net Worth" shall mean, as at any date of determination, the
consolidated stockholders' equity of the Corporation and its Subsidiaries, as
determined on a consolidated basis in conformity with GAAP consistently applied,
which consolidated stockholders' equity shall include the Series C Preferred
Stock.
"Consolidated Tangible Net Worth" shall mean, as at any date of
determination, Consolidated Net Worth less (to the extent reflected in
determining Consolidated Net Worth) the sum of (without duplication) (a) all
write-ups subsequent to March 31, 1998 in the book value of any asset by the
Corporation or any of its Subsidiaries, (b) all investments in persons that are
not consolidated Subsidiaries and (c) all unamortized debt discount and expense
(other than unamortized fees), unamortized deferred charges (except to the
extent offset by deferred income), goodwill, patents, trademarks, service marks,
trade names, anticipated future benefit of tax loss carry-forwards, copyrights,
organization or developmental expenses and other intangible assets.
"Credit Agreement" shall mean the Amended and Restated Credit Agreement,
dated as of June 30, 1998, among Metris Companies Inc., the Lenders named
therein and certain agents and co-agents named therein, including the Chase
Manhattan Bank, as Administrative Agent, together with the related documents
thereto (including, without limitation, any Guaranty Agreements and security
documents), in each case as such Agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring, in whole or in part, all or any portion of
the Indebtedness under such Agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders and
whether in the form of a Revolving Credit Facility or a Term Loan Facility or
any combination thereof.
"Conversion Price" shall initially be $37.25 per share, as adjusted from
time to time in accordance with Section 8.
"Conversion Value" per share of Series C Preferred Stock shall be an amount
equal to $372.50 plus all Accrued Dividends thereon to the date of conversion or
redemption as the case may be, and the Premium Amount.
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<PAGE>
"Cumulative Securitization Gains" shall mean cumulative gains on
securitization transactions to the extent such gains exceed cumulative related
fees, to the extent the foregoing are first reflected on a consolidated balance
sheet of the Corporation and its Subsidiaries on or after March 31, 1998, as
determined on a consolidated basis in conformity with GAAP consistently applied
to the extent applicable.
"Current Market Price" per share of Common Stock on any date shall be the
average of the Closing Prices of a share of Common Stock for the five
consecutive Trading Days commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the date in question. If on any such
Trading Day the Common Stock is not quoted by any organization referred to in
the definition of Closing Price, the fair value of the Common Stock on such day,
as reasonably determined in good faith by the Board of Directors of the
Corporation, shall be used.
"Designated Debt" shall mean, as at any date, all obligations of the
Corporation and its consolidated Subsidiaries which are (or as of such date,
should be) accounted for as indebtedness on a consolidated balance sheet of the
Corporation in conformity with GAAP consistently applied whether such
obligations are classified as long-term or short-term under GAAP consistently
applied.
"Disqualified Stock" means any Capital Stock that, either (A) by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to December 31, 2006 or (B) is designated by the
Corporation (in a Board Resolution of the Corporation delivered to the Trustee)
as Disqualified Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Group" means a "group" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) that includes one or more Excluded Persons;
provided that the voting securities of the Corporation "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
Excluded Persons represents a majority of the voting securities "beneficially
owned" (as such term is used in Rule 13d-3 promulgated under the Exchange Act)
by such group.
"Excluded Person" means each of Thomas H. Lee Equity Fund IV, L.P. and any
affiliate (as defined in the Exchange Act) of any of the foregoing.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or
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<PAGE>
in such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on
December 9, 1998 and consistently applied.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under (i) interest rate or currency swap agreements, interest rate
cap agreements and interest rate or currency collar agreements and related
agreements and (ii) other agreements or arrangements designed to protect such
person against fluctuations in interest rates, currencies and commodities in the
ordinary course of business.
"Indebtedness" means, with respect to any person, any indebtedness of such
person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a lien (except liens on receivables and other assets (including
spread accounts relating to a Securitization) incurred in connection with a
Securitization) on any asset of such person (whether or not such indebtedness is
assumed by such person and the value thereof being the lesser of the amount of
such indebtedness so secured and the fair market value of such asset that has a
lien placed upon it) and, to the extent not otherwise included, the Guarantee by
such person of any indebtedness of any other person. Notwithstanding the
foregoing, the term "Indebtedness" shall not include (i) obligations pursuant to
representations, warranties, covenants and indemnities or payments to owners of
beneficial interests in receivables, in each case in connection with a
Securitization, (ii) deposit liabilities of any Subsidiary of the Corporation,
the deposits of which are insured by the Federal Deposit Insurance Corporation
or any successor thereto or (iii) guarantees related to the fulfillment of the
Corporation's obligations to bank card associations in the ordinary course of
business. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Junior Stock" means any stock of the Corporation ranking junior to the
Series C Preferred Stock with respect to the payment of dividends and the
distribution of assets, whether upon liquidation or otherwise.
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<PAGE>
"Leverage Ratio" shall mean, at any time, the ratio of (a) Designated Debt
of the Corporation at such time to (b) Consolidated Tangible Net Worth
(excluding Cumulative Securitization Gains) at such time.
"Liquidation Preference" shall mean an amount per share of Series C
Preferred Stock equal to the greater of (i)(A) in the event of any liquidation
or winding up of the Corporation, the amount the holders of the Series C
Preferred Stock would have received had they converted into Common Stock
immediately prior to such liquidation or winding up and, if such liquidation or
winding up occurs prior to December 9, 2005, the amount such holders would have
received had they received the additional dividends that would have been paid
from the date of liquidation or winding up through December 9, 2005, and such
additional shares were also converted into Common Stock immediately prior to
such liquidation or winding up and (B) in the event of determination in
connection with a Change in Control or other redemption of shares of Series C
Preferred Stock, the value of the Series C Preferred Stock on an as converted
basis, valued with respect to each share of Common Stock or Non-Voting Stock
into which the Series C Preferred Stock is convertible at the Current Market
Price or, in connection with a Change in Control, if greater, at the amount paid
per share of Common Stock by the Acquiring Person in the Change in Control and,
if such Change in Control or other redemption occurs prior to December 9, 2005,
the value of the Common Stock as so determined that such holders would have
received had they received the additional dividends that would have been paid
from the date of such Change in Control or other redemption through December 9,
2005 and converted them into shares of Common Stock pursuant to Section 8 in
connection with such Change in Control or other redemption, and (ii) the
Conversion Value.
"Maximum Percentage" shall mean (a) for a period ending on the later to
occur of (i) December 31, 2000 or (ii) the date upon which all of the 10% Notes
remain outstanding under the Indenture, 34.9% and (b) thereafter, 100%.
"Non-Voting Stock" shall mean, if there shall be no shares of Non-Voting
Common Stock outstanding, shares of Series D Junior Participating Preferred
Stock of the Company authorized by the Board of Directors on the date of
authorization of the Series C Preferred Stock, and, if there shall be authorized
a class of Non-Voting Common Stock of the Company, such class of Non-Voting
Common Stock. The Non-Voting Common Stock shall be automatically convertible
into shares of Common Stock to the extent that, after such conversion, the
holder thereof, together with any group acting for the purpose of acquiring,
holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, except that
such holder and any such group shall be deemed to beneficially own all shares
that such holder or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening of
an event or otherwise) shares of Common Stock representing the Maximum
Percentage of shares of capital stock of the Corporation entitled to vote at all
meetings of the stockholders of the Corporation. Each share of the Non-Voting
Stock shall be economically equivalent to the Common Stock and shall be entitled
to share equally
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<PAGE>
in dividends and distributions paid on the Common Stock, except that dividends
or distributions of voting securities on the Common Stock shall entitle the
holders of Non-Voting Stock to receive equivalent non-voting securities.
"Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of the Corporation or any of its Subsidiaries issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease, redeem or refund other Indebtedness or Disqualified Stock of the
Corporation or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) or liquidation value of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable) or
liquidation value, plus accrued interest or dividends on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased, redeemed or refunded (plus
the amount of reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date or redemption date,
as the case may be, later than the final maturity date or redemption date, as
the case may be, of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased, redeemed or refunded; and
(iii) such Indebtedness or Disqualified Stock is incurred or issued, as the case
may be, either by the Corporation or by the Subsidiary who is the obligor or
issuer, as the case may be, on the Indebtedness or Disqualified Stock being
extended, refinanced, renewed, replaced, defeased, redeemed or refunded.
"Person" shall mean an individual, partnership, corporation, limited
liability company or partnership, unincorporated organization, trust or joint
venture, or a governmental agency or political subdivision thereof, or other
entity of any kind.
"Premium Amount" per share of Series C Preferred Stock, as of the date of
conversion or redemption of the Series C Preferred Stock or the date of any
payments on the Series C Preferred Stock under Section 7 hereof or as of any
other date on which it is necessary to determine the number of shares of Common
Stock into which a share of Series C Preferred Stock is then convertible, shall
mean an amount calculated to provide the holder of a share of Series C Preferred
Stock, as of such date, with a gross amount of accretion calculated at the rate
of 9% on $372.50 per share of Series C Preferred Stock, compounded quarterly,
from the date of conversion or redemption of the Series C Preferred Stock or the
date of any payments on the Series C Preferred Stock under Section 7 hereof or
the date of any other determination, as the case may be, to and including
December 9, 2005. In the event that any Series C Preferred Stock is converted
voluntarily by the holder on or before December 31, 2003 pursuant to Section 8
and not (i) in connection with the Corporation's election or obligation to
redeem the shares of Series C Preferred Stock under Section 5 (a) or 5(b) or
(ii) in connection with a Change in Control or (iii) in connection with the
occurrence of any of the events described in Section 7, then the Premium Amount
used in determining the Conversion Value shall be reduced by the percentage of
the Premium Amount set forth opposite the relevant period listed below; provided
that if such optional conversion occurs at any point within a year commencing
January 1, 2000
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<PAGE>
and ending December 31, 2003, the Premium Amount will be further reduced so that
upon application of the conversion formula set forth in Section 8, the number of
shares of Common Stock the holder shall be entitled to receive upon such
conversion shall be that number of shares which, when added to the number of
shares of Common Stock issuable upon conversion of shares of Series C Preferred
Stock paid or accrued during such year as dividends with respect to the shares
to be converted (without giving effect to any Premium Amount with respect to a
conversion of such dividend shares), would equal that number of shares of Common
Stock which would have been issuable upon conversion of the shares being
converted as of the first day of such year, subject only to anti-dilution
adjustments occurring after the beginning of such year.
Conversion Date Reduction to Premium Amount
--------------- ---------------------------
Prior to December 31, 1999 100.0%
January 1, 2000 through December 31, 2000 85.9%
January 1, 2001 through December 31, 2001 59.0%
January 1, 2002 through December 31, 2002 45.6%
January 1, 2003 through December 31, 2003 23.5%
January 1, 2004 and thereafter 0.0%
"Securities Purchase Agreement" shall mean that certain agreement dated as
of November 13, 1998, by and among the Corporation and certain purchasers of the
Series C Preferred Stock party thereto.
"Securitization" means any transaction or series of transactions that have
been or may be entered into by the Corporation or any of its Subsidiaries in
connection with or reasonably related to a transaction or series of transactions
in which the Corporation or any of its Subsidiaries may sell, convey or
otherwise transfer, directly or indirectly, to any person, or may grant a
security interest in, any receivables or any interests in such receivables
(whether such Receivables are then existing or arising in the future) and any
assets related thereto including, without limitation, all security interests in
any collateral relating thereto, the proceeds of such receivables, and other
assets which are customarily sold or in respect of which security interests are
customarily granted in connection with securitization transactions involving
such assets.
"Set Apart for Payment" shall mean the Corporation shall have deposited
with a bank or trust company doing business in the Borough of Manhattan, the
City of New York, and having a capital and surplus of at least $1,000,000,000 in
trust for the exclusive benefit of the holders of shares of Series C Preferred
Stock, funds sufficient to satisfy the Corporation's payment obligation.
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<PAGE>
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the Corporation in
a merger, consolidation or other corporate combination in which the Corporation
is the continuing or surviving Person, but in connection with which the Series C
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
Subsidiary of a Person, the parent entity also shall be deemed to be a Surviving
Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not quoted,
listed or admitted to trading on any national securities exchange (including the
Nasdaq Stock Market), any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Trading Price" per share of Common Stock on any date shall be the lowest
sales price for the Common Stock reported on the Nasdaq Stock Market (or if the
Common Stock is not then quoted thereon, then for the principal national
securities exchange on which the Common Stock is listed or admitted to trading)
or, if the Common Stock is not quoted on the Nasdaq Stock Market and is not
listed or admitted to trading on any national securities exchange, in the over-
the-counter market, as reported by NASDAQ or such other system then in use, or,
if on any such date the Common Stock is not quoted by any such organization, as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Company and reasonably acceptable to
the Requisite Holders.
"Unsecured Indebtedness" means general unsecured Indebtedness other than
(i) Indebtedness outstanding on the date immediately preceding the Change in
Control giving rise to the Change in Control Triggering Event but excluding any
Indebtedness incurred in connection with or in contemplation of such Change in
Control, and any unsecured Permitted Refinancing Indebtedness which is on terms
substantially equivalent to the Indebtedness being refinanced or replaced, the
proceeds of which are used to refinance or replace such previously outstanding
Indebtedness and (ii) Indebtedness represented by bank deposit accounts at
Direct Merchants Credit Card Bank, National Association.
"Voting Stock" means the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
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<PAGE>
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
Section 11. Rank.
----
The Series C Preferred Stock shall rank, with respect to dividend rights
and rights upon liquidation, winding up and dissolution, prior to all classes
and series of the Corporation's preferred stock authorized or outstanding on the
date of initial issuance of the Series C Preferred Stock and prior to all
classes of Common Stock and Non-Voting Stock.
Section 12. Article IV, Section 5.
---------------------
The provisions of Article IV, Section 5 of the Certificate of Incorporation
shall not apply to the Series C Preferred Stock.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended Certificate of
Designation of Series C Perpetual Convertible Preferred Stock to be duly
executed by its President and attested to by its Secretary and has caused its
corporate seal to be affixed hereto, this 25th day of June, 1999.
METRIS COMPANIES INC.
By: /s/ Ronald N. Zebeck
-----------------------------
President
ATTEST:
By: /s/ Z. Jill Barclift
-----------------------------
Secretary
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<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED BYLAWS
OF
METRIS COMPANIES INC.
ARTICLE I
OFFICES
-------
The corporation may have such offices and places of business, within or
without the State of Delaware, at such locations as the Board of Directors may
from time to time designate, or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS
------------
Section 1. Annual Meeting. (a) The corporation shall hold regular annual
--------------
meetings of the corporation's stockholders for the election of directors. The
time and place of any such meetings shall be determined by the Board of
Directors and communicated to the stockholders according to the requirements set
forth herein. Subject to paragraph (b) of this Section 1, which paragraph (b)
shall be deemed valid on and after June 1, 1998 and before such date deemed null
and void, any other proper business may be conducted at an annual meeting.
(b) Only such business shall be conducted at an annual meeting of
stockholders as shall have been properly brought before the meeting. For
business to be properly brought before the meeting, it must be: (i) authorized
by the Board of Directors and specified in the notice, or a supplemental notice,
of the meeting, (ii) otherwise brought before the meeting by or at the direction
of the Board of Directors or the chairman of the meeting or (iii) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given written notice thereof to the Secretary, delivered or mailed to and
received at the principal executive offices of the corporation (x) not less than
50 days nor more than 75 days prior to the meeting or (y) if less than 60 days'
notice of the meeting or prior public disclosure of the date of the meeting is
given or made to stockholders, not later than the close of business on the tenth
day following the day on which the notice of the meeting was mailed or, if
earlier, the day on which such public disclosure was made. A stockholder's
notice to the Secretary shall set forth as to each item of business the
stockholder proposes to bring before the meeting (1) a brief description of such
item and the reasons for conducting such business at the meeting, (2) the name
and address, as they appear on the corporation's records, of the stockholder
proposing such business, (3) the class and number of shares of stock of the
corporation which are beneficially owned by the stockholder (for purposes of the
regulations under Sections 13 and 14 of the Securities Exchange Act of 1934, as
amended) and (4) any material interest of the stockholder in such business. No
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the meeting at which
any business is proposed by a stockholder shall, if the facts warrant, determine
and declare to the meeting that such business was not properly brought before
the meeting in accordance with the provisions of this paragraph (b), and, in
such event, the business not properly before the meeting shall not be
transacted.
<PAGE>
Section 2. Place of Meeting. All meetings of the stockholders shall be
----------------
held at the offices of the corporation or such other place as may be designated
by the Board of Directors.
Section 3. Special Meetings. Special meetings of the stockholders may be
----------------
called for any purpose or purposes at any time by the President, a majority of
the entire Board of Directors or by a committee of the Board of Directors
specifically authorized to call such meetings. The business transacted at a
special meeting of stockholders shall be limited to the purpose or purposes for
which such meeting is called, except as otherwise determined by the Board of
Directors or the chairman of the meeting.
Section 4. Consent of Stockholders in Lieu of Meeting. Except as
------------------------------------------
otherwise provided by law or by the Certificate of Incorporation, any action
required to be taken, or which may be taken, at any meeting of stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of at least 80% of the shares of outstanding stock entitled to vote
thereon, provided that prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 5. Voting by Ballot. Unless otherwise provided by law, voting on
----------------
any question or in any election may be by voice unless the presiding officer
shall order, or any stockholder shall demand, that voting be by secret ballot.
Section 6. Notice of Meeting. Written or printed notice stating the
-----------------
place, date, hour and purpose or purposes of any meeting of the stockholders
shall be sent or given to each stockholder entitled to vote at such meeting.
Notice of each meeting of stockholders shall be in such form as is approved by
the Board of Directors and shall state the purpose or purposes for which the
meeting is called, the date and time when and the place where it is to be held,
and shall be delivered personally or mailed not more than sixty (60) days and
not less than ten (10) days before the day of the meeting. Notice may be waived
before, during or after any meeting by any stockholder. The waiver may be oral,
written or by attendance at the meeting; provided, however, that attendance at a
meeting will not constitute a waiver of notice if the stockholder attends the
meeting for the purpose of objecting to the meeting itself or, at the meeting,
objects to the consideration of a particular item prior to the voting thereon.
Section 7. Quorum. Except as otherwise provided by law or the Certificate
------
of Incorporation, (a) prior to June 1, 1998 the holders of not less than a
majority of the outstanding shares entitled to vote, represented in person or by
proxy, shall constitute a quorum for the transaction of business; and (b) on or
after June 1, 1998 the holders of not less than one-third of the outstanding
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum for the transaction of business; provided, however, that in the event of
an election contest subject to Rule 14a-11 under the Securities Exchange Act of
1934, the holders of a majority of the outstanding shares entitled to vote shall
constitute a quorum unless otherwise provided by law or the Certificate of
Incorporation. In the absence of a quorum, the holders of a majority of the
shares represented at the meeting may
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<PAGE>
adjourn the meeting from time to time without further notice except as provided
in Section 11 of this Article.
Section 8. Record Date. For the purpose of determining stockholders
-----------
entitled to notice of, or to vote at, any meeting of the stockholders, or any
adjournment thereof, the Board of Directors may fix in advance a date, such date
being not less than 10 days nor more than 60 days immediately preceding the date
on which the particular action requiring such determination of stockholders is
to be taken. For the purpose of determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which date shall not precede the
date upon which the resolution fixing such date is adopted and which record date
shall not be more than sixty days preceding the action to be taken.
Notwithstanding the foregoing, the Board of Directors shall set record dates in
such manner as to ensure that the Company shall make such notices to the market
of such record dates as may be required by applicable law. Only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting, or to receive payment of
such dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any stock on the
books of the corporation after any such record is fixed as aforesaid.
Section 9. Voting of Shares. Except as otherwise provided by the
----------------
Certificates of Designation of the Series B Perpetual Preferred Stock and the
Series C Perpetual Convertible Preferred Stock, each stockholder of record or
the stockholder's legal proxy shall be entitled to one vote for each voting
share standing in the stockholder's name as reflected on the stock transfer
books of the corporation as of the record date. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting may
decide any question properly before the meeting, and shall be the act of the
stockholders unless the vote of a greater number of shares is required by law,
the Certificate of Incorporation or these Bylaws.
Section 10. Proxies. At all meetings of stockholders, a stockholder may
-------
vote by proxy executed in writing by the stockholder or by the stockholder's
duly authorized attorney-in-fact. Such proxy shall be filed with an officer of
the corporation or with the duly authorized transfer agent of the corporation at
or before the time of the meeting. A proxy shall be valid for the period
specified in the proxy or, if no expiration date is provided in the proxy, for a
period not to exceed three years from the date of its execution. A proxy's
authority shall not be revoked by the death or incapacity of the maker unless,
before the vote is cast and the authority exercised, written notice of such
death or incapacity is given to the corporation.
Section 11. Adjournment. If any meeting of the stockholders be adjourned
-----------
to another time or place, no notice as to such adjourned meeting need be given
other than by announcement at the meeting, at the time of its adjournment.
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ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Board of Directors. The business and affairs of the
------------------
corporation shall be managed by, or under the direction of, its Board of
Directors. The members of the Board of Directors need not be stockholders.
Directors shall possess all qualifications required of them pursuant to the
Certificate of Incorporation.
Section 2. Number and Tenure. (a) The number of directors of the
-----------------
corporation shall be as determined from time to time by resolution of the Board
of Directors, subject to the provisions of the Certificate of Incorporation.
Each director elected by the stockholders, and each director elected to fill a
vacancy or newly created directorship, shall serve until the next regular
stockholder meeting and until his or her successor is elected and qualified.
Upon the occurrence of the Threshold Time (as defined in Article VII, Section 1
of the Certificate of Incorporation), the directors of the Corporation, other
than those who may be elected pursuant to the terms of any series of Preferred
Stock, shall be classified, with respect to the time for which they severally
hold office, into three classes, designated Classes I, II and III, which shall
be nearly as equal as possible. Class I shall consist of __ directors, Class II
shall consist of __ directors and Class III shall consist of __ directors. The
membership of each class shall be determined by the Board of Directors.
Directors of Class I shall serve for a term which expires at the first annual
meeting of stockholders to be held after the Threshold Time. Directors of Class
II shall serve for a term which expires at the second annual meeting of
stockholders to be held after the Threshold Time. Directors of Class III shall
serve for a term which expires at the third annual meeting of stockholders to be
held after the Threshold Time. At each succeeding annual meeting of stockholders
following such initial classification, the respective successors of each class
shall be elected for three year terms. Notwithstanding the foregoing, a
director's term shall expire on his or her death, resignation, removal or
disqualification.
(b) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (b) shall be eligible for election as directors of the
corporation. Nominations of persons for election to the Board of Directors may
be made at a meeting of stockholders by the Board of Directors or by any
stockholder of the corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this paragraph
(b). Any nomination by a stockholder must be made by written notice to the
Secretary delivered or mailed to and received at the principal executive offices
of the corporation (i) not less than 50 days nor more than 75 days prior to the
meeting or (ii) if less than 60 days' notice of the meeting or prior public
disclosure of the date of the meeting is given or made to stockholders, not
later than the close of business on the tenth day following the day on which the
notice of the meeting was mailed, or if earlier, the day on which such public
disclosure was made. A stockholder's notice to the Secretary shall set forth (x)
as to each person whom the stockholder proposes to nominate for election or re-
election as a director: (1) the name, age, business address and residence
address of such person, (2) the principal occupation or employment of such
person, (3) the class and number of shares of stock of the corporation which are
beneficially owned by such person (for the purposes of the regulations under
Sections 13 and 14 of the Securities Exchange Act of 1934, as amended) and (4)
any other information relating
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to such person that would be required to be disclosed in solicitations of
proxies for the election of such person as a director of the corporation
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, and such person's written consent to being named in any proxy statement
as a nominee and to serving as a director if elected; and (y) as to the
stockholder giving notice (1) the name and address, as they appear on the
corporation's records, of such stockholder and (2) the class and number of
shares of stock of the corporation which are beneficially owned by such
stockholder (determined as provided in clause (x) (3) above). At the request of
the Board of Directors any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary that information required
to be set forth in a stockholder's notice of nomination which pertains to the
nominee. The chairman of the meeting at which a stockholder nomination is
presented shall, if the facts warrant, determine and declare to the meeting that
such nomination was not made in accordance with the procedures prescribed by
this paragraph (b), and, in such event, the defective nomination shall be
disregarded.
Section 3. Vacancies. (a) Except as provided in paragraph (b) below, any
---------
vacancy occurring on the Board of Directors by reason of death, resignation,
removal or disqualification may be filled by the unanimous vote of the remaining
directors, even though less than a quorum, at any regular or special meeting.
Except as provided in paragraph (b) below, vacancies on the Board resulting from
newly created directorships may be filled only by the unanimous vote of the
directors serving at the time of the increase.
(b) In the event a vacancy occurs on the Board of Directors by reason of
death, resignation, removal or disqualification of a director elected by or
appointed upon the recommendation of the holders of the Series C Perpetual
Convertible Preferred Stock (a "Series C director"), the remaining Series C
directors, if any, shall elect a new director to fill such vacancy. If no other
Series C Directors are serving at the time of the death, resignation, removal or
disqualification of a Series C Director, the holders of the Series C Perpetual
Convertible Preferred Stock shall elect a new director to fill such vacancy. If
one or more new directorships are created in connection with the issuance of the
Series C Perpetual Convertible Preferred Stock, each such new director shall be
appointed by the unanimous vote of the directors then in office upon the
recommendation of the holders of a majority of the Series C Perpetual
Convertible Stock.
Section 4. Resignations. Any director may resign at any time by giving
------------
written notice to the chairman of the Board, if any, or to the president or
secretary, if any, of the corporation. Unless a later date is specified in the
notice as the effective date of resignation, resignation shall take effect on
the date of receipt of the written notice by the corporation. Unless otherwise
specified in such notice, acceptance of the resignation shall not be necessary
to make it effective.
Section 5. Regular and Annual Meetings. The Board of Directors may hold
---------------------------
regular meetings on an annual or other periodic basis. Except as may otherwise
be provided in a resolution of the Board of Directors, or in any notice of such
meeting if the Board of Directors has failed to act on the issue, the annual
meeting of the Board shall be held immediately following the annual meeting of
the stockholders, and regularly scheduled meetings may be held without notice at
such time and
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<PAGE>
place as may be provided by resolution of the Board of Directors.
Notwithstanding the foregoing, the failure of the corporation to hold an annual
or other regularly scheduled meeting shall not affect the status of the
directors or officers, or the status of the corporation to continue as an
operating entity, unless the Board of Directors provides otherwise by
resolution.
Section 6. Special Meetings. Special meetings of the Board of Directors
-----------------
may be called by the president of the corporation, the chairman of the Board of
Directors, if the Board has elected one of its members to act as its chairman,
or by resolution of the Board of Directors.
Section 7. Notice of Special Meetings. The secretary, or in his or her
--------------------------
absence any other officer of the corporation, shall give each director notice of
the time and place of holding of special meetings of the Board of Directors by
mail at least five days before the meeting, or by telephone, electronic or
facsimile transmission or personal service given at least 24 hours before the
meeting. A director may waive notice of any meeting before, during or after the
meeting, and the waiver may be written, oral or by attendance. The attendance
of a director at any meeting and participation therein shall constitute a waiver
of notice of such meeting unless a director attends such meeting for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened, and such director does not thereafter
participate in the meeting. Neither the business to be transacted at, nor the
purpose of, any special meeting of the Board of Directors need be specified in
the notice or waiver of notice for such meeting. No notice need be provided of
any meeting which is adjourned and later reconvened other than by announcement
at the meeting at which adjournment is taken.
Section 8. Place of Meetings; Meetings by Telephone. Meetings of the
----------------------------------------
Board shall be at the principal office of the corporation or at such other place
as the directors may from time to time determine. A meeting of the Board may be
held by any means of communication through which all person participating in the
meeting may simultaneously hear and converse with each other during the meeting,
including by means of conference telephone or similar communications equipment.
Participation in a meeting by any such means constitutes presence in person at
the meeting.
Section 9. Quorum. At all meetings of the Board, a majority of the
------
directors shall constitute a quorum for the transaction of business; provided,
however, that if less than all of the directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without notice other than an announcement at the meeting at which the
adjournment is taken.
Section 10. Act of Board. The act of the majority of the directors
------------
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless otherwise provided by the Bylaws, by the Certificate of
Incorporation or by law.
Section 11. Absent Director. A director may give advance written consent
---------------
or opposition to a proposal to be acted on at a Board meeting. If a director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the
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<PAGE>
minutes or other record of action at the meeting, if the proposal acted on at
the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
Section 12. Action without Meeting. Except as otherwise provided by law
----------------------
or by the Certificate of Incorporation, any action which is required or may be
taken at a meeting of the Board of Directors or any committee of the Board may
be taken without a meeting if a consent in writing (including a telecopied
transmission), setting forth the action so taken, is signed by a majority of all
the directors or members of the committee entitled to vote with respect to the
subject matter thereof, except as to matters that require stockholder approval,
in which case a consent in writing shall be signed by all of the directors.
Such written action shall be effective on the date when signed by the required
number of directors or committee members, or such other effective date as set
forth therein. When written action is taken by less than all of the directors,
all directors shall be notified immediately of its text and effective date.
Failure to provide the notice, however, shall not invalidate the written action.
A director who does not sign or consent to the written action shall have no
liability for the action or actions taken thereby.
Section 13. Committees. The Board of Directors may, by the affirmative
----------
vote of a majority of the number of directors, designate two or more of their
number to constitute an executive committee, which, to the extent determined by
the Board and allowed by law, shall have and exercise the authority of the Board
in the management of the business of the corporation, subject to the provisions
of the Certificate of Incorporation. Such executive committee shall act only in
the interval between meetings of the Board and shall be subject at all times to
the control and direction of the Board.
The Board of Directors may, by the affirmative vote of a majority of the
number of directors, also appoint one or more natural persons who need not be
Board members to serve on such other committees as the Board may determine.
Such other committees shall have such powers and duties as shall from time to
time be prescribed by the Board. Such other committees shall be subject at all
times to the control and direction of the Board.
A majority of the members of any committee constitutes a quorum for the
transaction of business. All committees shall keep accurate minutes of their
meetings, which minutes shall be made available upon request to members of that
committee and to any director.
Section 14. Chairman of the Board. The directors may elect one of their
---------------------
members to serve as the chairman of the Board of Directors. The chairman shall
be subject to the control of, and may be removed by, the Board of Directors. He
or she shall perform such duties as may from time to time be assigned by the
Board.
Section 15. Reliance upon Records. Every director, and every member of
---------------------
any committee of the Board of Directors, shall, in the performance of his or her
duties, be fully protected in relying in good faith upon the records of the
corporation and upon such information, opinions, reports or statements presented
to the corporation by any of its officers or employees, or committees of the
Board of Directors, or by any other person as to matters the director or member
reasonably
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<PAGE>
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the corporation,
including, but not limited to, such records, information, opinions, reports or
statements as to the value and amount of the assets, liabilities and/or net
profits of the corporation, or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be declared
and paid, or with which the corporation's capital stock might properly be
purchased or redeemed.
Section 16. Interested Directors. A director who is directly or
--------------------
indirectly a party to a contract or transaction with the corporation, or is a
director or officer of or has a financial interest in any other corporation,
partnership, association or other organization which is a party to a contract or
transaction with the corporation, may be counted in determining whether a quorum
is present at any meeting of the Board of Directors or a committee thereof at
which such contract or transaction is considered or authorized, and such
director may participate in such meeting and vote on such authorization to the
extent permitted by applicable law, including Sections 141(h) and 144 of the
General Corporation Law of the State of Delaware.
Section 17. Compensation. Unless otherwise restricted by the Certificate
------------
of Incorporation, the Board of Directors shall have the authority to fix the
compensation of directors. The directors shall be paid their reasonable
expenses, if any, of attendance at each meeting of the Board of Directors or a
committee thereof and may be paid a fixed sum for attendance at each such
meeting and an annual retainer or salary for services as a director or committee
member. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 18. Presumption of Assent. For purposes of any liability as a
---------------------
director, a director of the corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless (a) he or she objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened and does not thereafter participate in the
meeting; or (b) he or she votes against the action at the meeting.
ARTICLE IV
OFFICERS
--------
Section 1. Election of Officers. The Board of Directors shall, from time
--------------------
to time, elect one or more persons to exercise the functions of the offices of
president, secretary and chief financial officer. The Board of Directors may,
but shall not be required to, elect a treasurer, controller, secretary and one
or more vice presidents, as it deems necessary or advisable. In addition, the
Board of Directors may elect such other officers and agents as it deems
necessary or advisable, including assistant secretaries and assistant
treasurers. Such officers shall exercise such powers and perform such duties as
are prescribed by these Bylaws or as may be otherwise determined from time to
time by the Board of Directors. Any number of offices or functions of those
offices may be held or exercised by the same person.
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<PAGE>
Section 2. President. The President shall be the chief executive officer
---------
of the corporation. He shall direct, coordinate and control the corporation's
business and activities and its operating expenses and capital expenditures and
shall have general authority to exercise all the powers necessary for the chief
executive officer of the corporation, all in accordance with basic policies
established by and subject to the control of the Board of Directors. The
President shall also be the chief operating officer of the corporation. The
president shall (a) have general active management of the business of the
corporation; (b) when present, preside at all meetings of the Board and of the
stockholders, unless such duties shall have been assigned to a Chairman of the
Board of Directors; (c) see that all orders and resolutions of the Board are
carried into effect; (d) sign and deliver, in the name of the corporation, any
deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation, except in cases in which the authority to sign and
deliver is required by law to be exercised by another person or is expressly
delegated by the Certificate of Incorporation, these Bylaws or by the Board to
some other officer or agent of the corporation; (e) maintain records of and,
whenever necessary, certify all proceedings of the Board and the stockholders;
and (f) perform other duties prescribed by the Board.
Section 3. Chief Financial Officer. The chief financial officer shall (a)
-----------------------
keep accurate financial records for the corporation; (b) deposit all money,
drafts and checks in the name and to the credit of the corporation in the banks
and depositories designated by the Board; (c) endorse for deposit all notes,
checks and drafts received by the corporation as ordered by the Board, making
proper vouchers therefor; (d) disburse corporate funds and issue checks and
drafts in the name of the corporation, as ordered by the Board; (e) render to
the president and the Board, whenever requested, an account of all transactions
by the chief financial officer and of the financial condition of the
corporation; and (f) perform other duties prescribed by the Board or by the
president.
Section 4. Secretary. The secretary shall attend all sessions of the
---------
Board of Directors and all meetings of the stockholders, and record all votes
and minutes of all proceedings in a book kept for that purpose, and shall
perform like duties for the standing committees when required. The secretary
shall give or cause to be given notice of all meetings of the stockholders and
of the Board of Directors when notice is required, and shall perform such other
duties as may be prescribed by the Board of Directors or the chief executive
officer. The secretary shall keep in safe custody the seal, if any, of the
corporation, and shall affix the same to any instrument requiring it.
Section 5. Terms of Office. The officers of the corporation shall hold
---------------
office for such terms as shall be determined from time to time by the Board of
Directors or until their successors are chosen and qualify in their stead.
Section 6. Compensation. The compensation of all executive officers of
------------
the corporation shall be determined by the Board of Directors.
Section 7. Resignations. An officer may resign at any time by giving
------------
written notice to the corporation. The resignation is effective without
acceptance when the notice is given to the corporation, unless a later effective
date is specified in the notice.
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<PAGE>
Section 8. Removals. An officer may be removed at any time, with or
--------
without cause, by a resolution approved by the affirmative vote of a majority of
the directors present. Such removal is without prejudice to any contractual
rights of the officer.
Section 9. Vacancies. If the office of any officer or agent becomes
---------
vacant by reason of death, resignation, retirement, disqualification, removal
from office or otherwise, the Board of Directors, may, and in the case of a
vacancy in the office of chief executive officer or chief financial officer
shall, choose a successor or successors who shall hold office for the unexpired
term in respect of which such vacancy occurred.
Section 10. Contract Rights. The election or appointment of a person as
----------------
an officer or agent of the corporation does not, of itself, create contract
rights.
ARTICLE V
INDEMNIFICATION
---------------
Section 1. Definitions. For purposes of this Article V: (a) "corporation"
-----------
shall be deemed to mean the corporation and shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees and agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another legal entity shall stand in the same
position under the provisions of this Article V with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued; (b) a "legal entity" is a
corporation, partnership, joint venture, trust or other enterprise; (c) a
"proceeding" is any action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, including an action or suit by or
in the right of the corporation to procure a judgment in its favor, and any
appeal in such an action, suit, or proceeding, and any inquiry or investigation
that could lead to such action, suit or proceeding; and (d) a "qualified
position" with respect to any legal entity is a position as a director or an
officer of such legal entity or a position held by a director, officer or
employee of such legal entity which does or might constitute him a fiduciary
with respect to any employee benefit plan for the employees of such legal entity
under any federal or state law regulating employee benefit plans.
Section 2. Mandatory Indemnification. The corporation shall indemnify
-------------------------
each person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is serving in a qualified position with
respect to the corporation or is serving in a similar capacity with respect to
any other legal entity at the request of the corporation, against all expenses
(including attorneys' fees and costs of investigation and litigation),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any such proceeding to the maximum extent permitted
under the General Corporation Law of the State of Delaware (the "Delaware Law",
which term shall be deemed to include the General Corporation Law of the State
of Delaware or any successor statute or section thereof, as now
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<PAGE>
written or hereafter amended). The termination of any proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that such person acted in
such a manner as to make him ineligible for indemnification. The right of a
person to be indemnified hereunder shall be a contract right and shall include
the right to be paid by the corporation all expenses incurred in defending any
such proceeding in advance of its final disposition upon compliance with the
provisions of Delaware Law then in effect concerning advancement of expenses.
Section 3. Permissive Indemnification. In addition to the indemnification
--------------------------
provided for in Section 2, the corporation shall have the power to indemnify or
contract in advance to indemnify, to a lesser or the same extent that
indemnification is required under Section 2, any person who was or is a party or
is threatened to be made a party to any proceeding by reason of the fact that he
is serving in any capacity with respect to the corporation or with respect to
any other legal entity at the request of the corporation.
Section 4. Determination that Indemnification is Proper. Any
--------------------------------------------
indemnification under this Article V (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that such indemnification is permitted under Delaware Law, or, in the case of
indemnification under Section 3, is proper because the requirements specified by
the corporation with respect to such indemnification have been met. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of directors who neither are nor were parties to the
proceeding, (b) if such a quorum is not obtainable or, even though obtainable, a
majority of disinterested directors so directs, by independent legal counsel in
a written opinion or (c) by the stockholders. In making a determination the
directors may rely, as to all questions of law, on the advice of independent
legal counsel.
Section 5. Claims for Indemnification or Advances. If a claim for
--------------------------------------
indemnification or advancement of expenses hereunder is not paid in full by the
corporation within 60 days after a written claim has been received by the
corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under
Delaware Law, but the burden of proving such defense shall be on the
corporation.
Section 6. Miscellaneous. Every reference in this Article V to persons
-------------
who are entitled to indemnification and advancement of expenses shall include
all persons who formerly occupied any of the positions hereinabove set forth in
this Article V, to the extent they would have been entitled to indemnification
and advancement of expenses under the provisions of this Article V if they still
held such positions and their respective heirs, executors and administrators.
Indemnification or advancement of expenses provided pursuant to the foregoing
provisions of this Article V shall not be exclusive of any other rights of
indemnification or advancement of expenses to which any person may be entitled.
Such rights include, but are not limited to, any and all rights under insurance
policies that may be purchased and maintained by the corporation or others,
whether or not the corporation would have the power to indemnify such person in
the particular instance under the
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<PAGE>
provisions of this Article V, but no person shall be entitled to indemnification
by the corporation to the extent he is indemnified by any other party, including
an insurer.
Section 7. Insurance. The corporation may purchase and maintain insurance
---------
on behalf of any person who is or was a director, officer or employee of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article V.
ARTICLE VI
SHARES
------
Section 1. Certificates. The interest of each stockholder of the
------------
corporation shall be evidenced by certificates for shares of capital stock in
such form or forms as the appropriate officers of the corporation may from time
to time prescribe, unless it shall be determined by, or pursuant to, a
resolution adopted by the Board of Directors that the shares representing such
interest be uncertificated. If certificated, each stockholder shall be entitled
to a certificate representing his shares of capital stock, signed by the
president or a vice president, and by the secretary or an assistant secretary,
if one has been elected or appointed, and otherwise by the chief financial
officer; provided, however, that where a certificate is countersigned by a
transfer agent or an assistant transfer agent or by a transfer clerk acting on
behalf of the corporation and registered by a registrar, the signatures of said
officers on such certificates for shares may be facsimile. If a person signs or
has a facsimile signature placed upon a certificate while an officer, transfer
agent or registrar of the corporation, the certificate may be issued by the
corporation, even if the person has ceased to have that capacity before the
certificate is issued, with the same effect as if the person had that capacity
at the date of its issue. All certificates for shares shall be consecutively
numbered or otherwise identified, and shall state the name of the corporation,
that it is organized under the laws of the State of Delaware, the name of the
person to whom the shares are issued, the number and class of shares, and the
designation of the series, if any, that the certificate represents. The name of
the person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the books of the corporation.
Section 2. Transfer of Shares. The shares of stock of the corporation
------------------
shall be transferable upon its books only by the persons named in the
certificates or by their attorneys-in-fact or legal representatives duly
authorized in writing, and upon surrender to the corporation of the old stock
certificates, properly endorsed, to the person in charge of the stock and
transfer books and ledgers, or to such other persons as the Board of Directors
may designate, by whom they shall be canceled. New certificates for the shares
shall thereupon be issued to the person entitled to such new certificates. A
record shall be made of each transfer, and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
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Section 3. Lost Certificate. Any stockholder claiming that a certificate
----------------
for shares has been lost, destroyed or wrongfully taken shall make an affidavit
or affirmation of that fact and, if the Board of Directors so requires, shall:
(a) advertise such fact in such manner as the Board of Directors may require;
(b) give to the corporation and its transfer agent and registrar, if any, a bond
of indemnity in open penalty as to amount or in such other sum as the Board of
Directors may direct, in form satisfactory to the Board of Directors and to the
transfer agent and registrar of the corporation, if any, and with or without
such sureties as the Board of Directors with the approval of the transfer agent
and registrar, if any, may prescribe; and (c) satisfy such other requirements as
may be imposed by the Board.
If notice by the stockholder of the loss, destruction or wrongful taking of
a certificate is received by the corporation before the corporation has received
notice that the shares represented by such certificate have been acquired by a
bona fide purchaser, and if the foregoing requirements imposed by the Board are
satisfied, then the Board of Directors shall authorize the issuance of a new
certificate for shares of the same class and series and for the same number of
shares as the one alleged to have been lost or destroyed.
Section 4. Dividends. The Board of Directors may declare and pay
---------
dividends to the extent permitted by statute and the Certificate of
Incorporation.
ARTICLE VII
MISCELLANEOUS
-------------
Section 1. Books of Account. The corporation shall keep such books of
----------------
account as are required by statute or the Certificate of Incorporation.
Section 2. Corporate Seal. If so directed by the Board of Directors, the
--------------
corporation may use a corporate seal. The failure to use such seal, however,
shall not affect the validity of any documents executed on behalf of the
corporation. The seal need only include the word "seal", but it may also
include, at the discretion of the Board of Directors, such additional wording as
is permitted by law.
Section 3. Fiscal Year. The fiscal year of the corporation shall be as
-----------
determined by resolution of the Board of Directors.
Section 4. Amendment of Bylaws. The power to adopt, amend or repeal the
-------------------
Bylaws is vested in the Board. The power of the Board is subject, however, to
the power of the stockholders to amend or repeal Bylaws adopted, amended or
repealed by the Board.
Section 5. Stock of other Corporations or other Interests. Unless
----------------------------------------------
otherwise ordered by the Board of Directors, the chief executive officer, the
secretary, if any, and such other attorneys or agents of the corporation as may
from time to time be authorized by the Board of Directors or the president,
shall have full power and authority on behalf of the corporation to attend, and
to act and vote in person or by proxy at, any meeting of the holders of
securities of any corporation or other entity in which the corporation may own
or hold shares or other securities, and at such meetings shall possess and may
exercise all the rights and powers incident to the ownership of such shares or
other
-13-
<PAGE>
securities which the corporation, as the owner or holder thereof, might have
possessed and exercised if present. The president, the secretary, if any, or
such attorneys or agents, may also execute and deliver, on behalf of the
corporation, powers of attorney, proxies, consents, waivers and other
instruments relating to the shares or securities owned or held by the
corporation.
-14-
<PAGE>
EXHIBIT 4.2
Series C Perpetual Convertible Preferred Stock
CUSIP 591598 30 5
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
METRIS COMPANIES INC.
(See Restrictive Legend on Reverse)
This Certifies that____________________________________is the owner of
______________________________________________full paid and non-assessable
SHARES OF THE PREFERRED STOCK OF METRIS COMPANIES INC. transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon the surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation, this ___________________day of_____________________A.D. 19____.
______________________ ______________________
Secretary President
<PAGE>
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
For Value Received,___ hereby sell, assign and transfer unto ___________________
______________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint____________________________________________Attorney to transfer the said
Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated____________________ 19_________
In presence of
________________________________
_________________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE LAWS REGULATING THE SALE OF SECURITIES AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION IS OBTAINED
AND TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------------
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
-------------------------------
<PAGE>
Exhibit 4.3
Series D Junior Participating Convertible Preferred Stock
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
METRIS COMPANIES INC.
(See Restrictive Legend on Reverse)
This Certifies that _______________________________________________ is the owner
of _______________________________________ full paid and non-assessable SHARES
OF THE PREFERRED STOCK OF METRIS COMPANIES INC. transferable only on the books
of the Corporation by the holder hereof in person or by duly authorized Attorney
upon the surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation, this _______________ day of _____________ A.D. 19__.
_________________________________ ___________________________
SECRETARY PRESIDENT
<PAGE>
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
For Value Received, ________ hereby sell, assign and transfer unto _____________
______________________________________________________ Shares represented by the
within Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________ Attorney to transfer the
said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated: ____________________ 19__
In presence of
_________________________ ___________________________________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE LAWS REGULATING THE SALE OF
SECURITIES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS
REGISTERED OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION IS OBTAINED
AND TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
-----------------------
THIS SPACE IS NOT TO BE
COVERED IN ANY WAY
-----------------------
<PAGE>
[LETTERHEAD OF SIDLEY & AUSTIN APPEARS HERE]
June 30, 1999
Board of Directors
Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426-1222
Re: Registration Statement on Form S-3 (No. 333- )
------------------------------------------------------
Gentlemen:
We have acted as counsel to Metris Companies Inc., a Delaware
corporation (the "Company"), with respect to the Registration Statement on Form
S-3, Registration No. 333-______ (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act") relating to the
registration of (i) 1,501,647 shares of the Company's Series C Perpetual
Convertible Preferred Stock, par value $.01 per share ("Series C Preferred
Stock"); (ii) 30,225,190 shares of Common Stock, par value $.01 per share
("Common Stock"); and (iii) 100,000 shares of the Company's Series D Junior
Participating Convertible Preferred Stock, par value $.01 per share ("Series D
Preferred Stock," and together with the Series C Preferred Stock and Common
Stock, the "Securities"), which Securities are being offered by the selling
stockholders named therein.
The Securities include (i) 840,626.7 shares of Series C Preferred
Stock (the "Owned Shares") that are currently issued and outstanding; (ii)
661,020.3 shares of Series C Preferred Stock (the "Dividend Shares") which may
be issued by the Company as dividends with respect to the Owned Shares; (iii)
100,000 shares of Series D Preferred Stock which may be issued under certain
circumstances upon conversion of shares of Series C Preferred Stock; (iv)
192,250 shares of Common Stock (the "Option Shares") which may be issued upon
the exercise of an outstanding option (the "Option"); and (v) 30,032,940 shares
of Common Stock (the "Conversion Shares") which may be issued upon conversion of
the Series C Preferred Stock or Series D Preferred Stock.
<PAGE>
June 30, 1999
Page 2
For purposes of this opinion letter, we have examined and relied upon
a copy of the Registration Statement. We have also examined or caused to be
examined originals, or copies of originals certified to our satisfaction, of
such agreements, documents, certificates and statements of government officials
and other instruments, and have examined such questions of law and have
satisfied ourselves as to such matters of fact, as we have considered relevant
and necessary as a basis for this opinion. We have assumed the authenticity of
all documents submitted to us as originals, the genuineness of all signatures,
the legal capacity of all natural persons and the conformity with the original
documents of any copies thereof submitted to us for examination.
Based on the foregoing, and subject to the qualifications and
limitations hereinafter set forth, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the
laws of the State of Delaware.
2. The Owned Shares have been legally issued and are fully paid and
nonassessable.
3. The Dividend Shares will be legally issued, fully paid and
nonassessable when (i) the Company's Board of Directors or duly authorized
committee thereof shall have duly adopted final resolutions authorizing the
issuance of the Dividend Shares as dividends on the Series C Preferred
Stock in accordance with the General Corporation Law of the State or
Delaware and the provisions of its Series C Preferred Stock; and (ii)
certificates representing the Dividend Shares shall have been duly
executed, countersigned and registered and delivered to the holders of the
Series C Preferred Stock.
4. The Option Shares will be legally issued, fully paid and
nonassessable when certificates representing the Option Shares shall have
been duly executed, countersigned and registered and delivered to the
holder of the Option upon proper exercise thereof, including payment of the
exercise price specified therein.
5. The Conversion Shares will be legally issued, fully paid and
nonassessable when certificates representing the Conversion Shares shall
have been duly executed, countersigned and registered and registered and
delivered to the holders thereof upon the conversion of the Series C
Preferred Stock or the Series D Preferred Stock.
6. The Series D Preferred Stock will be legally issued, fully paid
and nonassessable when certificates representing the Series D Preferred
Stock shall have been
<PAGE>
June 30, 1999
Page 3
duly executed, countersigned and registered and delivered to the holders
thereof upon conversion of the Series C Preferred Stock.
We do not find it necessary for the purposes of this opinion letter
to cover, and accordingly we express no opinion as to, the application of the
securities or "Blue Sky" laws of the various states to the sale of the
Securities to be registered pursuant to the Registration Statement.
This opinion is limited to the Delaware General Corporation Law and
the Securities Act.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to our firm in the Registration
Statement or the Prospectus included therein.
Very truly yours,
/s/ Sidley & Austin
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, made as of the 23rd day of April, 1999, by and between Metris
Companies Inc., a corporation organized and existing under the laws of Delaware
(the "Company") and Rakesh K. Kaul ("Kaul").
WHEREAS, the Company, Fingerhut Companies Inc. and Kaul have previously
entered into a Settlement Agreement dated October 18, 1996 (the Settlement
Agreement"), which provides, in pertinent part, that the Company agrees to
permit registration of all of the remaining shares of common stock of the
Company owned by Kaul (the "Securities") by way of a piggyback registration
with any future or contemplated additional offering by the Company with respect
to one registration statement and that Kaul will under no circumstances have any
demand registration rights;
WHEREAS, the Company and Kaul desire to modify the terms of Section 1(c) of
the Settlement Agreement with respect to registration rights and certain other
matters; and
WHEREAS, Kaul acknowledges the existence of certain registration rights
granted to certain investors affiliated with Thomas H. Lee Company (the "Lee
Investors") pursuant to the Registration Rights Agreement dated as of December
9, 1998, by and between the Company and the Lee Investors (the " Lee
Registration Rights Agreement").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Act" means the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Act.
"Common Stock" means the common stock of the Company.
"Company" means Metris Companies Inc., a Delaware corporation, and its
successors and assigns, including any successors by merger.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>
"Holder" means Rakesh K. Kaul.
"Kaul Securities" means (i) the 96,125 shares of Common Stock issuable
pursuant to the exercise of a fully vested option granted to Kaul under the
Settlement Agreement at a price of $2.76 per share, and (ii) any Common Stock
issued in respect of the shares described in clause (i) upon any stock split,
stock dividend, recapitalization or other similar event.
"Registrable Securities" means the Kaul Securities.
The term "register" means to register under the Act and applicable state
securities laws for the purpose of effecting a public sale of securities.
2. Registration Rights. (a) In no event later than June 30, 1999, the
-------------------
Company shall file with the Commission a registration statement on Form S-3 (or
any successor form to Form S-3) for a public resale offering of the Registrable
Securities of the Holder and shall use its reasonable best efforts to cause such
registration statement to become and remain effective for the period ending on
the date the resale of all shares registered thereunder is complete or until
June 30, 2001, whichever shall first occur. If for any reason the Company is
not eligible to file such registration statement on Form S-3 (or any successor
form to Form S-3), the Company shall effect such registration using such form as
the Company is then eligible to use.
(b) In the case of any registration pursuant to this Section 2, the
Company shall keep Kaul, through his counsel, (Scott Miller), advised of the
initiation and completion of such registration. The Company will promptly:
(i) Prepare and file with the Commission the registration statement
described in Section 2(a) above and thereafter use reasonable best efforts to
cause such registration statement to become effective;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectuses used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(iii) Furnish to Kaul such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as he may reasonably request in order
to facilitate the disposition of the securities covered by such registration
statement;
(iv) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by Kaul
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a
-2-
<PAGE>
general consent to service of process in any such states or jurisdictions;
(v) Notify Kaul at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(vi) Cause all such shares of Registrable Securities to be listed on
each securities exchange or market system on which similar securities issued by
the Company are then listed; and
(vii) Provide a transfer agent and registrar for all such shares of
Registrable Securities not later than the effective date of such registration
statement.
(c) Kaul shall provide the Company with all necessary and reasonable
assistance in the preparation and filing of the registration statement required
to be prepared and filed by the Company and all other obligations of the Company
under this Section 2.
(d) The Company shall have the right, upon the advice of the Board
of Directors of the Company (the "Board"), upon giving written notice to Kaul of
the exercise of such right, to require Kaul not to sell any shares pursuant to
the registration statement filed pursuant to Section 2 for a period (as
determined in good faith by the Board) from the date on which such notice is
given (a "black-out period"), if (i)(A) the Company is engaged in discussions or
negotiations with respect to, or has proposed or taken a substantial step to
commence, or there otherwise is pending, any merger, acquisition, other form of
business combination, divestiture, tender offer, financing or other transaction,
or there is an event or state of facts relating to the Company, in each case
which is material to the Company (as reasonably determined by the Board) (any
such negotiation, step, event or state of facts being herein called "Material
Activity"), (B) in the reasonable judgment of the Board, after consultation with
and acting upon the written advice of outside counsel, disclosure of such
Material Activity would be necessary or advisable under applicable securities
laws and (C) such disclosure would, in the reasonable judgment of the Board, be
adverse to the interests of the Company, or (ii) the Board, in its reasonable
judgment, after consultation with and acting upon the written advice of outside
counsel, deems it necessary to file a post-effective amendment to such
registration statement or to prepare a supplement to, or otherwise amend, the
form of prospectus contained therein. During any such black-out period, Kaul
agrees not to sell any Registrable Shares under such registration statement for
such period of time as the Board, acting on the written advice of outside
counsel, may in good faith deem advisable; provided, however, that no single
black-out period will be longer than sixty (60) calendar days and, in the
aggregate, all black-out periods in any twelve (12) month period shall not
include more than one hundred twenty (120) calendar days; provided, further,
however, that no black-out period may be imposed by the Company during the first
thirty calendar days after the effectiveness of the registration statement filed
pursuant to Section 2. The period of effectiveness
-3-
<PAGE>
of any registration statement in effect at the time of a black-out period and
the termination period under Section 7 shall be extended for a period equal to
the black-out period.
3. Acknowledgment. Kaul hereby acknowledges and agrees that (i) under the
--------------
Lee Registration Rights Agreement, the Company has the obligation to register
certain securities of the Company and (ii) the Registrable Securities shall not
be included in any underwritten offering of all or a portion of the securities
to be sold by the Lee Investors (or their assignees) initiated solely by the Lee
Investors without the consent of the Lee Investors.
4. Public Offering. At the written request of Kaul, and with the
---------------
permission of the Lee Investors and in accordance with the requirements and
limitations of the Lee Investors Registration Rights Agreement, all or any
portion of the Registrable Securities may be distributed by means of an
underwriting; provided that such right may be exercised by Kaul no more than
once and provided further that Kaul agrees to sell his Registrable Securities to
the underwriters on substantially the same terms as the Lee Investors (with such
exceptions as are herein provided). Any underwritten offering would be subject
to cut-back in accordance with the provisions of the Lee Investors Registration
Rights Agreement and any underwriter or underwriters would be selected pursuant
to the Lee Investors Registration Rights Agreement. Notwithstanding the rights
of Kaul set forth in this Section 4 above, Kaul will have the right to sell Kaul
Securities pursuant to a distribution which does not involve an underwritten
offering (whether on a "firm," "best efforts" or "all reasonable efforts" basis
or otherwise), such as an agented offering, block trade, or other non-
underwritten offering, without the participation of the Lee Investors and may
select the broker or placement agent for such agented offering; provided,
however, that (i) each broker or agent so selected shall be reasonably
acceptable to the Company (ii) the offering shall be subject to any black-out
period as provided in Section 2(d) hereof and (iii) no more than one non-
underwritten offering can be made by Kaul. Kaul shall give the Company written
notice of any intent to utilize the shelf registration to make an agented
offering or block trade and following receipt of such notice, the Company shall
promptly undertake any procedures required by Section 2(b) hereof to permit Kaul
to make the offering.
5. Indemnification. (a) The Company agrees to indemnify and hold harmless
---------------
Kaul, to the extent permitted by law, against all damages caused by any untrue
or alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by Kaul expressly for use
therein or by Kaul's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished Kaul with a sufficient number of copies of the same.
(b) In connection with any registration statement in which Kaul is
participating, Kaul will furnish to the Company in writing such information as
the Company reasonably requests for use in connection with any such registration
statement or prospectus and,
-4-
<PAGE>
to the extent permitted by law, will indemnify and hold harmless the Company,
its directors and officers and each person who controls the Company (within the
meaning of the Securities Act) against all damages resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by Kaul
specifically for use in such registration statement; provided that the
obligation to indemnify will be several, not joint and several, among all
sellers named in the registration statement and the liability of each such
seller will be in proportion to and limited to the net amount received by such
seller from the sale of Common Stock, pursuant to such registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any consent to the
entry of any judgment or any settlement made by the indemnified party without
its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party.
6. Current Public Information. Until all shares of Registrable Securities
--------------------------
subject to this Agreement have been sold, the Company will timely file all
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and will
take such further action as any holder or holders of Registrable Securities may
reasonably request, all to the extent required to enable Kaul to sell his shares
pursuant to Rule 144 under the Securities Act and pursuant to Form S-3 or
similar registration form hereunder adopted by the Commission. Upon written
request, the Company will deliver to Kaul a written statement as to whether it
has complied with such requirements.
7. Termination of Registration Rights. Notwithstanding the foregoing
----------------------------------
provisions of this Agreement, and subject to extension as provided in Section
2(d), the Company's obligations pursuant to Section 2 shall terminate, on June
30, 2001 or, if earlier, at the time Kaul (i) is not an
-5-
<PAGE>
affiliate of the Company and has not been so for the ninety (90) consecutive
days prior to the date of determination and (ii) may sell all of his shares of
Common Stock in compliance with Rule 144 (other than pursuant to Rule 144(k)) in
a single 90-day period under the Securities Act.
8. Expenses. The Company shall pay all general out-of-pocket costs in
--------
connection with any registration pursuant to this Agreement, subject to the
exceptions herein set forth. The costs and expenses of any such registration
shall include, without limitation, the fees and expenses of the Company's
counsel and its accountants and all other out-of-pocket costs and expenses of
the Company incident to the preparation, printing and filing under the
Securities Act of the registration statement and all amendments and supplements
thereto and the cost of furnishing copies of each preliminary prospectus, each
final prospectus and each amendment or supplement thereto to underwriters,
dealers and other purchasers of the securities so registered, the costs and
expenses incurred in connection with the qualification of such securities so
registered under the "blue sky" laws of various jurisdictions, the fees and
expenses of the Company's transfer agent, expenses of all marketing and
promotional efforts requested by the managing underwriter and all other costs
and expenses of complying with the foregoing provisions hereof with respect to
such registration; but shall not include the registration and filing fees
attributable to the Kaul Securities or out-of-pocket expenses directly
attributable to the sale of the Kaul Securities (such as a prospectus supplement
relating solely to the Kaul Securities) which will be paid or reimbursed to the
Company by Kaul. In addition, Kaul will pay or reimburse the Company an amount
equal to 2% of all general out-of pocket costs incurred by the Company directly
in connection with a registration under Section 2, which shall not include costs
which the Company would normally incur notwithstanding the registration. The
Company shall not be responsible for paying the fees and expenses of counsel to
Kaul or any underwriting commission or discount, selling agent or similar fees
relating to Securities sold by Kaul. The Company shall not have any obligation
to implement the provisions of this Agreement unless Kaul shall have deposited
with the Company prior to the filing of the registration statement the sum of
$5,000 as a credit against any fees or expenses due to be paid or reimbursed by
Kaul. If the costs to be paid by Kaul are less than $5,000, the remaining
balance shall be promptly refunded to him. If such expenses are more than
$5,000, Kaul will promptly reimburse the Company after receipt of the invoice.
9. Listing Application. If shares of any class of stock of the Company
-------------------
shall be listed on a national securities exchange, the Company shall, at its
expense, include in its listing application all of the shares of the listed
class then owned by any Investor.
10. Damages. The Company recognizes and agrees that Kaul may not have an
-------
adequate remedy if the Company fails to comply with the provisions of this
Agreement, and that damages may not be readily ascertainable, and the Company
expressly agrees that in the event of such failure Kaul shall be entitled to
seek specific performance of the Company's obligations hereunder (in addition to
being entitled to seek damages) and that the Company will not oppose an
application seeking such specific performance.
11. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and
-6-
<PAGE>
warrants to Kaul as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government by which the Company or any of its properties or assets is bound, the
Amended and Restated Certificate of Incorporation or Amended and Restated By-
laws of the Company or any provision of any indenture, agreement or other
instrument to which the Company or any or its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
12. Miscellaneous.
-------------
(a) Kaul hereby releases and forever discharges the Company and its
officers, directors, employees, shareholders, agents, attorneys,
representatives and assigns, of and from any and all claims, demands, causes of
action, attorneys' fees, expenses and all other liability of any kind or nature
whatsoever, direct or indirect, known or unknown, whether in law or equity,
contract, tort or otherwise, or pursuant to statute, which Kaul now has or may
have, arising out of Section 1(c) of the Settlement Agreement and matters
relating thereto. The Company hereby releases and forever discharges Kaul, his
attorneys, heirs and assigns of and from any and all claims, demands, causes of
action, attorneys' fees, expenses and all other liability of any kind or nature
whatsoever, direct or indirectly, known or unknown, whether in law or equity,
contract, tort or otherwise or pursuant to statute, which the Company now has,
or may have, arising out of Section 1(c) of the Settlement Agreement and matters
relating thereto.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage prepaid, or telecopied or sent by other facsimile
method addressed as set forth on Schedule I attached hereto.
----------
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws principles thereof.
(d) This Agreement supersedes and replaces Section 1(c) of the
Settlement Agreement. This Agreement may not be amended or modified or
assigned, and no provision hereof may be waived, without the written consent of
the Company and Kaul.
-7-
<PAGE>
(e) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(f) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by each of the signatories hereto as of the date and year first above
written.
METRIS COMPANIES INC.
By /s/ Ronald N. Zebeck
---------------------------------
/s/ Rakesh K. Kaul
-----------------------------------
Rakesh K. Kaul
-8-
<PAGE>
SCHEDULE I
Company
- -------
Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, MN 55426
Attn: Z. Jill Barclift
Fax: 612-525-5098
Kaul
- ----
Mr. Rakesh K. Kaul
53 Huyler Landing Road
Cresskill, New Jersey 07266
Fax: 201-541-0248
-9-
<PAGE>
EXHIBIT 12.1
METRIS COMPANIES INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before income taxes: (1) $ 35,360 $ 18,250 $ 93,248 $ 61,883 $ 32,546 $ 7,449 $ 3,503
Fixed Charges: (1)
Interest on indebtedness, and
amortization of debt expense 9,375 6,643 30,513 11,951 4,106 1,217 -
Interest factor of rental expense 895 406 2,134 1,313 378 50 26
--------------------------------------------------------------------------------
Total fixed charges 10,270 7,049 32,647 13,264 4,484 1,267 26
--------------------------------------------------------------------------------
Total available earnings $ 45,630 $ 25,299 $125,895 $ 75,147 $ 37,030 $ 8,716 $ 3,529
================================================================================
Ratio of earnings to fixed charges 4.44 3.59 3.86 5.67 8.26 6.88 134.16
</TABLE>
(1) As defined in item 503(d) of Regulation S-K.
<PAGE>
EXHIBIT 12.2
METRIS COMPANIES INC.
COMPUTATION OF RATIOS OF EARNING TO FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before income taxes: (1) $35,360 $18,250 $ 93,248 $61,883 $32,546 $7,449 $3,503
Preferred dividend requirement $ 4,525 $ 1,100
Ratio of earnings before tax expense to net income 1.63 1.63
-------------------------------------------------------------------------
Preferred dividends (2) $ 7,394 $ 0 $ 1,789
Fixed Charges: (1)
Interest on indebtedness, and
amortization of debt expense 9,375 6,643 30,513 11,951 4,106 1,217 -
Interest factor of rental expense 895 406 2,134 1,313 378 50 26
--------------------------------------------------------------------------
10,270 7,049 32,647 13,264 4,484 1,267 26
Total fixed charges and preferred dividends 17,664 7,049 34,436 13,264 4,484 1,267 26
-------------------------------------------------------------------------
Total available earnings $45,630 $25,299 $125,895 $75,147 $37,030 $8,716 $3,529
=========================================================================
Ratio of earnings to fixed charges 2.58 3.59 3.66 5.67 8.26 6.88 134.16
</TABLE>
(1) As defined in item 503(d) of Regulation S-K.
(2) The preferred dividends were increased to amounts representing the pretax
earnings that would be required to cover such dividend requirements.
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Metris Companies Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Metris Companies Inc. dated June 30, 1999 of our report dated
January 20, 1999 (except for the last paragraph of Note 6 and the last
paragraph of Note 11 which are as of March 12, 1999), relating to the
consolidated balance sheets of Metris Companies Inc. and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998, and to the reference to our firm
under the heading "EXPERTS" in the Registration Statement.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 30, 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 Shelf Registration Statement on
Form S-3 with respect to shares of Series C Perpetual Convertible Preferred
Stock, Common Stock and Series D Junior Participating Convertible Preferred
Stock 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, or the substitutes for such attorney-in-fact and
agent, duly lawfully do or cause to be done by virtue hereof.
Signature Date
--------- ----
By:
--------------------------------------- Dated: June __, 1999
Theodore Deikel
Chairman of the Board of Directors
By: /s/ Dudley C. Mecum
--------------------------------------- Dated: June 29, 1999
Dudley C. Mecum
Director
By: /s/ Frank D. Trestman
--------------------------------------- Dated: June 29, 1999
Frank D. Trestman
Director
By:
--------------------------------------- Dated: June __, 1999
Derek V. Smith
Director
By:
--------------------------------------- Dated: June __, 1999
Lee R. Anderson
Director
By: /s/ John A. Cleary
--------------------------------------- Dated: June 29, 1999
John A. Cleary
Director
By: /s/ Thomas H. Lee
--------------------------------------- Dated: June 29, 1999
Thomas H. Lee
Director
By: /s/ David V. Harkins
--------------------------------------- Dated: June 29, 1999
David V. Harkins
Director
By: /s/ C. Hunter Boll
--------------------------------------- Dated: June 29, 1999
C. Hunter Boll
Director
By: /s/ Thomas M. Hagerty
--------------------------------------- Dated: June 29, 1999
Thomas M. Hagerty
Director
