<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Metris Companies Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Merrill Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
[LOGO]
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Metris Companies Inc. (the "Company"), which will be held
on Friday, March 12, 1999, at 10:00 a.m., central standard time, at the Marriott
Southwest, 5801 Opus Parkway, Minnetonka, Minnesota 55343.
At the Special Meeting, you will be asked to consider and vote upon a
proposal of the Company's Board of Directors (Proposal 1) to approve the terms
of and to issue the Company's Series C Perpetual Convertible Preferred Stock
(the "Series C Preferred Stock") in exchange (the "Preferred Stock Exchange")
for (a) the Company's outstanding 12 1/2% Series B Perpetual Preferred Stock in
the stated amount of $200,000,000, (b) $100,000,000 aggregate principal amount
of the Company's outstanding 12% Senior Notes due 2006 and (c) outstanding
ten-year warrants to purchase 3,750,000 shares of the Company's common stock,
$.01 par value (the "Common Stock"), (representing approximately 19.5% of the
outstanding shares) at $30 per share, that have been issued to certain
affiliates of the Thomas H. Lee Company. Assuming the Preferred Stock Exchange
takes place on the date of the Special Meeting, the number of shares of Series C
Preferred Stock to be issued will be 824,375. Each share of Series C Preferred
Stock has a pay-in-kind, cumulative dividend rate of 9%, compounded quarterly,
and, if issued, will be convertible into shares of Common Stock at a conversion
price of $37.25 per share, subject to adjustment.
You will also be asked to consider and vote upon a proposal of the Company's
Board of Directors (Proposal 2) to amend the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") to authorize the issuance of up
to 10,000,000 shares of non-voting common stock and to increase the authorized
number of shares of preferred stock to be issued by the Company from 10,000,000
to 25,000,000 shares.
Finally, you will be asked to consider and vote upon a proposal of the
Company's Board of Directors (Proposal 3) to amend the Certificate to delete
certain provisions which restrict the scope of the Company's business activities
and which are no longer considered appropriate following the Company's spin-off
from Fingerhut Companies, Inc. Proposals 2 and 3 are referred to as the
"Amendments."
THE COMPANY'S BOARD OF DIRECTORS HAS DETERMINED THAT THE PREFERRED STOCK
EXCHANGE AND THE AMENDMENTS ARE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE PREFERRED STOCK EXCHANGE AND THE
AMENDMENTS AND RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Proxy Statement for details of the Preferred Stock
Exchange, the Amendments and additional related information.
Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-prepaid envelope. Your stock will be voted in
accordance with the instructions you have given in your proxy, or, if no
instructions are given, your executed proxy will be voted for Proposals 1, 2 and
3 in accordance with the recommendations of the Board of Directors. If you
attend the Special Meeting, you may vote in person if you wish, even though you
previously returned your proxy card. Your prompt cooperation will be greatly
appreciated.
Sincerely,
/s/ Ronald N. Zebeck
Ronald N. Zebeck
PRESIDENT AND CHIEF EXECUTIVE OFFICER
St. Louis Park, Minnesota
February 1, 1999
<PAGE>
METRIS COMPANIES INC.
600 SOUTH HIGHWAY 169
SUITE 1800
ST. LOUIS PARK, MINNESOTA 55426
BY ORDER OF THE BOARD OF DIRECTORS
------------------------
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS
TO BE HELD ON MARCH 12, 1999
------------------------
To the Stockholders of
Metris Companies Inc.
A Special Meeting of Stockholders (the "Special Meeting") of Metris
Companies Inc. (the "Company") will be held on Friday, March 12, 1999, at 10:00
a.m., central standard time, at the Marriott Southwest, 5801 Opus Parkway,
Minnetonka, Minnesota 55343 for the following purposes:
(1) To consider and vote upon a proposal (Proposal 1) to approve the terms
of and to issue the Company's Series C Perpetual Convertible Preferred
Stock (the "Series C Preferred Stock") in exchange (the "Preferred Stock
Exchange") for (a) the Company's outstanding 12 1/2% Series B Perpetual
Preferred Stock in the stated amount of $200,000,000, (b) $100,000,000
aggregate principal amount of the Company's outstanding 12% Senior Notes
due 2006 and (c) outstanding ten-year warrants to purchase 3,750,000
shares of the Company's common stock, $.01 par value (the "Common
Stock"), (representing approximately 19.5% of the outstanding shares) at
$30 per share, that have been issued to certain affiliates of the Thomas
H. Lee Company. Assuming the Preferred Stock Exchange takes place on the
date of the Special Meeting, the number of shares of Series C Preferred
Stock to be issued will be 824,375. Each share of Series C Preferred
Stock has a pay-in-kind, cumulative dividend rate of 9%, compounded
quarterly, and, if issued, will be convertible into shares of Common
Stock at a conversion price of $37.25 per share, subject to adjustment;
(2) To consider and vote upon a proposal (Proposal 2) to amend Article IV of
the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") to authorize the issuance of up to 10,000,000 shares of
non-voting common stock and to increase the authorized number of shares
of preferred stock to be issued by the Company from 10,000,000 to
25,000,000 shares;
(3) To consider and vote upon a proposal (Proposal 3) to amend Article III
and delete Article XIII of the Certificate to remove certain restrictions
on the Company's business activities which are no longer considered
appropriate following the Company's spin-off from Fingerhut Companies,
Inc.; and
(4) In the discretion of the persons named in the proxy, to transact any
other business that may properly come before the Special Meeting or any
adjournment thereof.
The accompanying Proxy Statement more fully describes the Preferred Stock
Exchange and other matters referred to above.
Approval of Proposal 1 requires the affirmative vote of a majority of all
shares represented and voted at the Special Meeting, whether in person or by
proxy. Approval of Proposals 2 and 3 requires the affirmative vote of a majority
of the outstanding shares of Common Stock.
<PAGE>
The Board of Directors has fixed the close of business on January 19, 1999
as the record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting.
By Order of the Board of Directors,
/s/ Z. Jill Barclift
Z. Jill Barclift
EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
St. Louis Park, Minnesota
February 1, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE. YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY OR, IF NO INSTRUCTIONS ARE GIVEN,
YOUR EXECUTED PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS CONTAINED IN THIS PROXY
STATEMENT. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU
WISH, EVEN THOUGH YOU PREVIOUSLY RETURNED YOUR PROXY CARD. YOUR PROMPT
COOPERATION WILL BE GREATLY APPRECIATED.
<PAGE>
METRIS COMPANIES INC.
600 SOUTH HIGHWAY 169
SUITE 1800
ST. LOUIS PARK, MINNESOTA 55426
(612) 525-5020
------------------------
PROXY STATEMENT
---------------------
The accompanying proxy is solicited by the Board of Directors (the "Board of
Directors" or "Board") of Metris Companies Inc., a Delaware corporation (the
"Company"), for use at a Special Meeting of Stockholders (the "Special Meeting")
to be held on Friday, March 12, 1999, at 10:00 a.m., central standard time, at
the Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota 55343, and any
adjournments thereof.
At the Special Meeting, stockholders of the Company at the close of business
on January 19, 1999 will consider and vote upon a proposal of the Company's
Board of Directors (Proposal 1) to approve the terms of and to issue the
Company's Series C Perpetual Convertible Preferred Stock (the "Series C
Preferred Stock") in exchange (the "Preferred Stock Exchange") for (a) the
Company's currently outstanding 12 1/2% Series B Perpetual Preferred Stock (the
"Series B Preferred Stock") in the stated amount of $200,000,000, (b)
$100,000,000 aggregate principal amount of the Company's currently outstanding
12% Senior Notes due 2006 (the "Senior Notes") and (c) the Company's currently
outstanding ten-year warrants (the "Warrants") to purchase 3,750,000 shares of
the Company's common stock, $.01 par value (the "Common Stock"), (representing
approximately 19.5% of the outstanding shares) at $30 per share, that have been
issued to certain affiliates of the Thomas H. Lee Company (the "Lee Investors").
Assuming the Preferred Stock Exchange takes place on the date of the Special
Meeting, the number of shares of Series C Preferred Stock to be issued will be
824,375. Each share of Series C Preferred Stock has a pay-in-kind, cumulative
dividend rate of 9%, compounded quarterly, and, if issued, will be convertible
into shares of Common Stock at a conversion price of $37.25 per share, subject
to adjustment.
One of the primary reasons for the spin-off of the Company from Fingerhut
Companies, Inc. ("Fingerhut") was to allow the Company to independently raise
equity. The Company had contemplated raising equity capital in the second half
of 1998, following the spin-off, in order to support its growth plan, provide
capital for portfolio acquisitions, ensure compliance with bank credit facility
covenants and continue to strengthen its capital base. On November 13, 1998,
recognizing difficult market conditions which restricted the Company's ability
to access the capital markets in a timely fashion, the Company entered into a
securities purchase agreement (the "Securities Purchase Agreement") providing
for the issuance and private placement of the Series B Preferred Stock, the
Senior Notes and the Warrants to the Lee Investors. The Company used the net
proceeds of the private placement, which closed on December 9, 1998, to provide
funding in part for the concurrent purchase of a portfolio of approximately $821
million of credit card receivables from PNC National Bank (the "PNC Portfolio")
and to pay down short-term debt of the Company.
The Lee Investors initially intended to purchase and the Company intended to
issue the Series C Preferred Stock. However, the issuance of the Series C
Preferred Stock, which initially would represent approximately 30% of the voting
power of the Company, requires both regulatory and stockholder approval. The
Company's wholly-owned subsidiary, Direct Merchants Credit Card Bank, N.A., is
regulated by the Office of the Comptroller of the Currency (the "Comptroller")
which must receive notice of and not disapprove any transfer of voting
securities potentially resulting in a change of control of the Company ("OCC
Approval"). Similarly, the Hart-Scott-Rodino Antitrust Improvements Act of 1976
requires the approval of the contemplated issuance of the Series C Preferred
Stock ("HSR Approval"). HSR Approval was obtained on December 31, 1998. In
addition, the rules of the National
<PAGE>
Association of Securities Dealers, Inc. (the "NASD") require stockholder
approval of certain issuances of voting stock by companies whose securities are
quoted on the Nasdaq National Market. The NASD rules require that stockholder
approval be obtained prior to the issuance of the Series C Preferred Stock. Due
to the non-voting nature of the securities issued to the Lee Investors on
December 9, 1998, OCC Approval, HSR Approval and stockholder approval were not
required at that time.
The Securities Purchase Agreement contemplates that, upon obtaining all
necessary approvals (including approval of Proposal 1), the Company will
automatically exchange the outstanding Series B Preferred Stock, Senior Notes
and Warrants for the Series C Preferred Stock. In the event that the Company
does not obtain the necessary approvals on or prior to March 31, 1999 (or such
later date prior to June 30, 1999 as the parties agree), the annual pay-in-kind
dividend rate on the Series B Preferred Stock increases from 12 1/2% to 15%,
compounded quarterly, and the annual interest rate on the Senior Notes increases
from 12% to 15%, payable semi-annually. Furthermore, the Series B Preferred
Stock is not redeemable at the option of the Company until after December 31,
2005 and the Senior Notes are not redeemable at the option of the Company at any
time. In the event that the Company does not obtain stockholder approval for
Proposal 1, but does obtain the regulatory approvals, the Warrants become
exercisable at $30 per share. As of January 25, 1999, the closing price for the
Common Stock was $53 27/32 per share. The risks and disadvantages of the failure
to approve Proposal 1, including the adverse economic consequences to the
Company and its stockholders, are more fully described on page 26 of this Proxy
Statement.
At the Special Meeting, stockholders will also be asked to vote upon a
proposal of the Company's Board of Directors (Proposal 2) to amend Article IV of
the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") to authorize the issuance of up to 10,000,000 shares of
non-voting common stock, $.01 par value (the "Non-Voting Common Stock"), and to
increase the authorized number of shares of preferred stock, $.01 par value (the
"Preferred Stock"), to be issued by the Company from 10,000,000 to 25,000,000
shares. The Board of Directors has already authorized the issuance of
approximately 4,500,000 shares of Series B, C and D Preferred Stock, in
aggregate. Under certain circumstances, a portion of the Series C Preferred
Stock, instead of being convertible into shares of Common Stock, may be
convertible into Non-Voting Common Stock or Series D Junior Participating
Convertible Preferred Stock (the "Series D Preferred Stock"). The Company
currently has no authorized Non-Voting Common Stock. To assure the availability
of Non-Voting Common Stock and to improve the Company's flexibility to issue
additional Preferred Stock in the future, the Board of Directors has proposed
this amendment to Article IV of the Certificate.
Finally, at the Special Meeting, stockholders will be asked to vote upon a
proposal of the Company's Board of Directors (Proposal 3) to amend Article III
and delete Article XIII of the Certificate to remove certain restrictions on the
Company's business activities which are no longer considered appropriate
following the Company's spin-off from Fingerhut. The Board of Directors proposes
that Article III be amended to state that the Company may engage in any business
or activity and may exercise any powers permitted to corporations under the
General Corporation Law of the State of Delaware. This amendment would remove
various limitations on the scope of the Company's business activities which
applied at the time Fingerhut was the controlling stockholder of the Company.
Similarly, the Board of Directors proposes that Article XIII, which regulates
corporate opportunities involving Fingerhut and the Company, be deleted in its
entirety. The Board believes that the present restrictions in the Certificate
unduly limit the Company's ability to engage in a broad range of business
activities and are no longer necessary or appropriate given that Fingerhut has
ceased to be the controlling stockholder of the Company. Proposals 2 and 3 are
referred to as the "Amendments."
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE SPECIAL MEETING........................................................................................ 4
PROPOSAL 1................................................................................................. 7
What is the Company Asking You to Approve?............................................................... 7
What is the Background and Reason for the Preferred Stock Exchange?...................................... 7
What are the Terms of the Series C Preferred Stock?...................................................... 8
What Other Rights or Limitations do the Purchasers of Series C Preferred Stock Have?..................... 15
Who are the Lee Investors?............................................................................... 15
What are the Principal Terms of the Existing Securities Issued and Sold to the Lee Investors?............ 16
What Other Rights and Obligations Apply to Holders of the Series B Preferred Stock?...................... 19
What are the Principal Differences Between the Existing Securities and the Series C Preferred Stock?..... 19
Do the Existing Securities and the Series C Preferred Stock Impact the Company's Earnings Per Share and
Other Financial Data Differently?...................................................................... 22
Are There any Risks or Disadvantages to the Company if the Stockholders do not Approve Proposal 1
Providing for the Preferred Stock Exchange?............................................................ 26
How Will the Issuance of the Series C Preferred Stock Impact the Company's Capitalization?............... 27
Are There any Material Tax Implications to the Company of the Preferred Stock Exchange?.................. 27
Are There any Anti-Takeover Implications of the Preferred Stock Exchange?................................ 28
Why is Stockholder Approval Sought for Proposal 1?....................................................... 28
What does the Board of Directors Recommend with Respect to Proposal 1?................................... 29
PROPOSAL 2................................................................................................. 30
What is the Company Asking You to Approve?............................................................... 30
What is the Company's Current Capital Structure?......................................................... 30
What are the Terms of the Non-Voting Common Stock?....................................................... 30
What are the Terms of the Preferred Stock?............................................................... 32
What is the Impact of the Approval or Disapproval of Proposal 2?......................................... 32
Why is the Company Requesting the Creation of the Non-Voting Common Stock?............................... 32
Why is the Company Requesting an Increase in the Number of Authorized Shares of Preferred Stock?......... 33
What is the Text of the Proposed Amendments?............................................................. 33
What are the Possible Effects of the Adoption of Proposal 2?............................................. 36
What does the Board of Directors Recommend with Respect to Proposal 2?................................... 36
PROPOSAL 3................................................................................................. 37
What is the Company Asking You to Approve?............................................................... 37
Why is the Company Requesting the Deletion of These Provisions of the Certificate?....................... 37
What is the Text of the Proposed Amendment?.............................................................. 37
What does the Board of Directors Recommend with Respect to Proposal 3?................................... 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 38
NOTE REGARDING FORWARD-LOOKING STATEMENTS.................................................................. 39
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 39
</TABLE>
3
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held on Friday, March 12, 1999, at 10:00 a.m.,
central standard time, at the Marriott Southwest, 5801 Opus Parkway, Minnetonka,
Minnesota 55343.
PURPOSE
At the Special Meeting, you will be asked to consider and vote upon the
Preferred Stock Exchange and the Amendments. The Board of Directors is not
currently aware of any business to be acted upon at the Special Meeting other
than as described in this Proxy Statement. If, however, other matters are
properly brought before the Special Meeting, the persons appointed as proxies
will have discretion to vote on those matters according to their judgment.
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors has fixed the close of business on January 19, 1999
as the record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting. As of the record date, the Company had outstanding
19,259,750 shares of Common Stock. Each share of Common Stock is entitled to one
vote on all matters coming before the Special Meeting.
QUORUM
The holders of one-third of the outstanding shares entitled to vote at the
Special Meeting, present in person or represented by proxy, will constitute a
quorum for the transaction of business at the Special Meeting. In the absence of
a quorum, the holders of a majority of the shares represented at the Special
Meeting have the power to adjourn the Special Meeting without further notice,
other than by announcement at the Special Meeting at the time of its
adjournment. At any adjourned meeting at which a quorum exists, the stockholders
entitled to vote may transact any business that might have been transacted at
the original meeting. If and when a quorum exists at the Special Meeting or any
adjourned meeting, the stockholders present or represented at the meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
from the meeting of stockholders counted in determining the existence of a
quorum. Please be aware that, notwithstanding the existence of a quorum, a
majority of the outstanding shares of Common Stock is necessary to approve
Proposals 2 and 3 (see "Required Vote" below).
VOTING METHODS AND PROXIES
Unless you hold your shares in the Metris Retirement 401(k) Plan, you can
vote on the matters to come before the Special Meeting in one of two ways:
- You can come to the Special Meeting and cast your vote there; or
- You can vote by signing and returning the enclosed proxy card.
The Board of Directors has selected Ronald N. Zebeck and Z. Jill Barclift,
the persons named on the proxy card accompanying this Proxy Statement, to serve
as proxies for the Special Meeting. Each of Ronald N. Zebeck and Z. Jill
Barclift is an officer of the Company. All shares represented by properly
executed proxies received prior to or at the Special Meeting and not revoked
will be voted in accordance with the instructions indicated on those proxies or,
if no instructions are given, for Proposals 1, 2 and 3 in accordance with the
recommendation of the Board of Directors contained in this Proxy Statement. We
urge you to mark the box on the proxy to indicate how you want your shares of
Common Stock to be voted. If matters other than those described in this Proxy
Statement are properly presented at the Special Meeting, the persons named as
proxies will vote in accordance with their own judgment with respect to those
matters, unless you withhold authority to do so in the proxy.
4
<PAGE>
Any stockholder who executes and returns a proxy may revoke such proxy at
any time before it is voted by: (i) notifying the Secretary of the Company in
writing at 600 South Highway 169, Suite 1800, St. Louis Park, Minnesota 55426;
(ii) granting a subsequent proxy; or (iii) appearing in person and voting at the
Special Meeting. Attendance at the Special Meeting will not, by itself,
constitute revocation of a proxy.
IF YOUR SHARES ARE HELD IN THE NAME OF YOUR BROKER, BANK OR OTHER NOMINEE,
THE INSPECTORS WILL REQUIRE YOU TO PRESENT A POWER OF ATTORNEY FROM SUCH BROKER,
BANK OR NOMINEE FOR YOU TO VOTE SUCH SHARES AT THE SPECIAL MEETING. Please
contact your broker, bank or nominee.
SPECIAL VOTING INSTRUCTIONS FOR STOCKHOLDERS IN THE METRIS 401(K)
If you participate in the Metris Retirement 401(k) Plan, an employee benefit
plan of the Company, please return your proxy in the envelope provided by March
5, 1999. Norwest Bank Minnesota, N.A., the tabulator, will calculate the votes
returned by all holders in the Metris Retirement 401(k) Plan. First Trust
National Association, the Trustee for the plan, will act as your proxy for the
shares of Common Stock held in your 401(k) account. If your voting instructions
are not received by March 5, 1999, those shares will be voted by the Trustee in
its absolute discretion. Holders of shares in the Metris Retirement 401(k) Plan
will not be permitted to vote such shares at the Special Meeting.
REQUIRED VOTE
Approval of Proposal 1 requires the affirmative vote of a majority of the
shares represented and voted at the Special Meeting, in person or by proxy, with
respect to Proposal 1. Approval of Proposals 2 and 3 requires the affirmative
vote of a majority of the outstanding shares of Common Stock.
Votes cast in person or by proxy will be counted by persons appointed by the
Company to act as inspectors at the Special Meeting. The inspectors will treat
shares represented by proxies that reflect abstentions as shares that are
present and entitled to vote for the purpose of determining a quorum.
Abstentions will not be deemed to be cast and therefore will have no effect on
the outcome of Proposal 1. However, because Proposals 2 and 3 require a majority
of the outstanding shares of Common Stock, abstentions will have the same legal
effect as a vote against Proposals 2 and 3.
Broker non-votes occur where a broker holding stock in street name votes the
shares on some matters but not others. The missing votes are deemed to be
"broker non-votes." The inspectors will treat broker non-votes as shares that
are present and entitled to vote for the purpose of determining a quorum.
However, for the purpose of determining the outcome of any matter as to which
the broker or nominee has indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are
considered entitled to vote for quorum purposes and may be entitled to vote on
other matters).
As of the record date, directors and executive officers of the Company and
their affiliates beneficially owned approximately 10.5% of the outstanding
shares of Common Stock entitled to vote at the Special Meeting. Each of the
directors and executive officers of the Company and their affiliates plans to
vote or direct the vote of all shares of Common Stock over which he or she has
voting control IN FAVOR of Proposals 1, 2 and 3.
INFORMATION REGARDING TABULATION OF THE VOTE
The Company has a policy that all proxies, ballots and votes tabulated at a
meeting of its stockholders are confidential, and the votes will not be revealed
to any Company employee or anyone else, other than the inspectors, except as
necessary to meet applicable legal requirements.
5
<PAGE>
PROXY SOLICITOR
The Company has retained Morrow & Co., Inc. to aid in the solicitation of
proxies. The Company estimates that the cost of these services will be
approximately $7,500 plus expenses. In addition to solicitation by mail, proxies
may also be solicited by telephone, telegram or otherwise. The Company will bear
the entire cost of soliciting proxies from its stockholders and will reimburse
brokers or other persons holding stock in their names or in the names of their
nominees for their reasonable expenses incurred in forwarding proxy materials to
beneficial owners of Common Stock.
6
<PAGE>
PROPOSAL 1
PROPOSAL TO APPROVE THE TERMS AND ISSUANCE OF THE COMPANY'S SERIES C
PREFERRED STOCK IN EXCHANGE FOR ITS OUTSTANDING SERIES B
PREFERRED STOCK, SENIOR NOTES AND WARRANTS
1. WHAT IS THE COMPANY ASKING YOU TO APPROVE?
You are being asked to approve the terms and issuance of the Company's
Series C Preferred Stock, which initially would represent approximately 30% of
the voting power of the outstanding capital stock of the Company, in exchange
for the Company's outstanding Series B Preferred Stock, Senior Notes and
Warrants.
If you approve this Proposal 1 and if the Company receives certain required
regulatory approvals, the Series C Preferred Stock in the stated amount of
$300,000,000 (plus accrued dividends from December 9, 1998) will be issued in
exchange for the currently outstanding Series B Preferred Stock in the stated
amount of $200,000,000, $100,000,000 aggregate principal amount of Senior Notes
and the currently outstanding Warrants to purchase 3,750,000 shares of Common
Stock at $30 per share.
2. WHAT IS THE BACKGROUND AND REASON FOR THE PREFERRED STOCK EXCHANGE?
On October 23, 1997, Fingerhut filed an application with the Internal
Revenue Service for a letter ruling regarding the tax-free nature of the
contemplated spin-off of the Company. The decision to spin-off the Company from
Fingerhut was motivated primarily by the Company's need for additional equity in
order to finance its growth. During the latter part of 1998, the Company had
been considering raising additional equity capital to meet its ongoing growth
objectives. However, the Company was unable, due to legal and tax restrictions,
to sell Common Stock to outside investors so long as Fingerhut remained its
controlling stockholder. Fingerhut obtained the letter ruling on August 17,
1998, and the spin-off was completed on September 25, 1998.
In anticipation of the letter ruling and the subsequent spin-off from
Fingerhut, the Company filed a registration statement on Form S-3 with the SEC
on August 3, 1998. On September 8, 1998, the Company announced the execution of
a definitive agreement to purchase the PNC Portfolio, which increased its need
to raise equity capital. The SEC declared the registration statement effective
on September 28, 1998, three days after the spin-off, and the Company intended
to commence a roadshow during the week of October 12, 1998 to effect a public
offering of Common Stock. At that time, the price of the Company's Common Stock
had fallen from its 52-week high in August of $80 1/8 per share to a closing
price of $49 7/8 per share.
In early October, accounting issues concerning certain companies in the
fee-based services industry negatively affected the trading price of the stock
of those companies, including the Company. These issues, among other things,
caused two brokerage firms to lower their recommendations pertaining to the
Company's Common Stock. On October 5, 1998, the Company issued a press release
stating that the SEC staff had recently changed its position regarding revenue
recognition of fee-based services for which a full refund period exists and that
the Company's previous accounting policies followed generally accepted
accounting principles. The Company estimated the cumulative impact of the change
in recognition of certain fee-based services revenues and expenses to be a
$68,000 increase in net income for the third quarter of 1998. The Company also
mentioned in its press release that the SEC staff was deliberating a possible
change in accounting for direct-response advertising costs which, if the Company
were required to adopt the change, would have resulted, as of September 30,
1998, in an estimated, cumulative, one-time, non-cash decrease in net income of
$14.1 million, or $0.70 per share. Shortly following the press release, several
class action lawsuits were filed against the Company and certain of its
officers. On October 14, the Company issued a press release stating that based
upon guidance the SEC had provided to another fee-based services company,
capitalizing and amortizing
7
<PAGE>
qualifying costs related to direct-response advertising continues to be in
accordance with generally accepted accounting principles and therefore, the
Company would not be taking the contemplated $14.1 million one-time, non-cash
charge to earnings.
As a result of these events, as well as a general market decline in
financial services stocks from August to October, 1998, the Common Stock closed
on October 7, 1998 at $17 3/4 per share, a decline of 78% from the high of
$80 1/8 in August. Given these factors, general market conditions and the
volatility of the Common Stock during this period, the Company determined, after
consultation with its financial advisor, Donaldson Lufkin & Jenrette Securities
Corporation, that it was not practicable or feasible at that time to publicly
issue the large amount of Common Stock, at a price and on a timetable acceptable
to the Company, required to provide additional equity capital for the Company
and to fund a portion of the purchase price of the PNC Portfolio. During
October, 1998, the Company began to consider alternative means of raising the
needed equity and, in evaluating its options, solicited proposals from a number
of private investors. On November 2, 1998, amid discussions with certain private
investors concerning a possible equity investment, the Company announced the
resignation of its Chief Financial Officer, Robert W. Oberrender, to take
another position. On November 13, 1998, the Company entered into the Securities
Purchase Agreement with the Lee Investors to sell the securities described below
and to provide for the issuance of the Series C Preferred Stock in the Preferred
Stock Exchange. The Company and the Lee Investors finalized various material
terms of the transaction on December 3, 1998. The Company's Common Stock closed
on December 3, 1998 at $31 per share.
On December 9, 1998, the Company issued and sold to the Lee Investors
536,913 shares of Series B Preferred Stock in the stated amount of $200,000,000,
$100,000,000 aggregate principal amount of Senior Notes, and Warrants to
purchase 3,750,000 shares of Common Stock at an exercise price of $30 per share
(collectively, the "Existing Securities"). The Company used the net proceeds
from the sale to provide funding in part for the purchase of a portfolio of
approximately $821 million in credit card receivables from PNC National Bank
pursuant to a contract it entered into with PNC National Bank in September, 1998
and to pay down short-term debt.
The Lee Investors desired to purchase the Series C Preferred Stock initially
because such stock is convertible into Common Stock and has equity appreciation
features and voting rights, but the Series C Preferred Stock could not be issued
prior to obtaining OCC Approval, HSR Approval and stockholder approval as
required by rules of the NASD. The Company also desired to sell the Series C
Preferred Stock initially to the Lee Investors because the Series C Preferred
Stock would increase the Company's equity by $100 million in excess of the
Existing Securities, ease compliance with bank credit facility and indenture
covenants, facilitate future growth and expansion and have a pay-in-kind
dividend rate which is lower than the pay-in-kind dividend rate on the Series B
Preferred Stock and the cash dividend rate on the Senior Notes. To enable the
Company to satisfy its contractual commitment to purchase the PNC Portfolio on a
timely basis and to provide the Company with needed equity to support ongoing
growth, the Lee Investors were willing to purchase the Existing Securities. The
Company could promptly issue the Existing Securities, due to their non-voting
nature, without obtaining the requisite regulatory and stockholder approvals.
3. WHAT ARE THE TERMS OF THE SERIES C PREFERRED STOCK?
The following summarizes certain terms of the Series C Preferred Stock. We
have attached a copy of the Certificate of Designation establishing the Series C
Preferred Stock (the "Series C Certificate of Designation") as APPENDIX A. This
discussion is not complete, is qualified in its entirety by, and you should read
it in conjunction with, the Series C Certificate of Designation.
The Series C Certificate of Designation designates 2,000,000 shares of the
Company's Preferred Stock as Series C Preferred Stock, par value $.01 per share,
and fixes a purchase price of $372.50 per
8
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share. The Series C Preferred Stock will rank senior (with respect to dividends
and liquidation payments) to any future Preferred Stock of the Company.
DIVIDENDS
The Company will pay dividends on the Series C Preferred Stock quarterly, on
a cumulative basis, in additional shares of Series C Preferred Stock at an
annual rate of 9%, compounded quarterly. In addition, holders of the Series C
Preferred Stock will be entitled to receive all dividends paid with respect to
the Common Stock (other than dividends payable in additional shares of Common
Stock) on an as-converted basis. The Company has paid a quarterly dividend of
$.01 per share on the Common Stock each of the last seven quarters. After
December 9, 2008, the annual dividend rate on the Series C Preferred Stock will
increase to 15%, compounded quarterly. However, on or after December 9, 2008,
the Company will have the option to call the Series C Preferred Stock at par
plus accrued dividends. The dividends on the Series C Preferred Stock are
subject to further increase upon certain circumstances after a Change of
Control, as discussed below. If the Board of Directors determines in good faith
for legal, tax, regulatory or other good reason that it is inappropriate or
inadvisable to pay one or more dividends in-kind as described above, the Board
may, by a vote of 80% of its members (including a majority of the directors
elected by the holders of Series C Preferred Stock or, if there are no such
directors, the holders of a majority of the outstanding shares of Series C
Preferred Stock), determine to pay such dividend in cash, debt securities or
other securities of the Company. In order to make such a substitution, the Board
must reasonably believe that the dividend would be substantially economically
equivalent to the in-kind dividend that otherwise would have been declared.
CONVERSION AT THE OPTION OF THE HOLDER
For each share of Series C Preferred Stock converted into Common Stock, the
holder will receive that number of shares of Common Stock (valued at the
conversion price, which is initially $37.25 per share) worth $372.50 plus
accrued dividends plus a premium amount (the "Premium Amount") designed to
guarantee that the holder receives the benefit of seven years' worth of
dividends at the 9% annual rate (the "Conversion Value"). However, in the event
of an optional conversion by any holder of the Series C Preferred Stock prior to
January 1, 2004, the Premium Amount will be reduced. If the optional conversion
occurs prior to January 1, 2000, the holder will not receive any Premium Amount.
If the optional conversion occurs on or after January 1, 2000, the Premium
Amount related to each share converted will be reduced so that the total number
of shares of Common Stock to be received by the holders approximately equals the
amount indicated in the following table:
<TABLE>
<CAPTION>
HOLDERS WILL RECEIVE A
TOTAL NUMBER OF SHARES
OF
COMMON STOCK (INCLUDING
THE PREMIUM AMOUNT) OF
FOR AN OPTIONAL CONVERSION OF ALL SHARES BETWEEN: APPROXIMATELY:
- --------------------------------------------------------------------- -----------------------
<S> <C>
January 1, 2000 through December 31, 2000............................ 9.7 million
January 1, 2001 through December 31, 2001............................ 11.9 million
January 1, 2002 through December 31, 2002............................ 13.0 million
January 1, 2003 through December 31, 2003............................ 14.2 million
January 1, 2004 through December 31, 2004............................ 15.0 million
</TABLE>
The conversion price is subject to adjustment upon the occurrence of certain
events, including:
- the issuance of Common Stock as a dividend or distribution on the Common
Stock;
- a subdivision, combination, consolidation or reclassification of the
Common Stock;
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<PAGE>
- 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 employee benefit
plans and other options of the Company); and
- any reductions in the conversion price as the Company deems advisable to
prevent any distribution 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 promulgated under the
Exchange Act) obtaining 35% or more of the outstanding voting stock of the
Company, the indenture which governs the Company's outstanding 10% Senior Notes
due 2004 ("10% Notes") requires the Company to make an offer to purchase those
notes. Accordingly, for so long as any of the Company's 10% Notes remain
outstanding, in the event that the conversion of the Series C Preferred Stock
into Common Stock would cause any stockholder or group to beneficially own 35%
or more of the outstanding voting stock of the Company, the excess number of
shares of Series C Preferred Stock will be convertible into non-voting stock.
Such non-voting stock will consist of Non-Voting Common Stock, if the
stockholders approve Proposal 2, or in the alternative, Series D Preferred
Stock. The Non-Voting Common Stock, if issued, will automatically convert into
Common Stock at the time such conversion will not trigger the restrictions on
beneficial ownership of voting stock set forth in the indenture relating to the
10% Notes. The terms of the Series D Preferred Stock are essentially the same as
the terms of the Common Stock, except that the Series D Preferred Stock has a
liquidation preference of $.01 per share and is non-voting, except as required
by law. In addition, like the Non-Voting Common Stock, the Series D Preferred
Stock will automatically convert into Common Stock at the time such conversion
will not trigger the restrictions set forth in the indenture described above.
MANDATORY CONVERSION
At any time after December 9, 2005, the Series C Preferred Stock will
automatically convert into Common Stock, Non-Voting Common Stock or Series D
Preferred Stock, as described above, when the average trading price of the
Common Stock equals or exceeds $64 per share (as adjusted) for at least 20
consecutive trading days.
OPTIONAL REDEMPTION
At any time after December 31, 2001, the Company 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 (i) the 20-day average trading price of
the Common Stock equals or exceeds $64 per share (as adjusted) and (ii) the
Company becomes "investment grade" as evidenced by the fact that the Company's
unsecured debt securities are rated equal to or better than "Baa3" by Moody's
Investor Services and "BBB-" by Standard & Poor's Corporation. The holders of
the Series C Preferred Stock will have the right, however, to convert their
shares into Common Stock rather than having them redeemed by the Company.
At any time from and after December 9, 2008, the Company will have the right
to redeem all of the outstanding Series C Preferred Stock at a redemption price
of $372.50 per share plus all accrued dividends to the date of redemption. If a
redemption of less than all of the shares of Series C Preferred Stock would not
cause such payment to be treated for tax purposes as a dividend (as opposed to a
capital transaction), the Company may make a partial redemption of the Series C
Preferred Stock pro-rata from each of the holders. The holders of the Series C
Preferred Stock will have the right, however, to convert their shares into
Common Stock rather than having them redeemed by the Company.
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<PAGE>
VOTING RIGHTS
So long as the initial purchasers of the Series C Preferred Stock 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. So long as it 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. So long as the initial purchasers of the Series C
Preferred Stock 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. The holders of the
Series C Preferred Stock will be entitled to vote on all matters voted on by
holders of the capital stock of the Company into which such Series C Preferred
Stock is convertible, voting as a single class, except the election of
directors. With respect to a vote on any matter other than the election of
directors, each share of Series C Preferred Stock will entitle its holder to
cast the same number of votes he or she would have been able to cast if such
share of Series C Preferred Stock was converted into Common Stock on the record
date.
For so long as any shares of Series C Preferred Stock remain outstanding,
the vote of 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)
will be 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 the Company's Certificate or Amended and
Restated By-laws in a manner adverse in any material respect to the
holders of the Series C Preferred Stock.
Regardless of the above, the Company may distribute rights pursuant to a
shareholder rights plan approved by the Board of Directors without the consent
of the holders of Series C Preferred Stock.
In addition, with respect to a vote relating to a Change of Control,
liquidation, dissolution or winding up of the Company or certain other matters
which could result in the acceleration of dividends on the Series C Preferred
Stock, holders of the Series C Preferred Stock will be entitled to the number of
votes that could be cast by virtue of the shares he or she currently owns, as
well as the shares of Series C Preferred Stock he or she would receive as
accelerated dividends (through receipt of the "Dividend Shares" described below)
as a result of such event.
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<PAGE>
CONSOLIDATION OR MERGER
In the event of any capital reorganization or reclassification (other than a
reclassification which causes an adjustment of the conversion price), any
consolidation or merger of the Company with or into another corporation, or any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, prior to the consummation of such
transaction, each share of Series C Preferred Stock then outstanding will be
convertible into (in lieu of the Common Stock issuable upon such conversion) the
kind and amount of shares of stock and other securities and property (including
cash) receivable upon consummation of such transaction by a holder of that
number of shares of Common Stock into which one share of Series C Preferred
Stock was convertible immediately prior to such transaction.
CHANGE OF CONTROL
Within five days of the occurrence of a "Change of Control," the Company
may, but is not required to, offer to purchase all of the outstanding Series C
Preferred Stock for 101% of the Series C Preferential Payment (as defined
below). If the Company does not make such an offer:
- each holder of Series C Preferred Stock will receive additional shares of
Series C Preferred Stock so that the total number of shares of Series C
Preferred Stock he or she holds equals the Series C Preferential Payment
divided by $372.50;
- 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%;
- the Company will become subject to a covenant which, subject to certain
exceptions, prohibits it from incurring additional indebtedness unless the
ratio of the Company's indebtedness (not including its hedging
obligations) to consolidated stockholders' equity, after taking into
account the incurrence, would be less than 2 to 1;
- the Company will be subject to a covenant which restricts the ratio of the
Company's indebtedness to its consolidated tangible net worth from
exceeding 6 to 1; and
- the Company will be subject to a covenant which restricts its unsecured
indebtedness (except (1) indebtedness outstanding prior to the Change of
Control, (2) indebtedness that refinances such indebtedness on
substantially the same terms and (3) indebtedness represented by bank
deposits at the Company's credit card bank) from exceeding $25 million at
any time.
In the event a Change of Control occurs, if the Company does not make an
offer to purchase all of the outstanding Series C Preferred Stock and
subsequently violates 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 the Company's outstanding
10% Notes, the holders of the Series C Preferred Stock may put their shares to
the Company for 101% of the Series C Preferential Payment.
"Change of Control" means any of the following:
- the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than the Company, any of its
subsidiaries, or any employee benefit plan or related trust of the Company
or any of its subsidiaries or the Thomas H. Lee Equity Fund IV, L.P. or
its affiliates (an "Acquiring Person"), of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or
more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors;
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<PAGE>
- 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 the Company's
stockholders, was approved by a vote of the stockholders having the right
to designate such director (including, without limitation, the exercise by
the holders of a majority of the outstanding shares of Series C Preferred
Stock of their right to elect directors) and (ii) any director whose
election, or nomination for election by the Company's stockholders, was
approved by majority vote of the Board of Directors of the Company shall,
in each case, be considered as though such director were a member of the
Incumbent Board, but excluding, as a member of the Incumbent Board, any
such individual whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election of the
directors of the Company (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) and any person who is
an affiliate or associate (as those terms are defined in the General Rules
and Regulations under the Exchange Act) of an Acquiring Person having or
proposing to acquire beneficial ownership of 25% or more of the continued
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors;
- the approval by the stockholders of the Company of a reorganization,
merger or consolidation following which all or substantially all of the
beneficial owners of the voting securities of the Company immediately
prior to such reorganization, merger or consolidation do not beneficially
own, directly or indirectly, more than 50% of the combined voting power of
the then outstanding voting securities entitled to vote generally in the
election of directors of the Company resulting from such reorganization,
merger or consolidation;
- the Company ceases to own, directly or indirectly, 100% of the capital
stock of Direct Merchants Credit Card Bank, National Association;
- the sale or other disposition of all or substantially all the assets of
the Company in one transaction or series of related transactions;
- so long as any of the Company's 10% Notes remain outstanding, the
occurrence of a change of control as defined in the indenture pursuant to
which such notes are issued (but only if the Company is obligated to make
an offer to purchase outstanding notes governed thereby); or
- if the Company's existing agreements with Fingerhut remain in effect, the
occurrence of a change of control permitting Fingerhut to terminate such
agreements, unless such change of control has been waived.
Notwithstanding the preceding paragraphs, a Change of Control will not be deemed
to occur if both a majority of the Board and the holders of a majority of the
outstanding shares of 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").
13
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The table below outlines the Series C Preferential Payment to be received by
holders of Series C Preferred Stock in certain specified events:
SERIES C PREFERENTIAL PAYMENT
<TABLE>
<CAPTION>
EVENT SERIES C PREFERENTIAL PAYMENT
<S> <C>
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 December The greater of:
9, 2005 - the Conversion Value
or
- the amount the holders of Series C Preferred Stock would have received had they
converted all of the Owned Shares and Dividend Shares into Common Stock and sold
such shares for the then-current market price.
Redemption after The greater of:
December 9, 2005 - the Conversion Value
or
- the amount the holders of Series C Preferred Stock would have received had they
converted all of the Owned Shares into Common Stock and sold such shares for the
then-current market price.
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.
</TABLE>
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<PAGE>
4. WHAT OTHER RIGHTS OR LIMITATIONS DO THE PURCHASERS OF SERIES C PREFERRED
STOCK HAVE?
REGISTRATION RIGHTS
The Company has agreed to file a registration statement on Form S-3 (or any
successor form) for a public resale offering of the Series C Preferred Stock and
the Common Stock into which the Series C Preferred Stock is convertible. The
Company will pay all registration expenses (inclusive of up to 3.3% of the gross
proceeds in underwriting discounts and commissions or sales agent fees).
EQUITY PURCHASE RIGHTS
In the event the Company or any subsidiary proposes to sell equity or debt
securities convertible into equity (or rights, options or warrants to purchase
any of the foregoing), each of the Lee Investors (if they own at least 10% of
the Series C Preferred Stock initially issued or the securities issuable upon
conversion thereof) and any other holder of 15% or more of the Series C
Preferred Stock or the securities issuable upon conversion thereof has the right
to purchase a portion of such securities equal to his or her ownership of the
outstanding securities of the Company. These equity purchase rights do not
extend to, among other things, shares issued pursuant to the Company's stock
option plans, securities issued in a public offering or securities issued in an
offering pursuant to Rule 144A of the SEC.
STANDSTILL PROVISIONS
At any time prior to December 9, 2000 (subject to termination earlier or
later under certain circumstances), each of the purchasers has agreed, subject
to certain exceptions, not to:
- acquire, offer to acquire, or agree to acquire by purchase or by joining a
group, any securities of the Company entitled to vote generally in the
election of directors, or securities convertible into or exercisable or
exchangeable for such securities, if the action would trigger the change
of control provisions in certain specified agreements or if a requisite
regulatory approval has not been obtained;
- participate in, or encourage, the formation of a group (within the meaning
of Rules 13d-3 and 13d-5 promulgated under the Exchange Act) which owns
such securities, other than a group consisting of purchasers and permitted
transferees;
- make, or in any way participate in, the solicitation of proxies other than
for the election of directors which may be elected by the holders of such
securities or for any matter to be voted on by the stockholders that is
not initiated by the purchasers or their affiliates; or
- call, or seek to have called, any meeting of stockholders, except as
described in the immediately preceding clause.
RESTRICTIONS ON TRANSFER
The purchasers have also agreed not to transfer any securities (including
any shares of Common
Stock issued upon conversion thereof) to any person if the transfer would
violate the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or the rules
and regulations of the Comptroller or would constitute a change of control under
certain specified agreements.
5. WHO ARE THE LEE INVESTORS?
The purchasers are Thomas H. Lee Equity Fund IV, L.P. and other affiliates
of the Thomas H. Lee Company. Thomas H. Lee Company is a Boston-based investment
firm focused on identifying and acquiring substantial investments in growth
companies. Founded in 1974, the firm currently manages
15
<PAGE>
approximately $6 billion of committed capital. Notable recent transactions
include Fisher Scientific, Rayovac, HomeSide Lending, The Learning Company and
PriCellular.
6. WHAT ARE THE PRINCIPAL TERMS OF THE EXISTING SECURITIES ISSUED AND SOLD TO
THE LEE INVESTORS?
SERIES B PREFERRED STOCK
GENERAL. On December 9, 1998, the Company issued 536,913 shares of Series B
Preferred Stock, par value $.01 per share, in the stated amount of $200,000,000
to the Lee Investors. The Series B Preferred Stock ranks senior (with respect to
dividends and liquidation payments) to any future Preferred Stock of the
Company.
DIVIDENDS. The Company pays dividends on the Series B Preferred Stock
quarterly, on a cumulative basis, in additional shares of Series B Preferred
Stock at an annual rate of 12 1/2%, compounded quarterly. If stockholder
approval or OCC Approval is not received by March 31, 1999 (or such later date
prior to June 30, 1999 as the parties agree), then the annual dividend rate on
the Series B Preferred Stock will increase to 15%. If the Board determines for
legal, tax, regulatory or other good reason that it is inadvisable or
inappropriate to pay one or more of the dividends in-kind as described above, it
may, by a vote of 80% of its members (including a majority of the directors
elected or designated by the holders of Series B Preferred Stock or, if there
are no directors elected or designated by holders of Series B Preferred Stock,
the holders of a majority of the outstanding shares of Series B Preferred
Stock), determine to pay such dividends in cash, debt securities or other
consideration. For periods after December 9, 2008, the Company will pay all
dividends on the Series B Preferred Stock in cash. In addition, the holders of
the Series B Preferred Stock are entitled to receive all dividends paid with
respect to the Common Stock at a rate per share of Series B Preferred Stock
equal to ten times the payment made with respect to the Common Stock, subject to
adjustment.
OPTIONAL REDEMPTION: SERIES B PREFERENTIAL PAYMENT. At any time after
December 31, 2005, the Company may call or redeem the Series B Preferred Stock
at the Series B Preferential Payment. The "Series B Preferential Payment" per
share is equal to the greater of (i) $372.50 plus any accrued but unpaid
dividends and (ii) the amount the holder would have received if each share of
Series B Preferred Stock could have been converted into ten shares of Common
Stock, subject to adjustment in certain circumstances.
CHANGE OF CONTROL. Within five days of the occurrence of a "Change of
Control," the Company may, but is not required to, offer to purchase all of the
outstanding Series B Preferred Stock for 101% of the Series B Preferential
Payment. If the Company does not make such an offer:
- each holder of Series B Preferred Stock will receive additional shares of
Series B Preferred Stock such that the total number of shares of Series B
Preferred Stock equals the Series B Preferential Payment divided by
$372.50;
- the dividends on the Series B Preferred Stock will become payable in cash;
and
- following the earlier of March 31, 1999 and the date OCC Approval is
obtained, the Company will be subject to the same additional covenants
described under the Change of Control provisions relating to the Series C
Preferred Stock above.
In the event a Change of Control occurs, if the Company does not make an
offer to purchase all of the outstanding Series B Preferred Stock and
subsequently violates the covenants imposed under the Certificate of Designation
of Series B Preferred Stock (the "Series B Certificate of Designation"), the
dividend rate then in effect on the Series B Preferred Stock will increase to
18%, and at any time following the 91st day after maturity or redemption of the
Company's outstanding 10% Notes, the holders of a majority of the shares of
Series B Preferred Stock may put their shares to the Company for 101% of the
Series B Preferential Payment.
16
<PAGE>
VOTING RIGHTS. The holders of the Series B Preferred Stock have no voting
rights except those required by law. However, for so long as any shares of
Series B Preferred Stock remain outstanding, the Company must obtain the consent
of the holders of a majority of the Series B Preferred Stock to:
- authorize, create or issue any class or series, or any shares of any class
or series, of stock having any preference or priority over the Series B
Preferred Stock with respect to voting, dividends or upon redemption,
liquidation, dissolution, or winding up of the Company ("Senior Stock");
- authorize, create or issue any class or series, or any shares of any class
or series, of stock ranking equally with the Series B Preferred Stock with
respect to voting, dividends or upon redemption, liquidation, dissolution
or winding up of the Company ("Parity Stock");
- reclassify any shares of capital stock of the Company into shares of
Senior Stock or Parity Stock;
- authorize the issuance of any security exchangeable for, convertible into,
or evidencing the right to purchase any shares of Senior Stock or Parity
Stock;
- alter or change the rights, preferences or privileges of the Series B
Preferred Stock;
- increase or decrease the authorized number of shares of Series B Preferred
Stock or issue shares of Series B Preferred Stock other than to holders of
Series B Preferred Stock pursuant to its terms; or
- amend or waive any provision of the Company's Certificate in a manner
adverse in any material respect to the holders of the Series B Preferred
Stock.
For a more complete description of the Series B Preferred Stock, you should
read the Series B Certificate of Designation, filed as an exhibit to the
Company's Report on Form 8-K filed with the SEC on December 22, 1998, which is
hereby incorporated by reference.
SENIOR NOTES
GENERAL. The Company has issued $100,000,000 in aggregate principal amount
of Senior Notes pursuant to an indenture dated as of December 9, 1998 (the
"Senior Notes Indenture") among the Company, Metris Direct, Inc., a subsidiary
of the Company, and The Bank of New York. The Senior Notes rank equally with the
Company's outstanding 10% Notes.
INTEREST. The Senior Notes initially bear interest at an annual rate of
12%, payable semi-annually. Upon the first to occur of stockholder disapproval
of the Preferred Stock Exchange and June 30, 1999, the annual interest rate on
the Senior Notes will increase to 15%.
REDEMPTION. There are no mandatory sinking fund payments and the Company
cannot optionally redeem any of the Senior Notes prior to maturity. However, in
the event that the Company redeems any of the 10% Notes, the Company is
obligated to make an offer to purchase all of the outstanding Senior Notes.
CHANGE OF CONTROL. Upon the occurrence of a change of control (as defined
below) the Company is required to make an offer to purchase all of the Senior
Notes then outstanding at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued interest. For this purpose, "change of
control" means the occurrence of any of the following events (whether or not
approved by the Board):
- any person or group other than Fingerhut or its affiliates is or becomes
the beneficial owner directly or indirectly, of more than 35% of the total
voting power of the then outstanding voting stock of the Company at a time
when Fingerhut or its affiliates beneficially own a lesser percentage of
the total voting power than such person or group and do not have the
ability to elect a majority of the Board;
- the Company consolidates with, or merges with or into, another person
(other than the Company or a wholly-owned restricted subsidiary of the
Company) or the Company or its
17
<PAGE>
restricted subsidiaries sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of the assets of the Company and its
restricted subsidiaries (determined on a consolidated basis) to any person
(other than the Company or a wholly-owned restricted subsidiary of the
Company), other than any transaction in which the beneficial owners of a
majority of the voting stock prior to the transaction retain a majority of
the voting power of the surviving entity; or
- during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board or whose nomination for
election by the Company's stockholders was approved by a vote of a
majority of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors of the Company.
COVENANTS. The covenants and restrictions in the Senior Notes Indenture are
substantially similar to those contained in the Company's indenture relating to
the 10% Notes. These include limitations on transactions with affiliates,
incurrence of indebtedness, asset sales, limitation on restricted payments,
incurrence of liens and other covenants. For a more complete description of
these covenants and other terms of the Senior Notes, you should read the Senior
Notes Indenture filed as an exhibit to the Company's Report on Form 8-K filed
with the SEC on December 22, 1998, which is hereby incorporated by reference.
WARRANTS
GENERAL. In connection with the issuance of the Series B Preferred Stock,
the Company also issued Warrants entitling the Lee Investors to purchase up to
3,750,000 shares of the Common Stock (representing approximately 19.5% of the
Company's currently outstanding Common Stock) at a price of $30 per share,
subject to adjustment. However, the Warrants cannot be exercised until OCC
Approval has been obtained. In addition, the Warrants cannot be exercised until
the earlier of stockholder disapproval of the Preferred Stock Exchange and June
30, 1999. The Warrants expire December 31, 2008.
If the Warrants are exercised in full, the Company will receive gross
proceeds of $112.5 million, subject to adjustment.
EXERCISE PRICE. The $30 exercise price is subject to adjustment if the
Company:
- issues or sells Common Stock, with certain exceptions, at less than the
exercise price in effect immediately prior to such issue or sale;
- issues or sells options or rights to buy Common Stock or convertible
securities if such rights are exercisable at less than the exercise price;
- issues convertible securities at less than the exercise price;
- makes any distribution with respect to its Common Stock as a liquidating
or partial liquidating dividend, other than a dividend legally available
for payment out of surplus;
- declares a stock dividend on its Common Stock, subdivides or combines its
outstanding Common Stock, issues any shares of Common Stock in a
reclassification; or
- undertakes certain other transactions.
For a more complete description of the terms of the Warrants, you should
read the Warrant Agreement (including the form of Warrant Certificate) filed as
an exhibit to the Company's Report on Form 8-K filed with the SEC on December
22, 1998, which is hereby incorporated by reference.
18
<PAGE>
7. WHAT OTHER RIGHTS AND OBLIGATIONS APPLY TO HOLDERS OF THE SERIES B PREFERRED
STOCK?
NOMINATION OF DIRECTORS
Upon obtaining the OCC Approval, the Company's Board of Directors will be
expanded from seven to nine members and the Lee Investors will be entitled to
recommend two directors for nomination to the Board. So long as the initial
purchasers own at least 25% of the Series B Preferred Stock, this right to
nominate two directors continues. In the event the Company fails to redeem the
Series B Preferred Stock in accordance with its terms, the Lee Investors will be
entitled to designate four directors.
REGISTRATION RIGHTS
The holders of Series B Preferred Stock will have registration rights
similar to those described with respect to the Series C Preferred Stock.
8. WHAT ARE THE PRINCIPAL DIFFERENCES BETWEEN THE EXISTING SECURITIES AND THE
SERIES C PREFERRED STOCK?
DIFFERENCES IN TERMS
The following chart provides a general comparison of the Existing Securities
(in the event this Proposal 1 is not approved) and the Series C Preferred Stock
which would be issued in the Preferred Stock Exchange:
<TABLE>
<CAPTION>
EXISTING SECURITIES
(SERIES B PREFERRED
STOCK, SENIOR NOTES SERIES C
AND WARRANTS) PREFERRED STOCK
<S> <C> <C>
Stated Amount of $200,000,000 $300,000,000(1)
Preferred Stock
Convertibility of No Yes
Preferred Stock
Dividend Rate on 15% pay-in-kind, compounded quarterly 9% pay-in-kind, compounded quarterly
Preferred Stock
Voting Rights of Holders have limited voting rights to Holders may elect four directors and vote
Preferred Stock protect rights of Series B Preferred with holders of Common Stock on all other
Stock.(2) matters. In addition, holders have
limited voting rights to protect rights
of Series C Preferred Stock.
Principal Amount of $100,000,000 None
Senior Notes
Interest Rate on 15% paid in cash Not applicable
Senior Notes
Restrictive Covenants The Senior Notes Indenture contains In the event of a Change of Control,
certain restrictive covenants. In certain restrictions in Series C
addition, in the event of a Change of Preferred Stock may apply.
Control, certain restrictions in Series B
Preferred Stock may apply.
Warrants Right to purchase 3,750,000 shares of None
Common Stock at $30 per share (up to
19.5% of the currently outstanding Common
Stock of the Company)
</TABLE>
- ------------------------
(1) The exact amount of Series C Preferred Stock to be issued in the Preferred
Stock Exchange will include the value of accrued dividends from December 9,
1998.
19
<PAGE>
(2) Upon obtaining OCC Approval, the holders of the Series B Preferred Stock
have the right to recommend two of nine directors for nomination to the
Board.
OTHER DIFFERENCES
The examples in the following schedule summarize the principal economic
differences between carrying the Existing Securities versus the Series C
Preferred Stock for seven years. As shown, if the Preferred Stock Exchange is
approved, the Series C Preferred Stock results in higher pro forma net income
available to common stockholders by $165 million. The first example assumes that
Existing Securities are outstanding for one quarter and the stockholders
disapprove the Preferred Stock Exchange at the end of that quarter, so that the
Existing Securities remain outstanding for an additional six years and nine
months. The second example assumes that the Existing Securities are outstanding
for one quarter and the stockholders approve the Preferred Stock Exchange at the
end of that quarter, so that the Series C Preferred Stock is exchanged for the
Existing Securities and remains outstanding for six years and nine months.
The data presented herein is based on the assumptions and adjustments
described in the accompanying notes. The data does not purport to represent what
the Company's results of operations would have been if the events described
above had occurred as of the dates indicated or what such results will be for
any future periods. The data is based upon assumptions and adjustments that the
Company believes are reasonable.
PRO FORMA IMPACT ON NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
EXISTING SECURITIES REMAIN OUTSTANDING
Interest Expense on the Senior Notes, net of taxes (1)....................................... $ 64.1
Series B Preferred Stock Dividends (2)....................................................... 357.3
Fair Value Adjustment of Warrants (3)........................................................ 26.8
One-time Write-off of Upfront Fees, net of taxes (4)......................................... 26.2
---------
Existing Securities Seven-Year Impact.......................................................... $ 474.4
EXCHANGE TO SERIES C PREFERRED STOCK
Series C Preferred Stock Dividends (5)....................................................... $ 259.4
Extraordinary Loss from Early Extinguishment of Debt (6)..................................... 16.7
Adjustment for the Retirement of Series B Preferred Stock (6)................................ 33.3
---------
Series C Preferred Stock Seven-Year Impact..................................................... 309.4
---------
DIFFERENCE..................................................................................... $ 165.0
---------
---------
</TABLE>
- ------------------------
(1) Represents interest expense on the Senior Notes at an interest rate of 12%
per annum for three months and 15% per annum for six years and nine months.
Assumes a tax rate of 38.5%.
(2) Represents cumulative preferred dividends which are compounded on a
quarterly basis on the Series B Preferred Stock at a dividend rate of 12.5%
per annum for three months and 15% per annum for six years and nine months.
(3) If the Preferred Stock Exchange is not approved and OCC Approval is
obtained, the Warrants will become exercisable at $30. At their date of
issue, the Warrants' fair value is considered a yield enhancement to the
Series B Preferred Stock and the Senior Notes. The fair value of the
Warrants is calculated using the Black-Scholes pricing model with the
following assumptions: dividend yield of .1%, expected market price
volatility of 35%, risk-free interest rate of 4.6%, and an expected
20
<PAGE>
life of 10 years. The Warrants are assumed to be outstanding effective March
31, 1997, assuming the Preferred Stock Exchange was not approved. The
assumptions are based upon current market conditions and could change
materially between the pro forma calculation date and the actual date of
determination, which could have a material impact on the reported pro forma
consolidated financial data. The fair value is allocated 33% to the Senior
Notes and 67% to the Series B Preferred Stock based upon their initial fair
values. The amount allocated to the Senior Notes is recorded as a reduction
of net income over the eight-year life of the Senior Notes. This amount is
not recorded net of taxes. The fair value allocated to the Series B
Preferred Stock is recorded in additional paid in capital and does not
impact net income, and therefore is not included in the amount reported. The
amount shown was calculated using a $41 stock price. If the stock price was
$51 or $31, the seven-year fair value adjustment of the Warrants would be
$35.3 million or $18.5 million, respectively.
(4) The Company paid fees of approximately $30 million in connection with the
investment by the Lee Investors. The Company has determined, based on
representations from the Lee Investors and other financial advisors, that
the fees relate to the negotiation of the Series C Preferred Stock. If the
Preferred Stock Exchange does not occur, these fees will be expensed to
income. For tax purposes, only the fees allocated to the Senior Notes would
receive a tax benefit using a tax rate of 38.5%.
(5) Represents seven years of cumulative preferred dividends which are
compounded on a quarterly basis on the Series C Preferred Stock at a
dividend rate of 9% per annum.
(6) These amounts represent a one-time, non-cash accounting adjustment. The
excess of the fair value of the Series C Preferred Stock over the carrying
value of the Existing Securities at the time of the conversion will be
allocated to the Senior Notes and the Series B Preferred Stock based upon
their initial fair values. To arrive at net income available to common
stockholders in the calculation of earnings per share, the amount allocated
to the Senior Notes will be recognized as an extraordinary loss from the
early extinguishment of debt and the amount allocated to the Series B
Preferred Stock will be recognized as a reduction of net income available to
common stockholders. The extraordinary loss attributable to the Senior Notes
is not recorded net of taxes. These adjustments will have no impact on total
stockholders equity. The Company has estimated the fair value of the Series
C Preferred Stock based on several factors including: (1) the negotiated
price of the Series C Preferred Stock that was agreed to on an arms-length
basis when the Common Stock was trading at $31.00 per share; (2) an assumed
current Common Stock price of $41.00 per share; (3) prevailing market
interest rates and risk premiums; (4) the estimated long-term price
volatility of the Company's Common Stock; and (5) other general economic
conditions prevailing at the time of the estimate. The Series C Preferred
Stock fair value estimate has been based on numerous subjective judgments.
There is no public market for the Series C Preferred Stock, nor does the
Company have any outstanding convertible securities that are publicly
traded. Consequently, the fair value estimate has not been based on any
comparable market data. There can be no assurances that, if a public market
currently existed for the Series C Preferred Stock, the Series C Preferred
Stock would not trade at a price that is materially different from the fair
value estimate. In addition, it is possible that market conditions,
including the Company's Common Stock price, could change materially between
the date of the pro forma calculation and the actual date of determination.
These potential changes could also materially impact the fair value of the
Series C Preferred Stock. Due to the subjective valuation methodology
employed for the purposes of this pro forma adjustment and the potential for
changing market conditions, it is possible that changes in the fair value of
the Series C Preferred Stock could have an impact on the Company's reported
financial statements that will be materially different from this pro forma
presentation. The amounts shown were calculated using a $41 stock price. If
the stock price was $51 or $31, the adjustment for the extraordinary
loss/(gain) from early extinguishment of debt would be $36.3
21
<PAGE>
million or ($2.3) million, respectively, and the adjustment for the
retirement of Series B Preferred Stock would be $72.5 million or ($4.5)
million, respectively.
9. DO THE EXISTING SECURITIES AND THE SERIES C PREFERRED STOCK IMPACT THE
COMPANY'S EARNINGS PER SHARE AND OTHER FINANCIAL DATA DIFFERENTLY?
Yes. The tables below outline the impacts of the Existing Securities and the
Series C Preferred Stock on certain financial data of the Company.
Set forth below is Unaudited Pro Forma Consolidated Financial Data
("Financial Data") for the year ended December 31, 1997 and the nine months
ended September 30, 1998. The Financial Data (i) gives pro forma effect assuming
the Existing Securities were outstanding as of January 1, 1997, the stockholders
disapproved the Preferred Stock Exchange on March 31, 1997 and the Existing
Securities remained outstanding and (ii) gives pro forma effect assuming the
Existing Securities were outstanding as of January 1, 1997, the Preferred Stock
Exchange was approved by the stockholders on March 31, 1997, all regulatory
approvals were obtained by March 31, 1997 and the Preferred Stock Exchange
occurred on March 31, 1997. The Financial Data does not include any adjustments
for the benefit of receiving the $300 million investment, such as reduction of
interest expense resulting from lower outstanding bank credit facility
borrowings.
The Financial Data presented herein is based on the assumptions and
adjustments described in the accompanying notes. The Financial Data does not
purport to represent what the Company's results of operations would have been if
the events described above had occurred as of the dates indicated or what such
results will be for any future periods. The Financial Data is based upon
assumptions and adjustments that the Company believes are reasonable. The
Financial Data and the accompanying notes should be read in conjunction with the
historical financial statements of the Company, including the notes thereto,
which are incorporated by reference in this Proxy Statement.
The pro forma earnings per share numbers reported in the table below reflect
the impact of the investment by the Lee Investors, excluding the following
one-time accounting adjustments: the write-off of upfront fees; the
extraordinary loss from early extinguishment of debt; and the adjustment for the
retirement of Series B Preferred Stock.
PRO FORMA EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
EXISTING SERIES C EXISTING SERIES C
REPORTED SECURITIES PREFERRED STOCK REPORTED SECURITIES PREFERRED STOCK
----------- ----------- ----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Basic............................. $ 1.98 $ (0.20) $ 0.53 $ 2.11 $ 0.20 $ 0.94
Diluted........................... $ 1.88 $ (0.20) $ 1.33(1) $ 2.03 $ 0.19 $ 1.37
</TABLE>
Note: Under generally accepted accounting principles, the Company is required
to report diluted earnings per share at the lower of basic or diluted.
- ------------------------
(1) The Series C Preferred Stock pro forma diluted earnings per share cannot be
calculated using the information presented below in the Pro Forma
Consolidated Financial Data schedules as eliminating the one-time accounting
adjustments, as referenced above, would result in positive earnings and
require the Company to give effect to all dilutive potential common shares
that were outstanding during the period. The weighted average shares used in
this calculation are 28.6 million.
22
<PAGE>
The pro forma consolidated financial data including the one-time accounting
adjustments for the Existing Securities are presented in the table below. This
schedule does not include any adjustments for the benefit of receiving the $300
million investment, such as a reduction of interest expense or the impact of the
PNC Portfolio.
PRO FORMA CONSOLIDATED FINANCIAL DATA
EXISTING SECURITIES
(UNAUDITED)
(IN MILLIONS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
12/31/97 9/30/98
----------- ---------------------
<S> <C> <C>
Reported Net Income.............................................................. $ 38.1 $ 40.6
Pro Forma Adjustments to Net Income:
Interest Expense on the Senior Notes, net of taxes(1).......................... 8.8 6.9
Amortization of Fair Value of Warrants(2)...................................... 2.9 2.9
One-time Write-off of Upfront Fees, net of taxes(3)............................ 26.2
----------- -----
Pro Forma Net Income............................................................. 0.2 30.8
Preferred Dividends on Series B Preferred Stock(4)............................. 30.3 26.9
----------- -----
PRO FORMA NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS..................... $ (30.1) $ 3.9
----------- -----
----------- -----
Reported Earnings Per Share:
Basic.......................................................................... $ 1.98 $ 2.11
Diluted........................................................................ $ 1.88 $ 2.03
Pro Forma (Loss) Earnings Per Share:
Basic.......................................................................... $ (1.56) $ 0.20
Diluted(5)..................................................................... $ (1.56) $ 0.19
Reported Weighted Average Shares:
Basic.......................................................................... 19.2 19.2
Diluted........................................................................ 20.2 20.0
Pro Forma Weighted Average Shares:
Basic.......................................................................... 19.2 19.2
Diluted(5)..................................................................... 19.2 20.7
</TABLE>
- ------------------------
(1) Interest expense is calculated assuming the Senior Notes were issued on
January 1, 1997 and the Preferred Stock Exchange was not approved effective
March 31, 1997. Thus, the interest rate is 12% per annum for the period
January 1, 1997 through March 31, 1997, and 15% per annum for the periods
thereafter. The interest expense is reported net of taxes assuming a tax
rate of 38.5%.
(2) If the Preferred Stock Exchange is not approved and OCC Approval is
obtained, the Warrants will become exercisable at $30. At their date of
issue, the Warrants' fair value is considered a yield enhancement to the
Series B Preferred Stock and the Senior Notes. The fair value of the
Warrants is calculated using the Black-Scholes pricing model with the
following assumptions: dividend yield of .1%, expected market price
volatility of 35%, risk-free interest rate of 4.6%, and an expected life of
10 years. The Warrants are assumed to be outstanding effective March 31,
1997, assuming the Preferred Stock Exchange was not approved. The
assumptions are based upon current market conditions and could change
materially between the pro forma calculation date and the actual date of
determination, which could have a material impact on the reported pro forma
consolidated financial data. The fair value is allocated 33% to the Senior
Notes and 67% to the Series B Preferred Stock based upon their initial fair
values. The amount allocated to the Senior Notes is
23
<PAGE>
recorded as a reduction of net income over the eight-year life of the Senior
Notes. The fair value allocated to the Series B Preferred Stock is recorded
in additional paid in capital and does not impact net income. The amount
shown was calculated using a $41 stock price. If the stock price was $51 or
$31, the reported fair value adjustment of the Warrants would be $3.8
million or $2.0 million, respectively.
(3) The Company paid fees of approximately $30 million in connection with the
investment by the Lee Investors. The Company has determined, based on
representations from the Lee Investors and other financial advisors, that
the fees relate to the negotiation of the Series C Preferred Stock. If the
Preferred Stock Exchange does not occur, these fees will be expensed to
income in the period the Preferred Stock Exchange is not approved. For tax
purposes, only the fees allocated to the Senior Notes would receive a
deferred tax benefit using a tax rate of 38.5%.
(4) The Series B Preferred Stock dividends are cumulative pay-in-kind dividends
which are compounded quarterly. The dividends are calculated assuming the
Series B Preferred Shares are outstanding effective January 1, 1997 and the
stockholders disapproved the Preferred Stock Exchange effective March 31,
1997. The dividend rate is 12.5% per annum for the period from January 1,
1997 through March 31, 1997, and 15% per annum for the periods thereafter.
(5) Pro forma weighted average diluted shares are adjusted to reflect the
dilutive impact from the Warrants using the treasury stock method. The
Warrants are assumed to be outstanding effective March 31, 1997, and the
dilution is calculated assuming an average Common Stock price of $41. For
the year ended December 31, 1997, basic weighted average shares are used to
calculate the diluted earnings per share to avoid the antidilutive impact of
the Warrants.
24
<PAGE>
The pro forma consolidated financial data including the one-time accounting
adjustments for the Series C Preferred Stock, assuming the Preferred Stock
Exchange has occurred, are presented in the table below. This schedule does not
include any adjustment for the benefit of receiving the $300 million investment,
such as a reduction of interest expense or the impact of the PNC Portfolio.
PRO FORMA CONSOLIDATED FINANCIAL DATA
SERIES C PREFERRED STOCK
(UNAUDITED)
(IN MILLIONS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
12/31/97 9/30/98
----------- ---------------------
<S> <C> <C>
Reported Net Income.............................................................. $ 38.1 $ 40.6
Pro Forma Extraordinary Loss from Early Extinguishment of Debt(1)................ 16.7
----------- -----
Pro Forma Net Income after Extraordinary Loss.................................... $ 21.4 $ 40.6
Adjustment for the Retirement of Series B Preferred Stock(1)................... 33.3
Preferred Dividends on Series C Preferred Stock(2)............................. 27.9 22.6
----------- -----
PRO FORMA NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS..................... $ (39.8) $ 18.0
----------- -----
Reported Earnings Per Share:
Basic.......................................................................... $ 1.98 $ 2.11
Diluted........................................................................ $ 1.88 $ 2.03
Pro Forma Net Earnings (Loss) Per Share:
Basic--Net income (loss) per share before extraordinary item................... $ (1.20) $ 0.94
Basic--Extraordinary item per share............................................ $ (0.87) $ --
----------- -----
Basic--Net income (loss) per share............................................. $ (2.07) $ 0.94
Diluted--Net income (loss) per share before extraordinary item(3).............. $ (1.20) $ 1.37
Diluted--Extraordinary item per share(3)....................................... $ (0.87) $ --
----------- -----
Diluted--Net income (loss) per share(3)........................................ $ (2.07) $ 1.37
Reported Weighted Average Shares:
Basic.......................................................................... 19.2 19.2
Diluted........................................................................ 20.2 20.0
Pro Forma Weighted Average Shares:
Basic.......................................................................... 19.2 19.2
Diluted(2)(3).................................................................. 19.2 29.7
</TABLE>
- ------------------------
(1) These amounts represent a one-time, non-cash accounting adjustment. The
excess of the fair value of the Series C Preferred Stock over the carrying
value of the Existing Securities at the time of the conversion will be
allocated to the Senior Notes and the Series B Preferred Stock based upon
their initial fair values. To arrive at net income available to common
stockholders in the calculation of earnings per share, the amount allocated
to the Senior Notes will be recognized as an extraordinary loss from the
early extinguishment of debt and the amount allocated to the Series B
Preferred Stock will be recognized as a reduction of net income available to
common stockholders. The extraordinary loss attributed to the Senior Notes
is not recorded net of taxes. These adjustments will have no impact on total
stockholders equity. The Company has estimated the fair value of the Series
C Preferred Stock based on several factors including: (1) the negotiated
price of the Series C Preferred Stock that was agreed to on an arms-length
basis when the Common Stock was trading at $31.00 per share; an assumed
current Common Stock price of $41.00 per share; (3) prevailing market
interest rates and risk premiums; (4) the estimated long-term price
25
<PAGE>
volatility of the Company's Common Stock; and (5) other general economic
conditions prevailing at the time of the estimate. The Series C Preferred
Stock fair value estimate has been based on numerous subjective judgments.
There is no public market for the Series C Preferred Stock, nor does the
Company have any outstanding convertible securities that are publicly
traded. Consequently, the fair value estimate has not been based on any
comparable market data. There can be no assurances that, if a public market
currently existed for the Series C Preferred Stock, the Series C Preferred
Stock would not trade at a price that is materially different from the fair
value estimate. In addition, it is possible that market conditions,
including the Company's Common Stock price, could change materially between
the date of the pro forma calculation and the actual date of determination.
These potential changes could also materially impact the fair value of the
Series C Preferred Stock. Due to the subjective valuation methodology
employed for the purposes of this pro forma adjustment and the potential for
changing market conditions, it is possible that changes in the fair value of
the Series C Preferred Stock could have an impact on the Company's reported
financial statements that will be materially different from this pro forma
presentation. The amounts shown were calculated using a $41 stock price. If
the stock price was $51 or $31, the adjustment for the extraordinary
loss/(gain) from early extinguishment of debt would be $36.3 million or
($2.3) million, respectively, and the adjustment for the retirement of
Series B Preferred Stock would be $72.5 million or ($4.5) million,
respectively.
(2) The Series C Preferred Stock dividends are cumulative pay-in-kind dividends
which are compounded quarterly. The Preferred Stock Exchange was assumed to
be approved effective March 31, 1997, which is within the first reporting
period of the year and thus the dividends are calculated assuming the Series
C Preferred Stock is outstanding effective January 1, 1997. The dividend
rate is 9% per annum.
(3) Pro forma weighted average diluted shares are adjusted to reflect the
dilutive impact from the Series C Preferred Stock. These shares are treated
as if they were converted into Common Stock when calculating diluted
weighted average shares outstanding. For the year ended December 31, 1997,
basic weighted average shares are used to calculate the diluted earnings per
share to avoid the antidilutive impact of the Series C Preferred Stock.
10. ARE THERE ANY RISKS OR DISADVANTAGES TO THE COMPANY IF THE STOCKHOLDERS DO
NOT APPROVE PROPOSAL 1 PROVIDING FOR THE PREFERRED STOCK EXCHANGE?
Yes, if the Company's stockholders do not approve Proposal 1, there are
certain negative consequences to the Company and the holders of the Common
Stock, including, without limitation:
- the pay-in-kind annual dividend rate on the Series B Preferred Stock will
immediately increase from 12 1/2% to 15%;
- the 15% pay-in-kind annual dividend rate on the Series B Preferred Stock
is six percentage points higher than the 9% pay-in-kind annual dividend
rate on the Series C Preferred Stock;
- the interest rate on the Senior Notes will increase from 12% to 15%,
resulting in an increase in cash interest expense of $3 million per year;
- the interest rate on the Senior Notes is six percentage points higher than
the annual pay-in-kind dividend rate on the Series C Preferred Stock and
is paid in cash;
- the Series B Preferred Stock is not redeemable at the option of the
Company until after December 31, 2005;
- the Senior Notes are not redeemable at the option of the Company at any
time;
- the Company's ability to finance further growth and expansion by incurring
additional indebtedness, both on an absolute basis and in proportion to
equity and capital, would be
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restricted pursuant to the Company's existing bank credit facility and
Senior Notes Indenture covenants;
- management believes that the Company's creditors and the debt rating
agencies could view the existing capital structure less favorably than if
the Company were able to reduce its indebtedness by $100 million and
increase its equity by approximately the same amount through the issuance
of Series C Preferred Stock in exchange for the Existing Securities; and
- the ten-year Warrants to purchase 3,750,000 shares of Common Stock at a
price of $30 per share (compared to the closing market price of $53 27/32
per share on January 25, 1999) results in the Warrants being viewed as
Common Stock equivalents, thereby diluting earnings per share. In
addition, the potential exercise of the Warrants may create an overhang on
the Company's outstanding Common Stock.
11. HOW WILL THE ISSUANCE OF THE SERIES C PREFERRED STOCK IMPACT THE COMPANY'S
CAPITALIZATION?
Upon stockholder approval of the Preferred Stock Exchange, the $100 million
of Senior Notes would be retired and total stockholders' equity would increase
by approximately $100 million. Currently, the Company is subject to certain
covenants in its $300 million bank credit facility, one of which is a minimum
tangible net worth to net managed receivables ratio (the "Ratio"). The minimum
Ratio increased to 5.0% from 4.0% on December 24, 1998. As of September 30,
1998, the Ratio was 4.5%. The pro forma Ratio, giving effect to a $100 million
increase in the tangible net worth as of September 30, 1998, would be 7.0%.
12. ARE THERE ANY MATERIAL TAX IMPLICATIONS TO THE COMPANY OF THE PREFERRED
STOCK EXCHANGE?
The spin-off of the Company from Fingerhut will be entitled to corporate and
shareholder tax-free treatment for federal income tax purposes assuming certain
requirements are satisfied, and under the Tax Sharing Agreement between the
Company and Fingerhut the Company might be liable for all or a portion of the
resulting taxes if those requirements are not met. Any liability for such taxes
would likely have a material adverse effect on the Company.
One tax requirement prohibits the acquisition by one or more persons of 50
percent or more of the Company's stock (by voting power or value) if, in
general, the acquisitions are part of a plan (or series of related transactions)
of which the spin-off from Fingerhut is a part.
Although at the time of the spin-off the Company intended to issue Common
Stock (rather than the Existing Securities and Series C Preferred Stock), the
Existing Securities and shares of Series C Preferred Stock (and Common Stock, if
any) issued under the arrangements described herein might be viewed by the
Internal Revenue Service as being issued as part of a plan (or series of related
transactions) which includes the spin-off. Even if the Existing Securities or
the Series C Preferred Stock were treated as issued as part of a plan that
includes the spin-off, the Company does not believe the 50 percent voting power
or value test was or will be violated upon original issuance of the Existing
Securities or Series C Preferred Stock, respectively. However, the Preferred
Stock Exchange might impact future compliance with the 50 percent voting power
or value test. In general, subject to the compliance provisions noted below, the
Company expects that the issuance of the Series C Preferred Stock will increase
the risk of future noncompliance with the 50 percent voting power test and,
although less clear, the 50 percent value test. The Securities Purchase
Agreement, the Series B Certificate of Designation, and the Series C Certificate
of Designation contain provisions intended to assure compliance with the 50
percent voting power and value tests (whether or not the Preferred Stock
Exchange occurs), although the effectiveness of those provisions may depend on,
among other possible factors, the cooperation of the holders of the Series B or
Series C Preferred Stock (or the vote of directors elected or designated by
them), as the case may be.
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Guidance with respect to the foregoing rules has not yet been issued by the
Internal Revenue Service, and the proper application of these rules is unclear
in many respects. The discussion set out and the provisions referred to above
are based on the Company's assumptions as to how these rules could be applied,
which may or may not be consistent with the view of the Internal Revenue
Service.
13. ARE THERE ANY ANTI-TAKEOVER IMPLICATIONS OF THE PREFERRED STOCK EXCHANGE?
Yes, like the Existing Securities, the proposed issuance of Series C
Preferred Stock may have anti-takeover implications. At present, subject to
obtaining OCC Approval, the Company is obligated to nominate for election to the
Board of Directors two designees of the Lee Investors. The holders of Series C
Preferred Stock will be entitled to elect four of eleven directors of the
Company.
In the event of a Change of Control, as previously described, the Company
has the right to offer to purchase from each holder all, but not less than all,
of the Series C Preferred Stock held by such holder for an amount equal to 101%
of the Series C Preferential Payment. If the Company does not make such a
redemption offer, the annual dividend rate increases from 9% to 11 1/2% and
becomes payable in cash. In addition, in the event a Change of Control occurs,
if the Company does not make an offer to purchase and subsequently violates the
covenants imposed under the Series C Certificate of Designation, the dividend
rate then in effect on the Series C Preferred Stock will increase by an
additional 2% to 13 1/2%, and at any time following the 91st day after maturity
or redemption of the Company's outstanding 10% Notes, the holders of a majority
of the shares of Series C Preferred Stock may put their shares to the Company
for 101% of the Series C Preferential Payment.
If a vote of the stockholders is required with respect to a Change of
Control, such as a merger transaction, each holder of Series C Preferred Stock
will be entitled to the number of votes that could be cast by virtue of the
shares he or she currently owns, as well as the shares he or she would receive
as accelerated dividends as a result of such event.
The Company cannot optionally redeem the Series C Preferred Stock prior to
December 31, 2001, and any optional redemption subsequent to December 31, 2001
is subject to various conditions. As a consequence of these provisions, as well
as the voting power of the holders of the Series C Preferred Stock, it would be
very difficult for another party to successfully acquire the Company without the
concurrence of a majority of the outstanding shares of Series C Preferred Stock.
The Existing Securities also contain provisions which may have anti-takeover
implications. Upon the occurrence of a Change of Control, the Company may, but
is not required to, offer to purchase all of the outstanding Series B Preferred
Stock at 101% of the Series B Preferential Payment. If the redemption offer for
the Series B Preferred Stock is not made, the dividends cease being pay-in-kind
dividends and become payable in cash. In the event a Change of Control occurs,
if the Company does not make an offer to purchase the Series B Preferred Stock
and subsequently violates the covenants imposed under the Series B Certificate
of Designation following a Change of Control, the dividend rate then in effect
on the Series B Preferred Stock will increase to 18%, and at any time after 91
days or after maturity or redemption of the Company's outstanding 10% Notes, the
holders of the Series B Preferred Stock may put their shares to the Company for
101% of the Series B Preferential Payment.
In addition, upon the occurrence of a change of control as defined in the
Senior Notes Indenture, the Company is required to make an offer to purchase all
of the Senior Notes at a purchase price equal to 101% of the aggregate principal
amount plus accrued interest.
14. WHY IS STOCKHOLDER APPROVAL BEING SOUGHT FOR PROPOSAL 1?
As an issuer of securities quoted on the Nasdaq National Marketplace, the
Company must comply with certain rules of the NASD for inclusion on Nasdaq.
Under Nasdaq Marketplace Rule 4460(i), the
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Company must obtain stockholder approval prior to the issuance of securities
when the issuance of such securities:
- equals 20% or more of the Common Stock outstanding before the issuance and
is for a price per share less than the greater of book or market value; or
- equals 20% or more of the Common Stock outstanding before the issuance and
is in connection with an acquisition of the stock or assets of another
company; or
- would result in a change of control of the Company.
Because of these Nasdaq requirements, approval of the Company's stockholders is
required prior to the issuance of the Series C Preferred Stock in exchange for
the Existing Securities.
15. WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO PROPOSAL 1?
THE BOARD OF DIRECTORS HAS APPROVED THE ISSUANCE OF THE SERIES C PREFERRED
STOCK AND THE PREFERRED STOCK EXCHANGE. THE BOARD BELIEVES THAT PROPOSAL 1 IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE FOR THE APPROVAL OF PROPOSAL 1.
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PROPOSAL 2
AMENDMENT OF THE CERTIFICATE TO
AUTHORIZE NON-VOTING COMMON STOCK AND
INCREASE THE AUTHORIZED PREFERRED STOCK
1. WHAT IS THE COMPANY ASKING YOU TO APPROVE?
The Certificate currently authorizes 110,000,000 shares of capital stock,
100,000,000 of which are authorized as Common Stock, par value $.01 per share,
and 10,000,000 of which are authorized as Preferred Stock, par value $.01 per
share. The Company is requesting your approval to (i) authorize the creation of
a class of Non-Voting Common Stock consisting of 10,000,000 shares and (ii)
increase the authorized Preferred Stock from 10,000,000 to 25,000,000 shares.
2. WHAT IS THE COMPANY'S CURRENT CAPITAL STRUCTURE?
As of January 19, 1999, 19,259,750 shares of the Common Stock were issued
and outstanding and an additional 4,161,375 shares of Common Stock were reserved
for issuance under the Company's stock incentive plans and existing options.
Thus of the 100,000,000 presently authorized shares of Common Stock 76,578,875
shares remain available for other purposes. As of December 9, 1998, 536,913
shares of the Company's Preferred Stock were outstanding in the form of Series B
Preferred Stock and an additional 3,963,087 shares of Preferred Stock were
reserved for issuance by the Company as follows:
- 1,863,087 shares reserved for the issuance of additional Series B
Preferred Stock as pay-in-kind dividends on the outstanding Series B
Preferred Stock (see the description of the terms of the Series B
Preferred Stock under Proposal 1 above);
- 2,000,000 shares reserved for the issuance of the Series C Preferred Stock
and the pay-in-kind dividends associated therewith (see the description of
the terms of the Series C Preferred Stock under Proposal 1 above); and
- 100,000 shares reserved for the issuance of Series D Preferred Stock (see
the description of the terms of the Series D Preferred Stock under
Proposal 1 above).
Thus, of the 10,000,000 presently authorized shares of Preferred Stock only
5,500,000 shares remain available for other purposes.
The Company currently does not have an authorized class of Non-Voting Common
Stock.
3. WHAT ARE THE TERMS OF THE NON-VOTING COMMON STOCK?
Under the Amendment submitted to you as a part of this Proposal 2, a new
class of Common Stock to be designated as Non-Voting Common Stock will be
created. Article IV, Section 8 of the Certificate, as proposed to be amended and
attached as APPENDIX B to this Proxy Statement, sets forth in full the rights,
powers and limitations of the Non-Voting Common Stock.
VOTING
The holders of Non-Voting Common Stock will have no voting rights, except as
required by the Delaware General Corporation law. The Delaware General
Corporation Law requires that the holders of Non-Voting Common Stock have the
right to vote on proposals to change the par value of the Non-Voting Common
Stock or to alter or change the powers, preferences or special rights, if any,
of the Non-Voting Common Stock.
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DIVIDENDS AND DISTRIBUTIONS
Each share of Common Stock and Non-Voting Common Stock will be equal with
respect to dividends and other distributions in cash, property, or shares of
stock of the Company (including distributions in connection with any
recapitalization), except as described below.
Declaration of any payment of cash dividends is solely within the discretion
of the Board of Directors, and the Company cannot assure you that such dividends
will be declared and paid with any regularity. Dividends or other distributions
payable in shares of the Company will be made to all holders of Common Stock and
Non-Voting Common Stock and will be made according to the following table:
<TABLE>
<CAPTION>
IF THE DIVIDEND/DISTRIBUTION HOLDERS OF COMMON STOCK HOLDERS OF NON-VOTING
IS IN THE FORM OF: WILL RECEIVE: COMMON STOCK WILL RECEIVE:
<S> <C> <C>
Common Stock Common Stock Non-Voting Common Stock
Non-Voting Common Stock Non-Voting Common Stock Non-Voting Common Stock
Other authorized class/series of capital Same class/series Non-voting equivalent of such
stock with voting rights class/series
Other authorized class/series of capital Same class/series Same class/series
stock without voting rights
Convertible securities or options giving the Securities convertible into or Securities convertible into or
holder a right to acquire Common Stock or options to acquire Common options to acquire Non- Voting
Non-Voting Common Stock.* Stock Common Stock
</TABLE>
- ------------------------
* Other than rights issued pursuant to shareholder rights plans of the type
entitling holders of rights other than an "acquiring person" to purchase
shares other securities at a below-market price if certain events occur
(which rights may be distributed as a dividend pursuant to such a plan upon
shares of either class of Common Stock or Non-Voting Common Stock without a
corresponding dividend distribution upon shares of the other).
In no event will the Company split, subdivide or combine the Common Stock or
Non-Voting Common Stock, unless the other is proportionally split, subdivided or
combined.
CONVERSION
Prior to the redemption or maturity of the Company's 10% Notes, each share
of Non-Voting Common Stock will automatically convert into one share of Common
Stock only if such conversion will not cause the holder of the Common Stock
received (including any group to which the holder belongs within the meaning of
Rules 13d-3 and 13d-5 promulgated under the Exchange Act) to own more than 34.9%
of the outstanding voting power of the Company's stock. At the time that the
Company's 10% Notes are no longer outstanding, each share of Non-Voting Common
Stock will automatically convert into one share of Common Stock.
MERGERS AND CONSOLIDATIONS
In the event of a merger, consolidation, combination or similar transaction
of the Company with another entity (whether or not the Company is the surviving
entity), or in the event of a liquidation, dissolution or winding up of the
Company, the holders of Non-Voting Common Stock will be entitled to receive the
same per share consideration as the per share consideration, if any, received by
holders
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of the Common Stock in that transaction. Any Common Stock that holders of
Non-Voting Common Stock become entitled to receive in any merger, consolidation,
combination or similar transaction, however, may have terms substantially
similar to the terms of the Non-Voting Common Stock itself. Thus, the surviving
entity in any such transaction could have a dual-class capital structure like
that proposed for the Company and could, upon the consummation of the merger or
consolidation, give voting shares to the holders of Common Stock and non-voting
shares to the holders of Non-Voting Common Stock.
TRANSFERABILITY
Like the existing Common Stock, the Non-Voting Common Stock will be freely
transferable, and except for federal and state securities law restrictions on
directors, officers and other affiliates of the Company and on persons holding
"restricted" stock, stockholders will not be restricted in their ability to sell
or transfer shares of Non-Voting Common Stock. However, the Company does not
currently anticipate that the Non-Voting Common Stock will be quoted on the
Nasdaq National Market System or any other exchange.
PREEMPTIVE RIGHTS
Like the existing Common Stock, the Non-Voting Common Stock will not carry
any preemptive rights enabling its holder to subscribe for or receive shares of
any class of stock of the Company (or any other securities convertible into such
shares) which may be issued by the Company.
4. WHAT ARE THE TERMS OF THE PREFERRED STOCK?
The Certificate allows the Board of Directors of the Company to provide for
the terms of any series of Preferred Stock prior to issuance, including terms
which give a series of Preferred Stock preference over the Common Stock and
Non-Voting Common Stock with respect to the payment of dividends and voting and
other rights.
5. WHAT IS THE IMPACT OF THE APPROVAL OR DISAPPROVAL OF PROPOSAL 2?
If stockholders approve Proposal 2, the Board of Directors will prepare and
file Articles of Amendment to the Certificate in accordance with the proposed
Amendments which will become effective immediately upon acceptance of the filing
by the Secretary of State of the State of Delaware. The Board could then cause
the issuance of the Non-Voting Common Stock without any further action on the
part of the stockholders. The Board of Directors presently intends to file the
Articles of Amendment if this Proposal 2 is approved by the stockholders, even
if Proposal 1 is not approved by the stockholders; however, the Board reserves
the right to abandon this Proposal 2 and not file the Articles of Amendment even
if the amendments described above are approved by the stockholders.
The amendments to the Certificate contained in this Proposal 2 are not
necessary for the Preferred Stock Exchange described in Proposal 1. If the
stockholders approve Proposal 1, the Preferred Stock Exchange will occur even if
the stockholders disapprove this Proposal 2.
6. WHY IS THE COMPANY REQUESTING THE CREATION OF THE NON-VOTING COMMON STOCK?
As described above under Proposal 1, if the Preferred Stock Exchange is
approved, the Non-Voting Common Stock will be issued to the holders of the
Series Class C Preferred Stock in the event that the holders of Series C
Preferred Stock desire to convert their Series C Preferred Stock to Common Stock
and such conversion would require the issuance of a number of shares of Common
Stock in excess of the amount permitted under the indenture governing the
Company's outstanding 10% Notes or the Company's bank credit facility. You
should read Proposal 1 for more information on the intended use of the
Non-Voting Common Stock.
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In addition, the Board of Directors believes that the authorization of the
Non-Voting Common Stock will provide flexibility in meeting the Company's future
capital needs, whether as a result of growth generated internally or externally
through mergers and acquisitions. The newly authorized shares of Non-Voting
Common Stock will be available for possible use in connection with future
financings, investment opportunities, mergers and acquisitions, employee benefit
plans, dividend reinvestment plans, other distributions such as stock dividends
or stock splits or for other corporate purposes.
The Company does not currently have any definite plans or commitments that
would require the issuance of any of the Non-Voting Common Stock, except in
connection with the Preferred Stock Exchange as described in Proposal 1.
7. WHY IS THE COMPANY REQUESTING AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES
OF PREFERRED STOCK?
The Board of Directors believes it is desirable to ensure that, after giving
effect to the Preferred Stock Exchange as described in Proposal 1, the Company
will have additional authorized shares of Preferred Stock available for general
corporate purposes, including possible acquisition, capital raising and
financing transactions, and future employee and director incentive and benefit
plans. While the Company has no present plans or commitments to issue any of the
additional authorized shares other than those described in connection with
Proposal 1, the Company believes it is advisable to have the ability to issue
the additional shares, as the need may arise, to take advantage of market
conditions or the availability of other favorable opportunities without the
delay and expense of calling a special stockholders' meeting. The Company also
believes the additional authorized shares of Preferred Stock, along with the
ability to vary features such as dividend rates and conversion rights of such
stock to meet the exigencies of a particular transaction, will allow the Company
advantages in negotiations and the flexibility to structure transactions
involving the issuance of Preferred Stock.
The additional shares of the Preferred Stock and the Non-Voting Common Stock
will be available for issuance by the Board of Directors for any proper
corporate purpose, to such persons and for such consideration as the Board may
determine, without any further action by the stockholders, except in certain
types of transactions requiring stockholder vote under the Delaware General
Corporation Law, the Certificate or the rules of the NASD. As discussed above,
the NASD rules currently require stockholder approval in several circumstances,
including change of control, certain acquisition transactions, the adoption of
certain employee and director plans and the private sale of more than 20% of the
equity or voting securities of the Company.
8. WHAT IS THE TEXT OF THE PROPOSED AMENDMENTS?
The Board of Directors recommends that the Certificate be further amended by
deleting Sections 1, 2 and 3 of Article IV in their entirety and replacing them
as follows:
SECTION 1. NUMBER OF SHARES. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 135,000,000 shares,
consisting of 100,000,000 shares of Common Stock with par value $.01 per share
("Common Stock"), 10,000,000 shares of Non-Voting Common Stock with par value
$.01 per share ("Non-Voting Common Stock"), and 25,000,000 shares of Preferred
Stock with par value $.01 per share ("Preferred Stock").
SECTION 2. DIVIDENDS. Subject to the provisions of law and the rights of
the Preferred Stock and any other class or series of stock then outstanding
having a preference as to dividends over the Common Stock or the Non-Voting
Common Stock, dividends may be paid on the Common Stock and the Non-Voting
Common Stock at such times and in such amounts as the Board of Directors shall
determine.
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SECTION 3. RELATIVE RIGHTS OF SHAREHOLDERS. Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after any preferential amounts to be distributed to the holders of the Preferred
Stock and any other class or series of stock then outstanding having a
preference over the Common Stock or the Non-Voting Common Stock have been paid
or declared and set apart for payment, the holders of the Common Stock and the
Non-Voting Common Stock shall be entitled to receive all of the remaining assets
of the Corporation available for distribution to its stockholders.
In addition, the Board of Directors recommends the addition of the following
as Section 8 of Article IV:
SECTION 8. RIGHTS AND TERMS OF NON-VOTING COMMON STOCK.
(a) GENERAL. The powers, preferences and rights of the Common Stock and
the Non-Voting Common Stock, and the qualifications, limitations or restrictions
thereof, shall be in all respects identical, except as otherwise required by law
or expressly provided in this Section 8.
(b) VOTING. Except as otherwise required by law, no holder of the
Non-Voting Common Stock (by virtue of ownership of such shares) shall be
entitled to vote such shares of Non-Voting Common Stock on any matters to be
voted on by the stockholders of the Corporation.
(c) DIVIDENDS, SPLITS OR COMBINATIONS. (i) When and as dividends are
declared, whether payable in cash, in property or securities of the Corporation,
the holders of the Non-Voting Common Stock shall be entitled to share equally
with the holders of the Common Stock on a share-for-share basis in such
dividends, except as provided herein.
(ii) Dividends may be declared and paid to the holders of the Common
Stock and the holders of the Non-Voting Common Stock in cash, property, or
other securities of the Corporation out of any funds or other assets of the
Corporation legally available therefor.
(iii) If and when dividends on the Common Stock and the Non-Voting Common
Stock are declared payable from time to time by the Board of Directors,
whether payable in cash, in property or in shares of stock of the
Corporation, the holders shall be entitled to share equally, on a per share
basis, in such dividends, except that:
(A) dividends or other distributions payable in shares of stock of
the Corporation shall be made to all holders of Common Stock and
Non-Voting Common Stock and shall be made only (1) in shares of
Non-Voting Common Stock to the record holders of Common Stock and to the
record holders of Non-Voting Common Stock, (2) in shares of Common Stock
to the record holders of Common Stock and in shares of Non-Voting Common
Stock to record holders of Non-Voting Common Stock, or (3) in any other
authorized class or series of capital stock to the record holders of both
classes of Common Stock and Non-Voting Common Stock, regardless of the
fair market value of such shares received in payment of such dividend or
other distribution; PROVIDED, HOWEVER, that if such other authorized
class or series of capital stock has voting rights, an additional class
or series of capital stock shall be created which series shall be
identical in all respects, except that it shall not have any voting
rights (except as required by law), and dividends or other distributions
of such authorized class or series shall be made only in such authorized
class or series to holders of Common Stock and in the non-voting version
of such authorized class or series to holders of Non-Voting Common Stock,
and
(B) dividends or other distributions payable in convertible
securities or securities giving the holder a right to acquire shares of
Common Stock or Non-Voting Common Stock ("Options"), unless otherwise
provided by the Board of Directors with respect to such Options, other
than rights issued pursuant to shareholder rights plans of the type
entitling holders of rights other than an "acquiring person" to purchase
shares or other securities at a below-market price if certain events
occur (which rights may be distributed as a dividend
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<PAGE>
pursuant to such a plan upon shares of either class of Common Stock or
Non-Voting Common Stock without a corresponding dividend distribution
upon shares of the other), shall be made to all holders of Common Stock
and Non-Voting Common Stock and may be made in securities convertible
into Common Stock or Options to acquire Common Stock to the record
holders of Common Stock and in securities convertible into Non-Voting
Common Stock or Options to acquire Non-Voting Common Stock to the record
holders of Non-Voting Common Stock.
(iv) If the Corporation shall in any manner split, subdivide or combine
the outstanding shares of Common Stock or Non-Voting Common Stock, the
outstanding shares of the other such class shall be proportionally split,
subdivided or combined in the same manner and on the same basis as the
outstanding shares of the other class have been split, subdivided or
combined.
(d) CONVERSION.
(i) Each share of Non-Voting Common Stock shall automatically convert
into shares of Common Stock at the time such conversion is not prohibited by
the restrictions contained in paragraph (d)(ii) below, on the terms and
conditions set forth in this Section 8. Subject to the provisions for
adjustment hereinafter set forth, each share of Non-Voting Common Stock
shall be convertible into one share of Common Stock.
(ii) Notwithstanding any other provision contained in this Section 8 to
the contrary, no shares of Non-Voting Common Stock may be converted into
Common Stock unless, after giving effect to such conversion, the holder
thereof, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rules 13d-3 and 13d-5 under the Exchange Act, except
that such holder and any such group shall be deemed to beneficially own all
shares that such holder or group has the right to acquire, whether such
right is exercisable immediately or only after the passage of time, upon the
happening of an event or otherwise) a number of shares of Common Stock which
represents greater than the Maximum Percentage of the voting power
represented by the shares of stock of the Corporation entitled to vote with
the Common Stock at all meetings of the stockholders of the Corporation.
(iii) For purposes of this Article IV, Section 8 the following terms have
the following meanings:
"Indenture" means that certain Indenture dated as of November 7, 1997, among
Metris Companies Inc., as Issuer, the Guarantors named therein and The First
National Bank of Chicago, as Trustee.
"Maximum Percentage" shall mean (a) for a period ending on the later to
occur of (i) December 31, 2000 or (ii) the date upon which all of the 10% Notes
no longer remain outstanding under the Indenture, 34.9% and (b) thereafter,
100%.
(e) BUSINESS COMBINATIONS; DISSOLUTION. In the event of merger,
consolidation, combination or similar transaction of the Corporation with
another entity (whether or not the Corporation is the surviving entity) or in
the event of liquidation, dissolution or winding up of the Corporation, holders
of Non-Voting Common Stock shall be entitled to receive in respect of each share
of Non-Voting Common Stock the same kind, and at the same ratio, of shares,
evidences of indebtedness, other securities, cash, rights, or any other
property, or any combination of shares, evidence of indebtedness, securities,
cash, rights, or any other property as holders of Common Stock shall be entitled
to receive in respect of each share, except that in any merger, consolidation,
combination or similar transaction, any common stock that holders of Non-Voting
Common Stock shall be entitled to receive may have terms substantially similar
to those of the Non-Voting Common Stock set forth in this Section 8.
35
<PAGE>
The full text of the Certificate, as proposed to be further amended by this
Proposal 2 as well as Proposal 3, is set forth as APPENDIX B to this Proxy
Statement and has been marked to show all proposed changes.
9. WHAT ARE THE POSSIBLE EFFECTS OF THE ADOPTION OF PROPOSAL 2?
ANTI-TAKEOVER IMPLICATIONS
The proposed amendment may have anti-takeover implications. Although the
proposed amendment is not intended to be an anti-takeover measure, stockholders
should note that, under certain circumstances, the issuance of the additional
authorized shares of Preferred Stock could be used to create impediments to
persons seeking to effect a merger or otherwise gain control of the Company. The
Board of Directors could privately place any of the additional shares of
Preferred Stock with purchasers who might side with the Board in opposing a
hostile takeover bid, making a change in control of the Company more difficult,
and therefore less likely. In particular, the Board could authorize holders of
the Preferred Stock to vote as a class, either separately or with the holders of
Common Stock, on any merger, sale or exchange of assets by the Company or any
other extraordinary corporate transaction.
The Board of Directors is not currently aware that any person or group is
seeking to obtain control of the Company and has no current plans to use the
newly authorized shares for purposes of discouraging a takeover attempt.
DILUTION
The issuance of the Non-Voting Common Stock may have a dilutive impact on
the stockholders depending on the price at which it is issued. The issuance of
shares of Preferred Stock having conversion rights may also have the effect of
diluting the interests of other stockholders. In addition, you should expect
that any shares of Preferred Stock which may be issued would have dividend and
liquidation preferences superior to those of the Common Stock. Holders of Common
Stock do not have preemptive rights to subscribe for additional securities which
may be issued by the Company.
ACQUISITION ACCOUNTING
The Non-Voting Common Stock may not be used to effect a business combination
to be accounted for using the "pooling of interests" method. In order to use
that method, the Company would have to issue shares of Common Stock for the
combination.
10. WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO PROPOSAL 2?
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE TO INCREASE THE COMPANY'S AUTHORIZED SHARES TO 135,000,000 OF WHICH
100,000,000 WILL BE COMMON STOCK, 10,000,000 WILL BE NON-VOTING COMMON STOCK AND
25,000,000 WILL BE PREFERRED STOCK. THE BOARD BELIEVES THAT PROPOSAL 2 IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL OF PROPOSAL 2.
36
<PAGE>
PROPOSAL 3
AMENDMENT OF THE CERTIFICATE TO REMOVE
CERTAIN RESTRICTIONS ON THE COMPANY'S ACTIVITIES
1. WHAT IS THE COMPANY ASKING YOU TO APPROVE?
The Certificate contains certain provisions which limit the Company's
ability to engage in certain types of businesses and activities. The Company is
requesting your approval to amend the Certificate to remove all of these
restrictions, including provisions providing certain corporate opportunities to
Fingerhut, the Company's former controlling stockholder.
2. WHY IS THE COMPANY REQUESTING THE DELETION OF THESE PROVISIONS OF THE
CERTIFICATE?
These provisions were included in the Certificate at a time when the
majority of the Company's stock was owned by Fingerhut and were designed to
prevent the Company from competing with Fingerhut and to assure that certain
corporate opportunities that the Company might encounter would belong to
Fingerhut. On September 25, 1998, Fingerhut distributed its remaining 83%
interest in the Company to Fingerhut's shareholders. Although the Company and
Fingerhut have various contractual relationships, Fingerhut currently does not
own any outstanding shares of the Company.
The Board of Directors believes that these provisions limiting the
businesses and activities in which the Company may engage are no longer
appropriate following the spin-off. Recognizing that these provisions prohibit
or restrict the Company's growth in certain areas, the Board of Directors
believes that removal of these provisions will improve management's flexibility
to take advantage of future business opportunities.
3. WHAT IS THE TEXT OF THE PROPOSED AMENDMENT?
The Board of Directors of the Company recommends that the Company's
Certificate be amended by deleting Sections 1 and 2 of Article III in their
entirety and replacing them as follows:
The purpose of the Corporation is to engage in any lawful act or activity
and to exercise any powers permitted to corporations under the General
Corporation Law of Delaware.
The Board of Directors further recommends that the Certificate be further
amended by deleting Article XIII in its entirety.
The full text of the Certificate, as proposed to be further amended by this
Proposal 3 and Proposal 2, is set forth as APPENDIX B to this Proxy Statement
and has been marked to show all proposed changes.
4. WHAT DOES THE BOARD OF DIRECTORS RECOMMEND WITH RESPECT TO PROPOSAL 3?
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED AMENDMENT TO THE COMPANY'S
CERTIFICATE TO REMOVE THE PROVISIONS RESTRICTING THE COMPANY'S ABILITY TO ENGAGE
IN CERTAIN ACTIVITIES AND BUSINESSES. THE BOARD BELIEVES THAT PROPOSAL 3 IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT YOU
VOTE FOR THE APPROVAL OF PROPOSAL 3.
37
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
1. WHAT IS THE SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS?
The following table lists the beneficial ownership of the Common Stock of
all persons who are known by the Company, as of January 19, 1999, to
beneficially own more than five percent of the outstanding shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- -------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Theodore Deikel ........................................ 1,330,422(1) 6.8%
c/o Metris Companies Inc.
600 South Highway 169
Suite 1800
St. Louis Park, MN 55426
</TABLE>
- ------------------------
(1) Includes 285,000 shares of Common Stock that Mr. Deikel has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options. Also includes 535 shares of Common Stock held by Mr. Deikel's son.
2. WHAT IS THE SECURITY OWNERSHIP OF MANAGEMENT?
The directors and executive officers of the Company as a group beneficially
own approximately 10.5% of the outstanding shares of Common Stock. The following
table lists the number of shares of Common Stock, as of January 19, 1999,
beneficially owned by each director of the Company, the President and Chief
Executive Officer of the Company, and each of the other four most highly
compensated executive officers of the Company, as well as all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Theodore Deikel........................................ 1,330,422(1) 6.8%
Ronald N. Zebeck....................................... 649,673(2) 3.3%
Lee R. Anderson, Sr.................................... 25,411(3) *
Frank D. Trestman...................................... 21,910(4) *
Dudley C. Mecum........................................ 16,318(5) *
Derek V. Smith......................................... 12,000(6) *
John A. Cleary......................................... 5,000(7) *
Douglas B. McCoy....................................... 23,291(8) *
Douglas L. Scaliti..................................... 18,600(9) *
Z. Jill Barclift....................................... 15,450(10) *
Joseph A. Hoffman...................................... 1,000 *
All directors and executive officers as a group (17
persons)............................................. 2,131,350(11) 10.5%
</TABLE>
- ------------------------
(*) Less than 1%
(1) Includes 285,000 shares of Common Stock that Mr. Deikel has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options. Also includes 535 shares of Common Stock held by Mr. Deikel's son.
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<PAGE>
(2) Includes 639,673 shares of Common Stock that Mr. Zebeck has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(3) Includes 10,000 shares of Common Stock that Mr. Anderson has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(4) Includes 15,000 shares of Common Stock that Mr. Trestman has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(5) Includes 15,000 shares of Common Stock that Mr. Mecum has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(6) Includes 10,000 shares of Common Stock that Mr. Smith has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(7) Includes 5,000 shares of Common Stock that Mr. Cleary has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(8) Includes 15,000 shares of Common Stock that Mr. McCoy has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(9) Includes 15,000 shares of Common Stock that Mr. Scaliti has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options.
(10) Includes 7,500 shares of Common Stock that Ms. Barclift has the right to
acquire within 60 days of January 19, 1999, through the exercise of stock
options. Also includes 750 shares of Common Stock that Ms. Barclift's
husband has the right to acquire within 60 days of January 19, 1999,
through the exercise of stock options.
(11) Includes 1,026,673 shares of Common Stock that the directors and executive
officers have the right to acquire within 60 days of January 19, 1999,
through the exercise of stock options.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements. These statements
include statements regarding intent, belief or current expectations of the
Company and its management. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties that may cause the Company's actual results to differ
materially from the results discussed in the forward-looking statements. Among
the factors that could cause actual results to differ materially from those
indicated by such forward-looking statements are: the Company's limited
operating history as a stand-alone entity; the Company's limited experience with
respect to originating and servicing credit card accounts, including limited
delinquency, default and loss experience; the lack of seasoning of the Company's
credit card portfolio, which makes the predictability of delinquency and loss
levels more difficult; risks associated with unsecured credit transactions,
particularly to moderate income consumers; risks associated with acquired
portfolios; interest rate risks; dependence on the securitization of the
Company's credit card loans or the capital markets to fund operations; general
economic conditions affecting consumer income, which may increase consumer
bankruptcies, defaults and delinquencies; state and federal laws and
regulations, including consumer and debtor protection laws; the highly
competitive industry in which the Company operates; and the uncertainty
surrounding the effect the Year 2000 Problem will have on the Company or any of
its vendors.
WHERE YOU CAN FIND MORE INFORMATION
The Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires the Company to file reports, proxy statements and other information
with the Securities and Exchange Commission (the
39
<PAGE>
"SEC"). You may inspect and copy such reports, proxy statements and other
information at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional
offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may obtain more information about the public reference
facilities by calling the SEC at 1-800-SEC-0330. In addition, you may access
such reports, proxy statements and other information electronically by means of
the SEC's Web site at http://www.sec.gov. The Company's Common Stock is quoted
on the Nasdaq, and you may also inspect copies of any documents filed with the
SEC at the offices of the Nasdaq, 1735 K Street, Washington, D.C. 20006.
The Exchange Act allows the Company to "incorporate by reference"
information into this Proxy Statement, which means that the Company can disclose
important information to you by referring you to another document filed
separately with the SEC. This Proxy Statement incorporates by reference the
following documents that the Company has previously filed with the SEC:
1. the Company's Annual Report on Form 10-K for the year ended December 31,
1997;
2. the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998; and
3. the Company's Current Reports on Form 8-K filed on September 24, 1998,
October 7, 1998, October 15, 1998 and December 22, 1998.
This Proxy Statement also incorporates by reference additional documents
that the Company may file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this Proxy Statement and the Special Meeting.
You may obtain copies of such documents which are incorporated by reference
in this Proxy Statement (other than exhibits thereto which are not specifically
incorporated by reference therein), without charge, upon written or oral request
to Metris Companies Inc., 600 South Highway 169, Suite 1800, St. Louis Park,
Minnesota 55426, Attention: Investor Relations (telephone number (612)
593-4820).
40
<PAGE>
APPENDIX A
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 (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
A-1
<PAGE>
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 convertible on the record
date for such dividend or distribution. Any such dividend or distribution shall
be declared, ordered, paid or made on the Series C Preferred Stock at the same
time such dividend or distribution is declared, ordered, paid or made on the
Common Stock or Non-Voting Stock and shall be in addition to any dividends
payable under paragraph (a) of this Section 2.
Section 3. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein, and any voting
rights provided by law, the holders of shares of Series C Preferred Stock shall
have the following voting rights:
(a) So long as the Series C Preferred Stock is outstanding, each share of
Series C Preferred Stock shall entitle the holder thereof to vote on all matters
voted on by holders of the capital stock of the Corporation into which such
share of Series C Preferred Stock is convertible, voting together as a single
class with the other shares entitled to vote, at all meetings of the
stockholders of the Corporation, except that with respect to the election of
directors of the Corporation, holders of the Series C Preferred Stock shall have
only those voting rights specified in paragraphs (c) and (d) hereof. With
respect to any such vote, each share of Series C Preferred Stock shall entitle
the holder thereof to cast the number of votes equal to the number of votes
which could be cast in such vote by a holder of the shares of capital stock of
the Corporation into which such share of Series C Preferred Stock is convertible
on the record date for such vote or, if no such record date is established, on
the date any written consent of stockholders is solicited; provided, however,
that if such vote relates to a Change in Control, the liquidation, dissolution
or winding up of the Corporation or any other matter which, if approved would
entitle the holder thereof to receive on an accelerated basis any additional
shares of Series C Preferred Stock, then the number of votes such holder shall
be entitled to cast shall be the number of votes equal to the number of votes
which could be cast in such vote by a holder of shares of capital stock of the
Corporation into which such share of Series C Preferred Stock (and any Series C
Preferred Stock that would be so received on an accelerated basis) would be
convertible (or, in the
A-2
<PAGE>
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
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
A-3
<PAGE>
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
shall be reduced to that number which, when added to the Cumulative Number of
Directors (as herein defined) is less than half of the total number of
Directors. The Cumulative Number of Directors shall mean that number of
Directors, rounded up to the nearest whole number, equal to the number of
directors subject to election by the holders of Common Stock (after giving
effect to any increase required by the immediately preceding sentence)
multiplied by a fraction, the numerator of which is the sum of all shares of
Common Stock held by holders of Series C Preferred Stock as of the date of
determination and, without duplication, the Reserved Shares and the denominator
of which is the sum of all outstanding shares of Common Stock as of the date of
determination and, without duplication, the Reserved Shares. "Reserved Shares"
shall mean that number of shares of Common Stock reserved as of September 25,
1998 by the Corporation for issuance with respect to options to purchase shares
of Common Stock from the Corporation, subject to appropriate adjustment for
stock splits, stock dividends and other events giving rise to adjustment of
shares subject to such options.
(e) Except as provided in this Certificate of Designation of Series C
Preferred Stock (including, without limitation, the right to vote with the
Common Stock on all matters submitted to a vote of stockholders of the
Corporation as set forth in paragraphs (a) and (b) of 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
A-4
<PAGE>
Event, if and so long as any shares of Series C Preferred Stock remain
outstanding, the Corporation shall not, nor shall it permit any of its
Subsidiaries to: (A) declare or pay dividends, or make any other distributions,
on any shares of Common Stock or Non-Voting Stock or other capital stock of the
Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred Stock, other than dividends
or distribution payable in Junior Stock; (B) declare or pay dividends, or make
any other distributions, on any shares of Parity Stock, other than dividends or
distributions payable in Junior Stock, except dividends paid ratably on the
Series C Preferred Stock and all Parity Stock on which dividends are payable or
in arrears, in proportion to the total amounts to which the holders of all such
shares are then entitled; (C) redeem or purchase or otherwise acquire for
consideration (other than Junior Stock) any shares of Junior Stock or Parity
Stock (other than, with respect to Parity Stock, ratably with the Series C
Preferred Stock); or (D) purchase or otherwise acquire for consideration any
shares of Series C Preferred Stock, other than purchases ratably among all
holders of the Series C Preferred Stock.
(b) The Corporation shall not permit any Subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of capital stock of
the Corporation unless the Corporation could, pursuant to paragraph (a) of this
Section 4, purchase or otherwise acquire such shares at such time and in such
manner.
Section 5. REDEMPTION.
(a) Except as provided in this Section 5(a), the Corporation shall have no
right to redeem any shares of Series C Preferred Stock. If at any time after
December 31, 2001, both (i) the average Trading Price per share of Common Stock
equals or exceeds $64.00 (appropriately adjusted to reflect the occurrence of
any event described in subparagraph (i) of paragraph (b) of Section 8) for the
twenty Trading Days immediately preceding the date of determination and (ii) the
Corporation's unsecured debt securities shall have ratings equal to or better
than Baa3 from Moody's Investor Services and BBB- from Standard & Poor's
Corporation, then during such time as the criteria set forth as clauses (i) and
(ii) shall continue to be met, the Corporation shall have the right, at its sole
option and election, to redeem all, but not less than all, of the outstanding
shares of Series C Preferred Stock by paying therefor in cash 103% of (x)
$372.50 per share, plus (y) all Accrued Dividends thereon to the date of
redemption. In addition, from and 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
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Liquidation Preference. In the event there occurs a Change in Control and the
Corporation does not make a Change in Control Redemption Offer in accordance
with this paragraph (a "Change in Control Triggering Event"), then effective as
of the date of such Change in Control:
(i) Each holder of Series C Preferred Stock shall be entitled to receive
a distribution of additional shares of Series C Preferred Stock such that
the total number of shares of Series C Preferred Stock held by such holder
as of the date of the Change in Control shall equal the Liquidation
Preference divided by $372.50;
(ii) Without the consent of the holders of a majority of the outstanding
shares of the Series C Preferred Stock, the Corporation will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, "incur")
any Indebtedness (including Acquired Debt), and the Corporation and its
Subsidiaries will not issue any Disqualified Stock, and the Corporation will
not permit any of its Subsidiaries to issue any shares of preferred stock,
provided, however, that the Corporation and its Subsidiaries may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
or the Corporation's Subsidiaries may issue shares of preferred stock if the
Consolidated Leverage Ratio of the Corporation, calculated on a pro forma
basis after giving effect to the incurrence of the additional Indebtedness
to be incurred or the Disqualified Stock or preferred stock to be issued and
the application of the proceeds therefrom, would have been less than 2 to 1.
Notwithstanding this subparagraph (iv), the Corporation may incur the
following Indebtedness (collectively, "Permitted Debt"):
A. Indebtedness of the Corporation under the Credit Agreement and
Guaranties thereof by the Corporations's Subsidiaries in an aggregate
amount not to exceed $300 million at any time outstanding;
B. Indebtedness of the Corporation and its Subsidiaries existing on
December 9, 1998;
C. Indebtedness of any Subsidiary of the Corporation represented by a
guaranty of Indebtedness of the Corporation which constitutes
Permitted Debt;
D. Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance, defease, renew or
replace, any Indebtedness (other than intercompany Indebtedness) that
was permitted to be incurred under this subparagraph (iv);
E. Intercompany Indebtedness of the Subsidiary of the Corporation owing
to the Corporation; provided, however, that any sale or other
transfer of any such Indebtedness to a person that is not the
Corporation shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by such Subsidiary that was not
permitted by this clause (E);
F. The issuance by a Subsidiary of the Corporation of preferred stock to
the Corporation; provided, however, that any subsequent transfer of
such preferred stock to a person other than the Corporation shall be
deemed to be an issuance of preferred stock by such Subsidiary that
was not permitted by this clause (F).
G. Hedging Obligations that are incurred in the ordinary course of
business;
H. Capital Lease Obligations and/or Purchase Money Indebtedness of the
Corporation or a Subsidiary of the Corporation incurred in the
ordinary course of business not to exceed $30.0 million at any time
outstanding;
I. The guarantee by the Corporation or any of its Subsidiaries of
Indebtedness of the Corporation or a Subsidiary of the Corporation
that was permitted to be incurred by another provision of this clause
(I);
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J. Additional Indebtedness of the Corporation and its Subsidiaries in an
aggregate principal amount (or accreted value, as applicable) at any
time outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (J), not to exceed $10.0 million at
any time outstanding.
Notwithstanding anything in this subparagraph (iv) to the contrary,
consummation of a Securitization shall not be deemed to be the incurrence of
Indebtedness or the issuance of Disqualified Stock or preferred stock by the
Corporation or a Subsidiary of the Corporation. For purposes of determining
compliance with this subparagraph (iv), in the event that an item of
Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (A) through (J) above or is entitled to
be incurred pursuant to the first paragraph of this subparagraph (iv), the
Corporation shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this subparagraph (iv) and
such item of Indebtedness will be treated as having been incurred pursuant
to only one of such clauses or pursuant to the first paragraph hereof.
(iii) Without the consent of the holders of a majority of the outstanding
shares of Series C Preferred Stock, (i) the Corporation shall not permit the
Leverage Ratio at any time to exceed 6 to 1; and (ii) the Corporation shall
not permit the amount of Unsecured Indebtedness of the Corporation and its
subsidiaries to exceed $25,000,000 in the aggregate at any time outstanding.
If the Corporation shall fail to comply with any one or more of the
provisions of this paragraph 5(b) or, following a Change in Control Triggering
Event, paragraph 2(a) or Section 4, then in any such event, (i) the Dividend
Rate shall be increased by 2% per annum above the Dividend Rate which otherwise
would be in effect and (ii) at any time following the 91st day after the
maturity or payment in full of the Corporation's 10% Senior Notes due 2004
issued pursuant to the Indenture, the holders of a majority of the shares of
Series C Preferred Stock shall be entitled to require the Corporation to redeem
all outstanding shares of Series C Preferred Stock for an amount equal to 101%
of the Liquidation Preference.
(c) (i) Notice of any redemption of shares of Series C Preferred Stock
pursuant to paragraph (a) of this Section 5 shall be mailed at least thirty, but
no more than sixty, days prior to the date fixed for redemption to each holder
of shares of Series C Preferred Stock to be redeemed, at such holder's address
as it appears on the transfer books of the Corporation. No redemption of shares
of Series C Preferred Stock pursuant to paragraph (c) of this Section 5 shall
take place unless such notice shall have been mailed in accordance with this
subparagraph (c)(i). In order to facilitate the redemption of shares of Series C
Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Series C Preferred Stock to be redeemed, not more
than sixty days nor less than thirty days prior to the date fixed for such
redemption.
(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
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hereof, redeem the number of shares so specified on the date fixed for
redemption, which will be no later than thirty Business Days following
receipt by the Corporation of a holder's election to redeem the shares of
Series C Preferred Stock. Failure of the Corporation to give any notice
required by this subparagraph (ii), or the formal insufficiency of any such
notice, shall not prejudice the rights of any holders of shares of Series C
Preferred Stock to cause the Corporation to redeem any such shares held by
them and, in the event of any such failure or immediately after there has
arisen a right on the part of the holders of Series C Preferred Stock to
compel redemption under Section 5(b) following a Change in Control
Triggering Event, the holders of a majority of the shares of Series C
Preferred Stock outstanding shall be entitled to exercise their right to
cause the Corporation to redeem all such shares held by delivery of written
notice to such effect by such holders to the Corporation and such shares
shall be redeemed upon receipt of such notice by the Corporation.
Notwithstanding the foregoing, the Board of Directors of the Corporation may
modify any offer pursuant to this Section 5(c)(ii) to the extent necessary
to comply with the Exchange Act and the rules and regulations thereunder.
(iii) The Corporation shall publish the fact that it is redeeming, or
offering to redeem, shares of Series C Preferred Stock through a nationally
prominent newswire service on the date of mailing any notice of redemption
or right of redemption. At any time after a notice of redemption shall have
been mailed and before such date of redemption the Corporation may deposit
for the benefit of the holders of the Series C Preferred Stock called for
redemption the funds necessary for such redemption with a bank or trust
company doing business in the Borough of Manhattan, the City of New York,
and having a capital and surplus of at least $1,000,000,000. Any interest
allowed on moneys so deposited shall be paid to the Corporation. Upon the
deposit of such funds or, if no such deposit is made, upon the date fixed
for redemption (unless the Corporation shall default in making payment of
the appropriate redemption amount), whether or not certificates for shares
so called for redemption have been surrendered for cancellation, the shares
of Series C Preferred Stock to be redeemed shall be deemed to be no longer
outstanding and the holders thereof shall cease to be stockholders with
respect to such shares and shall have no rights with respect thereto, except
for the rights to receive the amount payable upon redemption, but without
interest, and, up to the close of business on the date immediately preceding
the date fixed for such redemption, the right to convert such shares
pursuant to Section 8 hereof. Such deposit in trust shall be irrevocable
except that any funds deposited by the Corporation which shall not be
required for the redemption for which they were deposited because of the
exercise of conversion rights shall be returned to the Corporation
forthwith, and any funds deposited by the Corporation which are unclaimed at
the end of one year from the date fixed for such redemption shall be paid
over to the Corporation upon its request, and upon such repayment the
holders of the shares of Series C Preferred Stock so called for redemption
shall look only to the Corporation for payment of the appropriate amount.
Any such unclaimed amounts paid over to the Corporation shall, for a period
of six years from the date fixed for such redemption, be set apart and held
by the corporation in trust for the benefit of the holders of such shares of
Series C Preferred Stock, but no such holder shall be entitled to interest
thereon. At the expiration of such six-year period, all right, title,
interest and claim of such holders in or to such unclaimed amounts shall be
extinguished, terminated and discharged, and such unclaimed amounts shall
become part of the general funds of the Corporation free of any claim of
such holders. If the Corporation shall have not redeemed the shares of
Series C Preferred Stock within five Business Days of the date such
redemption is required by this Section 5, all redemption payments that are
past due shall accrue interest at an annual rate of fifteen percent (15%),
compounded quarterly.
Section 6. REACQUIRED SHARES.
Any shares of Series C Preferred Stock converted, redeemed, purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof, and, if necessary to
provide for the lawful redemption or purchase of such shares, the capital
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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.
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.
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(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 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
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Preferred Stock the number of shares of Common Stock and other capital stock
of the Corporation (or other assets or securities) issuable upon such
conversion in excess of the number of shares of Common Stock and other
capital stock of the Corporation issuable thereupon only on the basis of the
Conversion Price prior to adjustment, and (ii) not later than five Business
Days after such adjustment shall have become effective, pay to such holder
the appropriate cash payment pursuant to Section 8(f) hereof and issue to
such holder the additional shares of Common Stock and other capital stock of
the Corporation issuable on such conversion.
(v) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 0.1% of the
Conversion Price; provided, that any adjustments which by reason of this
subsection (v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 8 shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be.
(c) In case of any capital reorganization or reclassification of outstanding
shares of Common Stock (other than a reclassification covered by paragraph (b)
(i) of this Section 8), or in case of any consolidation or merger of the
Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series C Preferred Stock then outstanding
shall thereafter be convertible into, in lieu of the Common Stock issuable upon
such conversion prior to the consummation of such Transaction, the kind and
amount of shares of stock and other securities and property (including cash)
receivable upon the consummation of such transaction by a holder of that number
of shares of Common Stock into which one share of Series C Preferred Stock was
convertible immediately prior to such Transaction (including, on a pro rata
basis, the cash, securities or property received by holders of Common Stock in
any tender or exchange offer that is a step in such Transaction). In any such
case, if necessary, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 8 with respect to rights and interests thereafter of the holders of
shares of Series C Preferred Stock to the end that the provisions set forth
herein for the protection of the conversion rights of the Series C Preferred
Stock shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable upon
conversion of the shares of Series C Preferred Stock remaining outstanding (with
such adjustments in the conversion price and number of shares issuable upon
conversion and such other adjustments in the provisions hereof as the Board of
Directors shall determine to be appropriate). In case securities or property
other than Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this Section 8 shall be deemed to apply, so
far as appropriate and as nearly as may be, to such other securities or
property.
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, (i)
the Surviving Person (as defined in Section 10) thereof shall assume, by written
instrument mailed to each record holder of shares of Series C Preferred Stock,
at such holder's address as it appears on the transfer books of the Corporation,
the obligation to deliver to such holder such cash and such securities to which,
in accordance with the foregoing provisions, such holder is entitled. Nothing
contained in this paragraph (c) shall limit the rights of holders of the Series
C Preferred Stock to convert the Series C Preferred Stock in connection with the
Transaction or to exercise their rights to require the redemption of the Series
C Preferred Stock under Section 5(b).
(d) The holder of any shares of Series C Preferred Stock may exercise its
right to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other office
or agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series C Preferred Stock to be converted
duly endorsed to the Corporation in blank accompanied by a written notice
stating that such holder elects to
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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 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 least 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
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<PAGE>
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 describing the new stock, securities,
cash or other property) into which each share of Series C Preferred Stock is
convertible, as a result of such adjustment, a brief statement of the facts
requiring such adjustment and the computation thereof, and when such adjustment
became effective.
Section 10. DEFINITIONS.
For the purposes of the Certificate of Designation of Series C Perpetual
Convertible Preferred Stock which embodies this resolution:
"Accrued Dividends" to a particular date (the "Applicable Date") means (i)
all dividends accrued but not paid on the Series C Preferred Stock pursuant to
paragraph (a) of Section 2, whether or not declared, accrued to the Applicable
Date, plus (ii) all dividends or distributions payable pursuant to paragraph (b)
of Section 2 for which the Triggering Distribution was declared, ordered, paid
or made on or prior to the Applicable Date.
"Acquired Debt" means, with respect to any specified person, (i)
Indebtedness of any other person existing at the time such other person is
merged with or into or became a Subsidiary of such specified person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person, and (ii) Indebtedness secured by a lien
encumbering any asset acquired by such specified person.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Securities and Exchange Commission under the Exchange Act.
"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.
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"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing person.
"Change in Control" shall mean any of the following:
(a) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the
Corporation, or any of its Subsidiaries, or any employee benefit plan or related
trust of the Corporation or any of its Subsidiaries or any Excluded Person or
Excluded Group (an "Acquiring Person"), of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five percent
(35%) or more of the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the election of
directors; or
(b) during any period of 12 consecutive months after December 9, 1998, the
individuals who at the beginning of any such 12-month period constituted the
Board of Directors of the Corporation (the "Incumbent Board") cease for any
reason to constitute at least a majority of such Board; provided that (i) any
individual becoming a director whose election, or nomination for election by the
Corporation's stockholders, was approved by a vote of the stockholders having
the right to designate such director (including, without limitation, the
exercise by the Requisite Holders of their right to elect directors) and (ii)
any director whose election to the Board or whose nomination for election by the
stockholders of the Corporation was approved by majority vote of the Board of
Directors of the Corporation, shall, in each such case, be considered as though
such individual were a member of the Incumbent Board, but excluding, as a member
of the Incumbent Board, any such individual whose initial assumption of office
is in connection with an actual or threatened election contest relating to the
election of the directors of the Corporation (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) and further
excluding any person who is an affiliate or associate (as those terms are
defined in the General Rules and Regulations under the Exchange Act) of an
Acquiring Person having or proposing to acquire beneficial ownership of 25% or
more of the continued voting power of the then outstanding voting securities of
the Corporation entitled to vote generally in the election of directors; or
(c) the approval by the stockholders of the Corporation of a reorganization,
merger or consolidation, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the voting securities of the Corporation immediately prior
to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than fifty percent (50%) of the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors of the Corporation resulting from such reorganization, merger or
consolidation; or
(d) the Corporation ceases to own, directly or indirectly, one hundred
percent (100%) of the capital stock of Direct Merchants Credit Card Bank,
National Association; or
(e) the sale or other disposition of all or substantially all the assets of
the Corporation in one transaction or series of related transactions;
(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
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(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 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),
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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.
"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.
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<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
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.
"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
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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 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.
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"Person" shall mean an individual, partnership, corporation, limited
liability company or partnership, unincorporated organization, trust or joint
venture, or a governmental agency or political subdivision thereof, or other
entity of any kind.
"Premium Amount" per share of Series C Preferred Stock, as of the date of
conversion or redemption of the Series C Preferred Stock or the date of any
payments on the Series C Preferred Stock under Section 7 hereof or as of any
other date on which it is necessary to determine the number of shares of Common
Stock into which a share of Series C Preferred Stock is then convertible, shall
mean an amount calculated to provide the holder of a share of Series C Preferred
Stock, as of such date, with a gross amount of accretion calculated at the rate
of 9% on $372.50 per share of Series C Preferred Stock, compounded quarterly,
from the date of conversion or redemption of the Series C Preferred Stock or the
date of any payments on the Series C Preferred Stock under Section 7 hereof or
the date of any other determination, as the case may be, to and including
December 9, 2005. In the event that any Series C Preferred Stock is converted
voluntarily by the holder on or before December 31, 2003 pursuant to Section 8
and not (i) in connection with the Corporation's election or obligation to
redeem the shares of Series C Preferred Stock under Section 5 (a) or 5(b) or
(ii) in connection with a Change in Control or (iii) in connection with the
occurrence of any of the events described in Section 7, then the Premium Amount
used in determining the Conversion Value shall be reduced by the percentage of
the Premium Amount set forth opposite the relevant period listed below; provided
that if such optional conversion occurs at any point within a year commencing
January 1, 2000 and ending December 31, 2003, the Premium Amount will be further
reduced so that upon application of the conversion formula set forth in Section
8, the number of shares of Common Stock the holder shall be entitled to receive
upon such conversion shall be that number of shares which, when added to the
number of shares of Common Stock issuable upon conversion of shares of Series C
Preferred Stock paid or accrued during such year as dividends with respect to
the shares to be converted (without giving effect to any Premium Amount with
respect to a conversion of such dividend shares), would equal that number of
shares of Common Stock which would have been issuable upon conversion of the
shares being converted as of the first day of such year, subject only to
anti-dilution adjustments occurring after the beginning of such year.
<TABLE>
<CAPTION>
CONVERSION DATE REDUCTION TO PREMIUM AMOUNT
- ------------------------------------------------------------------------------------ -----------------------------
<S> <C>
Prior to December 31, 1999.......................................................... 100.0%
January 1, 2000 through December 31, 2000........................................... 85.9%
January 1, 2001 through December 31, 2001........................................... 59.0%
January 1, 2002 through December 31, 2002........................................... 45.6%
January 1, 2003 through December 31, 2003........................................... 23.5%
January 1, 2004 and thereafter...................................................... 0.0%
</TABLE>
"Securities Purchase Agreement" shall mean that certain agreement dated as
of November 13, 1998, by and among the Corporation and certain purchasers of the
Series C Preferred Stock party thereto.
"Securitization" means any transaction or series of transactions that have
been or may be entered into by the Corporation or any of its Subsidiaries in
connection with or reasonably related to a transaction or series of transactions
in which the Corporation or any of its Subsidiaries may sell, convey or
otherwise transfer, directly or indirectly, to any person, or may grant a
security interest in, any receivables or any interests in such receivables
(whether such Receivables are then existing or arising in the future) and any
assets related thereto including, without limitation, all security interests in
any collateral relating thereto, the proceeds of such receivables, and other
assets which are customarily sold or in respect of which security interests are
customarily granted in connection with securitization transactions involving
such assets.
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"Set Apart for Payment" shall mean the Corporation shall have deposited with
a bank or trust company doing business in the Borough of Manhattan, the City of
New York, and having a capital and surplus of at least $1,000,000,000 in trust
for the exclusive benefit of the holders of shares of Series C Preferred Stock,
funds sufficient to satisfy the Corporation's payment obligation.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the Corporation in
a merger, consolidation or other corporate combination in which the Corporation
is the continuing or surviving Person, but in connection with which the Series C
Preferred Stock or Common Stock of the Corporation is exchanged, converted or
reinstated into the securities of any other Person or cash or any other
property; provided, however, if such Surviving Person is a direct or indirect
Subsidiary of a Person, the parent entity also shall be deemed to be a Surviving
Person.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is quoted, listed or admitted to trading is
open for the transaction of business or, if the Common Stock is not quoted,
listed or admitted to trading on any national securities exchange (including the
Nasdaq Stock Market), any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Trading Price" per share of Common Stock on any date shall be the lowest
sales price for the Common Stock reported on the Nasdaq Stock Market (or if the
Common Stock is not then quoted thereon, then for the principal national
securities exchange on which the Common Stock is listed or admitted to trading)
or, if the Common Stock is not quoted on the Nasdaq Stock Market and is not
listed or admitted to trading on any national securities exchange, in the
over-the-counter market, as reported by NASDAQ or such other system then in use,
or, if on any such date the Common Stock is not quoted by any such organization,
as furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors of the Company and reasonably acceptable to
the Requisite Holders.
"Unsecured Indebtedness" means general unsecured Indebtedness other than (i)
Indebtedness outstanding on the date immediately preceding the Change in Control
giving rise to the Change in Control Triggering Event but excluding any
Indebtedness incurred in connection with or in contemplation of such Change in
Control, and any unsecured Permitted Refinancing Indebtedness which is on terms
substantially equivalent to the Indebtedness being refinanced or replaced, the
proceeds of which are used to refinance or replace such previously outstanding
Indebtedness and (ii) Indebtedness represented by bank deposit accounts at
Direct Merchants Credit Card Bank, National Association.
"Voting Stock" means the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
Section 11. RANK.
The Series C Preferred Stock shall rank, with respect to dividend rights and
rights upon liquidation, winding up and dissolution, prior to all classes and
series of the Corporation's preferred
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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 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 8th day of December, 1998.
<TABLE>
<S> <C> <C>
METRIS COMPANIES INC.
By: /s/ Ronald N. Zebeck
-----------------------------------------
PRESIDENT
Attest:
</TABLE>
<TABLE>
<S> <C> <C>
By: /s/ Z. Jill Barclift
-----------------------------------------
SECRETARY
</TABLE>
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<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
METRIS COMPANIES INC.
(ADOPTED IN ACCORDANCE WITH SECTIONS 245 AND 242
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE)
ARTICLE I
NAME
The name of the Corporation is Metris Companies Inc.
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, New Castle County. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any business, and in any
activity and to exercise any powers permitted to corporations under the General
Corporation Law of the State of Delaware.
ARTICLE IV
AUTHORIZED SHARES
SECTION 1. NUMBER OF SHARES. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 135,000,000 shares,
consisting of 100,000,000 shares of Common Stock with par value $.01 per share
("Common Stock"), 10,000,000 shares of Non-Voting Common Stock with par value
$.01 per share ("Non Voting Common Stock") and 25,000,000 shares of Preferred
Stock with par value $.01 per share ("Preferred Stock").
SECTION 2. DIVIDENDS. Subject to the provisions of law and the rights of
the Preferred Stock and any other class or series of stock then outstanding
having a preference as to dividends over the Common Stock or the Non-Voting
Common Stock, dividends may be paid on the Common Stock and the Non-Voting
Common Stock at such times and in such amounts as the Board of Directors shall
determine.
SECTION 3. RELATIVE RIGHTS OF SHAREHOLDERS. Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after any preferential amounts to be distributed to the holders of the Preferred
Stock and any other class or series of stock then outstanding having a
preference over the Common Stock or the Non-Voting Common Stock have been paid
or declared and set apart for payment, the holders of the Common Stock and the
Non-Voting Common Stock shall be entitled to receive all of the remaining assets
of the Corporation available for distribution to its stockholders.
SECTION 4. RIGHTS AND TERMS OF PREFERRED STOCK. The Board of Directors is
hereby authorized to provide, out of the unissued shares of Preferred Stock, for
one or more series of Preferred Stock. Before any shares of any such series are
issued, the Board of Directors shall fix, and hereby is expressly
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empowered to fix, by the adoption and filing in accordance with the Delaware
General Corporation Law of an amendment or amendments to this Certificate of
Incorporation, the terms of such Preferred Stock or series of Preferred Stock,
including the following terms:
(a) the designation of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;
(b) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be special, conditional or limited or no voting
rights except as required by law;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of Preferred Stock;
(d) whether the shares of such series shall be subject to redemption by
the Corporation and, if so, the times, prices and other conditions of such
redemption;.
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the
assets, of the Corporation;
(f) whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and manner in
which any such retirement or sinking fund shall be applied to the purchase
or redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities (whether or not issued by the
Corporation) or other property and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of
any other class or any other series of Preferred Stock;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issuance of any additional
stock, including additional shares of such series or of any other series of
Preferred Stock or of any other class of stock; and
(j) any other powers, preferences and relative participating, optional
and other special rights, and any qualifications, limitations and
restrictions thereof.
Except to the extent otherwise expressly required by law, (i) no share of
Preferred Stock shall have any voting rights other than those which shall be
fixed by the Board of Directors pursuant to this Section 4 and (ii) no share of
Common Stock shall have any voting rights with respect to an amendment to the
terms of any series of Preferred Stock; provided, however, that in the case of
this clause (ii) the terms of such series of Preferred Stock, as so amended,
could have been established without any vote of any shares of Common Stock.
SECTION 5. REDEMPTION RELATED TO LICENSE OR FRANCHISE. Notwithstanding any
other provision of these Restated Articles of Incorporation to the contrary, but
subject to the provisions of an amendment or amendments adopted pursuant to this
Article IV creating any series of Preferred Stock or any other class or series
of stock having a preference over the Common Stock as to dividends or upon
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liquidation, outstanding shares of Common Stock, Preferred Stock or any other
class or series of stock of the Corporation shall always be subject to
redemption by the Corporation, by action of the Board of Directors, if in the
judgment of the Board of Directors such action should be taken, pursuant to any
applicable provision of law, to the extent necessary to prevent the loss or
secure the reinstatement of any license or franchise from any governmental
agency held by the Corporation or such Subsidiary to conduct any portion of the
business of the Corporation or such Subsidiary (as defined herein), which
license or franchise is conditional upon some or all of the holders of the
Corporation's stock of any class or series possessing prescribed qualifications.
The terms and conditions of such redemption shall be as follows:
(a) the redemption price of the shares to be redeemed pursuant to this
Section 5 shall be equal to the Fair Market Value (as defined herein) of
such shares;
(b) the redemption price of such shares may be paid in cash, Redemption
Securities (as defined herein) or any combination thereof;
(c) if less than all the shares held by Disqualified Holders (as defined
herein) are to be redeemed, the shares to be redeemed shall be selected in
such manner as shall be determined by the Board of Directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot or selection in any other manner determined by the Board of
Directors;
(d) at least 30 days' written notice of the Redemption Date shall be
given to the record holders of the shares selected to be redeemed (unless
waived in writing by such holder), provided that the Redemption Date may be
the date on which written notice shall be given to record holders if the
cash or Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and subject
to immediate withdrawal by them upon surrender of the stock certificates for
their shares to be redeemed;
(e) from and after the Redemption Date, any and all rights of whatever
nature, which may be held by the owners of shares selected for redemption
(including without limitation any rights to vote or participate in dividends
declared on stock of the same class or series as such shares), shall cease
and terminate and they shall henceforth be entitled only to receive the cash
or Redemption Securities payable upon redemption; and
(f) such other terms and conditions as the Board shall determine.
For purposes of this Section 5:
(i) "Disqualified Holder" shall mean any holder of shares of stock of
the Corporation of any class or series whose holding of such stock may
result in the loss of any license or franchise from any governmental agency
held by the Corporation or any Subsidiary to conduct any portion of the
business of the Corporation or any Subsidiary.
(ii) "Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the Corporation
pursuant to this Section 5.
(iii) "Redemption Securities" shall mean any debt or equity securities of
the Corporation, any Subsidiary or any other corporation, or any combination
thereof, having such terms and conditions as shall be approved by the Board
of Directors and which, together with any cash to be paid as part of the
redemption price, in the opinion of any nationally recognized investment
banking firm selected by the Board of Directors (which may be a firm which
provides other investment banking, brokerage or other services to the
Corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of this Section 5, at least equal to the Fair
Market Value of the shares to be redeemed pursuant to this Section 5
(assuming, in the case of Redemption Securities to be publicly traded, such
Redemption Securities were fully distributed and subject only to normal
trading activity).
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SECTION 6. ASSESSABILITY. Upon receipt by the Corporation of the
consideration for which the Board of Directors authorized the issuance of stock,
the stock issued therefor shall be fully paid and nonassessable.
SECTION 7. SUBSCRIPTION RIGHTS. No holder of stock of the Corporation
shall, as such holder, have any right to purchase or subscribe for any shares of
stock of the corporation of any class, now or hereafter authorized, or any
obligations or instruments which the corporation may issue or sell that shall be
convertible into or exchangeable for or entitle the holders thereof to subscribe
for or purchase any shares of stock of the Corporation of any class, now or
hereafter authorized, other than such rights, if any, as the Board of Directors,
in its sole discretion, may determine.
SECTION 8. RIGHTS AND TERMS OF NON-VOTING COMMON STOCK.
(a) GENERAL. The powers, preferences and rights of the Common Stock and
the Non-Voting Common Stock, and the qualifications, limitations or restrictions
thereof, shall be in all respects identical, except as otherwise required by law
or expressly provided in this Section 8.
(b) VOTING. Except as otherwise required by law, no holder of the
Non-Voting Common Stock (by virtue of ownership of such shares) shall be
entitled to vote such shares of Non-Voting Common Stock on any matters to be
voted on by the stockholders of the Corporation.
(c) DIVIDENDS, SPLITS OR COMBINATIONS. (i) When and as dividends are
declared, whether payable in cash, in property or securities of the Corporation,
the holders of the Non-Voting Common Stock shall be entitled to share equally
with the holders of the Common Stock on a share-for-share basis in such
dividends, except as provided herein.
(ii) Dividends may be declared and paid to the holders of the Common
Stock and the holders of the Non-Voting Common Stock in cash, property, or
other securities of the Corporation out of any funds or other assets of the
Corporation legally available therefor.
(iii) If and when dividends on the Common Stock and the Non-Voting Common
Stock are declared payable from time to time by the Board of Directors,
whether payable in cash, in property or in shares of stock of the
Corporation, the holders shall be entitled to share equally, on a per share
basis, in such dividends, except that:
(A) dividends or other distributions payable in shares of stock of
the Corporation shall be made to all holders of Common Stock and
Non-Voting Common Stock and shall be made only (1) in shares of
Non-Voting Common Stock to the record holders of Common Stock and to the
record holders of Non-Voting Common Stock, (2) in shares of Common Stock
to the record holders of Common Stock and in shares of Non-Voting Common
Stock to record holders of Non-Voting Common Stock, or (3) in any other
authorized class or series of capital stock to the record holders of both
classes of Common Stock and Non-Voting Common Stock, regardless of the
fair market value of such shares received in payment of such dividend or
other distribution; PROVIDED, HOWEVER, that if such other authorized
class or series of capital stock has voting rights, an additional class
or series of capital stock shall be created which series shall be
identical in all respects, except that it shall not have any voting
rights (except as required by law), and dividends or other distributions
of such authorized class or series shall be made only in such authorized
class or series to holders of Common Stock and in the non-voting version
of such authorized class or series to holders of Non-Voting Common Stock,
and
(B) dividends or other distributions payable in convertible
securities or securities giving the holder a right to acquire shares of
Common Stock or Non-Voting Common Stock ("Options"), unless otherwise
provided by the Board of Directors with respect to such Options, other
than rights issued pursuant to shareholder rights plans of the type
entitling holders of rights other than an "acquiring person" to purchase
shares or other securities at a below-market price if certain events
occur (which rights may be distributed as a dividend
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<PAGE>
pursuant to such a plan upon shares of either class of Common Stock or
Non-Voting Common Stock without a corresponding dividend distribution
upon shares of the other), shall be made to all holders of Common Stock
and Non-Voting Common Stock and may be made in securities convertible
into Common Stock or Options to acquire Common Stock to the record
holders of Common Stock and in securities convertible into Non-Voting
Common Stock or Options to acquire Non-Voting Common Stock to the record
holders of Non-Voting Common Stock.
(iv) If the Corporation shall in any manner split, subdivide or combine
the outstanding shares of Common Stock or Non-Voting Common Stock, the
outstanding shares of the other such class shall be proportionally split,
subdivided or combined in the same manner and on the same basis as the
outstanding shares of the other class have been split, subdivided or
combined.
(d) CONVERSION.
(i) Each share of Non-Voting Common Stock shall automatically convert
into shares of Common Stock at the time such conversion is not prohibited by
the restrictions contained in paragraph (d)(ii) below, on the terms and
conditions set forth in this Section 8. Subject to the provisions for
adjustment hereinafter set forth, each share of Non-Voting Common Stock
shall be convertible into one share of Common Stock.
(ii) Notwithstanding any other provision contained in this Section 8 to
the contrary, no shares of Non-Voting Common Stock may be converted into
Common Stock unless, after giving effect to such conversion, the holder
thereof, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act to which such holder belongs, shall not beneficially own
(determined pursuant to Rule 13d-3 and 13d-5 under the Exchange Act, except
that such holder and any such group shall be deemed to beneficially own all
shares that such holder or group has the right to acquire, whether such
right is exercisable immediately or only after the passage of time, upon the
happening of an event or otherwise) a number of shares of Common Stock which
represents greater than the Maximum Percentage of the voting power
represented by the shares of stock of the Corporation entitled to vote with
the Common Stock at all meetings of the stockholders of the Corporation.
(iii) For purposes of this Article IV, Section 8 the following terms have
the following meanings:
"Indenture" means that certain Indenture dated as of November 7, 1997, among
Metris Companies Inc., as Issuer, the Guarantors named therein and The First
National Bank of Chicago, as Trustee.
"Maximum Percentage" shall mean (a) during such time as any 10% notes remain
outstanding under the Indenture, 34.9% and (b) thereafter, 100%.
(e) BUSINESS COMBINATIONS; DISSOLUTION. In the event of merger,
consolidation, combination or similar transaction of the Corporation with
another entity (whether or not the Corporation is the surviving entity) or in
the event of liquidation, dissolution or winding up of the Corporation, holders
of Non-Voting Common Stock shall be entitled to receive in respect of each share
of Non-Voting Common Stock the same kind, and at the same ratio, of shares,
evidences of indebtedness, other securities, cash, rights, or any other
property, or any combination of shares, evidence of indebtedness, securities,
cash, rights, or any other property as holders of Common Stock shall be entitled
to receive in respect of each share, except that in any merger, consolidation,
combination or similar transaction, any common stock that holders of Non-Voting
Common Stock shall be entitled to receive may have terms substantially similar
to those of the Non-Voting Common Stock set forth in this Section 8.
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ARTICLE V
TERM OF DIRECTORS AND VACANCY ON BOARD
SECTION 1. TERM OF DIRECTOR. Except as otherwise provided by the terms of
any series of Preferred Stock or any other securities of the Corporation, the
number of directors of the Corporation shall be fixed from time to time by or
pursuant to the By-laws of the Corporation. Prior to the Threshold Time (as
defined in Article VII), the term of each director of the Corporation shall
expire at the next annual meeting of stockholders following such director's
election and until such director's successor shall have been elected and
qualified. The election of directors need not be by written ballot.
SECTION 2. VACANCY. Except as otherwise provided by the terms of any
series of Preferred Stock or any other securities of the Corporation, newly
created directorships resulting from any increase in the number of directors may
be filled by the Board of Directors, or as otherwise provided in the By-laws,
and any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause shall only be filled by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director, or as
otherwise provided in the By-laws.
ARTICLE VI
PROVISIONS OF BY-LAWS
The Board of Directors of the Corporation shall have the power, without the
assent or vote of the stockholders, to adopt, repeal, alter or amend the By-laws
of the Corporation pursuant to a resolution adopted by the vote of a majority of
the entire Board of Directors including, without limitation, provisions
governing the conduct of, and the matters which may properly be brought before,
meetings of the stockholders and provisions specifying the manner and extent to
which prior notice shall be given of the submission of proposals to be submitted
at any meeting of stockholders or of nominations or elections of directors to be
held at any such meeting.
ARTICLE VII
PROVISIONS RELATING TO THRESHOLD TIME
SECTION 1. THRESHOLD TIME. The provisions of Sections 2, 3, 4 and 5 of
this Article VII shall become effective at such time, but only from and after
such time (the "Threshold Time"), as the Permitted Stockholder and Permitted
Transferees, taken together, shall no longer beneficially own in the aggregate
51% or more of the combined Voting Power (as defined herein) of the then
outstanding shares of Voting Stock (as defined herein) and shall continue to be
effective from and after the Threshold Time. The term "Permitted Stockholder"
shall mean FCI or any subsidiary of FCI. The term "Permitted Transferee"shall
mean each of the following:
(a) a trust or trustee, guardian, custodian or similar entity
established or acting for the benefit of the Permitted Stockholder;
(b) any corporation or other entity 100% of the voting stock (or
equivalent interests) of which is owned, directly or indirectly, by the
Permitted Stockholder and/or any other person or entity referred to in
clause (a); and
(c) a trust or trustee, guardian, custodian or similar entity
established or acting for the benefit of any person or entity referred to in
clause (b).
SECTION 2. CHANGE IN CONTROL. (a) In addition to any affirmative vote
required by law or by this Amended and Restated Certificate of Incorporation or
the terms of any series of Preferred Stock or any other securities of the
Corporation, and except as otherwise expressly provided in subsection (c) of
this Section 2:
(i) any merger or consolidation of the Corporation with (1) any
Interested Stockholder or (2) any other corporation (whether or not it is
itself an Interested Stockholder) which is, or after
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such merger or consolidation would be, an Affiliate or Associate (as defined
herein) of an Interested Stockholder (as defined herein); or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholders of (1) all or substantially all the assets of the Corporation
or (2) assets of the Corporation or any of its Subsidiaries representing in
the aggregate more than 75% of the total value of the assets of the
Corporation and its consolidated Subsidiaries as reflected on the most
recent consolidated balance sheet of the Corporation and its consolidated
Subsidiaries prepared in accordance with generally accepted accounting
principles then in effect; or
(iii) (1) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder of any assets of the Corporation or of any Subsidiary of the
Corporation having an aggregate Fair Market Value of $10,000,000 or more,
but less than the amount referred to in clause (2) of paragraph (ii) of this
subsection (a), or (2) any merger or consolidation of any Subsidiary of the
Corporation having assets with an aggregate Fair Market Value of $10,000,000
or more in a transaction not covered by paragraph (ii) of this subsection
(a) with (x) any Interested Stockholder or (y) any other corporation
(whether or not it is itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate or Associate of an
Interested Stockholder; or
(iv) the issuance or transfer by the Corporation or any Subsidiary of
the Corporation (in one transaction or a series of transactions) to any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder of any securities of the Corporation or any Subsidiary of the
Corporation in exchange for cash, securities or other property (or a
combination thereof) having an aggregate Fair Market Value of $10,000,000 or
more, other than the issuance of securities upon the conversion of
convertible securities of the Corporation or any Subsidiary of the
Corporation which were not acquired by such Interested Stockholder (or such
Affiliate or Associate) from the Corporation or a Subsidiary of the
Corporation; or
(v) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder; or
(vi) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries, or any other
transaction (whether or not with or into or otherwise involving any
Interested Stockholder), which in any such case has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares
of any class or series of stock or securities convertible into stock of the
Corporation or any Subsidiary of the Corporation which is directly or
indirectly beneficially owned by any Interested Stockholder or any Affiliate
or Associate of any Interested Stockholder;
shall not be consummated without (1) the affirmative vote of the holders of at
least 80% of the combined Voting Power of the then outstanding shares of all
classes and series of Voting Stock and (2) the affirmative vote of a majority of
the combined Voting Power of the then outstanding shares of all classes and
series of Voting Stock held by Disinterested Stockholders (as defined herein),
in each case voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or by this Certificate of Incorporation or
the terms of any series of Preferred Stock or any other securities of the
Corporation or in any agreement with any national securities exchange or
otherwise.
(b) The term "Business Combination" as used in this Section 2 shall mean any
transaction which is referred to in any one or more of paragraphs (i) through
(vi) of subsection (a) of this Section 2.
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(c) The provisions of subsection (a) of this Section 2 shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by law and any other
provision of this Certificate of Incorporation and the terms of any series of
Preferred Stock or any other securities of the Corporation, if all the
conditions specified in any of the following paragraphs (i), (ii),(iii) or (iv)
are met:
(i) (1) such Business Combination shall have been approved by a majority
of the Disinterested Directors (as defined herein) and (2) the Interested
Stockholder involved in such Business Combination has (x) acquired such
status as an Interested Stockholder in a manner substantially consistent
with an agreement or memorandum of understanding approved by the Board of
Directors prior to the time such Interested Stockholder became an Interested
Stockholder and (y) complied with all requirements imposed by such agreement
or memorandum of understanding; or
(ii) in the case of any Business Combination described in paragraph (i)
of subsection (a) of this Section 2, (1) such Business Combination shall
have been approved by a majority of the Disinterested Directors, (2) such
Business Combination shall not have resulted, directly or indirectly, in an
increase of more than 10% in the total amount of shares of any class or
series of stock or securities convertible into stock of the Corporation or
any Subsidiary which was directly or indirectly beneficially owned by any
Interested Stockholder and all Affiliates and Associates of such Interested
Stockholder at the time of the approval of such Business Combination by a
majority of the Disinterested Directors, and (3) such Business Combination
shall not have been consummated within a period of two years after the
consummation of any other Business Combination described in paragraph (i),
(ii), (iii), (iv), (v) or (vi) of subsection (a) of this Section 2 (whether
or not such other Business Combination shall have been approved by a
majority of the Disinterested Directors) which had the effect, directly or
indirectly, of increasing the proportionate share of the outstanding shares
of any class or series of stock or securities convertible into stock of the
Corporation or any Subsidiary of the Corporation which was directly or
indirectly beneficially owned by such Interested Stockholder or any
Affiliate or Associate of such Interested Stockholder; or
(iii) in the case of any Business Combination described in paragraph
(iii), (iv) or (vi) of subsection (a) of this Section 2, such Business
Combination shall have been approved by a majority of the Disinterested
Directors; or
(iv) all of the six conditions specified in the following clauses (1)
through (6) shall have been met:
(1) the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of each then
existing class of Common Stock in exchange for all their shares of each
class of Common Stock, and the aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business
Combination of any consideration other than cash to be received per share
by holders of each class of Common Stock in such Business Combination
shall be at least equal to the highest of the following:
(A) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid in order to acquire any shares of the particular class of Common
Stock in question beneficially owned by the Interested Stockholder
which were acquired (i) within the two-year period immediately prior
to the Announcement Date or (ii) in the transaction in which it
became an Interested Stockholder, whichever is higher; and
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(B) the Fair Market Value per share of the class of Common Stock
in question on the Announcement Date (as defined herein) or on the
Determination Date (as defined herein), whichever is higher; and
(2) if the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of any class or
series of outstanding Voting Stock other than Common Stock, the aggregate
amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of any consideration other than
cash to be received per share by holders of shares of such Voting Stock
shall be at least equal to the highest of the following (the requirements
of this clause (iv) (2) must be met with respect to every class and
series of such outstanding Voting Stock, whether or not the Interested
Stockholder beneficially owns any shares of a particular class or series
of Voting Stock):
(A) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid in order to acquire any shares of such class or series of Voting
Stock beneficially owned by the Interested Stockholder which were
acquired (i) within the two-year period immediately prior to the
Announcement Date or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(B) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock
are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(C) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher; and
(3) the consideration to be received by holders of a particular class
or series of outstanding Voting Stock (including any class of Common
Stock) shall be in cash or in the same form as was previously paid in
order to acquire shares of such class or series of Voting Stock which are
beneficially owned by the Interested Stockholder and, if the Interested
Stockholder beneficially owns shares of any class or series of Voting
Stock which were acquired with varying forms of consideration, the form
of consideration to be received by holders of such class or series of
Voting Stock shall be either cash or the form used to acquire the largest
number of shares of such class or series of Voting Stock beneficially
owned by it; the prices determined in accordance with clauses (1) and (2)
of this paragraph (iv) shall be appropriately adjusted in the event of
any stock dividend, stock split or subdivision or combination of shares
or any similar event; and
(4) after such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such business Combination:
(A) except as approved by a majority of the Disinterested
Directors, there shall have been no failure to declare and pay at the
regular dates therefor the full amount of any dividends (whether or
not cumulative) payable on the Preferred Stock or any class or series
of stock having a preference over the Common Stock as to dividends or
upon liquidation;
(B) there shall have been (x) no reduction in the annual rate of
dividends paid on any class of Common Stock (except as necessary to
reflect any subdivision of such class of Common Stock), except as
approved by a majority of the Disinterested Directors, and (y) an
increase in such annual rate of dividends (as necessary to prevent
any such reduction) in the event of any reclassification (including
any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing
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the number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a majority of
the Disinterested Directors; and
(C) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction in which it became an Interested Stockholder;
and
(5) after such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a stockholder)
of any loan, advance, guarantee, pledge or other arrangement provided by
the Corporation or any Subsidiary, whether in anticipation of or in
connection with such Business Combination or otherwise; and
(6) a proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public stockholders of the Corporation at
least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
(d) A majority of the Disinterested Directors of the Corporation shall have
the power and duty to determine, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance with this
Section 2, including, without limitation, (i) whether a person is an Interested
Stockholder, (ii) the number of shares of each class or series of Voting Stock
beneficially owned by any person, (iii) whether a person is an Affiliate or
Associate of another person, (iv) whether the requirements of subsection (c) of
this Section 2 have been met with respect to any Business Combination and (v)
whether the assets which are the subject of any Business Combination have, or
the consideration to be received for the issuance or transfer of securities by
the Corporation or any Subsidiary of the Corporation in any Business Combination
has, an aggregate Fair Market Value of $10,000,000 or more or whether such
assets or consideration, as the case may be, represent in the aggregate more
than 75% of the total value of the assets of the Corporation and its
consolidated Subsidiaries as reflected on the most recent consolidated balance
sheet of the Corporation and its consolidated Subsidiaries prepared in
accordance with generally accepted accounting principles then in effect; and the
good faith determination of a majority of the Disinterested Directors on such
matters shall be conclusive and binding for all purposes of this Section 2.
(e) Nothing contained in this Section 2 shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 3. STAGGERED BOARD. (a) The directors of the Corporation, other
than those who may be elected pursuant to the terms of any series of Preferred
Stock or any other securities of the Corporation, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, as shall be provided in the By-laws of the
Corporation, one class whose term expires at the first annual meeting of
stockholders to be held after the Threshold Time, another class whose term
expires at the second annual meeting of stockholders to be held after the
Threshold Time, and another class whose term expires at the third annual meeting
of stockholders to be held after the Threshold Time, with each class to hold
office until its successors are elected and qualified. The classes shall be
initially comprised of directors serving on the Board of Directors at the
Threshold Time, and the membership of each class shall be initially determined
by the Board of Directors at such time. At each annual meeting of the
stockholders of the Corporation, the date of which shall be fixed by or pursuant
to the By-laws of the Corporation, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. No decrease
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in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director. Any director elected to fill a newly created
directorship or any vacancy on the Board of Directors resulting from any death,
resignation, removal or other cause shall hold office for the remainder of the
full term of the class of directors in which the new directorship was created or
the vacancy occurred and until such director's successor shall have been elected
and qualified.
(b) Except as otherwise provided by the terms of any series of Preferred
Stock or any other securities of the Corporation, any director of the
Corporation may be removed from office only for cause and only by the
affirmative vote of the holders of a majority of the combined Voting Power of
the then outstanding shares of Voting Stock, voting together as a single class.
For purposes of this subsection (b), "cause" shall mean the willful and
continuous failure of a director to substantially perform such director's duties
to the Corporation (other than any such failure resulting from incapacity due to
physical or mental illness) or the willful engaging by a director in gross
misconduct materially and demonstrably injurious to the Corporation.
SECTION 4. SPECIAL MEETINGS. Subject to the terms of any series of
Preferred Stock or any other securities of the Corporation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of Directors
or as otherwise provided in the By-laws of the Corporation.
SECTION 5. AMENDMENTS OF CERTIFICATE. In addition to any requirements of
law and any other provisions of this Certificate of Incorporation or the terms
of any series of Preferred Stock or any other securities of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the terms of any series of Preferred Stock or
any other securities of the Corporation), the affirmative vote of (i) the
holders of 80% or more of the combined Voting Power of the then outstanding
shares of Voting Stock and (ii) a majority of the combined Voting Power of the
then outstanding shares of Voting Stock held by the Disinterested Stockholders,
in each case voting together as a single class, shall be required to amend,
alter or repeal, or adopt any provision inconsistent with, this Article VII or
Article VIII insofar as the definitions set forth in Article VIII relate to this
Article VII.
ARTICLE VIII
CERTAIN DEFINITIONS
FOR PURPOSES OF THIS CERTIFICATE OF INCORPORATION:
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act, as in effect on the date this Certificate of Incorporation are filed.
"Announcement Date" shall mean the date of first public announcement of the
proposed Business Combination.
A person shall be a "beneficial owner" of any Voting Stock or other security
or interest:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates has (i) the
right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote or to direct
the vote pursuant to any agreement, arrangement or understanding; or
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<PAGE>
(c) which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock or such other
security or interest.
"Determination Date" means the date on which the Interested Stockholder
became an Interested Stockholder.
"Disinterested Director" means any member of the Board of Directors of the
Corporation who is unaffiliated with, and not a nominee of, an Interested
Stockholder or any Affiliate or Associate of such Interested Stockholder and was
a member of the Board of Directors prior to the time that such Interested
Stockholder became an Interested Stockholder, and any successor of a
Disinterested Director who is unaffiliated with, and not a nominee of, an
Interested Stockholder or any Affiliate or Associate of such Interested
Stockholder and who is recommended for election or elected to succeed a
Disinterested Director by a majority of Disinterested Directors then on the
Board of Directors.
"Disinterested Stockholder" shall mean a stockholder of the Corporation who
is not an Interested Stockholder or an Affiliate or an Associate of an
Interested Stockholder.
"Equity Interest" shall mean (i) in the case of a corporation, capital
stock, beneficially owned directly or indirectly, representing any portion of,
or, where a specified percentage of Equity Interest is referred to, the
specified percentage of, either (x) the total common equity of such corporation
or (y) the total outstanding Voting Power in respect of the election of
directors and (ii) in the case of a partnership or other person, partnership or
other ownership interests, beneficially owned directly or indirectly,
representing any portion of, or, where a specified percentage of Equity Interest
is referred to, the specified percentage of, either (x) the total partnership or
other ownership interests in such partnership or other person or (y) the total
outstanding Voting Power in respect of any matter submitted to a vote of all
partners or other owners.
"Fair Market Value" means: (a) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in question
of a share of such stock as reported in the consolidated transaction reporting
system for the principal United States securities exchange registered under the
Exchange Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing sales price or bid quotation with respect
to a share of such stock during the 30-day period preceding the date in question
on the National Association of Securities Dealers, Inc. Automated Quotations
System or any system then in use, or, if no such quotations are available, the
fair market value on the date in question of a share of such stock as determined
by a majority of the Disinterested Directors in good faith; and (b) in the case
of stock of any class or series which is not traded on any securities exchange
or in the over-the-counter market or in the case of property other than cash or
stock, the fair market value of such stock or property, as the case may be, on
the date in question as determined by a majority of the Disinterested Directors
in good faith.
"Interested Stockholder" shall mean any person who or which:
(a) is the beneficial owner, directly or indirectly, of 20% or more of
the combined Voting Power of the then outstanding shares of Voting Stock;
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the beneficial
owner, directly or indirectly, of 20% or more of the combined Voting Power
of the then outstanding shares of Voting Stock; or
(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially owned
by any Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering
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within the meaning of the Securities Act of 1933 or other public
distribution regardless of whether registered under such Act.
Notwithstanding the foregoing, "Interested Stockholder" shall not include:
(a) the Corporation or any Subsidiary of the Corporation;
(b) any employee benefit plan of the Corporation or of any Subsidiary of
the Corporation or any person holding any class or series of Voting Stock
for or pursuant to the terms of any such employee benefit plan;
(c) the Permitted Stockholder or any Permitted Transferee; or
(d) any transferee of the Permitted Stockholder or a Permitted
Transferee that would not absent such transfer be an Interested Stockholder.
For the purposes of determining whether a person is an Interested
Stockholder, the number of shares of Voting Stock deemed to be outstanding shall
include shares of which such person is the beneficial owner as defined in this
Article VIII but shall not include any other shares of Voting Stock which may be
issuable to other persons pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, exchange rights, warrants
or options, or otherwise.
A "person" shall mean any individual, firm, corporation, partnership, trust
or other entity.
"Subsidiary" shall mean a person, a majority of the total outstanding Voting
Power of which is owned, directly or indirectly, by another person or by one or
more other Subsidiaries of such other person or by such person and one or more
other Subsidiaries of such other person; provided, however, that for the
purposes of the definition of Interested Stockholder set forth in this Article
VIII, the term "Subsidiary" shall mean only a person, a majority the total
outstanding Voting Power of which is owned by the Corporation, by a Subsidiary
of the Corporation or by the Corporation and one or more of its Subsidiaries.
"Voting Power", when used with reference to the capital stock of, or units
of equity interests in, any person, shall mean the power under ordinary
circumstances (and not merely as a result of the occurrence of a contingency) to
vote in the election of directors of such person (if such person is a
corporation) or to participate in the management and control of such person (if
such person is not a corporation).
"Voting Stock" means capital stock of the Corporation of all classes and
series entitled to vote generally in the election of directors of the
Corporation.
ARTICLE IX
AMENDMENTS
Subject to the provisions of this Certificate of Incorporation (including
Section 5 of Article VII, Section 3 of Article X, and Section 2 of Article XII)
the Corporation reserves the right to amend, alter or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by the laws of Delaware, and all rights and powers conferred on
directors and stockholders herein are granted subject to this reservation.
ARTICLE X
DIRECTOR LIABILITY AND INDEMNIFICATION
SECTION 1. NO LIABILITY. To the fullest extent that the Delaware General
Corporation Law as it exists on the date hereof or as it may hereafter be
amended permits the limitation or elimination of the liability of directors, no
director of the Corporation shall be liable to the Corporation or its
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stockholders for monetary damages for breach of fiduciary duty as a director. No
amendment to this Certificate of Incorporation, directly or indirectly by
merger, consolidation or otherwise, having the effect of amending, altering,
changing or repealing any of the provisions of this Section 1 shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal, unless such amendment shall have
the effect of further limiting or eliminating such liability.
SECTION 2. INDEMNIFICATION. (a) The Corporation shall, to the fullest
extent permitted by applicable law as then in effect, indemnify any person (the
"indemnitee") who was or is involved in any manner (including, without
limitation, as a party or a witness) or was or is threatened to be made so
involved in any threatened, pending or completed investigation, claim, action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or proceeding by or in the
right of the Corporation to procure a judgment in its favor) (a "proceeding") by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director or officer
of another corporation, or of a partnership, joint venture, trust or other
enterprise (including, without limitation, service with respect to any employee
benefit plan), whether the basis of any such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director or officer, against all expenses, liabilities and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred by him in connection with such proceeding. Such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his heirs and legal representatives.
The right to indemnification conferred in this Article X shall include the right
to receive payment in advance of any expenses incurred by the indemnitee in
connection with such proceeding, consistent with applicable law as then in
effect, and shall be a contract right. The Corporation may, by action of its
Board of Directors, provide indemnification for employees, agents, attorneys and
representatives of the Corporation with up to the same scope and extent as
herein above provided for officers and directors. No amendment to this
Certificate of Incorporation having the effect of amending, altering, changing
or repealing any of the provisions of this Section 2 shall remove, abridge or
adversely affect any right to indemnification or other benefits under this
Section 2 with respect to any acts or omissions occurring prior to such
amendment or repeal.
(b) The right of indemnification, including the right to receive payment in
advance of expenses, conferred in this Article X shall not be exclusive of any
other rights to which any person seeking indemnification may otherwise be
entitled under any provisions of the Certificate of Incorporation, By-laws,
agreement, or otherwise.
(c) In any action or proceeding relating to the right to indemnification
conferred in this Article X, the Corporation shall have the burden of proof that
the indemnitee has not met any standard of conduct or belief which may be
required by applicable law to be applied in connection with a determination of
whether the indemnitee is entitled to indemnity, or otherwise is not entitled to
indemnity, and neither a failure to make such determination nor an adverse
determination of entitlement to indemnity shall be a defense of the Corporation
in such an action or proceeding or create any presumption that the indemnitee
has not met any such standard of conduct or belief or is otherwise not entitled
to indemnity. If successful in whole or in part in such an action or proceeding,
the indemnitee shall be entitled to be indemnified by the Corporation for the
expenses actually and reasonably incurred by him in connection with such action
or proceeding.
SECTION 3. AMENDMENTS OF CERTIFICATE. No amendment to this Certificate of
Incorporation, directly or indirectly by merger, consolidation or otherwise,
shall amend, alter, change or repeal any of the provisions of this Article X,
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote of the holders of at least 80% of the
outstanding shares of stock of the Corporation entitled to vote in elections of
directors, provided that this Section 3 shall not
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apply to any such amendment if such amendment is submitted to the stockholders
for adoption with the unanimous recommendation of the entire Board of Directors.
ARTICLE XI
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between the Corporation and
its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for the Corporation under Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/ or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which said application has
been made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the Corporation, as the case may
be, and also on the Corporation.
ARTICLE XII
MEETINGS OF STOCKHOLDERS
SECTION 1. MEETINGS REQUIRED. No action required to be taken or which may
be taken at any annual or special meeting of stockholders of the Corporation may
be taken without a meeting, except on written consent, setting forth the action
so taken, signed by the holders of record of at least 80% of the outstanding
shares entitled to vote thereon.
SECTION 2. AMENDMENTS OF CERTIFICATE. No amendment to this Certificate of
Incorporation, directly or indirectly by merger, consolidation or otherwise,
shall amend, alter, change or repeal any of the provisions of this Article XII,
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote of the holders of at least 80% of the
outstanding shares of stock of the Corporation entitled to vote in elections of
directors; provided that this Section 2 shall not apply to any such amendment if
such amendment is submitted to the stockholders for adoption with the unanimous
recommendation of the entire Board of Directors.
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<PAGE>
METRIS COMPANIES INC.
SPECIAL MEETING OF STOCKHOLDERS
FRIDAY, MARCH 12, 1999
10:00 A.M.
MARRIOTT SOUTHWEST
5801 OPUS PARKWAY
MINNETONKA, MINNESOTA 55343
METRIS COMPANIES INC. PROXY
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
SPECIAL MEETING ON FRIDAY, MARCH 12, 1999.
The undersigned hereby appoints RONALD N. ZEBECK and Z. JILL BARCLIFT as
proxies each with the power to act alone and with power of substitution and
revocation, and hereby authorizes them to vote all of the shares of Common
Stock of Metris Companies Inc. that the undersigned is entitled to vote at
the Special Meeting of Stockholders to be held on March 12, 1999, or any
adjournment thereof, as specified below on the following matters which are
further described in the Proxy Statement related hereto:
SEE REVERSE FOR VOTING INSTRUCTIONS
<PAGE>
- PLEASE DETACH HERE -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3.
1. Proposal to approve the terms and issuance of Series C Perpetual Convertible
Preferred Stock in exchange for outstanding Series B Perpetual Preferred
Stock, 12% Senior Notes due 2006 and warrants to purchase 3,750,000 shares
of common stock at $30 per share.
/ / For / / Against / / Abstain
2. Proposal to approve an amendment to the Amended and Restated Certificate of
Incorporation to authorize 10,000,000 shares of non-voting common stock and
to increase the authorized number of shares of preferred stock from
10,000,000 to 25,000,000.
/ / For / / Against / / Abstain
3. Proposal to approve an amendment to the Amended and Restated Certificate of
Incorporation to remove certain restrictions on business activities.
/ / For / / Against / / Abstain
IN THEIR DISCRETION, PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3.
Dated: ___________________________ , 1998
-----------------------------------------
-----------------------------------------
Signature(s) in Box
(If there are co-owners, both must sign.)
PLEASE MARK, SIGN DATE AND RETURN THE
PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE SIGN EXACTLY AS YOUR
NAME APPEARS TO THE LEFT. WHEN SHARES
ARE HELD BY JOINT TENANTS, BOTH SHOULD
SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS
SUCH. IF A CORPORATION, PLEASE SIGN IN
FULL CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY PARTNER OR OTHER AUTHORIZED
PERSON.
<PAGE>
[LETTERHEAD]
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
of Metris Companies Inc.:
We consent to the use of our report dated January 21, 1998 incorporated herein
by reference.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 1, 1999
