<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF METRIS COMPANIES INC.]
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
March 30, 1999
Dear Shareholder:
I am pleased to invite you to attend the Company's 1999 Annual Meeting of
Shareholders to be held at the Hyatt Regency Minneapolis, 1300 Nicollet Mall,
Minneapolis, Minnesota on Tuesday, May 11, 1999, at 10:00 a.m. Central Standard
Time.
On the page following this letter you will find the Notice of Meeting,
which lists the matters to be considered at the meeting. Following the Notice
is the Proxy Statement, which describes these matters and provides other
information concerning management of the Company. Also enclosed is your proxy
card, which allows you to vote on the matters, and the Company's Annual Report.
This year is the Company's first annual meeting after the Company ceased to
be a subsidiary of Fingerhut Companies, Inc. Your vote and participation this
year is important and has greater impact than in any previous year. Please
complete and mail in your proxy card promptly, even if you plan to attend the
meeting. You can attend the meeting and vote in person, even if you have sent
in a proxy card.
The Board of Directors recommends that shareholders vote FOR each of the
nominees and FOR each of the proposals.
The rest of the Board and I look forward to seeing you at the meeting.
Sincerely,
/s/ Ronald N. Zebeck
Ronald N. Zebeck
President and Chief Executive Officer
<PAGE>
METRIS COMPANIES INC.
600 South Highway 169
Suite 1800
St. Louis Park, Minnesota 55426
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NOTICE OF ANNUAL MEETING
BY ORDER OF THE BOARD OF DIRECTORS
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TIME............... 10:00 a.m. on Tuesday, May 11, 1999
PLACE.............. Hyatt Regency Minneapolis
1300 Nicollet Mall
Minneapolis, Minnesota
ITEMS OF BUSINESS.. 1) To elect two directors for three-year terms.
2) To approve an increase in the number of shares reserved
for issuance under the Metris Companies Inc.
Non-Employee Director Stock Option Plan.
3) To approve the Metris Companies Inc. Employee Stock
Purchase Plan.
4) To approve the Metris Companies Inc. Management Stock
Purchase Plan.
5) To approve an Amended and Restated Annual Incentive
Plan for Designated Corporate Officers.
6) To approve an Amended and Restated Long-Term Incentive
and Stock Option Plan.
7) To transact such other business as may properly come
before the Meeting and any adjournment or postponement
thereof.
RECORD DATE........ You can vote if you were a shareholder of record on
March 19, 1999.
PROXY VOTING....... It is important that your shares be represented and
voted at the Meeting. Please vote in one of two
ways:
(1) Attend the Meeting and cast your ballot; or
(2) MARK, SIGN, DATE AND PROMPTLY RETURN the enclosed
proxy card in the postage paid envelope.
/s/ Z. Jill Barclift
March 30, 1999 Z. Jill Barclift
Secretary
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE
<PAGE>
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Table of Contents
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<TABLE>
<S> <C>
ATTENDANCE AND VOTING MATTERS................................................... 1
EVENTS RELEVANT TO UNDERSTANDING THIS PROXY STATEMENT........................... 4
CORPORATE GOVERNANCE............................................................ 6
COMPANY STOCK OWNED BY OFFICERS AND DIRECTORS................................... 10
PERSONS OWNING MORE THAN FIVE PERCENT OF COMPANY COMMON STOCK................... 12
COMPENSATION TABLES AND COMPENSATION MATTERS.................................... 13
PERFORMANCE GRAPH............................................................... 20
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION......................... 20
PROPOSAL ONE: ELECTION OF DIRECTORS............................................ 23
PROPOSAL TWO: APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES RESERVED
FOR ISSUANCE UNDER THE METRIS COMPANIES INC. NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN..................................................................... 25
PROPOSAL THREE: APPROVAL OF THE METRIS COMPANIES INC. EMPLOYEE STOCK PURCHASE
PLAN............................................................................ 28
PROPOSAL FOUR: APPROVAL OF THE METRIS COMPANIES INC. MANAGEMENT STOCK PURCHASE
PLAN............................................................................ 32
PROPOSAL FIVE: APPROVAL OF AN AMENDED AND RESTATED ANNUAL INCENTIVE PLAN FOR
DESIGNATED CORPORATE OFFICERS................................................... 35
PROPOSAL SIX: APPROVAL OF THE METRIS COMPANIES INC. AMENDED AND RESTATED
LONG-TERM INCENTIVE AND STOCK OPTION PLAN....................................... 39
CHART OF COMPANY PLANS.......................................................... 45
SELECTION OF INDEPENDENT AUDITORS............................................... 45
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE......................... 45
REQUIREMENTS, INCLUDING DEADLINES, FOR SUBMISSION OF PROXY PROPOSALS,
NOMINATIONS OF DIRECTORS AND OTHER BUSINESS OF
SHAREHOLDERS.................................................................... 46
</TABLE>
<PAGE>
METRIS COMPANIES INC. PROXY STATEMENT
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Attendance and Voting Matters
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Why Did You Send Me This Proxy Statement?
We sent you this Proxy Statement and the enclosed proxy card because the
Board of Directors (the "Board") of Metris Companies Inc. ("we," "us," or our
"Company") is soliciting your proxy to vote at the 1999 Annual Meeting of
Shareholders (this "Annual Meeting"). This Proxy Statement summarizes
information concerning the nominees and proposals and provides you information
concerning the performance of the Company and the compensation of its officers
and directors. This information will assist you to make an informed vote at the
Annual Meeting.
We began sending this Proxy Statement, the attached Notice of Annual
Meeting and the enclosed proxy card on March 30, 1999.
Who is Entitled to Vote?
Shareholders of record of the Company's common stock, par value $.01 (the
"Common Stock") at the close of business on March 19, 1999 (the "record date")
are entitled to vote at the Annual Meeting. A holder of Common Stock will be
entitled to one vote for each of the nominees to the Board for a three-year term
and one vote for each of the proposals for each share of Common Stock held on
the record date. There is no cumulative voting.
On the record date, a total of 19,261,195 shares of Common Stock were
outstanding.
A list of shareholders entitled to vote at the Annual Meeting will be
available at the Annual Meeting and for ten days prior to the Annual Meeting at
the Company's corporate headquarters during normal business hours.
How Do I Vote?
Unless you hold your shares in the Metris Retirement Plan 401(k), you can
vote on matters to come before the meeting in one of two ways:
o You can come to the Annual Meeting and cast your vote there; or
o You can vote by marking, signing and returning the enclosed proxy
card. If you do so, the individuals named as proxies on the card will
vote your shares in the manner you indicate.
If you vote by proxy, you may choose to vote for all of the nominees for
directors and each proposal by simply signing, dating and returning the enclosed
proxy card without further direction. All signed and returned proxies that
contain no direction as to vote will be voted FOR each of the nominees for
director and FOR each of the proposals.
<PAGE>
The Board of Directors has selected Ronald N. Zebeck and Z. Jill Barclift,
the persons named on the proxy card accompanying this Proxy Statement, to serve
as proxies for the Annual Meeting. Each of Ronald N. Zebeck and Z. Jill Barclift
is an officer of the Company.
If you plan to attend the Annual Meeting and vote in person, you should
request a ballot when you arrive. HOWEVER, IF YOUR SHARES ARE HELD IN THE NAME
OF YOUR BROKER, BANK OR OTHER NOMINEE, THE INSPECTORS OF ELECTION WILL REQUIRE
YOU TO PRESENT A POWER OF ATTORNEY FROM SUCH BROKER, BANK OR OTHER NOMINEE FOR
YOU TO VOTE SUCH SHARES AT THE ANNUAL MEETING. Please contact your broker, bank
or nominee.
How Do Employees in the Metris Retirement Plan 401(k) Vote?
If you hold shares of Common Stock in the Metris Retirement Plan 401(k), an
employee benefit plan of the Company, please return your proxy in the envelope
provided by May 4, 1999. Norwest Bank Minnesota, N. A., the tabulator, will
calculate the votes returned by all holders in the Metris Retirement Plan 401(k)
and notify the Trustee of the Metris Retirement Plan 401(k). First Trust
National Association, the Trustee for the Metris Retirement Plan 401(k), will
act in accordance with your instructions for voting your shares of Common Stock
held in your 401(k) account. If your voting instructions for your 401(k) account
are not received by May 4, 1999, the Trustee will vote your shares in its
absolute discretion. Holders of shares in the Metris Retirement Plan 401(k) will
not be permitted to vote in person at the Annual Meeting.
Will My Vote Be Disclosed?
The Company has a policy that all proxies, ballots and votes tabulated at a
meeting of the shareholders are confidential. Individual votes will not be
revealed to any Company employee or anyone else, other than the non-employee
tabulator of the votes or an independent election inspector, except as necessary
to meet applicable legal requirements, including challenges to the election or
in any lawsuit in which such vote becomes an issue. Representatives of Norwest
Bank Minnesota, N.A. will tabulate votes and act as Inspectors of Election at
the Annual Meeting.
This policy of the Company is not a right of shareholders, and the Company
reserves the right to change this policy as to future elections at any time.
However, you will be entitled to confidentiality, subject to the exceptions
stated above, for your votes in this election.
May I Revoke My Proxy?
If you give a proxy, you may revoke it at any time before it is exercised.
You may revoke your proxy in any one of three ways:
o You may send in another proxy with a later date;
o You may notify the Company's Secretary in writing at 600 South Highway
169, Suite 1800, St. Louis Park, Minnesota 55426; or
o You may vote in person at the Annual Meeting.
2
<PAGE>
If you choose to revoke your proxy by attending the Annual Meeting, you must
vote at such meeting in accordance with the rules for voting at the Annual
Meeting. Attending the Annual Meeting will not, by itself, constitute
revocation of a proxy.
Must a Minimum Number of Shareholders Vote or be Present at the Annual Meeting?
A quorum of shareholders is necessary to hold a valid meeting. The Amended
and Restated By-Laws (the "By-Laws") of the Company state that the presence, in
person or by proxy, of holders of one-third of the shares entitled to vote shall
constitute a quorum. Under Delaware law, if a shareholder abstains from voting
as to any particular matter, then the shares held by such shareholder shall be
deemed present at the Annual Meeting for purposes of determining a quorum and
for purposes of calculating the vote with respect to such matter.
The inspectors of election will also treat broker non-votes as shares that
are present and entitled to vote for the purposes of determining a quorum.
Broker non-votes occur when a broker holding stock in street name votes shares
on some matters but not others. As to matters for which the broker lacks
discretionary authority, the shares will be treated as not present and not
entitled to vote (even if included for purposes of determining a quorum).
If the number of shares present at the Annual Meeting is insufficient to
constitute a quorum, the Annual Meeting may be adjourned by the vote of a
majority of shares present to a later date. No notice, other than as given at
the Annual Meeting itself, is required with respect to the time and place for
the reconvening of the Annual Meeting.
What Vote is Required to Approve Each Proposal?
The By-Laws of the Company provide that if a quorum is present, the
affirmative vote of a majority of the shares represented at the meeting may
decide any question before the meeting.
What Are the Costs of Soliciting These Proxies?
The Company will pay all costs of soliciting these proxies. In addition to
mailing proxy soliciting materials, we may also solicit proxies by telephone,
telegram or otherwise. We also ask banks, brokers and other institutions,
nominees and fiduciaries to forward proxy materials to the beneficial owners or
principals and to obtain authority to execute proxies. We will reimburse them
for their expenses. In addition, the Company has retained Morrow & Co., Inc. to
aid in the solicitation of proxies. We have agreed to pay them a fee of $7,500
plus out-of-pocket expenses.
What Matters May be Raised at the Annual Meeting?
The Board is aware of six items for action at this Annual Meeting: (1) the
election of two directors for three-year terms; (2) the approval of an increase
in the number of shares reserved for issuance pursuant to the Metris Companies
Inc. Non-Employee Director Stock Option Plan; (3) the approval of the Metris
Companies Inc. Employee Stock Purchase Plan; (4) the approval of the Metris
Companies Inc. Management Stock Purchase Plan; (5) the approval of an Amended
and Restated Annual Incentive Plan for Designated Corporate Officers; and (6)
the approval of an Amended and Restated Long-Term Incentive and Stock Option
Plan.
3
<PAGE>
For this Annual Meeting, the Company's By-Laws required that shareholders
submit in writing any nomination for director or any other item of business not
less than 50 days prior to the Annual Meeting if public disclosure of such
meeting was made 60 days before such meeting. The Company gave public disclosure
of this Annual Meeting through a press release on March 2, 1999. The cutoff date
for nominations and to bring other items of business before the meeting was
March 23, 1999. As of the mailing date of this Proxy Statement, no shareholder
has made a nomination or submitted an item of business.
Under the proxy rules promulgated by the SEC, a proxy may confer
discretionary authority to vote on any matter for which the Company did not have
notice in accordance with the notice provisions in its By-Laws. Therefore, if
any other matter is presented at the Annual Meeting and you have signed and
returned a proxy card, the holder of your proxy will vote upon such matter in
his or her discretion.
In addition, under the rules of the SEC, the holders of your proxy may also
vote in their discretion with respect to matters incident to the conduct of the
Annual Meeting or, in the case of a nominee for election as director who is
unable to serve, for a substitute nominee.
What if I Want to Obtain Further Information as Reported on the Company's Form
10-K?
If you would like a copy of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, we will forward one to you without charge.
Please submit your request to:
Al Galgano
Investor Relations
Metris Companies Inc.
600 South Highway 169, Suite 1800
St. Louis Park, Minnesota 55426
Or contact Mr. Galgano by phone at (612) 593-4820, by fax at (612) 593-4733 or
by internet at [email protected].
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Events Relevant to Understanding this Proxy Statement
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Throughout this Proxy Statement, we will refer to the "Spin-Off" and to an
investment by affiliates of the Thomas H. Lee Company. To assist you in fully
understanding these references, we are providing a brief description of these
events.
In the fall of 1997, Fingerhut Companies, Inc. ("Fingerhut"), the parent
company of the Company at the time, announced its intention to distribute its
shares of the Company to the shareholders of Fingerhut (the "Spin-Off"). On
September 25, 1998, this Spin-Off occurred when Fingerhut distributed its shares
in the Company to its shareholders in a tax free dividend. At that time,
Fingerhut ceased to be the parent of the Company.
4
<PAGE>
In December, 1998, affiliates of Thomas H. Lee Company purchased the Series
B Preferred Stock, par value $.01, (the "Series B Preferred Stock"), certain
senior notes and warrants from the Company. These securities are to be replaced
by the issuance of Series C Preferred Stock, par value $.01 (the "Series C
Preferred Stock"), if shareholders of the Company approve the exchange and the
Office of the Comptroller of Currency ("OCC") does not object. On March 12,
1999, shareholders did approve such exchange. At the time of printing this Proxy
Statement, the OCC had not yet completed its review, and therefore, the Series B
Preferred Stock, the senior notes and warrants remain outstanding. The Series B
Preferred Stock is non-voting.
If the OCC does not object, the Series C Preferred Stock will be issued in
exchange for the Series B Preferred Stock, the senior notes and warrants. The
Series C Preferred Stock is voting stock and will have the right to vote on all
matters the holders of the Common Stock vote upon except for the election of
directors that do not represent holders of the Series C Preferred Stock . The
holders of Series C Preferred Stock have the right to elect four directors to
the Board to represent them. It is anticipated that the initial four directors
representing the holders of the Series C Preferred Stock will be the following
four individuals:
Thomas H. Lee (age 55) founded the Thomas H. Lee Company in 1974 and since
that time has served as its President. The Thomas H. Lee Company is a
Boston-based private equity firm which focuses on investments in growth
companies. From 1966 through 1974, Mr. Lee was with First National Bank of
Boston where he directed the bank's high technology lending group from 1968 to
1974. Mr. Lee is also director of Finlay Enterprises, Inc., Livent, Inc.,
Safelite Glass Corp., and Vail Resorts, Inc. Mr. Lee is an individual general
partner of ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P. Mr. Lee also serves as Chairman of T.H. Lee
Mezzanine II, the Administrative General Partner of Thomas H. Lee Advisors II,
L.P., which is the sole limited partner of the Managing General Partner of ML-
Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts)
II, L.P.
David V. Harkins (age 58) has been affiliated with the Thomas H. Lee
Company since its founding in 1974 and currently serves as Senior Managing
Director. In addition, he has over 30 years experience in the investment and
venture capital industry with the John Hancock Mutual Life Insurance Company,
where he began his career, as well as TA Associates and Massachusetts Capital
Corporation. Mr. Harkins also founded National Dentex Corporation and serves as
Chairman of the Board. He is currently a Director of Cott Corp., Fisher
Scientific International Inc., Freedom Securities Corporation, Stanley Furniture
Company, Inc., and Syratech Corp. Mr. Harkins also serves as Senior Vice
President and Trustee of T.H. Lee Mezzanine II, the Administrative General
Partner of Thomas H. Lee Advisors II, L.P., which is the sole limited partner of
the Managing General Partner of ML-Lee Acquisition Fund II, L.P. and ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P.
C. Hunter Boll (age 43) joined the Thomas H. Lee Company in 1986 and
currently serves as Managing Director. From 1984 through 1986, Mr. Boll was with
The Boston Consulting Group. From 1977 through 1982, he served as an Assistant
Vice President, Energy and Minerals Division of Chemical Bank. Mr. Boll is a
Director of Big V Supermarkets, Inc., Cott Corp., Freedom Securities
Corporation, and Trans Western Publishing, L.P. Mr. Boll is also a Vice
President and Trustee of T.H. Lee Mezzanine II, the Administrative General
Partner
5
<PAGE>
of Thomas H. Lee Advisors II, L.P. which is the sole limited partner of the
Managing General Partner of ML-Lee Acquisition Fund II, L.P. and ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P.
Thomas M. Hagerty (age 36) joined the Thomas H. Lee Company in 1988 and
currently serves as Managing Director. Prior to joining the Lee Company, Mr.
Hagerty was in the Mergers and Acquisitions Department of Morgan Stanley & Co.
Incorporated. Mr. Hagerty is a director of Cott Corp., Freedom Securities
Corporation, and Syratech Corp. Mr. Hagerty is also a Vice President of T.H. Lee
Mezzanine II, the Administrative General Partner of Thomas H. Lee Advisors II,
L.P. which is the sole limited partner of the Managing General Partner of ML-Lee
Acquisition Fund II, L.P. and ML-Lee Acquisition Fund (Retirement Accounts) II,
L.P.
The terms of the Series C Preferred Stock provide that such shares are
immediately convertible into Common Stock. It is anticipated that at the time of
issuance, all shares of Series C Preferred Stock will be convertible into
approximately 30% of the then outstanding Common Stock. It is believed that
affiliates of Thomas H. Lee Company will own 100% of the Series C Preferred
Stock immediately following the issuance.
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Corporate Governance
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How Do We Manage Our Company?
Under Delaware law, the ultimate decision making body of our Company is the
Board. The Board decides all major questions of the Company and selects the
management of the Company to manage operations day to day. To meet its
obligations, the Board always meets quarterly. When circumstances arise
requiring the decision of the Board prior to the next regularly scheduled
meeting, the Board may hold a special meeting to discuss such matters. Other
times, the Board will render its decision through written consents delivered to
the Company.
How Often Did Our Directors Meet?
In 1998, our full Board met at four regularly scheduled quarterly meetings
and seven special meetings. In addition to the meetings of the full Board, the
directors attended meetings of individual Board committees. On several
occasions, the Board acted by written consent. In addition, from time to time,
management informally sought counsel of the members of the Board. Overall
attendance at Board and committee meetings was 91.3%.
The number of special meetings this year was unusually high. The Spin-Off
and the issuance of private equity to the Thomas H. Lee Company and its
affiliates required special attention of the Board. Unfortunately, meetings
often were called upon short notice. Lee R. Anderson, Sr. was unable to make
some of the special meetings due to short notice during times in which he was
out of the country. As a result, his overall attendance this year for all
meetings was 66.7%. Mr. Anderson's attendance last year was 100%, and his lower
attendance rate this year was a result of the Company's need to call additional,
unexpected meetings on short notice.
6
<PAGE>
What Committees has the Board Authorized?
Our By-Laws authorize the full Board to create committees to assist it in
the management of the Company. These committees are comprised of two to four
members of the Board. The Board has created four such committees, each serving a
vital function for the Company.
The Audit Committee supervises and reviews the Company's financial and
accounting practices. The Audit Committee also reviews transactions of the
Company with affiliates and makes recommendations to the Board as to the
selection of independent auditors. The Audit Committee met four times during
1998. At each meeting in 1998, it received reports from management concerning
the accounting and reporting practices and the fiscal soundness of the Company.
The Audit Committee is comprised entirely of non-employee, independent
directors.
The Compensation Committee determines the compensation awarded to the named
directors and officers of the Company, subject to ratification by the full Board
for compensation packages granted to the President and Chief Executive Officer.
The Compensation Committee approves, adopts and administers the compensation
plans of the Company and administers and grants stock options under the
Company's stock option plan for employees. During 1998, the Compensation
Committee met at four regularly scheduled meetings and at four special meetings.
The Executive Committee is authorized to exercise the full power of the
Board in the management and conduct of business affairs of the Company during
interim periods between meetings of the Board. Because of the number of special
meetings of the full Board, it was not necessary for the Executive Committee to
meet during 1998, but it did take action on one occasion by written consent.
The Special Committee was created in January, 1998 for the purpose of
advising the Board with respect to the Spin-Off. Its role was to investigate
material facts and documents, select advisors and authorize, approve, ratify or
reject any transaction related to such Spin-Off. The Special Committee met three
times during 1998.
The table below shows the committee membership of each director. Only Mr.
Zebeck is an employee of the Company. Mr. Deikel, however, owns more than 5% of
the Common Stock of the Company.
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Name Audit Compensation Executive Special
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Anderson X X
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Cleary X
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Deikel X
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Mecum X* X
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Smith X X
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Trestman X X* X
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Zebeck X
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*Indicates Chair
7
<PAGE>
How Are Directors Compensated?
Only non-employee, independent directors received compensation for serving
as directors. The Company has the following arrangements for compensation of
non-employee directors.
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Annual Retainer $20,000
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Attendance Fees $2,500 for each Board meeting and for
each Committee meeting.
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Committee Chair Stipend $4,000 annually
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In 1998, non-employee directors received $345,500 as a group.
The Company also believes that payment of compensation to its non- employee
directors should not be solely in the form of cash but should be tied to the
performance of the Company. In October 1996, the Board adopted a Non- Employee
Director Stock Option Plan. The first grants thereunder went to non- employee
directors serving at the time of the initial public offering of the Company.
Such grants were in the amount of 5,000 shares with an exercise price of $16.00,
which was the price of the Common Stock at the time of the initial public
offering.
The Board passed a resolution in April 1997 instituting a policy whereby
non-employee directors would receive options to purchase Common Stock at the
fair market value on certain dates. This policy awards 5,000 shares to each
non-employee director upon commencement of service on the Board. Each non-
employee director also receives options to purchase 5,000 shares annually at the
second regularly scheduled quarterly meeting of the Board. The exercise price
for these options is based upon the closing price of the Common Stock the day
before the grant. The options are immediately exercisable.
The Board may change the amounts and timing of such awards in the future.
To date, the Board has granted options to purchase up to 55,000 shares of Common
Stock to its non-employee directors.
Directors employed by the Company do not receive compensation from the
Company for service as a director but may otherwise receive compensation for
their service. However, all directors, including employee directors, are
reimbursed for reasonable travel, lodging and other incidental expenses incurred
in attending meetings of the Board and its Committees.
Until September 25, 1998, Theodore Deikel was deemed an employee director
of the Company because Mr. Deikel was an employee of Fingerhut. Fingerhut was
the parent company of the Company until such date. Although, Mr. Deikel has not
received compensation as a non-employee director under the programs compensating
outside directors during the calendar year 1998, the Company has awarded him
stock options under its Long-Term Incentive and Stock Option Plan. Mr. Deikel
was eligible for these options under this plan as an employee of Fingerhut. On
May 18, 1998, Mr. Deikel was awarded options to purchase 10,000 shares of Common
Stock at an exercise price of $57.50. The options were immediately exercisable.
As Fingerhut is no longer the parent company of the Company, Mr. Deikel is
no longer eligible for options under the Company's Long-Term Incentive and Stock
Option Plan.
8
<PAGE>
However, beginning January 1, 1999, the Company will pay him compensation as a
non-employee director.
In connection with the investment by the affiliates of the Thomas H. Lee
Company, the Company consulted with Frank D. Trestman frequently. As
compensation for the additional time Mr. Trestman gave the Company during this
transaction, the Company paid a $49,500 consulting fee to Mr. Trestman.
We also indemnify our directors and officers to the fullest extent
permitted by law. Our By-Laws require such indemnification.
Do Any Directors Have Interests in Entities Doing Business With the Company?
Mr. Deikel, a director and owner of more than 5% of the Company's Common
Stock, was also the Chief Executive Officer and a director of Fingerhut during
1998. The Company has several agreements with Fingerhut or subsidiaries of
Fingerhut.
Fingerhut and the Company entered into an agreement that provides for the
filing of consolidated federal and certain combined state income tax returns and
the allocation of income tax liabilities related to the periods when Fingerhut
was the parent of the Company. As required by the terms of the tax sharing
agreement, the Company has paid or will pay to Fingerhut an amount equal to the
federal and state income taxes that would have been payable for taxable periods
during which the Company was included in such returns if the Company had filed
separate consolidated returns with its own subsidiaries. The Company paid
Fingerhut approximately $86.1 million in 1998 under the tax sharing agreement.
Fingerhut Corporation, a subsidiary of Fingerhut, and subsidiaries of the
Company entered into a co-branded credit card agreement pursuant to which a
subsidiary of the Company has the right to issue general purpose credit cards
with the Fingerhut name and logo to Fingerhut Corporation's customers. The
Company pays Fingerhut Corporation a fee for each such credit card issued plus a
fee based on a percentage of card usage. The Company paid Fingerhut Corporation
approximately $0.9 million in 1998 under the co-branded credit card agreement.
Fingerhut Corporation and subsidiaries of the Company entered into a data
sharing agreement and a database access agreement under which the Company has
the right to use information in Fingerhut Corporation's database to market
credit cards (without the Fingerhut name and logo) and other financial services
products to Fingerhut Corporation's customers. The Company pays Fingerhut
Corporation a fee for each credit card issued plus a fee based on a percentage
of card usage. In addition, the Company pays Fingerhut Corporation an annual
flat fee plus other per name fees under the database access agreement. The
Company paid Fingerhut Corporation approximately $3.9 million under the data
sharing agreement and the database access agreement during 1998.
Fingerhut Corporation and a subsidiary of the Company entered into an
extended service plan agreement under which Fingerhut Corporation agreed to
offer the Company's extended service plans to its customers who purchase covered
products. Fingerhut Corporation paid the Company approximately $17.6 million in
1998 under the extended service plan agreement.
9
<PAGE>
Fingerhut and the Company entered into an administrative services agreement
under which Fingerhut or its subsidiaries provide certain services or facilities
to the Company and its subsidiaries. The Company paid Fingerhut approximately
$3.0 million under the administrative services agreement during 1998.
Fingerhut and the Company have also entered into a card registration
agreement under which the Company agrees to provide card registration services
to Fingerhut customers. The Company paid Fingerhut approximately $6.8 under this
agreement in 1998.
The Company expects the payments made pursuant to these agreements to
continue at about the same level, except that payments under the tax sharing
agreement and the administrative services agreement should decline in the future
due to the Spin-Off and the separation of the Company from Fingerhut.
- --------------------------------------------------------------------------------
Company Stock Owned by Officers and Directors
(As of February 26, 1999)
- --------------------------------------------------------------------------------
The following table contains information as to the ownership of the
Company's Common Stock as of February 26, 1999, with respect to (i) each of the
current directors and nominees for directors, (ii) the named executive officers,
and (iii) all directors and executive officers as a group. Beneficial ownership
has been determined for this purpose in accordance with Rule 13d-3 of Section 13
of the Securities Exchange Act of 1934, as amended. Under that rule, a person is
deemed to be the beneficial owner of securities if he or she has or shares
voting power or investment power in respect of such securities or has the right
to acquire beneficial ownership within 60 days of February 26, 1999.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percent
Name of Beneficial Owner Beneficially Owned of Class
- ------------------------ ------------------ --------
<S> <C> <C>
Theodore Deikel.......................... 1,311,252 (1) 6.8%
Ronald N. Zebeck......................... 649,673 (2) 3.4%
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......................... 8,450 (10) *
Joseph A. Hoffman........................ 2,000 *
All directors and executive officers
as a group (16 persons).................. 2,108,637.5 (11) 10.9%
</TABLE>
(*) Less than 1%
(1) Includes 285,000 shares of Common Stock that Mr. Deikel has the right
to acquire within 60 days of February 26, 1999, through the exercise of
stock options. Also includes 535 shares of Common Stock held by Mr.
Deikel's son and 1,230 shares of Common Stock held by Mr. Deikel's
son's trust.
10
<PAGE>
(2) Includes 639,673 shares of Common Stock that Mr. Zebeck has the right
to acquire within 60 days of February 26, 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 February 26, 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 February 26, 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 February 26, 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 February 26, 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 February 26, 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 February 26, 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 February 26, 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 February 26, 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 February
26, 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 February
26, 1999, through the exercise of stock options.
11
<PAGE>
- --------------------------------------------------------------------------------
Persons Owning More than Five Percent of Company's Common Stock
- --------------------------------------------------------------------------------
The following table sets forth information with respect to persons known by
the Company to be the beneficial owner of more than 5% of the outstanding
Company's Common Stock on February 26, 1999. This does not give effect to the
investment by affiliates of Thomas H. Lee Company as discussed above because the
issuance of the convertible Series C Preferred Stock had not occurred at the
time this Proxy Statement was being printed. Other than with respect to Mr.
Deikel, this information is based solely on Schedule 13G reports filed with the
SEC. Mr. Deikel's information is based upon Section 16 reporting under the
Exchange Act. If you wish, you may obtain these reports from the SEC or through
the internet via one of the several sites that provide filings with the SEC on
the EDGAR database.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Name and Address of Beneficial Owner Number of Shares Beneficially Owned(1) Percent of Class
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NewSouth Capital Management, Inc.
1000 Ridgeway Loop Rd, Suite 233 1,621,272 8.5%
Memphis, TN 38120
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Franklin Mutual Advisers, Inc.
51 John F. Kennedy Parkway 1,198,900 6.2%
Short Hills, NJ 07078
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
American Express Company
200 Vesey Street 965,000 5.01%
New York , NY 10285
American Express Financial Corp.
(subsidiary of American Express Company and
filing jointly with such company)
IDS Tower 10, Minneapolis, MN 55440
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Theodore Deikel(2)
Fingerhut Companies 1,311,252 6.8%
4400 Baker Road
Minnetonka, MN 55343
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) "Beneficial ownership" is a technical term broadly defined under the
Exchange Act to mean more than ownership in the usual sense. So, for
example, you beneficially own the Company's Common Stock not only if you
hold it directly, but also if you indirectly (through a relationship, a
position as a director or trustee, or a contract or understanding) have (or
share) the power to vote the stock, or to sell it, or you have the right to
acquire it within 60 days. Other than Mr. Deikel, each of the owners above
have stated in its filed reports with the SEC that it is an investment
advisor managing the shares reported for the benefit of other accounts.
(2) Mr. Deikel, as permitted by the rules promulgated under the Exchange Act,
disclaims beneficial ownership of 1,765 shares held by his son.
12
<PAGE>
- --------------------------------------------------------------------------------
Compensation Tables and Compensation Matters
- --------------------------------------------------------------------------------
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------
Annual Compensation Awards
------------------------------------- ---------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Principal Salary Compensation Awards Options Compensation
Position(*) ($)(a) Bonus($) ($)(b) ($)(c) (#)(d) ($)(e)
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald N. Zebeck 1998 $587,212 $1,081,534 $81,409 $ 0 200,000 $ 47,626
President and Chief Executive 1997 $500,264 $ 800,000 $40,723 $ 0 200,000 $ 10,210
Officer 1996 $387,773 $ 600,000 $79,281 $290,084 656,075 $ 15,840
Douglas B. McCoy 1998 $204,894 $ 316,183 $37,357 $ 0 60,000 $ 33,041
Executive Vice President 1997 $189,344 $ 275,000 $31,167 $ 0 10,000 $ 43,805
Operations 1996 $156,601 $ 160,000 $30,594 $ 70,001 30,000 $ 15,300
Douglas L. Scaliti 1998 $171,355 $ 276,616 $35,699 $ 0 60,000 $ 19,982
Executive Vice President 1997 $159,201 $ 225,000 $28,312 $ 0 10,000 $ 16,359
Fee-Based Products 1996 $127,236 $ 130,000 $20,237 $ 57,503 30,000 $ 15,300
Z. Jill Barclift 1998 $164,849 $ 186,099 $33,912 $ 0 30,000 $ 19,971
Executive Vice President, 1997 $142,550 $ 180,000 $20,556 $ 0 7,500 $ 9,879
General Counsel and Secretary 1996 $ 97,500 $ 50,000 $22,335 $ 0 17,100 $ 7,500
Joseph A. Hoffman 1998 $138,846 $ 162,656 $47,906 $ 0 30,000 $111,214
Senior Vice President
Credit Card Marketing
</TABLE>
* Mr. Zebeck commenced employment with Metris Direct, Inc. (formerly, Fingerhut
Financial Services Corporation) in March 1994, which later became a subsidiary
of the Company. Mr. McCoy began employment with a subsidiary of the Company in
January 1995. Mr. Scaliti commenced employment with a subsidiary of the Company
in September 1995. Ms. Barclift started employment with a subsidiary of the
Company in April 1996. Mr. Hoffman commenced employment with Metris Direct, Inc.
in April 1998.
(a) Amounts in this column for the year 1997 include amounts reflecting a one-
time payout of vacation accrued due to a change in vacation policy. These
amounts are as follows: Mr. Zebeck, $29,110; Mr. McCoy, $7,678; and Mr. Scaliti,
$5,987.
(b) Amounts reported under this column include perquisites such as auto
maintenance, auto allowance, and club dues and also include executive medical
reimbursement, tax preparation and spousal travel, and gross up payments to pay
income taxes on such amounts. In 1998, separate auto maintenance and allowances
and club dues (with respect to those executives other than the CEO) were
eliminated in favor of one perk allowance. Amounts paid that represent more than
25% of total perquisites for each named executive officer for each of the fiscal
years above are as follows: (1) 1998: Mr. Zebeck received a perk allowance of
$37,100, club dues of $20,869 and a tax gross up amount of $11,970; Mr. McCoy
received a perk allowance of $26,052; Mr. Scaliti received a perk allowance in
the amount of $26,052; Ms. Barclift received a perk allowance of $21,472; and
Mr. Hoffman received a perk allowance of $14,561, moving expenses of $14,673
plus a gross up amount for taxes on such expenses in the amount of $12,800; (2)
1997: Mr. Zebeck received $34,800 as an auto allowance; Mr. McCoy received
$25,594 as an auto allowance; Mr. Scaliti received $25,594 as an auto allowance;
and Ms. Barclift received $20,556 as an auto allowance; and (3)1996: Ms.
Barclift received $10,462 payment for a loss on home sale in connection with her
relocation, and a gross up for payment of taxes for such relocation in the
amount of $11,873; Mr. Zebeck received $31,488 and Messrs. McCoy and Scaliti
received $11,991 each as an auto allowance.
13
<PAGE>
(c) Fingerhut, the parent company of the Company until September, 1998, awarded
restricted stock to the named executive on February 14, 1996, with the following
vesting schedule: 25% of the shares vested on March 31, 1996 (with an additional
transfer restriction until August 1996), 25% vested on March 31, 1997, and the
remaining 50% vested on August 31, 1998. The number of shares awarded were: Mr.
Zebeck, 21,097 shares; Mr. McCoy, 5,091 shares; and Mr. Scaliti, 4,182 shares.
Fingerhut paid dividends on both the vested and unvested portion of the
restricted stock. All shares have now vested, and there are no restricted stock
holdings as of December 31, 1998.
(d) Except for Ms. Barclift, amounts represent option grants to purchase the
Company's Common Stock under the Metris Companies Inc. Long-Term Incentive and
Stock Option Plan. The amount of options set forth for Ms. Barclift in 1996 also
included options to purchase 2,100 shares of common stock of Fingerhut
Companies, Inc. For 1996, the amount of options awarded to Mr. Zebeck reflects
the conversion of the financial services business equity portion of his 1994
tandem option agreement to options to purchase the Company's Common Stock.
(e) 1998: The amounts disclosed in this column include a Non-Qualified Deferred
Compensation match of $10,000 for Messrs. Zebeck, McCoy, Scaliti and Hoffman.
Ms. Barclift's match was in the amount of $9,555 based on her contributions to
the Deferred Compensation Plan. A $9,000 restorative match was paid to each of
the named executives (other than Mr. Hoffman) because they were unable to
participate in the Company's 401(k) Plan. Mr. Hoffman was not eligible to
participate in the restorative match because he had not met the length of
service requirement. Premiums for disability insurance and life insurance were
in the amount of $7,969 for Mr. Zebeck, $4,504 for Mr. McCoy, $982 for Mr.
Scaliti, $1,416 for Ms. Barclift, and $1,214 for Mr. Hoffman. In addition, Mr.
Zebeck received an unvested pension payout gross up in the amount of $20,658
from the Fingerhut Pension Plan. Mr. McCoy received a gross up unvested
Fingerhut profit sharing payout in the amount of $9,537. Mr. Hoffman received a
signing bonus of $100,000. 1997: These amounts include a pension payout due to
the suspension of the Fingerhut pension plan, a 401(k) matching contribution,
profit sharing payments made to the 401(k) and premiums paid on term life
insurance. For each of the named executive officers, the Company made a payment
of $4,800 to their 401(k) account as part of a discretionary profit sharing
contribution, which was made to all employees in the amount of 3% of their
recognized income in the Metris Retirement Plan 401(k). For each of the named
executive officers, the Company matched their employee contributions to the
401(k) in the amount of $4,750 each. Mr. McCoy received a pension payout due to
suspension of the Fingerhut pension plan in the amount of $8,818 while Mr.
Scaliti received such a payment in the amount of $6,441. Premiums paid on life
insurance for 1997 by the Company to Messrs. Zebeck, McCoy, Scaliti and Ms.
Barclift were in the amounts of $660, $437, $368 and $329, respectively.
Finally, in 1997, Mr. McCoy received $25,000 as a signing bonus. 1996: Ms.
Barclift received a $7,500 signing bonus. Other amounts disclosed in this column
for the year 1996 consist solely of the amounts contributed under the Fingerhut
Corporation Profit Sharing Plan.
14
<PAGE>
The following table shows information concerning stock options granted
during the fiscal year ended December 31, 1998, for the named executive
officers:
Option Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Number of
Securities % of Total
Underlying Options Granted
Options Granted To Employees Exercise Price Expiration Grant Date
Name (#)(a) in 1998 ($/Share) Date Present Value (b)
<S> <C> <C> <C> <C> <C>
Ronald N. Zebeck 100,000 9.47% $57,50 5/18/08 $4,412,960
100,000 9.47% $29.25 10/28/08 $2,064,130
Douglas B. McCoy 30,000 2.84% $57.50 5/18/08 $1,323,888
30,000 2.84% $29.25 10/28/08 $ 619,239
Douglas L. Scaliti 30,000 2.84% $57.50 5/18/08 $1,323,888
30,000 2.84% $29.25 10/28/08 $ 619,239
Z. Jill Barclift 15,000 1.42% $57.50 5/18/08 $ 661,944
15,000 1.42% $29.25 10/28/08 $ 309,620
Joseph A. Hoffman 10,000 0.95% $55.75 4/30/08 $ 414,147
5,000 0.47% $57.50 5/18/08 $ 220,648
15,000 1.42% $29.25 10/28/08 $ 309,620
</TABLE>
(a) These options were granted under the Metris Companies Inc. Long-Term
Incentive and Stock Option Plan and expire 10 years after their grant date. Mr.
Hoffman's April grant vests 50% on the second anniversary of the grant date and
50% on the fourth anniversary grant date. All of the other options vest 50% on
the third anniversary of the grant date and 50% on the sixth anniversary of the
grant date.
(b) These dollar amounts are the result of calculations of the present value of
the grant at the date of grant using the Black-Scholes option pricing model and
the following assumptions: 0.1% dividend yield, 71.30% expected volatility, 4.7%
risk-free interest rate and seven year expected life The actual gains, if any,
on stock option exercises will depend on the future performance of the Common
Stock.
15
<PAGE>
The following table indicates for each of the named executive officers
information concerning stock options exercised during 1998, and the number and
value of exercisable and unexercisable in-the-money options as of December 31,
1998.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
At 12/31/98 (#) at 12/31/98 ($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#)(2) Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Ronald N. Zebeck 50,000 $452,614 639,673 $30,418,050
416,402 $ 5,010,707
Douglas B. McCoy 40,961 $275,453 15,000 $ 514,688
85,000 $ 1,189,688
Douglas L. Scaliti 15,167 $104,055 15,000 $ 514,688
85,000 $ 1,189,688
Z. Jill Barclift 1,400 $ 24,281 7,500 $ 257,344
45,000 $ 605,625
Joseph A. Hoffman 0 $ 0
30,000 $ 315,938
</TABLE>
(1) The value of unexercised in-the money options represents the aggregate
difference between the market value on December 31, 1998, based on the closing
price of the Company's Common Stock, as reported on The Nasdaq Stock Market(R)
and the applicable exercise prices and other amounts paid to obtain the shares.
(2)The exercises in this column represent exercises of Fingerhut options. No
options on the Company's Common Stock were exercised by any of the named
executive officers.
Retirement Plans
Metris Retirement Plan. In January 1997, the Company adopted a defined
contribution profit sharing plan (the "Metris Retirement Plan"). The Metris
Retirement Plan stipulates that eligible employees may elect to contribute to
the 401(k). Pretax contributions of up to 6% of recognized income are matched
50% by the Company. In addition, the Metris Retirement Plan provides for a
discretionary profit sharing contribution, which, if declared, is made to
accounts of employees with at least one year of service. In 1998, the Company
contributed, as a discretionary profit sharing contribution, 3% of recognized
income for eligible employees.
Deferred Compensation Plans. On March 1, 1998, the Company adopted a
Deferred Compensation Plan which covered those employees not eligible to
participate in the Metris Retirement Plan for fiscal year 1998. The Deferred
Compensation Plan, set up for selected management employees, provided that
certain employees may defer compensation of up to $10,000, with interest
accruing on amounts deferred. The Company matched such deferral. Deferral and
matching will not continue in 1999, although amounts in the plan will remain in
the investment plans.
16
<PAGE>
Bonus Plans
The Company has two bonus plans, an Annual Incentive Bonus Plan for
Designated Corporate Officers and a Management Incentive Bonus Plan. To date,
only the Chief Executive Officer, Mr. Zebeck, has participated in the Annual
Incentive Bonus Plan for Designated Corporate Officers, although the
Compensation Committee can select other participants from those employees who
are Executive Vice Presidents or Senior Vice Presidents. Other executives and
employees of the Company participate in the Management Incentive Bonus Plan.
The Annual Incentive Bonus Plan for Designated Corporate Officers is
designed to ensure the tax deductability of the bonus paid to the Company's most
highly compensated executives. The maximum bonus payable under this plan is
determined by performance factors set by the Compensation Committee with respect
to performance targets that have been approved by shareholders. The plan was
originally approved by shareholders at the 1997 Annual Meeting, and amendments
to such plan were approved by the shareholders at the 1998 Annual Meeting.
Payouts under the Management Incentive Bonus Plan are based upon two
components: Company performance as measured by targets selected by the
Compensation Committee and management objectives personally set for each
employee and approved by the Chief Executive Officer. The weight accorded each
component depends upon the position level of the employee. The more senior the
position, the more likely an employee's actions and decisions directly affect
Company performance. Such employees' bonuses will depend heavily upon reaching
objective targets of Company performance. Less senior employees' bonuses will
instead depend more heavily upon reaching specially tailored individual goals.
Long-Term Incentive and Stock Option Plan
Under the Company's Long-Term Incentive and Stock Option Plan, our
employees may be granted stock options, stock appreciation rights, or other
stock based awards (including restricted stock awards, performance-based stock
awards and cash awards). The Compensation Committee may make individual awards
or a general grant to employees. This stock-based plan was approved by
shareholders in 1997, and amendments to such plan were approved by the
shareholders in 1998.
Change of Control Severance Agreements
We have entered into Change of Control Severance Agreements with key
employees, including each of the named executive officers in this Proxy
Statement. Each agreement continues until the Board sets an expiration date for
such agreement, which action must occur prior to a change of control. An
expiration date may not be earlier than 30 days after the employee receives
notice of such date.
These agreements are intended to provide continuity of management in the
event of a change of control. Each agreement provides that the covered employee
be assured of certain salaries and compensation while employed during the
two-year period after a change of control (the "Post Change Period"), and also
provides severance payments if the Company terminates employment of the covered
employee, other than for death, disability or cause, or if such employee
terminates his or her employment for "good reason," as defined in the agreement.
17
<PAGE>
While employed during the Post-Change Period, each covered employee will be
paid an annual salary at least equal to 12 times such employee's highest monthly
base salary paid during the 12-month period prior to the change of control event
(the "Guaranteed Base Salary"). In addition, the covered employee will be
entitled to participate in all incentive compensation, retirement and welfare
plans applicable to peer executives at the Company, but in no event shall such
incentive compensation, retirement and welfare plans be on terms less favorable
to the employee than the most favorable provided to the employee under plans in
effect 90 days prior to the change of control. All outstanding stock options
granted to the covered employee will become fully vested upon the occurrence of
a change of control event. To the extent such options are forfeited, the covered
employee will be entitled to receive a cash payment equal to the aggregate
difference between the fair market value of Company stock underlying such
forfeited options and the exercise price to purchase such stock.
The severance payments to be made if the employee is terminated without
cause or if he or she resigns with "good reason" during the Post-Change Period
include the following:
(a) an amount equal to the Guaranteed Base Salary and accrued vacation
through the applicable termination date;
(b) a lump sum payment in cash equal to a certain number times the covered
employee's Guaranteed Base Salary plus the highest annual bonus paid
to such covered employee during the preceding two years (the
"Guaranteed Bonus");
(c) a pro rata Guaranteed Bonus for the year of termination;
(d) all deferred amounts under any Company non-qualified deferred
compensation or pension plan, together with accrued but unpaid
earnings thereon;
(e) an amount equal to the unvested portion of the executive officer's
accounts, accrued benefits or payable amounts under any qualified
plan, and certain pension, profit sharing and retirement plans
maintained by the Company; and
(f) an amount equal to fees and costs charged by an outplacement firm.
In addition, the Company has agreed, for a certain year period following
the applicable executive officer's termination date, to continue to provide to
such executive officer certain welfare benefits including, but not limited to,
medical, dental, disability, salary continuance, individual life and travel
accident insurance on terms at least as favorable as provided to other
executives during the 90 day period preceding the Change of Control event.
Each agreement provides that the Company shall make an additional "gross up
payment" if the covered employee would receive a payment deemed an "excess
parachute payment" under the Internal Revenue Code of 1986, as amended (the
"Code") to pay any excess tax pursuant to Section 4999 of the Code. The Company
will not be able to deduct any excess parachute payments, if any, made to
executive officers under the agreements nor any payment of any "gross up" for
payment of the tax.
18
<PAGE>
Each covered employee signing a Severance Agreement agrees for a period of
years, equal to the number by which his or her Guaranteed Base Salary and
Guaranteed Bonus is multiplied for the determination of severance, not to
compete with the Company. The number of years and the number by which the
Guaranteed Salary and Guaranteed Bonus are multiplied for each of the named
executive officers are as follows:
- ---------------------------------------------------------------------
Name Number
- ---------------------------------------------------------------------
Zebeck 3
- ---------------------------------------------------------------------
McCoy 2
- ---------------------------------------------------------------------
Scaliti 2
- ---------------------------------------------------------------------
Barclift 2
- ---------------------------------------------------------------------
Hoffman 2
- ---------------------------------------------------------------------
A "change of control" under the agreements occurs if any of the following
events occur:
(i) "any person" as defined in the Exchange Act acquires beneficial
ownership, as defined in the Exchange Act, of more than 25% of the
Common Stock of the Company;
(ii) individuals who constitute the Board prior to a change of control
ceases to constitute a majority of the Board; or
(iii) certain corporate reorganizations, including certain mergers, sale of
substantially all of the assets or liquidation or dissolution occurs.
The issuance of the Series C Preferred Stock to the Thomas H. Lee Company and
its affiliates, if it occurs, may constitute a change of control under these
agreements. Mr. Zebeck has waived this "change of control" under his agreement.
19
<PAGE>
- --------------------------------------------------------------------------------
Performance Graph
- --------------------------------------------------------------------------------
The following graph compares the cumulative total shareholder return on the
Company's Common Stock ("MTRS") since October 24, 1996 (the time of the
Company's initial public offering), with the cumulative return for the Russell
2000 Index ("IR20") and the Nasdaq Financial Index ("INFN") over the same
period, assuming the investment of $100 on October 24, 1996 and reinvestment of
all dividends.
[Graph Appears Here]
TOTAL RETURN 10/24/96 12/31/96 12/31/97 12/31/98
-------- -------- -------- ---------
Metris Common Stock $100 $150.00 $214.25 $315.05
Russell 2000 Index $100 $106.16 $127.98 $126.59
Nasdaq Financial Index $100 $109.87 $167.31 $160.91
- --------------------------------------------------------------------------------
Compensation Committee Report on Executive Compensation
- --------------------------------------------------------------------------------
Compensation Policies
The Board has delegated to the Compensation Committee (the "Committee") the
authority to review, set and administer the compensation plans of the Company,
subject to ratification by the full Board as to compensation paid to the
President and Chief Executive Officer. The Committee is comprised entirely of
non-employee directors.
The Committee has established compensation guidelines to achieve four basic
goals:
20
<PAGE>
o promote stock ownership for key executives to align their compensation
with shareholder interests;
o allow the Company to attract, retain and motivate executives of the
highest caliber;
o align compensation directly with shareholder market value through
earnings per share performance goals and accomplishment of team or
individual objectives; and
o establish annual incentives based on aggressive performance goals.
For 1998, these policies were achieved through a compensation program
consisting of base salary and short-term incentive compensation in the form of
bonuses and long-term stock options.
The Committee continues to seek additional ways to achieve its basic goals.
Now that the Company is no longer a subsidiary of Fingerhut, the Committee has
more flexibility to design stock-based programs aligned with the interests of
shareholders. This is why the Committee has recommended the establishment of an
Employee Stock Purchase Plan, a Management Stock Purchase Plan and amendments to
an executive bonus plan to permit stock purchases (collectively, the "Stock
Purchase Plans"). The full Board has accepted the recommendation of the
Committee, and the Stock Purchase Plans are described in proposals three, four
and five in this Proxy Statement. As discussed more fully under those proposals,
the Committee believes that the Stock Purchase Plans will become a major means
of achieving our goal of aligning employee compensation with shareholder
interests.
Base Salaries of Executive Officers other than the Chief Executive Officer
Each year the Committee reviews base salaries of the senior officers,
including the executive officers named in this Proxy Statement in the section
entitled "Compensation Tables and Compensation Matters." In determining base
salaries, the Committee considers the range of salaries paid to similar officers
at comparable companies. In addition, the Committee makes subjective judgments
concerning individual performance of the executive officer. The Committee has
recognized that the officers of the Company have during the past year performed
functions exceeding their normal duties in order to prepare for the Spin-Off of
the Company by Fingerhut. The Committee has considered the hours devoted by the
officers of the Company and recognizes the need to compensate these officers for
their devotion in order to retain them.
This year, the Committee hired a human resources consulting firm to
evaluate external market comparisons. This evaluation demonstrated that the
Company pays below market as to base salaries, but slightly higher than market
when bonuses are considered. This is consistent with the Company's goal to
reward employees based upon Company performance.
Bonuses Paid to Executive Officers other than the Chief Executive Officer
In 1998, other than the Chief Executive Officer, the executive officers and
other corporate officers and employees participated in the 1998 Metris Companies
Inc. Management Incentive Plan ("Incentive Plan"). Payouts under the Incentive
Plan for 1998 were based on two components: (1) earnings per share achieved by
the Company and (2) management objectives
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personally set for each of the employees. Senior employee bonuses are largely
dependent on achievement of earnings per share. For the named executive
officers, 85% of their bonus was dependent upon attaining the earnings per share
objective.
Stock Options for Executive Officers other than the Chief Executive Officer
In 1998, all executive officers and other key employees were granted non-
qualified stock options under the Company's Long-Term Incentive and Stock Option
Plan. During the year, options played a significant role in attracting superior
employees. In addition, options were granted to executives and employees whose
individual performances demonstrated continued excellence.
The options granted in the past year generally provided that such options
would expire in ten years. Options usually became exercisable pursuant to a
schedule whereby 50% of the shares become eligible for exercise on the second
anniversary of the date of grant and the remaining 50% of the shares become
eligible for exercise on the fourth anniversary of the date of grant. However,
the vesting schedule for options granted after May 1, 1998, provided that they
would become eligible to exercise 50% on the third anniversary of the date of
grant and the remaining 50% on the sixth anniversary of the date of grant. After
February 1, 1999, the vesting schedule is 25% over a four-year period in equal
increments of 25%. All stock options contained an exercise price based upon the
fair market value of the Common Stock on the date of grant. The Committee uses
the closing price of the stock as reflected on The Nasdaq Stock Market(R) on the
day before the grant date to determine the fair market value.
Compensation of the Chief Executive Officer
Although the full Board must ratify any Committee decision concerning the
compensation paid to Ronald N. Zebeck, the President and Chief Executive
Officer, only the Committee may actually set such compensation. Therefore, the
compensation paid to Mr. Zebeck must have the approval of the majority of the
four non-employee directors.
The Committee considered an analysis of proxy statements prepared by an
independent human resources consulting firm that found that the Company "lags
the market" for the compensation of the Chief Executive Officer. Effective March
18, 1998, the Board increased Mr. Zebeck's base salary from $550,000 to
$595,000, an 8% increase. For the coming year, Mr. Zebeck's salary has been set
at $700,000 which represents a 17.6% increase from his 1998 salary.
At the beginning of 1998, Mr. Zebeck met with the Committee to discuss his
goals and objectives for the coming year and to set the performance goals under
the Company's Annual Incentive Plan. Based upon such discussion, the Committee
decided that Mr. Zebeck's bonus would be tied entirely to certain targets for
earnings per share of the Company. For the year 1998, the earnings per share
targets were exceeded by a significant margin. The Committee awarded Mr. Zebeck
$1,081,534 as bonus under the Annual Incentive Plan.
In May and October of the past year, the Committee also authorized grants
of options to Mr. Zebeck to purchase 100,000 shares for a total of 200,000
shares of the Company's Common
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Stock. The exercise price was set at the fair market value in the same manner as
grants made to other employees. The vesting schedule is the same as set forth
above for other executive officers.
Policy on Deductibility of Compensation
Under Section 162(m) of the Code, the Company is generally precluded from
deducting compensation in excess of $1 million per year for its chief executive
officer and the next four highest paid executive officers, unless payments are
made under qualifying performance based plans.
The Committee generally intends to pursue a strategy of maximizing the
deductibility of compensation paid to executives. Consistent with this policy,
the Amended and Restated Annual Incentive Plan and the Amended and Restated
Long-Term Incentive and Stock Option Plan being presented to shareholders are
designed to permit the award of performance based compensation. However, the
Committee reserves the right to take actions we consider to be in the best
interest of the Company, including the authorization of compensation without
regard to deductibility.
FRANK D. TRESTMAN DUDLEY C. MECUM DEREK V. SMITH JOHN A. CLEARY
Chairman Member Member Member
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Proposal One: Election of Directors
- --------------------------------------------------------------------------------
How is Our Board Structured?
At the 1998 Annual Meeting of Shareholders of the Company, our shareholders
elected seven directors to serve either until this year's Annual Meeting or,
upon the occurrence of a "Threshold Time" (defined below), for one to three-year
terms as subsequently decided by the Board.
Our Amended and Restated Certificate of Incorporation provides that
directors serve for one-year terms until such time that Fingerhut or certain of
its permitted transferees cease to own beneficially fifty-one percent or more of
the Common Stock (which we refer to as the "Threshold Time"). Directors serving
at the Threshold time would then be divided into three classes, as nearly equal
in number as possible. One class will serve until the next annual meeting. The
second class will serve until the second annual meeting to be held after the
Threshold Time, and the third class will serve until the third annual meeting
after the Threshold Time. When each class is up for reelection, the nominees for
such class will be nominated for a three-year term. These provisions created a
staggered board. With a staggered board, the Board will always be comprised of
directors having experience with the Company.
The "Spin-Off" caused a Threshold Time to occur. In accordance with the
Amended and Restated Certificate of Incorporation at such time, the Board
determined the membership of each of the classes. This membership is set forth
below.
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Class One Directors : This Year's Board Nominees
To be Elected by Holders of Common Stock
The Board has selected the following directors to be placed in Class One,
each of who are nominees for election at this Annual Meeting.
Lee R. Anderson, Sr. (age 59, a director since 1997), is Chairman and Chief
Executive Officer of the API Group, Inc. located in St. Paul, Minnesota, a group
of 18 separate construction, manufacturing, fire protection and material
distribution companies operating out of 86 offices in the United States and
Canada.
John A. Cleary (age 67, a director since 1998) was the Chief Executive
Officer of Donnelley Marketing, Inc. from 1979 until 1993. Donnelley Marketing,
Inc. was a division of the Dun and Bradstreet Corporation until 1991 when it was
acquired by a group of investors and senior management. Mr. Cleary continued as
Chief Executive Officer until 1993 when he was elected as Vice Chairman of its
Board of Directors until 1996 when First Data Corporation acquired the company.
Mr. Cleary continued as a senior advisor and consultant to the company.
Class Two Directors: Serving Until 2000
Theodore Deikel (age 63, a director since 1996) has been Chairman of the
Board and Chief Executive Officer of Fingerhut since 1989 and is the non-
executive Chairman of the Board of the Company. From 1985 until rejoining
Fingerhut, Mr. Deikel served as Chairman and Chief Executive Officer of CVN
Companies, Inc., a direct marketing company using television and direct mail.
From 1979 to 1983, Mr. Deikel was Executive Vice President of American Can
Company (a predecessor of The Travelers Inc.) and Chairman of American Can
Company's specialty retailing division, which included Fingerhut. In addition,
Mr. Deikel was Chief Executive Officer of Fingerhut Corporation, a subsidiary of
Fingerhut, from 1975 to 1983.
Derek V. Smith (age 44, a director since 1997) has been President and Chief
Executive Officer of ChoicePoint Inc., a company formed by the spin- off of the
Insurance Services Group from Equifax Credit Information Services, Inc. since
August, 1997. Mr. Smith was formerly an Executive Vice President with Equifax
Inc., responsible for its Insurance Services Group. Mr. Smith had been with
Equifax since 1984. Mr. Smith currently serves as a director on the board of
ChoicePoint Inc.
Class Three Directors: Serving Until 2001
Dudley C. Mecum (age 64, a director since 1996) has been a Managing
Director of Capricorn Holdings, LLC, a leveraged buy-out firm, since July 1997.
For more than five years prior thereto, he was a partner in the merchant banking
firm of G.L. Ohrstrom & Co. Mr. Mecum is also a director of Citigroup Inc. f/k/a
Travelers Group Inc., Travelers Property Casualty Corp., Lyondell Chemical Co.,
formerly Lyondell Petrochemical Corporation, Vicorp Restaurants, Inc., DynCorp,
and Suburban Propane Partners, L.P. and CCC Information, Inc.
Frank D. Trestman (age 64, a director since 1996) has been President of
Trestman Enterprises, an investment and business development firm, for the past
five years. He has been a consultant to McKesson Corporation and is the former
Chairman of the Board and Chief Executive
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Officer of Mass Merchandisers, Inc., a distributor of non-food products to
grocery retailers and a subsidiary of McKesson Corporation. Mr. Trestman is also
a director of Insignia Systems, Inc. and Best Buy, Inc.
Ronald N. Zebeck (age 44, a director since 1996) is President and Chief
Executive Officer of the Company. He has been President of a subsidiary of the
Company since March 1994, and has served as Chairman of the Board of Direct
Merchants Credit Card Bank, National Association, a subsidiary of the Company,
since July 1995. Mr. Zebeck was Managing Director, GM Card Operations of General
Motors Corporation from 1991 to 1993, Vice President of Marketing and Strategic
Planning of Advanta Corporation (previously known as Colonial National Bank USA)
from 1987 to 1991, Director of Strategic Planning of TSO Financial (later
Advanta Corporation) from 1986 to 1987, and held various credit card and
credit-related positions at Citibank affiliates from 1976 to 1986. He is also a
director of MasterCard International, Inc.
The persons named in the enclosed proxy intend to vote the proxy for the
election of each of the nominees on the proxy card unless you indicate on the
proxy card that your vote should be withheld from one or more nominees. Each
nominee elected as a director will continue in office until his successor has
been elected or until his death, resignation or retirement. We expect each
nominee for election as a director to be able to serve. If any nominee is not
able to serve, proxies will be voted in favor of the one remaining and may be
voted for a substitute for the nominee unable to serve.
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The Board recommends a vote FOR the election of Lee R. Anderson, Sr. And
John A. Cleary to the Board.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposal Two: Approval of an Increase in the Number of Shares Reserved for
Issuance under the Metris Companies Inc. Non-Employee Director Stock Option Plan
- --------------------------------------------------------------------------------
We are asking for your approval of an increase in the number of shares of
the Company's Common Stock to be reserved for issuance under the Company's
Non-Employee Director Stock Option Plan (the "Plan") from 100,000 shares to
250,000.
On October 24, 1996, the Board first approved the Plan reserving 20,000
shares of Common Stock to be available for awards of stock options to
non-employee directors. On April 24, 1997, the Board approved an increase in the
number of shares available to 100,000, subject to shareholder approval. This
approval was obtained at last year's annual meeting.
The text of the Plan is set forth in the Appendix delivered with this Proxy
Statement. The following is intended to be a summary of the Plan's principal
terms and does not purport to be a complete statement of its terms. It is
subject to, and qualified in its entirety by reference to, the Plan in the
Appendix.
Why is the Plan Important?
The Plan is a major means by which the Company attracts and retains
experienced and knowledgeable directors from outside the Company. Stock option
awards align directors' interests with the interests of the Company's
shareholders.
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Who Participates in the Plan?
Only directors who are not employees of the Company, its subsidiaries or
any entity that owns at least 20% of the outstanding shares of the Company's
Common Stock are eligible to participate. Currently, there are six non-employee
directors, but this number will be increased by the four directors elected to
represent holders of the Series C Preferred Stock.
What are the Terms of the Plan?
The Plan currently requires that the option price for all options granted
under the Plan shall be determined by the Board, but shall not be less than 100%
of the fair market value per share of the Common Stock as of the date of grant
of such option. The Plan states that the fair market value shall be the closing
price of the Common Stock as reported on The Nasdaq Stock Market(R) the day
before the grant. On March 19, 1999, the fair market value of a share of Common
Stock was $40.25.
The Company may accept as payment for the exercise price (i) cash, (ii)
shares of Common Stock owned by the director having a fair market value equal to
the exercise price, (iii) retention of some of the shares being exercised, (iv)
any combination of the foregoing or (v) such other consideration as the Board
shall deem fair.
The Board may set any term for the length of the options provided the term
does not exceed fifteen years from the grant date.
The Board administers the Plan. The Board has the authority to do each of
the following:
o determine the directors who are to receive grants;
o determine the time or times at which options shall be granted;
o determine the number of shares underlying the options;
o determine the terms of the exercise of options, including the vesting
schedule;
o interpret the Plan;
o make all rules and regulations pertaining to the Plan; and
o make all other determinations necessary or advisable in connection
with the administration of the Plan.
The Board may amend the Plan in any respect whatsoever, provided that the Board
shall not amend the Plan to adversely affect the holder of any option whose
grant was before such amendment nor may the Board amend the Plan to increase the
number of shares subject thereto.
Currently, the stock available for grant of options under the Plan is
100,000 shares. Such amount is adjustable if there is any change in the Common
Stock of the Company due to a
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merger, consolidation, reorganization, recapitalization, stock dividend (of
whatever amount), stock split or other changes in the corporate structure. In
the event any of such change, adjustments will be made in the aggregate number
of shares subject to the Plan, the number of shares subject to outstanding
options and the option exercise prices in order to prevent dilution or
enlargement of option rights.
The Plan terminates October 30, 2006. No option shall be granted after such
termination, but such termination will not alter or impair any rights or
obligations under any options granted before termination.
Why Do We Need Additional Shares?
Currently, the Board follows a policy to issue options to purchase up to
5,000 shares of Common Stock on the date a director is first elected or
appointed to serve on the Board. The Board also awards options to purchase up to
5,000 shares of Common Stock to each eligible director at the second regular
quarterly meeting of the Board each year. While the Plan does not require the
Board to continue to follow this policy, we believe that this policy currently
meets the Company's needs in attracting and retaining outside directors.
As of the mailing of the Proxy Statement, the Board has awarded options to
purchase up to 55,000 shares of Common Stock. In order to maintain its policy
described above, it will grant additional options to purchase 30,000 shares for
current directors at the next regularly scheduled Board meeting. This will leave
only 15,000 shares to be granted under the Plan. With the addition of four
directors representing the holders of Series C Preferred Stock, the Board will
lack sufficient shares to continue its current policy. Commencing this year, the
Board is expected to have 10 non-employee directors. This number necessitates
the increase of shares reserved for issuance under the Plan to 250,000 shares.
The options currently granted under the Plan are all currently exercisable,
and the options to be granted in April will be immediately exercisable upon
their grant date.
What are the Tax Consequences of the Plan?
The grant of an option is not expected to result in any taxable income for
the recipient. Upon exercising the option, the director must recognize ordinary
income equal to the excess of the fair market value of the shares of Common
Stock acquired on the date of exercise over the exercise price. The Company will
be entitled at that time to a tax deduction for the same amount.
What Benefits will the Directors Receive?
As of the date of this Proxy Statement, we have made no awards of options
which would rely upon the increase in the number of shares for which we are
seeking approval. The Plan provides that awards are at the discretion of the
Board, and therefore, future awards are not determinable. Moreover, the value of
such awards in the future is dependent upon market volatility and other factors
that cannot be predicted at this time. Additional information about stock
options awarded to non-employee directors during fiscal year 1998 is provided in
the following table:
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Name (1) Dollar Value (2) Number of shares underlying Options
- --------------------------------------------------------------------------------
Lee Anderson, Sr. $186,452 5,000
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John Cleary $189,007 5,000
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Dudley Mecum $186,452 5,000
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Derek Smith $186,452 5,000
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Frank Trestman $186,452 5,000
- --------------------------------------------------------------------------------
(1) Mr. Cleary received his shares upon commencement of his service with the
Board. The others received theirs because they were serving at the time of
the second regularly scheduled quarterly meeting. This coming year, Mr.
Deikel will be entitled to receive 5,000 options along with each of these
directors and those directors representing the holders of the Series C
Preferred Stock.
(2) Based upon the Black-Scholes option pricing model. We used the same
assumptions as set forth at footnote 1 for the table Option Grants in Last
Fiscal Year at page 15.
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The Board recommends a vote FOR the above proposal to approve an increase
in the number of shares reserved for issuance under the Metris Companies Inc.
Non-Employee Director Stock Option Plan from 100,000 to 250,000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposal Three: Approval of the Metris Companies Inc.
Employee Stock Purchase Plan
- --------------------------------------------------------------------------------
Proposal three is a proposal to approve the Metris Companies Inc. Employee
Stock Purchase Plan (the "ESPP"). The Board believes that the adoption of an
employee stock purchase plan is in the best interests of the Company. The ESPP
will encourage employees to become shareholders by providing them an attractive
opportunity to purchase the Company's Common Stock. As shareholders, employees
will be more likely to think and act like owners of the Company. Their interests
become aligned with those of the shareholders in general. Also, the ESPP will be
an attractive addition to the Company's existing compensation packages, making
the Company more competitive in attracting employees.
The text of the ESPP is set forth in the Appendix delivered with this Proxy
Statement. The following is intended to be a summary of the ESPP's principal
terms and does not purport to be a complete statement of its terms. It is
subject to and qualified in its entirety by reference to the ESPP in the
Appendix.
Who is Eligible to Participate Under the ESPP?
Any employee of the Company or any subsidiaries of the Company (within the
meaning of Section 424(f) of the Code), who meets the following criteria is
eligible to participate under the ESPP:
o the employee's employment is for more than 20 hours per week;
o the employee's employment is for more than five months per year; and
o the employee has been continuously employed by the Company or its
subsidiaries for at least six months.
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All participating employees under the ESPP will have equal rights and
privileges. Currently, there are approximately 2,100 full and part-time
employees of the Company.
What are the Principal Terms of the ESPP?
Eligible employees may elect on a semi-annual basis to have up to 15% of
their compensation deducted and paid into the ESPP for the upcoming six months
(the "Purchase Period"). At the end of the Purchase Period, the amount deducted
and credited to the employee's account in the ESPP is automatically applied
toward the purchase of the Company's Common Stock at a purchase price per share
(the "Purchase Price") equal to the lesser of :
o 85% of the fair market value of a share of Common Stock on the first
day of the Purchase Period; and
o 85% of the fair market value of a share of Common Stock on the last
day of such Purchase Period.
No employee may purchase shares if (i) the employee would own 5% or more of the
total combined voting power or value of all classes of the stock of the Company,
(ii) for any calendar year, such purchases of Common Stock under the ESPP along
with purchases under other Company plans qualified under Section 423 of the Code
would exceed $25,000 in fair market value (as determined on the first day of the
Purchase Period), or (iii) for any Purchase Period, the number of shares
purchased would exceed the whole number of shares that $12,500 would purchase.
An employee may terminate his or her participation in the ESPP at any date
prior to a date set by the Committee for termination of participation for such
Purchase Period. An employee choosing to terminate will receive a refund in cash
of amounts deducted for that Purchase Period plus the securities purchased in
prior Purchase Periods. An employee may also elect to receive a distribution of
shares in his or her account at any time provided such employee withdraws a
minimum of 25 shares. No employee may transfer his or her right to purchase
shares in any Purchase Period.
The Company will fulfill its delivery obligations by delivering (1)
previously acquired treasury shares, (2) authorized and unissued shares, (3)
shares acquired on the open market, or (4) any combination of the foregoing. A
total of 850,000 shares of Common Stock, which would represent approximately
4.4% of the total shares currently outstanding, may be sold under the ESPP.
The fair market value of a share of Common Stock as of the close of
business on March 19, 1999 was $40.25.
When Will the ESPP Take Effect?
If approved by shareholders, the ESPP will commence July 1, 1999.
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Who Will Administer the ESPP?
The Board will appoint a committee (the " ESPP Committee") to administer
the ESPP. The ESPP Committee membership will consist of two or more members of
the Board.
What Authority Does the ESPP Committee Have?
The ESPP Committee has the full power and authority to
o interpret and administer the ESPP and any instrument or agreement
entered into under the ESPP;
o establish such rules and regulations and appoint such agents as it
deems appropriate for the proper administration of the ESPP; and
o make any other determination and take any other action that the ESPP
Committee deems necessary or desirable for the administration of the
ESPP.
All decisions of the ESPP Committee are final, conclusive and binding upon all
persons, including the Company, any participant and any other employee of the
Company.
May the ESPP be Amended or Terminated Without the Approval of Shareholders?
The Company, by Board or ESPP Committee action, may terminate the ESPP at
any time. The ESPP will automatically terminate when the maximum number of
shares to be sold under the ESPP has been reached.
The Board or the ESPP Committee may amend the ESPP for any reason, except
for any amendment that would:
(a) materially adversely affect any purchase rights outstanding under the
ESPP during the Purchase Period in which such amendment is to take
effect;
(b) increase the number of shares of Common Stock which may be purchased
under the ESPP;
(c) decrease the Purchase Price below the lesser of 85% of the fair market
value thereof on the first day of such Purchase Period and 85% of the
fair market value on the last day of such Purchase Period; or
(d) adversely affect the qualification of the ESPP under section 423 of
the Code.
In addition, upon a "change of control" as defined in the ESPP, the then
current Purchase Period will terminate and the cash credited to a participant's
account will be applied to purchase shares. The ESPP shall then terminate.
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What are the Federal Tax Consequences of the ESPP?
The Company expects the ESPP to be an "employee stock purchase plan" under
Section 423 of the Code. Assuming that is the case, employees who participate in
the ESPP will not recognize income (and the Company will not receive any
deduction) at the time they purchase the shares even though the employees will
purchase at a discount. Employees, however, will recognize income when they sell
or dispose of the shares.
The tax consequences to an employee of selling or disposing of the shares
generally depends upon the length of time he or she held such shares. If an
employee sells or disposes of the shares at a gain after the "statutory holding
period," as defined below, the employee will recognize ordinary income equal to
the lesser of (a) 15% of the stock's fair market value on the first day of the
Purchase Period and (b) the difference between the fair market value at the time
of sale and the amount the employee paid for the stock. Any gain exceeding this
amount is taxed as a capital gain. If the stock is sold at a loss after the
statutory holding period, the employee has a capital loss equal to the
difference between the price at which the employee sells the stock and the price
the employee paid for the stock. The employee recognizes no ordinary income in
this situation.
If the employee sells for a gain during the statutory holding period, the
employee recognizes ordinary income equal to the difference between fair market
value on the last day of the Purchase Period and the amount the employee paid
for the stock. This ordinary gain is recognized even if the employee's actual
gain is less than this amount. Any gain exceeding this amount is taxed as a
capital gain.
If the employee sells the stock at a loss during the statutory holding
period, the employee recognizes ordinary income equal to the difference between
fair market value on the last day of the Purchase Period and the amount the
employee paid for the stock. The employee's basis in the stock is increased by
the ordinary income recognized, and the employee has a capital loss equal to the
difference between the adjusted basis of the stock and the sales price.
The Company receives a deduction equal to the employee's ordinary income
recognized as compensation.
The statutory holding period is the later of (i) two years after the first
day of the Purchase Period in which the stock was purchased and (ii) one year
after the last day of such Purchase Period.
The foregoing is only a summary of federal income tax consequences to the
Company and participating employees. This summary does not purport to cover tax
consequences that might arise in every individual circumstance. Participants are
urged to consult their own tax counsel.
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What are the Benefits to Participants?
It is not possible to determine the benefits to any particular individual
or any group of employees. Benefits under the ESPP are dependent entirely upon
(1) an employee's decision to participate, (2) the extent of such participation,
and (3) the extent to which the fair market value of the Common Stock increases
during a Purchase Period.
- --------------------------------------------------------------------------------
The Board recommends a vote FOR the above proposal to approve the Metris
Companies Inc. Employee Stock Purchase Plan.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposal Four: Approval of the Metris Companies Inc.
Management Stock Purchase Plan
- --------------------------------------------------------------------------------
Proposal four is a proposal to approve the Metris Companies Inc. Management
Stock Purchase Plan (the "MSPP"). The Board believes that the adoption of a
management stock purchase plan is in the best interests of the Company. The
MSPP, through partial Company matches, will encourage management to defer
receipt of cash bonuses in favor of investing in the future performance of the
Company, promoting a proprietary interest in management. In addition, such
program will aid the Company in attracting talented management.
The text of the MSPP is set forth in the Appendix delivered with this Proxy
Statement. The following is intended to be a summary of the principal terms of
the MSPP and does not purport to be a complete statement of its terms. It is
subject to, and qualified in its entirety by reference, to the MSPP set forth in
the Appendix.
Who is Eligible to Participate Under the MSPP?
Any employee whose job title is Senior Vice President or higher and who
participates in the Metris Management Incentive Bonus Plan (the "Management
Bonus Plan") is eligible to participate in the MSPP. Currently, there are
approximately 13 employees eligible to participate under the MSPP.
What are the Principal Terms of the MSPP?
Under the MSPP, a participant may elect to defer up to 50% of the
participant's bonus received under the Management Bonus Plan, which amount is
credited to a stock purchase account (the "Stock Purchase Account"). The amount
of the participant's contribution is immediately vested.
As of the date the participant contributes to his or her Stock Purchase
Account, the Company will make a match of such amount at a rate equal to $1 for
every $3 contributed by the participant. This company match becomes vested on
the third anniversary of the end of the calendar year that gave rise to the
bonus under the Management Bonus Plan.
Amounts credited to the Stock Purchase Account are deemed invested in whole
and fractional shares of the Company's Common Stock. On the day the amounts are
credited, the participant will be deemed to have invested in the number of whole
and fractional shares having
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a fair market value equal to the contributions on that day. The value of the
account will therefore float with the fair market value of such shares
thereafter.
Unless an employee's employment is terminated, amounts contributed to the
Stock Purchase Account must remain in such account for three years (two years in
the case of contributions during the first year of the MSPP). A participant may
elect to withdraw those contributions that have met the holding period plus the
amount of any return arising from his or her deemed investment in the Company's
Common Stock and vested Company Matches for such contributions, also adjusted
for the deemed invested returns. Upon termination of employment, a participant
shall be entitled to receive all of his or her contributions adjusted for the
deemed investment return plus the amount of vested Company Matches adjusted for
the deemed investment return. If termination is due to retirement, death or
disability, all Company Matches are deemed to have vested. Participants will
have the opportunity to designate beneficiaries for payment in the event of
death.
Participants will be paid in whole shares of the Company's Common Stock
plus cash in the amount of any fractional shares. The Company will not be
obligated to deliver shares until all required actions under the securities laws
have been taken and all rules and listing requirements of any exchange or
automatic quotation systems has occurred, free of any conditions not acceptable
to the Company. The Company may also deliver shares bearing a legend restricting
sale except in compliance with the Securities Act of 1933, as amended.
Upon a "change of control" as defined in the MSPP, the Board may make
adjustments to outstanding awards, including without limitation, causing the
amount in a Stock Purchase Account attributable to a Company Match to vest. In
addition, it may cancel each Stock Purchase Account and give each participant a
cash payment equal to (a) the higher of (i) the highest per share offered
stockholders in any transaction causing the change of control and (ii) the fair
market value of the stock prior to the change of control multiplied by (b) the
number of shares in the participant's deferred Stock Purchase Account.
When Will the MSPP Take Effect?
If approved by the shareholders, the MSPP will become effective January 1,
2000, and bonuses paid for the calendar year 1999 may be deferred when paid
after January 1, 2000.
Who Will Administer the Plan?
The MSPP will be administered by a "committee" designated by the Board
consisting of two or more members of the Board, each of whom is a non-employee
director within the meaning of Rule 16b-3 of the Securities Exchange Act of
1934. As the members of the current Compensation Committee meet this
requirement, the Board intends to designate the Compensation Committee, although
the Board reserves the right to designate another committee meeting these
requirements.
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<PAGE>
What Powers Will the Committee Have?
The committee will have the following obligations, duties and powers under
the MSPP:
o adjust the number and class of securities deemed held in the Stock
Purchase Accounts in the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization (a "Recapitalization Event"); and
o administer the MSPP, including taking any action that may accelerate
the vesting of company matches, and to interpret the MSPP and
establish such rules and regulations necessary or desirable for the
administration of the MSPP.
What Number of Shares May be Available Under the MSPP?
Subject to adjustments for Recapitalization Events, 150,000 shares of
Common Stock will be available for allocation under the MSPP. This represents
less than 1% of the outstanding Common Stock on the record date. The aggregate
number of shares allocated to Stock Purchase Accounts shall reduce the
availability of shares. If shares allocated to an account become forfeited (i.e.
the employee leaves while Company Matches are unvested), such shares shall again
become available.
How Will the Company Meet its Obligations to Deliver Shares?
The Company will deliver shares from (1) authorized and unissued shares of
Common Stock, (2) issued shares of Common Stock reacquired by the Company and
held as treasury shares, or (3) a combination of the foregoing.
May the MSPP be Amended without Shareholder Approval?
The Board may amend the MSPP as it deems advisable, subject to shareholder
approval if required by applicable law. Even if not required by law, however,
the Board may not increase the number of shares available under the MSPP without
shareholder approval.
What are the Federal Tax Consequences of the MSPP?
A participant will not recognize taxable income on amounts credited to his
Stock Purchase Account until shares of Common Stock are distributed to the
participant under the MSPP.
A participant will be required to recognize taxable income at the time
shares of Common Stock are distributed to the participant in an amount equal to
the fair market value of such shares of Common Stock on the date of
distribution. The Company will be entitled to a tax deduction at the same time
and in the same amount.
34
<PAGE>
What are the Benefits to Participants?
It is not possible to determine the benefits or amounts that will be
received by any participant in the year the MSPP takes effect or for any year
thereafter as benefits are dependent upon (1) the amount of bonus payments which
are dependent upon attaining performance factors that are set each year and (2)
the amount the participant chooses to contribute to the MSPP.
- --------------------------------------------------------------------------------
The Board recommends a vote FOR the above proposal to approve the Metris
Companies Inc. Management Stock Purchase Plan.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposal Five: Approval of an Amended and Restated Annual Incentive Plan
for Designated Corporate Officers
- --------------------------------------------------------------------------------
Proposal five is a proposal to approve an Amended and Restated Annual
Incentive Plan for Designated Corporate Officers (the "Amended Annual Incentive
Plan"), which amends and restates the Company's current Annual Incentive Plan
for Designated Corporate Officers (the "Current Annual Incentive Plan"). The
Amended Annual Incentive Plan will permit officers receiving bonuses under this
plan instead of the Management Bonus Plan to defer a portion of their bonuses
and to have such deferred amounts credited to a stock purchase account. The
amendments, like the MSPP discussed in Proposal four, are designed to meet the
Compensation Committee's goal of aligning compensation with shareholder
interests.
The text of the Amended Annual Incentive Plan is set forth in the Appendix
delivered with this Proxy Statement. The following is intended to be a summary
of the Amended Annual Incentive Plan's principal terms and does not purport to
be a complete statement of its terms. It is subject to, and qualified in its
entirety by reference, to the Amended Annual Incentive Plan in the Appendix.
What are the Principal Terms of the Current Annual Incentive Plan?
The Company adopted the Current Annual Incentive Plan in 1996 and received
shareholder approval for it at the 1997 Annual Meeting of Shareholders. In 1998,
the Company decided to amend certain provisions of the Current Annual Incentive
Plan, which amendments were approved by shareholders at the 1998 Annual Meeting
of Shareholders.
The Current Annual Incentive Plan contains the following principal terms:
o The Compensation Committee of the Company selects during the first 90
days of a performance period (the 12 calendar months for which a bonus
will be paid, hereafter the "Performance Period") participants from
officers holding the position of Senior or Executive Vice Presidents.
o During the first 90 days of the Performance Period, the Compensation
Committee sets the participant's base pay, targeted bonus percentages
and the Company's performance factor and the target or targets to be
used in determining if performance requirements have been met.
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o Bonuses are paid in amounts not greater than the base pay multiplied
by the targeted bonus percentage multiplied by the performance factor.
o The Company's performance factor is a percentage tied to one or more
of the following targets: consolidated pre-tax earnings, net revenues,
net earnings, operating income, earnings before interest and taxes,
cash flow, return on equity, return on net assets employed or earnings
per share.
o No participant may receive a bonus for any Performance Period in which
the applicable minimum performance factor is not met.
o The Compensation Committee has the authority to reduce or eliminate
any bonus otherwise payable, but it may not increase an amount of an
award as determined under the formula.
o Compensation payable under the Current Annual Incentive Plan may not
exceed $4,000,000 to any one participant.
o Following the close of each Performance Period and prior to the
payment of any bonus, the Compensation Committee must certify in
writing that the Company performance factor has been met for the bonus
authorized.
o The Compensation Committee may amend the Current Annual Incentive Plan
at any time and may terminate or curtail benefits with regard to
persons already receiving benefits at the time of the action and for
those to receive benefits in the future.
o The Current Annual Incentive Plan terminates on December 31, 2002,
unless terminated earlier by action of the Compensation Committee.
Payments may be made after termination with respect to a Performance
Period that began before termination.
By answering the questions put forth below, we highlight how the Amended
Annual Incentive Plan is different from the Current Annual Incentive Plan.
Will the Amended Annual Incentive Plan have Different Eligibility Requirements?
No, the Amended Annual Incentive Plan will not change the class of
potential participants. The Amended Annual Incentive Plan will provide that the
President and Chief Executive Officer is automatically a participant under the
Amended Annual Incentive Plan and that the Compensation Committee may also
select any Executive Vice President or Senior Vice President for participation
during the first 90 days of a Performance Period. Currently, 14 employees would
be eligible for selection by the Compensation Committee. An officer selected to
participate in the Amended Annual Incentive Plan will no longer participate in
the Management Bonus Plan.
36
<PAGE>
Will the Amended Annual Incentive Plan Change the Cap on the Amounts Payable
Under the Amended Annual Incentive Plan?
Yes, but only because of the new feature providing for a stock purchase
plan. Because the Company will match amounts deferred to purchase Common Stock
and any purchased Common Stock may appreciate in value, additional compensation
may arise due to such appreciation. The Amended Annual Incentive Plan,
therefore, applies the cap of $4,000,000 in any one Performance Period to bonus
payments only. Since the Company will match $1 for every $3 a participant
defers, a Company Match may equal an additional $666,667 paid under the Amended
Annual Incentive Plan. This assumes a bonus payment of $4,000,000 of which
$2,000,000 is deferred to purchase Common Stock.
Will the Termination Date Remain the Same?
No. The Amended Annual Incentive Plan will terminate on December 31, 2003.
Will Bonuses Still be Paid in Cash After Certification that Performance Factors
Have Been Attained?
Not necessarily. Under the Amended Annual Incentive Plan, the Compensation
Committee will still have to certify that the performance factors authorizing
the bonus amount have been met. However, now the participant will only receive
50% of his or her bonus in cash with the remaining 50% to be deferred
automatically and credited to a Deferred Stock Account. A participant must
affirmatively elect not to participate in a Deferred Stock Account if he or she
wishes to receive his or her full bonus in cash.
What Are the Principal Terms of the Amended Annual Incentive Plan Regarding the
Deferred Stock Accounts?
These particular amendments will provide to officers participating in the
Amended Annual Incentive Plan the right to invest and purchase stock in the same
manner as participants in the MSPP discussed in Proposal four. However, 50% of a
participant's bonus under the Amended Annual Incentive Plan are automatically
deferred unless the participant notifies the Company he or she does not want to
defer or wishes to defer a lesser amount. The company match will also be the
same. For a summary of the terms, please read the answer to the question "What
are the Principal Terms of the MSPP?" in Proposal four on page 32 of this Proxy
Statement.
When Will the Amended Annual Incentive Plan Take Effect?
If approved by the shareholders, the Amended Annual Incentive Plan will
become effective January 1, 2000, and bonuses paid for the calendar year 1999
may be deferred when paid after January 1, 2000. If the Amended Annual Incentive
Plan is not approved, the existing Annual Incentive Plan will continue.
37
<PAGE>
Who Will Administer the Amended Annual Incentive Plan?
The Amended Annual Incentive Plan will continue to be administered by the
Compensation Committee.
What Powers Will the Compensation Committee Have?
The Compensation Committee will continue to have the obligations, powers
and duties under the Amended Annual Incentive Plan as it has under the Current
Annual Incentive Plan. In addition, it will have the additional obligations,
powers and duties with respect to administering the Deferred Stock Accounts.
These will be the same obligations, powers and duties the Committee has
administering the MSPP. For a description, please review the answer to the
question, "What Powers will the Committee?" appearing on page 34 of this Proxy
Statement.
What Number of Shares will be Available Under the Amended Annual Incentive Plan?
Subject to adjustments for Recapitalization Events, 150,000 shares of
common stock will be available for allocation under the Amended Annual Incentive
Plan. This represents less than 1% of the outstanding Common Stock on the record
date. The aggregate number of shares allocated to Deferred Stock Accounts shall
reduce the availability. If shares allocated to an account become forfeited
(i.e. the employee leaves while company matches are unvested), such shares shall
again become available.
How Will the Company meet its Obligations to Deliver Shares?
The Company will deliver shares from (1) authorized and unissued shares of
Common Stock or (2) issued shares of Common Stock reacquired by the Company and
held as treasury shares.
May the Amended Annual Incentive Plan be Amended without Shareholder Approval?
The Compensation Committee will continue to have the right to amend the
Amended Annual Incentive Plan prospectively at any time for any reason without
notice to any person. It may likewise terminate or curtail the benefits provided
by the Amended Annual Incentive Plan both with regard to persons already
receiving benefits and persons expecting to receive benefits in the future under
such plan. Nonetheless, the Company may seek shareholder approval of any change
if the Company determines such approval is necessary to maintain the Amended
Annual Incentive Plan as a performance based compensation plan under Section
162(m) of the Internal Revenue Code.
What are the Federal Tax Consequences of the Amended Annual Incentive Plan?
The tax consequences to participants purchasing stock pursuant to the
Amended Annual Incentive Plan are the same as those for participants in the MSPP
as set forth in "What are the Federal Tax Consequences of the MSPP?" on page 34
of this Proxy Statement.
38
<PAGE>
What are the Benefits to Participants?
It is not possible to determine the benefits or amounts that will be
received by any participant in the year the Amended Annual Incentive Plan takes
effect or for any year thereafter. Benefits are dependent upon (1) the amount of
bonus payments that are dependent upon attaining performance factors that are
set each year and (2) the amount the participant chooses to contribute to his or
her Deferred Stock Account.
- --------------------------------------------------------------------------------
The Board recommends a vote FOR the above proposal to approve an Amended
and Restated Annual Incentive Plan for Designated Corporate Officers.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposal Six: Approval of the Metris Companies Inc. Amended
and Restated Long-Term Incentive and Stock Option Plan
- --------------------------------------------------------------------------------
On March 19, 1999, the Board amended and restated the 1996 Metris Long-Term
Incentive and Stock Option Plan (the "Incentive Stock Plan" and as such is
proposed to be amended, the "Amended Incentive Stock Plan"), subject to
shareholder approval. The Board amended the Incentive Stock Plan to (i) to
extend the term to March 19, 2009, (ii) include technical changes to awards of
Performance Awards (which have yet to be issued) to conform with Section 162(m)
of the Code and obtain approval of the performance goals for such Performance
Awards and (iii) make certain other technical changes. The Company is not
seeking to increase the number of shares available under the Incentive Stock
Plan.
The text of the Amended Incentive Stock Plan is set forth in the Appendix
delivered with this Proxy Statement. The following is intended to be a summary
of the Amended Incentive Stock Plan's principal terms and does not purport to be
a complete statement of its terms. It is subject to, and qualified in its
entirety by reference to the Amended Stock Incentive Plan in the Appendix.
What is the Purpose of the Amended Incentive Stock Plan?
The purposes of the Amended Incentive Stock Plan are specifically to
stimulate the efforts of employees of the Company and to align their interest
with the interests of shareholders.
Why Does the Company Want to Amend the Incentive Stock Plan?
The Incentive Stock Plan provided for awards of cash or stock as
"Performance Awards." At the time, the Company did not believe it necessary to
make compensation given as a Performance Award "qualified performance based
compensation" under Section 162(m) of the Code. The Board has now determined
that it would be best to give the Committee the flexibility to make Performance
Awards eligible to be treated as "qualified performance based compensation." In
order to do so, the performance goals must be disclosed and approved by
shareholders. In addition, although the Incentive Stock Plan has always had a
limitation on the number of shares that may be granted under the Incentive Stock
Plan (which number is not being amended), it did not have a limit on the amount
of cash that could be given as a Performance Award. This limitation must be
approved by shareholders and is being set at $6,000,000 for any three year
period.
39
<PAGE>
If the Amended Incentive Stock Plan is not approved, Performance Awards to
the top five highly compensated employees may not be deductible by the Company.
The Compensation Committee will continue to have the right and reserves the
right to make Performance Awards under the existing Incentive Stock Plan even if
such awards cannot qualify as performance based compensation under Section
162(m) of the Code.
The existing Incentive Stock Plan will continue if the Amended Incentive
Stock Plan is not approved.
How Many Shares are Available for Issuance in the Amended Incentive Stock Plan?
Under the Amended Incentive Stock Plan, the Company will be able to issue
up to 4,000,000 shares of Common Stock. The Company is not seeking an increase
in this amount. The number of shares available at any time is subject to
adjustment in the event of stock splits, stock dividends and other situations.
Currently, the Company has issued or granted options to purchase shares for
2,835,975 under the Incentive Stock Plan, which amount will be assumed under the
Amended Incentive Stock Plan. Assuming no forfeiture of any awards or other
instances in which awards may be "reused," the Amended Incentive Stock Plan will
have 1,164,025 shares still available for awards.
The Board is adopting one technical change with respect to the shares
available. Although the Incentive Stock Plan permits the "reusage" of shares not
issued, the Amended Incentive Stock Plan specifically permits shares to become
available again under the Amended Incentive Stock Plan upon the following:
(i) the expiration, termination, cancellation or forfeiture of any award;
or
(ii) the delivery or withholding of shares to pay all or a portion of any
exercise price or to satisfy all or a portion of the tax withholding
obligations relating to an award.
Who is Eligible to Participate Under the Amended Incentive Stock Plan?
Participants in the Amended Incentive Stock Plan are selected by the
Compensation Committee of the Company from all full and part-time employees,
consultants or independent contractors to the Company or any of its
subsidiaries. Only full or part-time employees, however, are eligible to receive
incentive stock options. Currently, the Company employs approximately 2,100 full
and part-time employees. A participant may not receive grants of awards under
the Amended Incentive Stock Plan if such awards would be based upon shares in
excess of 675,000 shares in any calendar year.
When will the Amended Incentive Stock Plan take Effect?
The Amended Incentive Stock Plan will take effect immediately upon the
approval by shareholders at this Annual Meeting.
40
<PAGE>
Who Will Administer the Amended Incentive Stock Plan?
The Compensation Committee administers the Incentive Stock Plan and will
administer the Amended Incentive Stock Plan if approved. Currently, the
Compensation Committee consists of four persons appointed by the Board, all of
whom are "Non-Employee Directors" under Rule 16b-3 of the Exchange Act and
"outside directors" under Section 162(m) of the Code. The Board may fill
vacancies, add members or remove members provided there are at least two members
and that all members are disinterested persons or outside directors.
The Compensation Committee has the authority to: (1) determine the purchase
price of the Common Stock covered by an award, (2) determine the participants,
(3) determine times at which such option or awards may be granted, (4) determine
the form of payment to be made upon exercise of any award, (5) determine the
terms of exercise of any options or award; (6) accelerate the time at which any
option or award may be exercised; (7) to modify the terms of any Award prior to
the execution of an Agreement and to do so after the execution of an agreement
with the grantee's consent; (8) interpret the Amended Incentive Stock Plan or
any agreement regarding an award; (9) prescribe rules regarding the Amended
Incentive Stock Plan; and (10) make all other determinations necessary or
advisable. The Compensation Committee will determine the terms of awards and may
include provisions for early vesting or other benefits due to any change of
control as the Committee may define such terms in an agreement. Such provisions
could have an anti-takeover effect.
When Will the Amended Incentive Stock Plan Terminate?
The Amended Incentive Stock Plan will continue in effect until all shares
of Common Stock available for issuance have been issued under the Amended
Incentive Stock Plan, or until March 19, 2009, whichever is earlier. This is an
extension of the existing Incentive Stock Plan which terminates on October 31,
1999. The Amended Incentive Stock Plan may be terminated at such earlier time as
the Board may determine.
What are the Awards That May be Made Under the Amended Incentive Stock Plan?
The Amended Incentive Stock Plan provides for various types of awards (the
"Awards") including the following: stock options ("Options"); stock appreciation
rights ("SARs"), shares that are restricted from disposition until the
participant meets certain conditions ("Restricted Stock") and performance awards
that may be payable in cash or Common Stock ("Performance Awards"). These Awards
are permitted under the existing Incentive Stock Plan.
Options may be either incentive stock options ("ISOs") or nonqualified
stock options ("NQSOs"). For ISOs and for NQSOs that are intended to qualify as
qualified performance based compensation under Section 162(m) of the Code, the
option price will be no less than the fair market value of the Common Stock at
the time of grant. ISOs will meet all requirements of Section 422 of the Code.
Except for these restrictions relating to ISOs, the Compensation Committee will
determine all the terms of Options. No material changes are being made with
respect to Option Awards.
SARs are the right to receive an amount equal to the appreciation in value
of the shares upon which the SARs are based from the time the SAR is awarded
until the grantee elects to
41
<PAGE>
receive payment. Participants who elect to receive payment of a SAR will receive
an amount in cash, Common Stock or any combination of cash and Common Stock, as
determined by the Compensation Committee. No material changes are being made
with respect to SAR Awards.
Restricted Stock is subject to forfeiture until certain conditions have
been fulfilled and a period of time has elapsed. Grants of Restricted Stock
shall be made at such cost as the Compensation Committee shall determine and may
be issued for no monetary consideration, subject to applicable law. Such shares
are non-transferable until all restrictions have been satisfied. The grantee
will be entitled to voting and dividend rights with respect to the Restricted
Stock from the date of grant. No material changes are being made with respect to
Restricted Stock Awards.
Performance Awards may be payable in cash or Common Stock of the Company.
Such awards will be paid if performance goals established by the Committee are
met by the grantee within periods set by the Committee. These periods may be
shorter than one year used in the Company's other bonus plans. If the Committee
chooses to make an award that will constitute performance based compensation
pursuant to Section 162(m) of the Code, the Committee will select a performance
target based upon one or more of the following performance goals: consolidated
pre-tax earnings, net revenues, net earnings, operating income, earnings before
interest and taxes, cash flow, return on equity, return on net assets employed
or earnings per share. Performance Awards payable in Common Stock may not exceed
the share limitation for any one person set forth above. Performance Awards
payable solely in cash and not involving the issuance of shares or a SAR, will
not exceed $6,000,000 to any one person in the aggregate for any three year
period. The Amended Incentive Stock Plan has amended provisions concerning
Performance Awards in the Incentive Stock Plan by setting forth specific
performance goals as set forth herein and providing a limitation on Performance
Awards payable solely in cash.
The Committee may grant awards in tandem. However, no Award except a SAR
may be granted in tandem with an ISO.
Upon the exercise of an Option or in the case of any other Award requiring
a payment to the Company, payment may be made either (i) in cash or (ii) with
the consent of the Committee (a) by surrender of all or any part of an Award;
(b) by the tender to the Company of Common Stock having a fair market value
equal to the amount due to the Company; (c) in other property; (d) any
combination of the foregoing or (e) in cash, by a broker dealer acceptable to
the Company to whom the participant has delivered an irrevocable notice of
exercise. At the time any Award granted under the Amended Incentive Stock Plan
is distributed or exercised, the Company may withhold, in cash or shares of
Common Stock, any amount necessary to satisfy withholding requirements
applicable to such distribution.
Awards will not be transferable other than by will or pursuant to the laws
of descent and distribution. Awards will be exercisable during the grantee's
lifetime only by the grantee.
42
<PAGE>
What are the Principal Federal Tax Consequences?
The following discussion summarizes the Federal income tax consequences to
participants who may receive awards under the Amended Incentive Stock Plan and
to the Company arising out of the grant of such awards.
Incentive Stock Options. A participant will not realize taxable income upon
the grant or exercise (except for purposes of the alternative minimum tax) of an
ISO. If the participant holds the shares acquired on the exercise of an ISO for
two years from the date of grant and one year after the transfer of such shares
to the participant, he or she will recognize a long-term capital gain or loss
upon their subsequent sale or exchange. In such case, the Corporation will not
be entitled to a tax deduction. If a participant does not hold the shares
acquired on the exercise of an ISO for that holding period, he or she will
recognize ordinary income in the year of disposition of such shares equal to the
excess of (a) the lesser of (i) the amount realized upon such disposition and
(ii) the fair market value of such shares on the date of exercise over (c) the
exercise price. To the extent that the amount realized on such sale or exchange
exceeds the market value of the shares on the date of the ISO exercise, the
participant will recognize capital gains. The Company will be entitled to a tax
deduction in the amount of the ordinary income reportable by the participant.
The excess of the fair market value on the date of exercise of an ISO of the
shares acquired over the exercise price may in certain circumstances constitute
alternative minimum taxable income.
Nonqualified Stock Options. Upon the grant of an NQSO, a participant will
not be in receipt of taxable income. Upon exercise of such stock option, a
participant will be in receipt of ordinary income in an amount equal to the
excess of the fair market value of the acquired shares over their exercise
price. The Company will be entitled to a tax deduction, in the year of such
exercise, equal to the amount of such ordinary income, except to the extent the
deduction limit of Section 162(m) of the Code applies.
Stock Appreciation Rights. Upon the grant of SARs, a participant will not
be in receipt of taxable income. Upon the exercise of SARs, a participant will
be in receipt of ordinary income in an amount equal to any cash payment and the
market value of any shares distributed. The Company will be entitled to a tax
deduction equal to the income reportable by the participant, provided that the
exercise price was equal to the fair market value of stock at the date of grant.
Restricted Stock and Performance Awards in Shares. Grantees of Restricted
Stock and Performance Awards payable in shares do not recognize income at the
time of grant. However, when shares of Restricted Stock are no longer subject to
a substantial risk of forfeiture or when shares awarded as Performance Awards
are paid, grantees recognize ordinary income in an amount equal to the fair
market value of the stock less, in the case of Restricted Stock, the amount
paid, if any, for the shares. Alternatively, the grantee of Restricted Stock may
elect to recognize income upon the grant and not at the time the restrictions
lapse. The Company is entitled to deduct an amount equal to the ordinary income
recognized by the grantee unless prohibited by any restrictions of Section
162(m) of the Code regarding certain highly compensated officers.
Cash Awards and Dividends. Cash awards and dividends are taxable as
ordinary income when paid. The Company is entitled to deduct the amount of a
cash award (unless restriction
43
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under Section 162(m) of the Code apply) and dividends on Restricted Stock that
has not yet been recognized as income when such amounts are paid to the
recipient.
May the Amended Incentive Stock Plan be Amended Without Shareholder Approval?
Yes, the Board may amend or discontinue the Amended Incentive Stock Plan,
at any time; provided, however, no amendment of the Amended Incentive Stock Plan
shall occur without shareholder approval that would (i) violate the rules or
regulations of the National Association of Securities Dealers or the Nasdaq
Stock Market(R), or any other securities exchange applicable to the Company or
(ii) cause the Company to be unable to grant ISOs. No amendment or termination
shall adversely impair any Award granted before such amendment or termination
without the grantee's consent.
What Benefits Will Participants Receive?
It is not possible to determine the benefits to be received by
participants. The Amended Incentive Stock Plan provides that Awards are at the
discretion of the Committee, and therefore, Awards are not determinable. The
value of the Awards is not determinable. Moreover, the value of the awards is
dependent upon market volatility and other factors that cannot be predicted at
this time. However, Awards made under the existing Incentive Stock Plan to the
named executive officers for the past fiscal year are set forth in this Proxy
Statement in the table designated "Option Grants in Last Fiscal Year" appearing
on page 15 of this Proxy Statement.
- --------------------------------------------------------------------------------
The Board recommends a vote FOR the Amended Stock Incentive Plan.
- -------------------------------------------------------------------------------
44
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- --------------------------------------------------------------------------------
Chart of Company Plans
- --------------------------------------------------------------------------------
For your convenience, we have provided a chart that lists each of the
Company's plans set forth in proposals two through six. The chart identifies
the plan, the primary benefits and the parties eligible to receive each benefit.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Plan Benefits Participants
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-Employee Director Stock Stock Options Non-employee directors
Option Plan
- ------------------------------------------------------------------------------------------------
Employee Stock Purchase Plan Opportunity to purchase Common All full time and part-time
Stock at a discount employees
- ------------------------------------------------------------------------------------------------
Management Stock Purchase Plan Opportunity to defer cash Executive and Senior Vice
bonus payments for the Presidents
purchase of Common Stock and
receive a Company Match
- ------------------------------------------------------------------------------------------------
Amended and Restated Annual Bonus plan for CEO and other CEO and any designated
Incentive Bonus Plan for designated corporate officers Executive or Senior Vice
Designated Corporate Officers which includes an opportunity President
to defer a portion of bonus
payments to purchase stock and
receive a Company Match
- ------------------------------------------------------------------------------------------------
Amended and Restated Options, SARs, Restricted All employees and consultants
Long-Term Incentive and Stock and Performance Awards
Stock Option Plan
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Selection of Independent Auditors
- --------------------------------------------------------------------------------
The Board has selected KPMG Peat Marwick LLP as independent auditors of the
Company and its subsidiaries for the fiscal year ending December 31, 1999. KPMG
Peat Marwick LLP has served as the Company's independent auditors since 1996.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting and will be given an opportunity to make a statement and answer
appropriate shareholder questions. Shareholders may submit questions concerning
the financial statements of the Company either orally at the Annual Meeting or
in writing before the Annual Meeting.
- --------------------------------------------------------------------------------
Section 16(a) Beneficial Ownership Reporting Compliance
- --------------------------------------------------------------------------------
Based upon a review of our records and responses to questionnaires of all
reporting officers and directors, all reports required to be filed pursuant to
Section 16(a) of the Exchange Act were filed on a timely basis.
45
<PAGE>
- --------------------------------------------------------------------------------
Requirements, Including Deadlines, for Submission of Proxy Proposals,
Nominations of Directors and Other Business of Shareholders
- --------------------------------------------------------------------------------
If you wish to submit proposals to be included in our 2000 proxy statement,
we must receive them on or before December 1, 1999. Please address your
proposals to: Z. Jill Barclift, Secretary, Metris Companies Inc., 600 S. Highway
169, Suite 1800, St. Louis Park, Minnesota 55426.
Under our current By-Laws, if you wish to nominate directors or bring other
business before the stockholders:
o You must notify the Secretary in writing not less than fifty (50) days
nor more than seventy-five (75) days before the annual meeting.
o If we give you less than sixty (60) days notice or prior public
disclosure of the meeting date, however, you may notify us within ten
(10) days after the notice was given.
o Your notice must contain the specific information required in our
By-Laws.
Please note that these requirements pertain only to matters you wish to bring
before your fellow shareholders at an annual meeting. They are separate from the
deadline to have your proposal included in our proxy statement.
The Company is considering an amendment to these provisions at its next
regularly scheduled meeting of the Board of Directors. The proposed amendment
will require shareholders to notify the Company forty-five (45) days before the
date we first mailed this Proxy Statement or February 15, 2000 in order for the
matters to be timely. If these provisions are amended, the Company will refile
its By-Laws and set the new date in its quarterly report on Form 10-Q for the
quarter ended June 30, 1999. Shareholders are advised to review the Company's
10-Q's or to contact the Secretary regarding such potential changes.
If you would like a copy of our By-Laws, we will send you one without
charge. Please write to the Secretary of the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Z. Jill Barclift
Z. Jill Barclift
Secretary
March 30, 1999
46
<PAGE>
APPENDIX TO PROXY STATEMENT
METRIS COMPANIES INC.
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan. This plan shall be known as the "Metris Companies Inc.
Nonemployee Director Stock Option Plan" and is hereinafter referred to as the
"Plan." The purpose of the Plan is to promote the interests of Metris Companies
Inc., a Delaware corporation (the "Company"), by enhancing its ability to
attract and retain the services of experienced and knowledgeable outside
directors and by providing an additional means for such directors to identify
with the interests of the Company's shareholders.
2. Administration.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors"). All questions of interpretation of the Plan or of
any options issued under it shall be determined by the Board of Directors and
such determination shall be final and binding upon all persons having an
interest in the Plan. Any or all powers and discretion vested in the Board of
Directors under this Plan may be exercised by any person or committee duly
authorized by the Board of Directors except that the Board of Directors shall
approve and authorize each grant, award or other similar acquisition from the
Company pursuant to or in connection with the Plan.
(b) The Board of Directors shall have plenary authority in its discretion,
but subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock (as hereinafter defined) covered by each option, (ii)
to determine the directors to whom and the time or times at which such options
shall be granted and the number of shares to be subject to each, (iii) to
determine the terms of exercise of each option, (iv) to amend or modify the
terms of any option with the consent of the optionee, (v) to amend or interpret
the Plan, (vi) to prescribe, amend and rescind rules and regulations relating to
the Plan, (vii) to determine the terms and provisions of each option agreement
under the Plan (which agreements need not be identical), and (viii) to make all
other determinations necessary or advisable for the administration of the Plan.
The Board of Directors also shall have such additional authority and powers as
set forth in Section 17 hereof, including the authority to amend and terminate
the Plan. The Board of Directors' determinations on the foregoing matters shall
be final and conclusive.
3. Participation in the Plan. Each director of the Company shall be
eligible to participate in the Plan unless such director is an officer or
employee of the Company, any subsidiary of the Company, or any entity that owns
at least 20% of the outstanding common stock of the Company. A director who has
been granted an option under this Plan may be granted additional options under
the Plan.
4. Stock Subject to the Plan. Subject to the provisions of Section 14
hereof, the stock to be subject to options under the Plan shall be authorized
but unissued shares of the Company's common stock, par value $.01 per share (the
"Common Stock") or treasury shares of Common Stock. Subject to the adjustment as
provided in Section 14 hereof, the maximum number of shares on which options may
be exercised under this Plan shall be 250,000 shares. If an option under the
Plan expires, or for any reason is terminated and unexercised with respect to
any shares, such shares shall be available for options thereafter granted during
the term of the Plan.
5. Nonqualified Stock Options. All options granted under the Plan shall be
nonqualified stock options that do not qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
6. Terms and Conditions of Options. Each option granted under this Plan
shall be evidenced by a written agreement in such form as the Board of Directors
shall from time to time approve, which agreements shall comply with and be
subject to the terms and conditions of the Plan.
7. Term of Options. Each option and all rights and obligations thereunder
shall expire on the date determined by the Board of Directors as specified in
the option agreement. The Board of Directors shall be under no duty to provide
terms of like duration for options granted under the Plan, but the term of
options granted under the Plan may not extend more than fifteen (15) years from
the date of granting of such option.
8. Exercise of Options
(a) The Board of Directors shall have full and complete authority to
determine whether an option will be exercisable in full at any time or from time
to time during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at such times during the term of the option as
the Board of Directors may determine and specify in the option agreement.
(b) The exercise of any option granted hereunder shall only be effective at
such time as counsel to the Company shall have determined that the issuance and
delivery of Common Stock pursuant to such exercise will not violate any state or
federal securities or other laws. An optionee desiring to exercise an option may
be required by the Company, as a condition of the effectiveness of any exercise
of an option granted hereunder, to agree in writing that all Common Stock to be
acquired pursuant to such exercise shall be held for his or her own account
without a view to any further distribution thereof, that the certificates for
such shares shall bear an appropriate legend to that effect and that such shares
will not be transferred or disposed of except in compliance with applicable
federal and state securities laws.
(c) An optionee electing to exercise an option shall give written notice to
the Company of such election and of the number of shares subject to such
<PAGE>
exercise. The full purchase price of such shares shall be tendered with such
notice of exercise. Payment shall be made to the Company by delivery of (A) cash
(including check, bank draft or money order), (B) shares of Common Stock already
owned by the optionee having a fair market value as of the date of exercise
equal to the full exercise price of the shares to be acquired, (C) written
authorization for the Company to retain from the total number of shares of
Common Stock as to which the option is exercised that number of shares having a
fair market value as of the date of exercise equal to the aggregate exercise
price of the options exercised, (D) any combination of the foregoing methods of
payment, or (E) such other form of consideration as the Board of Directors may
deem acceptable. For purposes of the preceding sentence, the fair market value
of Common Stock tendered shall be determined as provided in Section 11 as of the
date of exercise.
9. Effect of Termination of Directorship or Death or Disability.
(a) In the event that an optionee shall cease to be a director of the
Company for any reason other than such person's gross and willful misconduct or
such person's death or disability, (as may be determined in the sole discretion
of the Board of Directors) such optionee shall have the right to exercise the
option at any time within seven months after such termination of directorship to
the extent of the full number of shares he or she was entitled to purchase under
the option on the date of termination, subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(b) In the event that an optionee shall cease to be a director of the
Company by reason of the optionee's gross and willful misconduct during the
course of his or her service as a director of the Company, including but not
limited to wrongful appropriation of funds of the Company, or the commission of
a gross misdemeanor or felony, the option shall be terminated as of the date of
the misconduct and the optionee shall have no further rights thereunder.
(c) If the optionee shall die while serving as a director of the Company or
within seven months after termination of his or her directorship for any reason
other than the optionee's gross and willful misconduct or the optionee shall
become disabled (as may be determined in the sole discretion of the Board of
Directors) while serving as a director of the Company and such optionee shall
not have fully exercised the option, such option may be exercised at any time
within 12 months after the date of such death or the onset of such disability by
the optionee or the optionee's legal representative, in the case of disability,
or by the personal representative(s), administrator(s), or heir(s) of the
optionee, in the case of death, to the extent of the full number of shares the
optionee was entitled to purchase under the option on the date of death,
disability, or termination of directorship, if earlier, and subject to the
condition that no option shall be exercisable after the expiration of the term
of the option.
10. Option Exercise Price. The option price for all Options granted under
the Plan shall be determined by the Board of Directors but shall not be less
than 100% of the fair market value per share of Common Stock as of the date of
grant of such option.
11. Fair Market Value of Common Stock. For purposes of this Plan, the fair
market value of the Common Stock as of a given date shall be the closing price
of the Common Stock as reported on the Nasdaq National Market on the trading
date immediately preceding such date. If the Common Stock is not publicly traded
on such date, the Board of Directors shall make a good faith attempt to
determine such fair market value and, in connection therewith, shall take such
actions and consider such factors as it deems necessary or advisable.
12. Transfer Restrictions. No option granted under the Plan or interest
therein may be transferred, assigned, pledged or hypothecated by the optionee
during such optionee's lifetime, whether by operation of law or otherwise, or be
made subject to execution, attachment or similar process, except that options
shall be transferable by the optionee: (a) by will or by the laws of descent and
distribution as provided in Section 9(c) hereof; (b) to any child, stepchild,
grandchild, parent, step-parent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of
the optionee, including adoptive relationships ("immediate family members"); (c)
to charitable organizations; or (d) to trusts for the benefit of immediate
family members of the optionee or charitable organizations. Except as provided
in Section 9 hereof with respect to disability of the optionee, and except for
options that have been transferred in accordance with the provisions of this
Section 12, during the lifetime of the optionee an option granted under this
Plan shall be exercisable only by the optionee.
13. Limitation of Rights
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute,
or be evidence of, any agreement or understanding, express or implied, that the
Company will retain a director for any period of time, or at any particular rate
of compensation.
(b) No Shareholder Rights for Options. An optionee shall have no rights as
a shareholder with respect to the shares covered by options until the date of
the issuance to such optionee of a stock certificate therefor, and no adjustment
will be made for dividends or other rights for which the record date is prior to
the date such certificate is issued
14. Adjustments to Common Stock. If there shall be any change in Common
Stock through merger, consolidation, reorganization, recapitalization, stock
dividend (of whatever amount), stock split or other changes in the corporate
structure, appropriate adjustments to the Plan and outstanding options shall be
made. In the event of any such changes, adjustments
<PAGE>
shall include, where appropriate, changes in the aggregate number of shares
subject to the Plan, the number of shares subject to outstanding options and the
option exercise prices thereof in order to prevent dilution or enlargement of
option rights.
15. Effective Date of the Plan. The Plan shall take effect immediately upon
its approval by the affirmative vote of the majority of the directors of the
Company at a duly held meeting of the Board of Directors.
16. Time for Granting Options. Unless the Plan shall have been terminated
as provided in Section 17 hereof, the Plan shall terminate upon the expiration
of 10 years from the date upon which it takes effect as provided in Section 15
hereof. No option may be granted after such termination, but termination of the
Plan shall not, without the consent of the optionee, alter or impair any rights
or obligations under any option theretofore granted.
17. Amendment of the Plan. The Board of Directors may amend the Plan in any
respect whatsoever; provided however, that the Board of Directors shall not
amend the Plan in a manner that adversely affects any rights of any holder of
any option heretofore granted under the Plan without the consent of the holder
of the option. Notwithstanding the foregoing, only the Board of Directors has
the authority to amend the Plan to increase the number of shares subject thereto
or to terminate the Plan.
18. Governing Law. The place of administration of the Plan and the
Agreements issued thereunder shall be in the State of Minnesota. The corporate
law of the State of Delaware shall govern issues relating to the validity and
issuances of Shares. Otherwise, this Plan and the Agreements issued thereunder
shall be construed and administered in accordance with the laws of the State of
Minnesota without giving effect to principles relating to conflict of laws.
METRIS COMPANIES INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Metris Companies Inc. Employee Stock
Purchase Plan (the "Plan") is to provide employees of Metris Companies Inc., a
Delaware corporation (the "Company"), and its Subsidiary Companies (as defined
below) added incentive to remain employed by such companies and to encourage
increased efforts to promote the best interests of such companies by permitting
eligible employees to purchase shares of common stock, par value $.01 per share,
of the Company ("Common Stock") at below-market prices. The Plan is intended to
qualify as an "employee stock purchase plan" under section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of the Plan, the
term "Subsidiary Companies" shall mean all corporations which are subsidiary
corporations (within the meaning of Section 424(f) of the Code) and of which the
Company is the common parent. The Company and its Subsidiary Companies that,
from time to time, adopt the Plan are sometimes hereinafter called collectively
the "Participating Companies."
2. Eligibility. Participation in the Plan shall be open to each employee of
the Participating Companies who satisfies all of the following conditions (an
"Eligible Employee"):
(a) such employee's customary employment is for more than 20 hours per week;
(b) such employee's customary employment is for more than 5 months per calendar
year; and
(c) such employee has been continuously employed by the Participating Companies
for at least six months.
No right to purchase Common Stock hereunder shall accrue under the Plan in
favor of any person who is not an Eligible Employee as of the first day of a
Purchase Period (as defined in Section 3). For purposes of the Plan, the term
"employee" shall not include any individual who performs services for any of the
Participating Companies, pursuant to an agreement (written or oral) that
classifies such individual's relationship with the Participating Company as
other than a common law employee of the Participating Company, regardless of
whether such individual is at any time determined to be a common law employee of
the Participating Company. Notwithstanding anything contained in the Plan to the
contrary, no Eligible Employee shall acquire a right to purchase Common Stock
hereunder to the extent that (i) immediately after receiving such right, such
employee would own 5% or more of the total combined voting power or value of all
classes of stock of the Company or any Subsidiary Company (including any stock
attributable to such employee under section 424(d) of the Code), or (ii) for any
calendar year, such right would permit such employee to purchase Common Stock
under any employee stock purchase plan of the Company or its Subsidiary
Companies which qualifies under section 423 of the Code, and which, when
aggregated, would have a fair market value (as determined on the first day of
the Purchase Period (as hereinafter defined)) in excess of $25,000 or such other
amount as may be specified under section 423 of the Code.
Further notwithstanding anything contained in the Plan to the contrary, the
number of shares of Common Stock which may be purchased by any Eligible Employee
during any Purchase Period shall not exceed the whole number of shares of Common
Stock determined by dividing $12,500, or, except as provided in the preceding
sentence, such greater number as may be determined by the Committee, by 85% of
the fair market value (determined as described in Section 5) of a share of
Common Stock on the first day of the Purchase Period.
3. Effective Date of Plan; Purchase Periods. The Plan shall become
effective on July 1, 1999, or on such later date as may be specified by the
Board of Directors (the "Board") of the Company or the Committee (as defined in
Section 11). The Plan shall cease to be effective unless, within 12 months
before or after the date of its adoption by the Board, it has been adopted by
<PAGE>
the shareholders of the Company at a duly-called meeting of such shareholders.
A "Purchase Period" shall consist of the six month period, beginning on
each January 1 and July 1 commencing on or after the effective date and prior to
termination of the Plan.
4. Basis of Participation.
(a) Payroll Deduction.
Subject to compliance with applicable rules prescribed by the Committee, each
Eligible Employee shall be entitled to enroll in the Plan as of the first day of
any Purchase Period which begins on or after such employee has become an
Eligible Employee.
To enroll in the Plan, an Eligible Employee shall make a request to the
Company or its designated agent, at the time and in the manner prescribed by the
Committee, specifying the amount of payroll deduction to be applied to the
compensation paid to the employee by the employee's employer while the employee
is a participant in the Plan. The amount of each payroll deduction specified in
such request for each such payroll period shall be a whole percentage of a
participant's compensation, unless otherwise determined by the Committee to be a
whole dollar amount, in either case not to exceed 15%, or such lesser percentage
as may be determined by the Committee, of the participant's compensation (before
withholding or other deductions) paid to him or her during the Purchase Period
by any of the Participating Companies. Subject to compliance with applicable
rules prescribed by the Committee, the request shall become effective on the
first day of the Purchase Period following the day the Company or its designated
agent receives such request.
Payroll deductions (and any other amount paid under the Plan) shall be made
for each participant in accordance with such participant's request until such
participant's participation in the Plan terminates, such participant makes a new
request which changes the amount of payroll deductions or the Plan terminates,
all as hereinafter provided.
A participant may change the amount of his or her payroll deduction
effective as of the first day of any Purchase Period by so directing the Company
or its designated agent at the time and in the manner specified by the
Committee. A participant may not change the amount of his or her payroll
deduction effective as of any date other than the first day of a Purchase
Period, except that a participant may elect to terminate his or her
participation in the Plan as provided in Section 7.
Payroll deductions for each participant shall be credited to a purchase
account established on behalf of the participant on the books of the
participant's employer or such employer's designated agent (a "Purchase
Account"). At the end of each Purchase Period, the amount in each participant's
Purchase Account will be applied to the purchase of the number of shares of
Common Stock determined by dividing such amount by the Purchase Price (as
defined in Section 5) for such Purchase Period. No interest shall accrue at any
time for any amount credited to a Purchase Account of a participant.
(b) Other Methods of Participation.
The Committee may, in its discretion, establish additional procedures whereby
Eligible Employees may participate in the Plan by means other than payroll
deduction, including, but not limited to, delivery of funds by participants in a
lump sum or automatic charges to participants' bank accounts. Such other methods
of participating shall be subject to such rules and conditions as the Committee
may establish. The Committee may at any time amend, suspend or terminate any
participation procedures established pursuant to this paragraph without prior
notice to any participant or Eligible Employee.
5. Purchase Price. The purchase price (the "Purchase Price") per share of
Common Stock hereunder for any Purchase Period shall be the lesser of 85% of the
fair market value of a share of Common Stock on the first day of such Purchase
Period and 85% of the fair market value of a share of Common Stock on the last
day of such Purchase Period. If such sum results in a fraction of one tenth of
one cent, the Purchase Price shall be increased to the next higher tenth of one
cent. For purposes of the Plan, the fair market value of a share of Common Stock
on a given day shall be the last sale price of a share of Common Stock as
reported on the Nasdaq Stock Market on the date as of which such value is being
determined, or, if the Common Stock is listed on a national securities exchange,
the last sale price of a share of Common Stock on the principal national stock
exchange on which the Common Stock is traded on the date as of which such value
is being determined, or if there shall be no reported transactions for such
date, on the next preceding date for which transactions are reported. In no
event, however, shall the Purchase Price be less than the par value of a share
of Common Stock.
6. Purchase Accounts and Certificates. The Common Stock purchased by each
participant shall be posted to such participant's Purchase Account as soon as
practicable after, and credited to such participant's Purchase Account as of,
the last day of each Purchase Period. Except as provided in Sections 7 and 8, a
participant will be issued his or her shares when his or her participation in
the Plan is terminated, the Plan is terminated or upon request, but, in the last
case, only in denominations of at least 25 shares.
After the close of each Purchase Period, information will be made available
to each participant regarding the entries made to such participant's Purchase
Account, the number of shares of Common Stock purchased and the applicable
Purchase Price. In the event that the maximum number of shares of Common Stock
are purchased by the participant for the Purchase Period and cash remains
credited to the participant's Purchase Account, such cash shall be delivered as
soon as practicable to such participant. For purposes of the preceding sentence,
the maximum number of shares of Common Stock that may be purchased by a
participant for a Purchase Period shall be determined under Section 2.
<PAGE>
7. Termination of Participation. A participant may elect at any time, in
the manner prescribed by the Committee, to terminate his or her participation in
the Plan, provided such election is received by the Company or its designated
agent prior to the date specified by the Committee for termination of
participation during the Purchase Period for which such termination is to be
effective.
Upon any such termination, the cash credited to such participant's Purchase
Account on the date of such termination shall be delivered as soon as
practicable to such participant, and certificates for the number of full shares
of Common Stock held for his or her benefit, and the cash equivalent for any
fractional share so held shall be delivered to the participant as soon as
practicable. Such cash equivalent shall be determined by multiplying the
fractional share by the fair market value of a share of Common Stock on the last
day of the Purchase Period immediately preceding such termination, determined as
provided in Section 5.
If the participant dies, terminates employment with the Participating
Companies for any reason, or otherwise ceases to be an Eligible Employee, such
participant's participation in the Plan shall immediately terminate. Upon such
terminating event, the cash credited to such participant's Purchase Account on
the date of such termination shall be delivered as soon as practicable to such
participant or his or her legal representative, as the case may be, and
certificates for the number of full shares of Common Stock held for such
participant's benefit, and the cash equivalent for any fractional share so held,
determined as provided above in this Section 7, shall be delivered to such
participant or his or her legal representative, as the case may be, as soon as
practicable after December 31 of the year in which such termination occurs.
8. Termination or Amendment of the Plan. The Company, by action of the
Board or the Committee, may terminate the Plan at any time, in which case notice
of such termination shall be given to all participants, but any failure to give
such notice shall not impair the effectiveness of the termination.
Without any action being required, the Plan shall terminate in any event
when the maximum number of shares of Common Stock to be sold under the Plan (as
provided in Section 12) has been purchased. Such termination shall not impair
any rights which under the Plan shall have vested on or prior to the date of
such termination. If at any time the number of shares of Common Stock remaining
available for purchase under the Plan are not sufficient to satisfy all then-
outstanding purchase rights, the Board or Committee may determine an equitable
basis of apportioning available Common Stock among all participants.
The Board or the Committee may amend the Plan from time to time in any
respect for any reason; provided, however, no such amendment shall (a)
materially adversely affect any purchase rights outstanding under the Plan
during the Purchase Period in which such amendment is to be effected, (b)
decrease the Purchase Price of the Common Stock for any Purchase Period below
the lesser of 85% of the fair market value thereof on the first day of such
Purchase Period and 85% of such fair market value on the last day of such
Purchase Period, (c) adversely affect the qualification of the Plan under
section 423 of the Code or (d) without shareholder approval, increase the
maximum number of shares of Common Stock which may be purchased under the Plan.
Upon termination of the Plan, the number of full shares of Common Stock
held for each participant's benefit shall be issued as soon as practicable to
such participant and the cash equivalent of any fractional share so held
determined as provided in Section 7, and, except as otherwise provided in
Section 14, the cash, if any, credited to such participant's Purchase Account,
shall be distributed as soon as practicable to such participant.
9. Non-Transferability. Rights acquired under the Plan are not transferable
and may be exercised only by a participant or his or her legal representative,
as the case may be.
10. Shareholder's Rights. No Eligible Employee or participant shall by
reason of the Plan have any rights of a shareholder of the Company until he or
she shall acquire Common Stock as herein provided.
11. Administration of the Plan. The Plan shall be administered by a
committee appointed by the Board consisting of two or more members of the Board
(the "Committee"). In addition to the power to amend or terminate the Plan
pursuant to Section 8, the Committee shall have full power and authority to: (i)
interpret and administer the Plan and any instrument or agreement entered into
under the Plan; (ii) establish such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (iii) make any other determination and take any other action that the
Committee deems necessary or desirable for administration of the Plan. Decisions
of the Committee shall be final, conclusive and binding upon all persons,
including the Company, any participant and any other employee of the Company. A
majority of the members of the Committee may determine its actions and fix the
time and place of its meetings.
The Plan shall be administered so as to ensure that all participants have
the same rights and privileges as are provided by section 423(b)(5) of the Code.
12. Maximum Number of Shares. The maximum number of shares of Common Stock
which may be purchased under the Plan is 850,000 allocated over a period of
three years and subject to adjustment as hereinafter set forth. Common Stock
sold hereunder may be purchased for participants in the open market (on an
exchange or in negotiated transactions) or may be previously acquired treasury
shares, authorized and unissued shares, or any combination of shares purchased
in the open market, previously acquired treasury shares or authorized and
unissued shares. If the Company shall, at any time after the effective date of
the Plan, change its issued Common Stock into an increased number of
<PAGE>
shares, with or without par value, through a stock dividend or a stock split, or
into a decreased number of shares, with or without par value, through a
combination of shares, then, effective with the record date for such change, the
maximum number of shares of Common Stock which thereafter may be purchased under
the Plan and the maximum number of shares which thereafter may be purchased
during any Purchase Period shall be the maximum number of shares which,
immediately prior to such record date, remained available for purchase under the
Plan and under any Purchase Period proportionately increased, in case of such
stock dividend or stock split, or proportionately decreased in case of such
combination of shares.
13. Miscellaneous. Except as otherwise expressly provided herein, (i) any
request, election or notice under the Plan from an Eligible Employee or
participant shall be transmitted or delivered to the Company or its designated
agent and, subject to any limitations specified in the Plan, shall be effective
when received by the Company or its designated agent and (ii) any request,
notice or other communication from the Company or its designated agent that is
transmitted or delivered to Eligible Employees or participants shall be
effective when so transmitted or delivered. The Plan, and the Company's
obligation to sell and deliver Common Stock hereunder, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approval
by any regulatory or governmental agency as may, in the opinion of counsel for
the Company, be required.
14. Change in Control. In order to maintain the participants' rights in the
event of any Change in Control of the Company, as hereinafter defined, upon such
Change in Control the then current Purchase Period shall thereupon end, and the
cash credited to all participants' Purchase Accounts shall be applied to
purchase shares pursuant to Sections 5 and 6, and the Plan shall immediately
thereafter terminate. For purposes of this Section 14, "Change in Control" shall
mean:
(a) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act,
of fifty percent (50%) 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; provided that the following acquisitions shall not
constitute a Change in Control: (i) any acquisition by the Company or Subsidiary
Companies, (ii) any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or Subsidiary Companies, or (iii) any
acquisition by an "Exempt Person," as determined by the Board; or
(b) individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided that (i) any individual
who becomes a director of the Company subsequent to the date hereof 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 and
(ii) any director whose election to the Board, or whose nomination for election
by the stockholders of the Company, was approved by majority vote of the Board,
shall, in each such case be considered as though such individual were a member
of the Incumbent Board; but provided further, that no individual whose initial
assumption of office is in connection with an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act), or any other threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board shall be deemed to
have been a member of the Incumbent Board; or
(c) the approval by the stockholders of the Company 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 Company 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 Company resulting from such reorganization, merger or
consolidation; or
(d) the approval by the stockholders of the Company of (i) a plan of
complete liquidation or dissolution of the Company, or (ii) the sale or other
disposition of all or substantially all of the assets of the Company.
METRIS COMPANIES INC.
MANAGEMENT STOCK PURCHASE PLAN
ARTICLE I
PURPOSE
The purposes of this Metris Companies Inc. Management Stock Purchase Plan
(the "Plan") are (i) to align the interests of the stockholders of Metris
Companies Inc. (the "Company") and the senior executives of the Company and
certain of its subsidiaries by increasing the proprietary interest of such
executives in the Company's growth and success, (ii) to advance the interests of
the Company by attracting and retaining such executives of the Company and such
subsidiaries, and (iii) to motivate such executives to act in the long-term best
interests of the Company's stockholders.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following capitalized terms shall have the
meanings set forth in this Article.
"Board" shall mean the Board of Directors of the Company.
"Bonus Plan" shall mean the Metris Management Incentive Bonus Plan.
<PAGE>
"Bonus Year" shall mean the calendar year for which an annual bonus is
payable under the Bonus Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean a committee designated by the Board consisting of
two or more members of the Board, each of whom is a "Non-Employee Director"
within the meaning of Rule 16b-3 under the Exchange Act.
"Common Stock" shall mean the common stock, par value $.01 per share, of
the Company.
"Company Match" shall mean an amount credited to a Participant's Stock
Purchase Account pursuant to Section 4.2 hereof based on the deferred portion of
the Participant's annual bonus under the Bonus Plan for a Bonus Year.
"Designated Beneficiary" shall mean the person or persons entitled to
receive the remaining Distributable Balance in a Participant's Stock Purchase
Account at the Participant's death.
"Distributable Balance" shall mean the balance in a Participant's Stock
Purchase Account that is distributable to the Participant upon termination of
the Participant's employment or the earlier distribution date specified by the
Participant.
"Employer" shall mean the Company and any subsidiary of the Company
approved by the Board.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of a share of Common Stock shall mean its closing sale
price on the principal national stock exchange on which Common Stock is traded
on the date as of which such value is being determined, or, if there shall be no
reported sale for such date, on the next preceding date for which a sale was
reported; provided that if Fair Market Value for any date cannot be so
determined, Fair Market Value shall be determined by the Committee by whatever
means or method as the Committee, in the good faith exercise of its discretion,
shall at such time deem appropriate.
"Legal Representative" shall mean a guardian, legal representative or other
person acting in a similar capacity with respect to a Participant.
"Participant" means an eligible executive of an Employer who has elected to
participate in the Plan.
"Stock Purchase Account" shall mean a book reserve maintained by the
Company for the purpose of measuring the amount payable to a Participant with
respect to the deferred portion of the Participant's annual bonus under the
Bonus Plan for a Bonus Year.
ARTICLE III
ELIGIBILITY AND ADMINISTRATION
3.1 Eligibility. Any executive of an Employer whose job title is that of
Senior Vice President or higher and who is a participant in the Bonus Plan is
eligible to participate in the Plan.
3.2 Administration. The Plan shall be administered by the Committee. The
Committee may, in its sole discretion and for any reason at any time, take
action such that all or a portion of the amount in a Participant's Stock
Purchase Account attributable to a Company Match shall vest. The Committee
shall, subject to the terms of the Plan, interpret the Plan and the application
thereof, and establish such rules and regulations it deems necessary or
desirable for the administration of the Plan. All such interpretations, rules
and regulations shall be final, binding and conclusive.
(a) Indemnification. No member of the Board or Committee shall be liable
for any act, omission, interpretation, construction or determination made in
good faith in connection with the Plan, and each member of the Board and the
Committee shall be entitled to indemnification and reimbursement by the Company
in respect of any claim, loss, damage or expense (including attorneys' fees)
arising therefrom to the full extent permitted by law, except as otherwise may
be provided in the Company's Articles of Incorporation or by-laws, and under any
directors' and officers' liability insurance which may be in effect from time to
time.
3.3 Shares Available. Subject to adjustment as provided in Section 5.5,
150,000 shares of Common Stock shall be available under the Plan. Such shares of
Common Stock shall be reduced by the aggregate number of shares of Common Stock
allocated to Participant's Stock Purchase Accounts under the Plan. To the extent
that shares of Common Stock allocated to Participant's Stock Purchase Accounts
are forfeited, then such shares of Common Stock shall again be available under
the Plan. Shares of Common Stock to be delivered under the Plan shall be made
available from authorized and unissued shares of Common Stock, or authorized and
issued shares of Common Stock reacquired and held as treasury shares or
otherwise or a combination thereof.
ARTICLE IV
STOCK PURCHASE ACCOUNTS
AND COMPANY MATCH AWARDS
4.1 Stock Purchase Accounts. There shall be deducted from each check in
full or partial payment of a Participant's annual bonus under the Bonus Plan for
a Bonus Year, an amount equivalent to the percentage (not to exceed 50%) of the
gross bonus payment that the Participant has elected to defer (in accordance
with rules and regulations established by the Committee), which amount will be
credited as of the date on which the check is issued to the Participant's Stock
Purchase Account. Amounts so credited to the Participant's Stock Purchase
Account (as adjusted for deemed investment returns) shall be 100% vested at all
times.
4.2 Company Match Awards. As of each date on which amounts are credited to
a Participant's Stock Purchase Account pursuant to Section 4.1, there shall also
be credited to the Stock Purchase Account a Company Match amount equal to 33
1/3% of the amount credited to the Stock Purchase Account as of such date
pursuant to Section 4.1. The Company Match amount so credited to the
Participant's Stock Purchase
<PAGE>
Account pursuant to this Section 4.2 (as adjusted for deemed investment returns
hereunder) shall become vested on the third anniversary of the end of the Bonus
Year, provided that the Participant is an employee of the Company (or a
subsidiary of the Company) on such date.
4.3 Deemed Investment of Stock Purchase Accounts. Amounts credited to a
Participant's Stock Purchase Account pursuant to Sections 4.1 and 4.2 above
shall be deemed to be invested in whole and fractional shares of Common Stock at
the Fair Market Value thereof on the date as of which the amount is credited to
the Stock Purchase Account.
4.4 Distribution of Stock Purchase Accounts. On the earlier of the date
specified by the Participant (which shall be no earlier than the second
anniversary of the end of the Bonus Year in the case of the Bonus Year ending
December 31, 1999 or the third anniversary of the end of the Bonus Year for all
subsequent Bonus Years) in accordance with rules and regulations established by
the Committee or the date the Participant terminates his/her employment for
whatever reason, the Company shall compute the "Distributable Balance" in the
Stock Purchase Account on such date. This Distributable Balance shall include
(i) if the Participant's employment has terminated, all bonus deferrals made
through the current month (as adjusted for deemed investment returns hereunder),
or, if the Participant's employment has not terminated, all bonus deferrals that
are distributable to the Participant on such date (as adjusted for deemed
investment returns hereunder) and (ii) if the Participant's employment has
terminated for retirement, disability or death, all Company Match amounts
credited to the Stock Purchase Account (as adjusted for deemed investment
returns hereunder), or, if the Participant's employment has not terminated or
has terminated for any other reason, the vested Company Match amounts credited
to the Stock Purchase Account (as adjusted for deemed investment returns
hereunder). In the event that the Participant becomes disabled, his/her
employment shall for these purposes be deemed to terminate on the first day of
the month in which he/she begins to receive long term disability payments
provided by the Company's insurance carrier. Payment of the Distributable
Balance under these events will be in accordance with the Participant's payment
method and distribution date elections. For purposes of this Section 4.4,
"disability" shall mean a total physical disability which, in the Company's
judgment, prevents the Participant from performing substantially his/her
employment duties and responsibilities for a continuous period of at least six
months, and "retirement" shall mean retirement as defined in the [name of
Company's retirement plan]. All distributions hereunder will be made in whole
shares of Common Stock and cash equal to the Fair Market Value of any fractional
share. If a Participant dies before his/her entire Distributable Balance has
been paid, the Company shall pay the then undistributed remainder of the
Distributable Balance to the Participant's Designated Beneficiary.
4.5 Designation of Beneficiaries. A Participant may designate a Designated
Beneficiary by executing and filing with the Company during his/her lifetime, a
beneficiary designation. The Participant may change or revoke any such
designation by executing and filing with the Company during his/her lifetime a
new beneficiary designation. If any Designated Beneficiary predeceases the
Participant, or if any corporation, partnership, trust or other entity which is
a Designated Beneficiary is terminated, dissolved, becomes insolvent, is
adjudicated bankrupt prior to the date of the Participant's death, or if the
Participant fails to designate a beneficiary, then the following persons in the
order set forth below shall receive the entire amount which the previous
Designated Beneficiary would have been entitled to receive:
i) Participant's spouse, if living; otherwise
ii) Participant's then living descendants, per stirpes; and otherwise;
iii) Participant's estate.
ARTICLE V
GENERAL
5.1 Effective Date of Plan. The Plan shall become effective as of [January
1, 2000]. The Program shall be submitted to the stockholders of the Company for
approval, and in the event that the Program is not approved by such
stockholders, any awards granted under the Program shall be void.
5.2 Amendments. The Board may amend the Plan as it shall deem advisable,
subject to any requirement of stockholder approval under applicable law;
provided, however, that, except as provided in Section 5.5, no amendment shall
be made without stockholder approval if such amendment increases the maximum
number of shares of Common Stock available for issuance under the Plan. No
amendment may impair the rights of a Participant without the consent of such
Participant.
5.3 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock, payment by the
Participant of any federal, state, local or other taxes which may be required to
be withheld or paid in connection with the distribution of Common Stock. In the
alternative, the Company may withhold whole shares of Common Stock which would
otherwise be delivered to a Participant, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with a distribution (the "Tax Date") in the amount necessary to
satisfy any such obligation or (ii) the Participant may satisfy any such
obligation. Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining amount due
shall be paid in cash by the Participant.
5.4 Restrictions on Shares. If at any time the Company determines that the
listing, registration or qualification of the shares of Common Stock allocated
to the Stock Purchase Accounts of Participants upon any
<PAGE>
securities exchange or under any law, or the consent or approval of any
governmental body, or the taking of any other action is necessary or desirable
as a condition of, or in connection with, the delivery of shares hereunder, such
shares shall not be delivered unless such listing, registration, qualification,
consent, approval or other action shall have been effected or obtained, free of
any conditions not acceptable to the Company. The Company may require that
certificates evidencing shares of Common Stock delivered to any Participant
hereunder bear a legend indicating that the sale, transfer or other disposition
thereof by the holder is prohibited except in compliance with the Securities Act
of 1933, as amended, and the rules and regulations thereunder.
5.5 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities deemed to be held in each Stock
Purchase Account shall be appropriately adjusted by the Committee. The decision
of the Committee regarding any such adjustment shall be final, binding and
conclusive.
5.6 Change in Control.
(a) (1)Notwithstanding any provision in the Plan, in the event of a Change
in Control, the Board may, but shall not be required to, make such adjustments
to outstanding awards hereunder as it deems appropriate, including, without
limitation, causing the amount in a Stock Purchase Account attributable to a
Company Match to vest, or electing that each outstanding Stock Purchase Account
shall be canceled by the Company, and that each Participant shall receive,
within a specified period of time from the occurrence of the Change in Control,
a cash payment from the Company in an amount equal to the number of shares of
Common Stock then deemed to be in the Participant's Stock Purchase Account,
multiplied by the greater of (x) the highest per share price offered to
stockholders of the Company in any transaction whereby the Change in Control
takes place or (y) the Fair Market Value of a share of Stock on the date of
occurrence of the Change in Control.
(2) In the event of a Change in Control pursuant to subsection (b)(3) or
(4) below in connection with which the holders of Common Stock receive shares of
common stock that are registered under Section 12 of the Exchange Act, the Board
may, but shall not be required to, substitute for each share of Common Stock
available under this Plan, whether or not then subject to an outstanding award,
the number and class of shares into which each outstanding share of Common Stock
shall be converted pursuant to such Change in Control.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act, of beneficial ownership within the meaning of Rule
13d-3 promulgated under the Exchange Act, of 50% or more of the combined
voting power of the then outstanding securities of the Company entitled to
vote generally on matters (without regard to the election of directors)
(the "Outstanding Voting Securities"), excluding, however, the following:
(i) any acquisition directly from the Company or a subsidiary of the
Company (excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the Company or
a subsidiary of the Company), (ii) any acquisition by the Company or a
subsidiary of the Company, (iii) any acquisition by an employee benefit
plan (or related trust) sponsored or maintained by the Company or a
subsidiary of the Company, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (3) of this Section 5.6(b) (all such persons, collectively,
the "Exempted Persons");
(2) individuals who, as of [January 1, 2000], constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided that any individual who becomes a director of the
Company subsequent to [January 1, 2000], whose election, or nomination for
election by the Company's stockholders, was approved by the vote of at
least a majority of the directors then comprising the Incumbent Board shall
be deemed a member of the Incumbent Board; and provided further, that any
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a member of
the Incumbent Board;
(3) approval by the stockholders of the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or substantially
all of the individuals or entities who are the beneficial owners of the
Outstanding Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 50% of
the combined voting power of the outstanding securities of the corporation
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns, either directly or
indirectly, the Company or all or substantially all of the Company's
assets) which are entitled to vote
<PAGE>
generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares of
Outstanding Voting Securities are owned immediately prior to such Corporate
Transaction, (ii) no Person (other than the following Persons: (v) the
Company or subsidiary of the Company, (w) any employee benefit plan (or
related trust) sponsored or maintained by the Company or subsidiary of the
Company, (x) the corporation resulting from such Corporate Transaction, (y)
the Exempted Persons, (z) and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or indirectly,
25% or more of the Outstanding Voting Securities) will beneficially own,
directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on
matters (without regard to the election of directors) and (iii) individuals
who were members of the Incumbent Board will constitute at least a majority
of the members of the board of directors of the corporation resulting from
such Corporate Transaction; or
(4) approval by the stockholders of the Company of (i) a plan of complete
liquidation or dissolution of the Company, or (ii) the sale or other
disposition of all or substantially all of the assets of the Company.
5.7 No Right of Employment. Participation in the Plan shall not confer upon
any person any right to continued employment by the Company or any of its
subsidiaries or affect in any manner the right of the Company or any of its
subsidiaries to terminate the employment of any person at any time without
liability hereunder.
5.8 Rights as Stockholder. No person shall have any right as a stockholder
of the Company with respect to any shares of Common Stock of the Company which
are allocated to such person's Stock Purchase Account hereunder unless and until
such person becomes a stockholder of record with respect to such shares of
Common Stock.
5.9 Governing Law. The place of administration of the Plan shall be in the
State of Minnesota. The corporate law of the State of Delaware shall govern
issues relating to the validity and issuance of shares of Common Stock.
Otherwise, the Plan shall be construed and administered in accordance with the
laws of the State of Minnesota, without giving effect to principles relating to
conflict of laws.
5.10 Severability. If a provision of the Plan shall be held illegal or
invalid, the illegality or invalidity shall not affect the remaining parts of
the Plan and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included in the Plan.
ANNUAL INCENTIVE BONUS PLAN
DESIGNATED CORPORATE OFFICERS
(As Amended and Restated Effective January 1, 2000)
1. Definitions. When the following terms are used herein with initial
capital letters, they shall have the following meanings:
1.1 Base Pay - as determined by Compensation Committee.
1.2 Code - the Internal Revenue Code of 1986, as it may be amended from
time to time, and any proposed, temporary or final Treasury Regulations
promulgated thereunder.
1.3 Common Stock - shall mean the common stock, par value $.01 per share,
of the Company.
1.4 Company - Metris Companies Inc., a Delaware corporation, and any of its
affiliates that adopt this Plan.
1.5 Company Match - shall mean an amount credited to a Participant's
Deferred Stock Account pursuant to subsection 5.2 hereof based on the deferred
portion of the Participant's bonus payment for a Performance Period.
1.6 Company Performance Factor - percentage identified in Schedule Z. The
Company Performance Factor shall be directly and specifically tied to one or
more of the following business criteria, determined with respect to the Company:
consolidated pre-tax earnings, net revenues, net earnings, operating income,
earnings before interest and taxes, cash flow, return on equity, return on net
assets employed or earnings per share for the applicable Performance Period, all
as computed in accordance with generally accepted accounting principles as in
effect from time to time and as applied by the Company in the preparation of its
financial statements and subject to such other special rules and conditions as
the Compensation Committee may establish at any time ending on or before the
90th day of the applicable Performance Period. Such Performance Factors shall
constitute the sole business criteria upon which the performance goals under
this Plan shall be based.
1.7 Compensation Committee - a committee comprised solely of two or more
members of the Board of Directors of Metris Companies Inc., each of whom is an
"outside director" within the meaning of Section 162(m) of the Code and a "Non-
Employee Director" within the meaning of Rule 16b-3 under the Exchange Act.
1.8 Deferred Stock Account - shall mean a book reserve maintained by the
Company for the purpose of measuring the amount payable to a Participant with
respect to the deferred portion of the Participant's bonus payment for a
Performance Period.
1.9 Designated Beneficiary - shall mean the person or persons entitled to
receive the remaining Distributable Balance in a Participant's Deferred Stock
Account at the Participant's death.
1.10 Distributable Balance - shall mean the balance in a Participant's
Deferred Stock Account that is distributable to the Participant upon termination
of the Participant's employment or the earlier distribution date specified by
the Participant.
1.11 Exchange Act - shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
1.12 Fair Market Value - of a share of Common Stock shall mean its closing
sale price on the principal national stock exchange on which Common Stock is
traded on the date as of which such value is being determined, or, if there
shall be no reported sale for such date, on the next preceding date for which a
sale was reported; provided that if Fair Market Value for any date cannot be so
determined, Fair Market Value shall be determined by the Compensation Committee
by whatever means or method as the Compensation Committee, in the good faith
exercise of its discretion, shall at such time deem appropriate.
1.13 Legal Representative - shall mean a guardian, legal representative or
other person acting in a similar capacity with respect to a Participant.
1.14 Participant - the President and Chief Executive Officer, and any of
the Executive Vice Presidents or Senior Vice Presidents of the Company who are
designated by the Compensation Committee at any time ending on or before the
90th day of each Performance Period as Participants in this Plan.
1.15 Performance Period - the twelve consecutive month period which
coincides with the Company's fiscal year.
1.16 Targeted Bonus Percentage - the percentage identified in Schedule Y.
2. Administration.
2.1 Compensation Committee. The Plan shall be administered by the
Compensation Committee.
2.2 Determinations Made Prior to Each Performance Period. At any time
ending on or before the 90th day of each Performance Period, the Compensation
Committee shall:
(a) designate Participants for that Performance Period;
(b) establish Targeted Bonus Percentages for the Performance Period by
amending (in writing) Schedule Y;
(c) establish Company Performance Factors for the Performance Period by
amending (in writing) Schedule Z.
2.3 Certification. Following the close of each Performance Period and prior
to payment of any bonus under the Plan, the Compensation Committee must certify
in writing that the Company Performance Factor and all other factors upon which
a bonus is based have been attained.
2.4 Shareholder Approval. The material terms of this Plan shall be
disclosed to and approved by shareholders of the Company in accordance with
Section 162(m) of the Code. No bonus shall be paid under this Plan unless such
shareholder approval has been obtained.
3. Bonus Payment.
3.1 Formula. Each Participant shall receive a bonus payment for each
Performance Period in an amount not greater than:
(a) the Participant's Base Pay for the Performance Period, multiplied by.
(b) the Participant's Targeted Bonus Percentage for the Performance Period
multiplied by
(c) the Participant's Company Performance Factor for the Performance
Period.
3.2 Limitations.
(a) No payment if Company Performance Factor not Achieved. In no event
shall any Participant receive a bonus payment hereunder if the Company
Performance Factor and all other factors on which the bonus payment is
based is not achieved during the Performance Period.
(b) No payment in excess of preestablished amount. No Participant
shall receive a bonus payment under this Plan for any Performance Period in
excess of $4 million.
(c) Compensation Committee may reduce bonus payment. The Compensation
Committee retains sole discretion to reduce the amount of or eliminate any
bonus otherwise payable under this Plan.
4. Benefit Payments.
4.1 Time and Form of Payments. Subject to Section 5 below, 50% of the bonus
payment under the Plan for a Performance Period shall be paid to the Participant
in one or more cash payments as soon as determined by the Compensation Committee
after it has certified that the Company Performance Factor and all other factors
upon which the bonus payment for the Participant is based have been attained.
4.2 Nontransferability. Participants and beneficiaries shall not have the
right to assign, encumber or otherwise anticipate the payments to be made under
this Plan, and the benefits provided hereunder shall not be subject to seizure
for payment of any debts or judgments against any Participant or any
beneficiary.
4.3 Tax Withholding. In order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant.
5. Deferred Stock Accounts and Company Match Awards.
5.1 Deferred Stock Accounts. An amount equivalent to 50% of the gross bonus
payment payable to a Participant under the Plan for a Performance Period will be
credited to the Participant's Deferred Stock Account as of the date on which the
first cash bonus payment for the Compensation Performance Period is paid to the
Participant pursuant to subsection 4.1, provided, however, that a Participant
may elect, in accordance with rules and regulations established by the
Compensation Committee, to have all or a portion of such amount paid to the
Participant in cash under subsection 4.1 above rather than credited to the
Participant's Deferred Stock Account. Amounts credited to a Participant's
Deferred Stock Account pursuant to the subsection 5.1 (as adjusted for deemed
investment returns) shall be 100% vested at all times.
<PAGE>
5.2 Company Match Awards. As of each date on which an amount is credited to
a Participant's Deferred Stock Account pursuant to subsection 5.1, there shall
also be credited to the Deferred Stock Account a Company Match amount equal to
33 1/3% of the amount credited to the Deferred Stock Account as of such date
pursuant to subsection 5.1. The Company Match amount so credited to a
Participant's Deferred Stock Account pursuant to this subsection 5.2 (as
adjusted for deemed investment returns hereunder) shall become vested on the
third anniversary of the end of the Performance Period, provided that the
Participant is an employee of the Company (or a subsidiary of the Company) on
such date.
5.3 Deemed Investment of Deferred Stock Accounts. Amounts credited to a
Participant's Deferred Stock Account pursuant to subsections 5.1 and 5.2 above
shall be deemed to be invested in whole and fractional shares of Common Stock at
the Fair Market Value thereof on the date as of which the amount is credited to
the Deferred Stock Account.
5.4 Distribution of Deferred Stock Accounts. On the earlier of (a) the date
specified by the Participant (which shall be no earlier than the second
anniversary of the end of the Performance Period in the case of the Performance
Period ending December 31, 1999 or the third anniversary of the end of the
Performance Period for all subsequent Performance Periods) in accordance with
rules and regulations established by the Compensation Committee or (b) the date
the Participant terminates his/her employment for whatever reason, the Company
shall compute the "Distributable Balance" in the Deferred Stock Account on such
date. This Distributable Balance shall include (i) if the Participant's
employment has terminated, all amounts credited to the Deferred Stock Account
pursuant to subsection 5.1 through the current month (as adjusted for deemed
investment returns hereunder), or, if the Paricipant's employment has not
terminated, all amounts credited to the Deferred Stock Account pursuant to
subsection 5.1 that are distributable to the Participant on such date (as
adjusted for deemed investment returns hereunder) and (ii) if the Participant's
employment has terminated for retirement, disability or death, all Company Match
amounts credited to the Deferred Stock Account (as adjusted for deemed
investment returns hereunder), or, if the Participant's employment has not
terminated or has terminated for any other reason, the vested Company Match
amounts credited to the Deferred Stock Account (as adjusted for deemed
investment returns hereunder). In the event that the Participant becomes
disabled, his/her employment shall for these purposes be deemed to terminate on
the first day of the month in which he/she begins to receive long term
disability payments provided by the Company's insurance carrier. Payment of the
Distributable Balance under these events will be in accordance with the
Participant's payment method and distribution date elections. For purposes of
this subsection 5.4, "disability" shall mean a total physical disability which,
in the Company's judgment, prevents the Participant from performing
substantially his/her employment duties and responsibilities for a continuous
period of at least six months, and "retirement" shall mean retirement as defined
in the [name of Company's retirement plan]. All distributions hereunder will be
made in whole shares of Common Stock and cash equal to the Fair Market Value of
any fractional share. If a Participant dies before his/her entire Distributable
Balance has been paid, the Company shall pay the then undistributed remainder of
the Distributable Balance to the Participant's Designated Beneficiary. Subject
to adjustment as provided in subsection 5.8, 150,000 shares of Common Stock
shall be available under the Plan. Such shares of Common Stock shall be reduced
by the aggregate number of shares of Common Stock allocated to Participants'
Deferred Stock Accounts under the Plan. To the extent that shares of Common
Stock allocated to Participants' Deferred Stock Accounts are forfeited, then
such shares of Common Stock shall again be available under the Plan. Shares of
Common Stock to be delivered under the Plan shall be made available from
authorized and unissued shares of Common Stock, or authorized and issued shares
of Common Stock reacquired and held as treasury shares or otherwise or a
combination thereof.
5.5 Designation of Beneficiaries. A Participant may designate a Designated
Beneficiary by executing and filing with the Company during his/her lifetime, a
beneficiary designation. The Participant may change or revoke any such
designation by executing and filing with the Company during his/her lifetime a
new beneficiary designation. If any Designated Beneficiary predeceases the
Participant, or if any corporation, partnership, trust or other entity which is
a Designated Beneficiary is terminated, dissolved, becomes insolvent, is
adjudicated bankrupt prior to the date of the Participant's death, or if the
Participant fails to designate a beneficiary, then the following persons in the
order set forth below shall receive the entire amount which the previous
Designated Beneficiary would have been entitled to receive:
i) Participant's spouse, if living; otherwise
ii) Participant's then living descendants, per stirpes; and otherwise;
iii) Participant's estate
5.6 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock, payment by the
Participant of any federal, state, local or other taxes which may be required to
be withheld or paid in connection with the distribution of Common Stock. In the
alternative, the Company may withhold whole shares of Common Stock which would
otherwise be delivered to a Participant, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with a distribution (the "Tax Date") in the amount necessary to
satisfy any such obligation or (ii) the Participant may satisfy any such
obligation. Any fraction of a share of
<PAGE>
Common Stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the
Participant.
5.7 Restrictions on Shares. If at any time the Company determines that the
listing, registration or qualification of the shares of Common Stock allocated
to the Deferred Stock Accounts of Participants upon any securities exchange or
under any law, or the consent or approval of any governmental body, or the
taking of any other action is necessary or desirable as a condition of, or in
connection with, the delivery of shares hereunder, such shares shall not be
delivered unless such listing, registration, qualification, consent, approval or
other action shall have been effected or obtained, free of any conditions not
acceptable to the Company. The Company may require that certificates evidencing
shares of Common Stock delivered to any Participant hereunder bear a legend
indicating that the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
5.8 Adjustment. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event, or any distribution to holders of Common Stock other than a regular cash
dividend, the number and class of securities deemed to be held in each Deferred
Stock Account shall be appropriately adjusted by the Compensation Committee. The
decision of the Compensation Committee regarding any such adjustment shall be
final, binding and conclusive.
5.9 Change in Control.
(a) (1) Notwithstanding any provision in the Plan, in the event of a Change
in Control, the Compensation Committee may, but shall not be required to, make
such adjustments to outstanding awards hereunder as it deems appropriate,
including, without limitation, causing the amount in a Deferred Stock Account
attributable to a Company Match to vest, or electing that each outstanding
Deferred Stock Account shall be canceled by the Company, and that each
Participant shall receive, within a specified period of time from the occurrence
of the Change in Control, a cash payment from the Company in an amount equal to
the number of shares of Common Stock then deemed to be in the Participant's
Deferred Stock Account, multiplied by the greater of (x) the highest per share
price offered to shareholders of the Company in any transaction whereby the
Change in Control takes place or (y) the Fair Market Value of a share of Stock
on the date of occurrence of the Change in Control.
(2) In the event of a Change in Control pursuant to subsection (b)(3) or
(4) below in connection with which the holders of Common Stock receive shares of
common stock that are registered under Section 12 of the Exchange Act, the
Compensation Committee may, but shall not be required to, substitute for each
share of Common Stock available under this Plan, whether or not then subject to
an outstanding award, the number and class of shares into which each outstanding
share of Common Stock shall be converted pursuant to such Change in Control.
(b) For purposes of the Plan, "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 50% or more of the combined voting power
of the then outstanding securities of the Company entitled to vote generally on
matters (without regard to the election of directors) (the "Outstanding Voting
Securities"), excluding, however, the following: (i) any acquisition directly
from the Company or a subsidiary of the Company (excluding any acquisition
resulting from the exercise of an exercise, conversion or exchange privilege,
unless the security being so exercised, converted or exchanged was acquired
directly from the Company or a subsidiary of the Company), (ii) any acquisition
by the Company or a subsidiary of the Company, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or a subsidiary of the Company, or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (3) of this Section 5.6(b) (all such persons, collectively, the
"Exempted Persons");
(2) individuals who, as of [January 1, 2000], constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided that any individual who
becomes a director of the Company subsequent to [January 1, 2000], whose
election, or nomination for election by the Company's shareholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and provided
further, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or
any other actual or threatened solicitation of proxies or consents by or on
behalf of any Person other than the Board shall not be deemed a member of the
Incumbent Board;
(3) approval by the shareholders of the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Corporate Transaction"), excluding, however, a
Corporate Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the beneficial owners of the Outstanding Voting
Securities immediately prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than 50% of the combined voting power of the
outstanding securities of the corporation
<PAGE>
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns, either directly or
indirectly, the Company or all or substantially all of the Company's assets)
which are entitled to vote generally on matters (without regard to the election
of directors), in substantially the same proportions relative to each other as
the shares of Outstanding Voting Securities are owned immediately prior to such
Corporate Transaction, (ii) no Person (other than the following Persons: (v) the
Company or subsidiary of the Company, (w) any employee benefit plan (or related
trust) sponsored or maintained by the Company or subsidiary of the Company, (x)
the corporation resulting from such Corporate Transaction, (y) the Exempted
Persons, (z) and any Person which beneficially owned, immediately prior to such
Corporate Transaction, directly or indirectly, 25% or more of the Outstanding
Voting Securities) will beneficially own, directly or indirectly, 25% or more of
the combined voting power of the outstanding securities of such corporation
entitled to vote generally on matters (without regard to the election of
directors) and (iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(4) approval by the shareholders of the Company of (i) a plan of complete
liquidation or dissolution of the Company, or (ii) the sale or other disposition
of all or substantially all of the assets of the Company.
6. Amendment and Termination. The Compensation Committee may amend this
Plan prospectively at any time and for any reason deemed sufficient by it
without notice to any person affected by this Plan and may likewise terminate or
curtail the benefits of this Plan both with regard to persons expecting to
receive benefits hereunder in the future and persons already receiving benefits
at the time of such action.
7. Miscellaneous.
7.1 Effective Date. The effective date of this amendment and restatement of
the Plan is January 1, 2000.
7.2 Term of the Plan. Unless the Plan shall have been discontinued or
terminated, the Plan shall terminate on December 31, 2003. No bonus shall be
granted after the termination of the Plan; provided, however, that a payment
with respect to a Performance Period which begins before such termination may be
made thereafter. In addition, the authority of the Compensation Committee to
amend the Plan, shall extend beyond the termination of the Plan.
7.3 Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any ways material or relevant to the construction or interpretation of
the Plan or any provision thereof.
7.4 Applicability to Successors. This Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and assigns
of the Company, and the beneficiaries, personal representatives and heirs of
each Participant. If the Company becomes a party to any merger, consolidation or
reorganization, this Plan shall remain in full force and effect as an obligation
of the Company or its successors in interest.
7.5 Employment Rights and Other Benefits Programs. The provisions of this
Plan shall not give any Participant any right to be retained in the employment
of the Company. In the absence of any specific agreement to the contrary, this
Plan shall not affect any right of the Company, or of any affiliate of the
Company, to terminate, with or without cause, the participant's employment at
any time. This Plan shall not replace any contract of employment, whether oral,
or written, between the Company and any Participant, but shall be considered a
supplement thereto. This Plan is in addition to, and not in lieu of, any other
employee benefit plan or program in which any Participant may be or become
eligible to participate by reason of employment with the Company. Receipt of
benefits hereunder shall have such effect on contributions to and benefits under
such other plans or programs as the provisions of each such other plan or
program may specify.
7.6 No Trust Fund Created. This Plan shall not create or be construed to
create a trust or separate fund of any kind or fiduciary relationship between
the Company or any affiliate and a Participant or any other person. To the
extent that any person acquires a right to receive payments from the Company or
any affiliate pursuant to this Plan, such right shall be no greater than the
right of any unsecured general creditor of the Company or of any affiliate.
7.7 Governing Law. The place of administration of the Plan shall be in the
State of Minnesota. The corporate law of the State of Delaware shall govern
issues relating to the validity and issuance of shares of Common Stock.
Otherwise, the Plan shall be construed and administered in accordance with the
laws of the State of Minnesota, without giving effect to principles relating to
conflict of laws.
7.8 Severability. If any provision of the Plan is or becomes or is deemed
to be invalid, illegal or unenforceable in any jurisdiction such provision shall
be construed or deemed amended to conform to applicable laws, or if it cannot be
so construed or deemed amended without, in the determination of the Compensation
Committee, materially altering the purpose or intent of the Plan, such provision
shall be stricken as to such jurisdiction, and the remainder of the Plan shall
remain in full force and effect.
7.9 Qualified Performance Based Compensation. All of the terms and
conditions of the Plan shall be interpreted in such a fashion as to qualify all
compensation paid hereunder to the maximum extent possible as qualified
performance-based compensation within the meaning of Section 162(m) of the Code.
<PAGE>
METRIS COMPANIES INC.
LONG-TERM INCENTIVE AND STOCK OPTION PLAN
As Amended and Restated
Effective as of May 11, 1999
1. Purpose of Plan.
This Plan shall be known as the "METRIS COMPANIES INC. LONG-TERM INCENTIVE
AND STOCK OPTION PLAN." The purpose of the Plan is to aid in maintaining and
developing personnel capable of ensuring the future success of Metris Companies
Inc., a Delaware corporation, to offer such personnel additional incentives to
put forth maximum efforts for the success of the business, and to afford them an
opportunity to acquire a proprietary interest in the Company through stock
options and other long-term incentive awards as provided herein. Options granted
under this Plan may be either Incentive Stock Options or Nonqualified Stock
Options. Awards granted under this Plan may be stock appreciation rights,
restricted stock or performance awards as hereinafter described. Capitalized
terms used herein shall have the meanings assigned such terms in Section 2
hereof.
2. Definitions.
The following words and phrases, when used in the Plan, unless otherwise
specifically defined or unless the context clearly otherwise requires, shall
have the following respective meanings:
(a) Agreement. The document which evidences the grant of any Award under
this Plan and which sets forth the Award and the terms, conditions and
provisions of, and restrictions relating such Award.
(b) Award. Any award granted to a Participant under the Plan.
(c) Board. The Board of Directors of the Company.
(d) Code. The Internal Revenue Code of 1986, as amended. Any reference to
the Code includes the regulations promulgated pursuant to the Code.
(e) Company. Metris Companies Inc.
(f) Committee. The Company's Compensation Committee or its successor.
(g) Common Stock. The Company's common stock, par value $.01.
(h) Fair Market Value. The closing price of a share of Common Stock the day
before the date of determination of Fair Market Value on any exchange or
automated quotation system upon which the Common Stock is listed or quoted,
provided that if the Common Stock is listed on more than one exchange, then the
Committee shall determine which exchange's price shall be used. If the Common
Stock did not trade on such a date, the Committee may use the closing price that
is most recent provided the Committee in good faith has determined that such
price reflects the fair market value of the Common Stock. Notwithstanding the
foregoing, if the Code shall specify a different method of determining fair
market value for setting the exercise price of an Incentive Stock Option, than
Fair Market Value for such purpose shall be determined as required by the Code.
If on the date of determination of Fair Market Value, the Common Stock is not
listed on an exchange or otherwise traded in an established securities market or
the Committee has determined that the most recent closing price available does
not reflect Fair Market Value, the Committee shall make a good faith
determination of Fair Market Value from sources and information it deems
relevant to such determination.
(i) Incentive Stock Option. An incentive stock option as defined in Section
422 of the Code and designated by the Committee to be an incentive stock option.
(j) Nonqualified Stock Option. A stock option which does not qualify as an
Incentive Stock Option.
(k) Option. Any Incentive Stock Option or Nonqualified Stock Option granted
under the Plan.
(l) Performance Award. An Award made pursuant to Section 11 of this Plan.
(m) Plan. The Metris Companies Long-Term Incentive and Stock Option Plan,
as amended and restated effective May 11, 1999.
(n) Restricted Stock. Awards of Common Stock made pursuant to Section 10 of
the Plan.
(o) SAR. A stock appreciation right granted pursuant to Section 9 of the
Plan.
3. Stock Subject to Plan.
Subject to the provisions of Section 16 hereof, the stock to be subject to
options or other awards under the Plan shall be the Company's Common Stock.
Subject to adjustment as provided in Section 16 hereof, 4,000,000 shares of
Common Stock shall be available for issuance under this Plan, reduced by the sum
of the aggregate number of shares of Common Stock which become subject to
outstanding Options, free standing SARs, and outstanding Restricted Stock Awards
or outstanding Performance Awards of Common Stock. To the extent that shares of
Common Stock subject to an outstanding Option, (except to the extent that shares
of Common Stock are issued or delivered by the Company in connection with the
exercise of a tandem SAR), outstanding free standing SAR, or outstanding
Restricted Stock Award or outstanding Performance Award of Common Stock are not
issued or delivered by reason of the expiration, termination, cancellation or
forfeiture of such Award or by reason of the delivery or withholding of shares
of Common Stock to pay all or a portion of the exercise price of an Award, if
any, or to satisfy all or a portion of the tax withholding obligations relating
to an Award, then such shares of Common Stock shall again be available under
this Plan.
4. Administration of Plan.
(a) The Plan shall be administered by the Committee which shall be a
committee comprised of not less than two directors appointed from time to time
by the Board of Directors. Each member of the Committee shall be a "Non-
Employee Director" within the meaning
<PAGE>
of Rule 16b-3 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, or any successor rule or regulation
("Rule 16b-3") and an "outside director" within the meaning of Section 162(m) of
the Code.
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock covered by each option or award, (ii) to determine the
individuals to whom and the time or times at which such options and awards shall
be granted and the number of shares to be subject to each, (iii) to determine
the form of payment to be made upon the exercise of an SAR or in connection with
performance awards, either cash, Common Stock or a combination thereof, (iv) to
determine the terms of exercise of each option and award, (v) to accelerate the
time at which all or any part of an option or award may be exercised, (vi) to
revoke, amend or modify the terms of any Award prior to delivery of an Agreement
to the grantee and to amend or modify the terms of any Award with the consent of
the grantee after the execution of an Agreement, (vii) to interpret the Plan,
(viii) to prescribe, amend and rescind rules and regulations relating to the
Plan, (ix) to determine the terms and provisions of each option and award
agreement under the Plan (which agreements need not be identical), including the
designation of those options intended to be Incentive Stock Options, and (x) to
make all other determinations necessary or advisable for the administration of
the Plan, subject to the exclusive authority of the Board of Directors under
Section 16 hereof to amend or terminate the Plan. The Committee's determinations
on the foregoing matters, unless otherwise disapproved by the Board of Directors
of the Company, shall be final and conclusive.
5. Eligibility.
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations within the meaning of Section 424(f) of the
Code (herein called "subsidiaries"). Full or part-time employees, consultants or
independent contractors to the Company or one of its subsidiaries shall be
eligible to receive Nonqualified Stock Options and Awards. In determining the
persons to whom Options and Awards shall be granted and the number of shares
subject to each, the Committee may take into account the nature of services
rendered by the respective employees or consultants, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant. A person who has been granted
an Option or Award under this Plan may be granted additional Options or Awards
under the Plan if the Committee shall so determine; provided, however, that for
Incentive Stock Options granted after December 31, 1986, to the extent the
aggregate Fair Market Value (determined at the time the Incentive Stock Option
is granted) of the Common Stock with respect to which all Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all plans described in subsection (d) of Section 422 of the Code of
his employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such Options shall be treated as Nonqualified Stock Options. Nothing
in the Plan or in any Agreement hereunder shall confer on any employee any right
to continue in the employ of the Company or any of its subsidiaries or affect,
in any way, the right of the Company or any of its subsidiaries to terminate his
or her employment at any time.
6. Price.
The exercise price for all Incentive Stock Options and all Nonqualified
Stock Options and SAR's that are intended to constitute "qualified performance-
based compensation" under Section 162(m) of the Code granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value per share of Common Stock at the date of grant of such Option. The
exercise price for Nonqualified Stock Options granted under the Plan that are
not intended to constitute "qualified performance-based compensation" under
Section 162(m) of the Code and, if applicable, the price for all Awards shall
also be determined by the Committee.
7. Term.
Each Option and Award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the Option or
Award agreement. The Committee shall be under no duty to provide terms of like
duration for Options or Awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years from the date of
grant of such Option and the term of Options granted under the Plan which do not
qualify as Incentive Stock Options may not extend more than fifteen (15) years
from the date of granting of such Option.
8. Exercise of Option or Award.
(a) The Committee shall have full and complete authority to determine
whether an Option or Award will be exercisable in full at any time or from time
to time during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at such times during the term of the Option as
the Committee may determine and specify in the Option or Award agreement.
(b) The exercise of any Option or Award granted hereunder shall only be
effective at such time that the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws and the shares of
Common Stock to be issued are listed as required by any exchange or automated
quotation system upon which the stock is traded or quoted. The Company shall not
be required to make such listing if such listing contains conditions
unacceptable to the Company.
<PAGE>
(c) An optionee or grantee electing to exercise an option or award shall
give written notice to the Company of such election and of the number of shares
subject to such exercise. If a payment is required, it shall be made to the
Company in cash (including bank check, certified check, personal check, or money
order), or, at the discretion of the Committee and as specified by the
Committee, (i) by delivering certificates for Common Stock already owned by the
optionee or grantee having a Fair Market Value as of the date of grant equal to
the full purchase price of the shares, (ii) by delivering the optionee's or
grantee's promissory note, which shall provide for interest at a rate not less
than the minimum rate required to avoid the imputation of income, original issue
discount or a below-market-rate loan pursuant to Sections 483, 1274 or 7872 of
the Code or any successor provisions thereto, (iii) a combination of cash, the
optionee's or grantee's promissory note and such shares, or (iv) in cash by a
broker-dealer acceptable to the Company to whom the optionee or grantee has
submitted an irrevocable notice of exercise. The fair market value of such
tendered shares shall be determined as provided in Section 5 hereof. The
optionee's or grantee's promissory note shall be a full recourse liability of
the optionee and may, at the discretion of the Committee, be secured by a pledge
of the shares being purchased. Such payment shall be made at the time required
by the Committee but in no event later than delivery of any shares of Common
Stock hereunder. Such payment shall be made at the time required by the
Committee but in no event later than delivery of any shares of Common Stock
hereunder. Until such person has been issued the shares subject to such
exercise, he or she shall possess no rights as a shareholder with respect to
such shares.
(d) The Committee may grant "restoration" options, separately or together
with another option, pursuant to which, subject to the terms and conditions
established by the Committee and any applicable requirements of Rule 16b-3
promulgated under the Securities and Exchange Act of 1934 or any other
applicable law, the optionee would be granted a new option when the payment of
the exercise price of the option to which such "restoration" option relates is
made by the delivery of shares of Common Stock owned by the optionee, as
described in subsection (c) above, which new option would be an option to
purchase the number of shares not exceeding the sum of (a) the number of shares
of Common Stock tendered as payment upon the exercise of the option to which
such "restoration" option relates and (b) the number of shares of Common Stock,
if any, tendered as payment of the amount to be withheld under applicable income
tax laws in connection with the exercise of the option to which such
"restoration" option relates, as described in Section 12 hereof. "Restoration"
options may be granted with respect to options previously granted under this
Plan or any prior stock option plan of the Company, and may be granted in
connection with any option granted under this Plan at the time of such grant.
The purchase price of the Common Stock under each such new option, and the other
terms and conditions of such option, shall be determined by the Committee
consistent with the provisions of the Plan.
9. Stock Appreciation Rights.
(a) Grant. At the time of grant of an option or award under the Plan (or at
any other time), the Committee, in its discretion, may grant a stock
appreciation right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to the Company of a
written notice which shall state that the holder thereof elects to exercise his
or her SAR as to the number of shares specified in the notice and which shall
further state what portion, if any, of the "SAR exercise amount" (hereinafter
defined) the holder thereof requests be paid in cash and what portion, if any,
is to be paid in Common Stock of the Company. The Committee promptly shall cause
to be paid to such holder the "SAR exercise amount" either in cash, in Common
Stock of the Company, or any combination of cash and shares as may be requested
by the holder of the SAR and approved by the Committee in its sole and absolute
discretion. The "SAR exercise amount" is the excess of the Fair Market Value of
one share of Common Stock on the date of exercise over the per share exercise
price in respect of which the SAR was granted, multiplied by the number of
shares as to which the SAR is exercised.
(c) Tandem Grants. If SARs are granted in tandem with an Option, the
exercise of the Option shall cause a proportional reduction in SARs standing to
a grantee's credit which were granted in tandem with the Option; and the payment
of SARs shall cause a proportional reduction of the shares of Common Stock
subject to the Option. If SARs are granted in tandem with an Incentive Stock
Option, the SARS shall have such terms and condition as shall be required for
the Incentive Stock Option to qualify as an Incentive Stock Option.
10. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer restrictions may
be granted by the Committee. Any restricted stock award shall be evidenced by an
agreement in such form as the Committee shall from time to time approve, which
agreement shall comply with and be subject to the following terms and conditions
and any additional terms and conditions established by the Committee that are
consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted stock award made
under the Plan shall be for such number of shares of Common Stock as shall be
determined by the Committee and set forth in the agreement containing the terms
of such restricted stock
<PAGE>
award. Such agreement shall set forth a period of time during which the grantee
must remain in the continuous employment of the Company in order for the
forfeiture and transfer restrictions to lapse. If the Committee so determines,
the restrictions may lapse during such restricted period in installments with
respect to specified portions of the shares covered by the restricted stock
award. The agreement may also, in the discretion of the Committee, set forth
performance or other conditions that will subject the Common Stock to forfeiture
and transfer restrictions. The Committee may, at its discretion, waive all or
any part of the restrictions applicable to any or all outstanding restricted
stock awards.
(b) Delivery of Common Stock and Restrictions. At the time of a restricted
stock award, a certificate representing the number of shares of Common Stock
awarded thereunder shall be registered in the name of the grantee. Such
certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the Common Stock, including the
right to receive dividends and the right to vote such shares, subject to the
following restrictions: (i) the grantee shall not be entitled to delivery of the
stock certificate until the expiration of the restricted period and the
fulfillment of any other restrictive conditions set forth in the restricted
stock agreement with respect to such Common Stock; (ii) none of such shares may
be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or
disposed of during such restricted period or until after the fulfillment of any
such other restrictive conditions; and (iii) except as otherwise determined by
the Committee, all of the Common Stock shall be forfeited and all rights of the
grantee to such Common Stock shall terminate, without further obligation on the
part of the Company, unless the grantee remains in the continuous employment of
the Company or any subsidiary of the Company for the entire restricted period in
relation to which such Common Stock was granted and unless any other restrictive
conditions relating to the restricted stock award are met. Any Common Stock, any
other securities of the Company and any other property (except for cash
dividends) distributed with respect to the Common Stock subject to restricted
stock awards shall be subject to the same restrictions, terms and conditions as
such restricted Common Stock.
(c) Termination of Restrictions. At the end of the restricted period and
provided that any other restrictive conditions of the restricted stock award are
met, or at such earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the restricted stock award
or in the Plan shall lapse as to the restricted Common Stock subject thereto,
and a stock certificate for the appropriate number of shares of Common Stock,
free of the restrictions and the restricted stock legend, shall be delivered to
the grantee or his beneficiary or estate, as the case may be. If the Common
Stock is traded on a securities exchange, the Company shall not be required to
deliver such certificates until such shares have been admitted for trading on
such securities exchange.
11. Performance Awards.
The Committee is further authorized to grant Performance Awards. Subject to
the terms of this Plan and any applicable award agreement, a Performance Award
granted under the Plan (i) may be denominated or payable in cash, Common Stock
(including, without limitation, restricted stock), other securities, other
awards, or other property and (ii) shall confer on the holder thereof rights
valued as determined by the Committee, in its discretion, and payable to, or
exercisable by, the holder of the Performance Award, in whole or in part, upon
the achievement of such performance goals during such performance periods as the
Committee, in its discretion, shall establish. Subject to the terms of this
Plan, any applicable award agreement, or as required to constitute "qualified
performance-based compensation" under Section 162(m) of the Code, the
performance goals to be achieved during any performance period, the length of
any performance period, the amount of any Performance Award granted, and the
amount of any payment or transfer to be made by the grantee and by the Company
under any Performance Award shall be determined by the Committee. For Awards
that are to be "qualified performance-based compensation" pursuant to Section
162(m) of the Code, the Committee shall set performance goals based on for one
or more of the following business criteria: consolidated pre tax earnings, net
revenues, net earnings, operating income, earnings before interest and taxes,
cash flow, return on equity, return on net assets employed or earnings per share
for the applicable performance period, all as computed in accordance with
generally accepted accounting principles in effect.
12. Income Tax Withholding.
In order to comply with all applicable federal or state income tax laws or
regulations, the Company may take such action as it deems appropriate to ensure
that all applicable federal or state payroll, withholding, income or other
taxes, which are the sole and absolute responsibility of an optionee or grantee
under the Plan, are withheld or collected from such optionee or grantee. In
order to assist an optionee or grantee in paying all federal and state taxes to
be withheld or collected upon exercise of an option or award which does not
qualify as an Incentive Stock Option hereunder, the Committee, in its absolute
discretion and subject to such additional terms and conditions as it may adopt,
may permit the optionee or grantee to satisfy such tax obligation by (i)
electing to have the Company withhold a portion of the shares otherwise to be
delivered upon exercise of such option or award with a Fair Market Value equal
to such taxes or (ii) delivering to the Company Common Stock other than the
shares issueable upon exercise of such
<PAGE>
option or award with a fair market value equal to such taxes.
13. Additional Restrictions.
(a) The Committee shall have full and complete authority to determine
whether all or any part of the Common Stock acquired upon exercise of any of the
Options or Awards granted under the Plan shall be subject to restrictions on the
transferability thereof or any other restrictions affecting in any manner the
optionee's or grantee's rights with respect thereto, but any such restriction
shall be contained in the agreement relating to such Options or Awards.
(b) No person, who is an employee of the Company at the time of grant, may
be granted any award or awards payable in shares or otherwise, the value of
which is based solely on an increase in the value of the Common Stock after the
date of grant of such awards, for more than 675,000 shares, in the aggregate, in
any one calendar year period, or, for cash awards not tied to shares, for more
than $6,000,000, in the aggregate, in any three calendar year period. The
foregoing limitations specifically include the grant of any awards representing
"qualified performance-based compensation" within the meaning of Section 162(m)
of the Code.
14. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the time an
Incentive Stock Option is otherwise to be granted pursuant to the Plan the
optionee owns directly or indirectly (within the meaning of Section 424(d) of
the Code) Common Stock of the Company possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or its
parent or subsidiary corporations, if any (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be granted to such
optionee pursuant to the Plan shall satisfy the requirements of Section
422(c)(5) of the Code, and the option price shall be not less than 110% of the
fair market value of the Common Stock determined as described herein, and such
option by its terms shall not be exercisable after the expiration of five (5)
years from the date such option is granted.
15. Non-Transferability.
Except as otherwise determined by the Committee or in an option or award
agreement, no Option or Award granted under the Plan shall be transferable by an
optionee or grantee, otherwise than by will or the laws of descent and
distribution and during the lifetime of an optionee or grantee, the Option or
Award shall be exercisable only by such optionee or grantee. Notwithstanding the
foregoing, no Incentive Stock Option shall be transferable by an optionee
otherwise than by will or the laws of descent or distribution.
16. Dilution or Other Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, dividend in the form of stock
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding Options and Awards shall be
made by the Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares subject to
the Plan, the number of shares and the price per share subject to outstanding
Options and Awards and the amount payable upon exercise of outstanding Awards,
in order to prevent dilution or enlargement of Option or Award rights.
17. Amendment or Discontinuance of Plan.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an option or award agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provisions of the Plan or any option or award
agreement, without the approval of the shareholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be made
that, absent such approval:
(i) would violate the rules or regulations of the National Association of
Securities Dealers, Inc. or The Nasdaq stock market or any other securities
exchange that are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Option or Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Option or Award, prospectively or retroactively,
without the consent of the Participant or holder or beneficiary thereof, except
as otherwise herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or any option or award in the manner and to the extent it shall deem
desirable to carry the Plan into effect.
18. Time of Granting.
The effective date of any grant of an Award shall be the date of the
Committee action granting such Award provided that within a reasonable time
thereafter a definitive Agreement is delivered to the grantee and executed by
the grantee.
19. Section 16(b) Compliance.
The Plan is intended to comply in all respects with Rule 16b-3 or any
successor provision, as in effect from time to time, and in all events the Plan
shall be construed in accordance with the requirements of Rule 16b-3. If any
Plan provision does not comply with Rule 16b-3 as hereafter amended or
interpreted, the provision shall be deemed inoperative. The Board of Directors,
in its absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are officers
or directors subject to Section 16 of the Securities and Exchange Act of
<PAGE>
1934, as amended, without so restricting, limiting or conditioning the Plan with
respect to other participants.
20. Effective Date and Termination of Plan.
(a) The Plan shall be submitted to the shareholders of the Company for
their approval and adoption.
(b) Unless the Plan shall have been discontinued as provided in Section 16
hereof, the Plan shall terminate March 19, 2009. No option or award may be
granted after such termination, but termination of the Plan shall not, without
the consent of the optionee or grantee, alter or impair any rights or
obligations under any Option or Award theretofore granted.
21. Governing Law.
The place of administration of the Plan and each Agreement shall be in the
State of Minnesota. The corporate law of the Company's state of incorporation
shall govern issues related to the validity and issuance of shares of the Common
Stock. Otherwise, this Plan and each Agreement shall be construed and
administered in accordance with the laws of the State of Minnesota.
22. Fractional Shares.
The Company shall not be required to issue or deliver any fractional share
of Common Stock hereunder but may pay, in lieu thereof, an amount in cash equal
to the Fair Market Value of such fractional share.
23. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. Neither the Company nor any subsidiary shall be required
to segregate any assets that may be represented by Awards, and neither the
Company nor any subsidiary shall be deemed to be a trustee of any amounts to be
paid under an Award. Any liability of the Company to pay any grantee of an Award
hereunder with respect to such Award shall be based solely upon contractual
obligations created pursuant to the Agreement with the grantee and the Plan; no
such obligation shall be deemed to be secured by any pledge or encumbrance on
any property of the Company or its subsidiaries.
24. Headings.
Headings contained in the Plan and any Agreement are included for
convenience only, and they shall not be construed as a part of the Plan or
Agreement or in any respect affecting or modifying its provisions.
<PAGE>
METRIS COMPANIES INC.
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 11, 1999
10:00 a.m.
Hyatt Regency Minneapolis
1300 Nicollet Mall
Minneapolis, Minnesota
[METRIS LOGO] Proxy
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for use at the
Annual Meeting on Tuesday, May 11, 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
Annual Meeting of Stockholders to be held on May 11, 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>
The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4, 5 and 6.
1. The election of directors:
01 Lee R. Anderson, Sr. [_] Vote FOR [_] Vote WITHHELD
02 John A. Cleary all nominees from all nominees
(Instruction: To withhold authority -------------------------------------
to vote for any indicated nominee,
write the number(s) of the nominee(s) -------------------------------------
in the box provided to the right.
-- Please fold here --
- -------------------------------------------------------------------------------
2. Proposal to approve an increase in [_] For [_] Against [_] Abstain
the number of shares reserved for
issuance under the Metris Companies
Inc. Non-Employee Director Stock
Option Plan
3. Proposal to approve the Metris [_] For [_] Against [_] Abstain
Companies Inc. Employee Stock
Purchase Plan
4. Proposal to approve the Metris [_] For [_] Against [_] Abstain
Companies Inc. Management
Stock Purchase Plan
5. Proposal to approve the Amended and [_] For [_] Against [_] Abstain
Restated Annual Incentive Plan for
Designated Corporate Officers
6. Proposal to approve the Metris [_] For [_] Against [_] Abstain
Companies Inc. Amended and Restated
Long-Term Incentive and Stock
Option Plan
IN THEIR DISCRETION, PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS
MAY PROPERLY BE BROUGHT BEFORE THE MEETING AND, IF A NOMINEE IS UNABLE TO
SERVE, FOR A SUBSTITUTE.
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 EACH PROPOSAL.
Address Change? Mark Box[_] Dated:_____________________, 1999
Indicate changes below:
-------------------------------------
-------------------------------------
Signature(s) in Box
(If there are co-owners, both must
sign.)
Please sign exactly as your name(s)
appear on Proxy. If held in joint
tenancy, all persons must sign.
Trustees, administrators, etc., should
include title and authority.
Corporations should provide full name
of corporation and title of authorized
officer signing the proxy.
<PAGE>
Metris Companies Inc. intends to register the stock subject to the plans
described in proposals 2 through 5 as follows: (1) The increase in the number of
shares available under the Non-Employee Director Stock Option Plan will be
registered within one week after the Annual Meeting and (2) the stock to be
issued with respect to the remaining proposals will be registered before any
offering is made to any participant, which would be no later than the effective
dates of each of the plans.
