<PAGE>
As filed with the Securities and Exchange Commission on December 31, 1996
333-15491
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 1
To
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
FINGERHUT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 5961 41-1396490
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Classification Identification Number)
or organization) Code Number)
4400 Baker Road
Minnetonka, Minnesota 55343
(612) 932-3100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Mr. Michael P. Sherman
General Counsel
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
(612) 932-3100
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------
COPIES TO:
Elizabeth C. Hinck, Esq.
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
(612) 340-2600
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, PLEASE CHECK THE FOLLOWING BOX. / /
------------------
------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
PROSPECTUS
FINGERHUT COMPANIES, INC.
[FINGERHUT LOGO]
OFFER TO EXCHANGE ITS 7.375% SENIOR NOTES DUE 1999
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING 7.375% SENIOR NOTES DUE 1999
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON FEBRUARY 3, 1997, UNLESS EXTENDED.
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Fingerhut Companies, Inc., a Minnesota corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $125,000,000 aggregate
principal amount of its 7.375% Senior Notes Due 1999 (the "New Notes") which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement (as defined herein)
of which this Prospectus constitutes a part, for a like principal amount of
its outstanding 7.375% Senior Notes Due 1999 (the "Old Notes"), of which
$125,000,000 aggregate principal amount is outstanding.
The terms of the New Notes are identical in all material respects to
the terms of the Old Notes, except that (i) the New Notes have been
registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Old Notes and will not be
entitled to registration rights, (ii) the New Notes are issuable in minimum
denominations of $1,000 compared to minimum denominations of $250,000 for the
Old Notes, and (iii) the New Notes will not provide for any increase in the
interest rate thereon. In that regard, the Old Notes provide that, if the
Exchange Offer is not consummated by February 24, 1997, the interest rate
borne by the Old Notes will increase by 0.50% per annum commencing on
February 25, 1997 until the Exchange Offer is consummated. See "Description of
the Old Notes." The New Notes are being offered for exchange in order to
satisfy certain obligations of the Company under the Registration Rights
Agreement dated as of September 27, 1996 (the "Registration Rights
Agreement") between the Company and the Initial Purchasers (as defined
herein) of the Old Notes. The New Notes will be issued under the same
Indenture (as defined herein) as the Old Notes and the New Notes and the Old
Notes will constitute a single series of debt securities under the Indenture.
In the event that the Exchange Offer is consummated, any Old Notes which
remain outstanding after consummation of the Exchange Offer and the New Notes
issued in the Exchange Offer will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount of Notes (as defined herein) have taken certain
actions or exercised certain rights under the Indenture. The New Notes and
the Old Notes are collectively referred to herein as the "Notes." See
"Description of the New Notes" and "Description of the Old Notes."
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER OLD NOTES IN THE EXCHANGE OFFER.
Interest on the New Notes is payable semiannually on March 15 and
September 15 of each year (each, an "Interest Payment Date"), commencing on
the first such date following the original issuance date of the New Notes.
The New Notes will mature on September 15, 1999. The New Notes are not
entitled to any sinking fund and are not redeemable prior to maturity.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Prospectus is December 31, 1996
<PAGE>
The Company is making the Exchange Offer in reliance on the position of
the staff of the Division of Corporation Finance of the Securities and
Exchange Commission (the "Commission") as set forth in certain interpretive
letters addressed to third parties in other transactions. However, the
Company has not sought its own interpretive letter and there can be no
assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange
Offer as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and
subject to the two immediately following sentences, the Company believes that
New Notes issued pursuant to this Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a holder
thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder is not participating,
and has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such New Notes.
However, any holder of Old Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
New Notes, or any broker-dealer who purchased Old Notes from the Company to
resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any
other available exemption under the Securities Act, (a) will not be able to
rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Old Notes in
the Exchange Offer and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Notes for
New Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes
in the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is
not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such
New Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old
Notes for its own account as the result of market-making activities or other
trading activities and must agree that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Company
believes that broker-dealers who acquired Old Notes for their own accounts,
as a result of market-making activities or other trading activities
("Participating Broker-Dealers") may fulfill their prospectus delivery
requirements with respect to the New Notes received upon exchange of such Old
Notes (other than Old Notes which represent an unsold allotment from the
original sale of the Old Notes) with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Company has
agreed that this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with
resales of such New Notes for a period ending 180 days after the Expiration
Date (subject to extension
2
<PAGE>
under certain limited circumstances described below) or, if earlier, when all
such New Notes have been disposed of by such Participating Broker-Dealer. See
"Plan of Distribution." Any Participating Broker-Dealer who is an "affiliate"
of the Company may not rely on such interpretive letters and must comply with
the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. See "The Exchange Offer--Resales
of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or which causes this Prospectus to omit to state a
material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Notes pursuant to this Prospectus
until the Company has amended or supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer or the Company
has given notice that the sale of the New Notes may be resumed, as the case
may be. If the Company gives such notice to suspend the sale of the New
Notes, it shall extend the 180-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the
period from and including the date of the giving of such notice to and
including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales
of the New Notes or to and including the date on which the Company has given
notice that the sale of New Notes may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Old Notes. The New Notes will be a new
issue of securities for which there currently is no market. Although the
Initial Purchasers have informed the Company that they each currently intend
to make a market in the New Notes, they are not obligated to do so, and any
such market making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of
any market for the New Notes. The Company currently does not intend to apply
for listing of the New Notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation
System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject
to the same limitations applicable thereto under the Indenture (except for
those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Old Notes will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such holders (other than under
certain limited circumstances) to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Risk
Factors--Consequences of a Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York
City time, on February 3, 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended). Tenders of Old Notes may
be withdrawn at any time on or prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal
3
<PAGE>
amount of Old Notes being tendered for exchange. However, the Exchange Offer
is subject to certain events and conditions which may be waived by the
Company and to the terms and provisions of the Registration Rights Agreement.
Old Notes may be tendered in whole or in part in a principal amount of $1,000
and integral multiples thereof, provided that if any Old Note is tendered for
exchange in part, the untendered principal amount thereof must be $250,000 or
any integral multiple of $1,000 in excess thereof. The Company has agreed to
pay all expenses of the Exchange Offer. See "The Exchange Offer--Fees and
Expenses." Each New Note will bear interest from the most recent date to
which interest has been paid or duly provided for on the Old Note surrendered
in exchange for such New Note or, if no such interest has been paid or duly
provided for on such Old Note, from September 27, 1996. Holders of the Old
Notes whose Old Notes are accepted for exchange will not receive accrued
interest on such Old Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Old
Notes prior to the original issue date of the New Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after September 27, 1996. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes as of
January 3, 1997.
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. No dealer-manager is being used in connection with
this Exchange Offer. See "Use of Proceeds From Sale of Old Notes" and "Plan
of Distribution."
--------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PAGE
----
Available Information . . . . . . . . . . . . . . . . . . . . . . . 5
Incorporation of Certain Documents by Reference . . . . . . . . . . 5
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Use of Proceeds from Sale of Old Notes . . . . . . . . . . . . . . 18
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selected Consolidated Financial Information . . . . . . . . . . . . 19
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . 25
Description of the New Notes . . . . . . . . . . . . . . . . . . . 34
Description of the Old Notes . . . . . . . . . . . . . . . . . . . 40
Certain United States Federal Income Tax Considerations . . . . . . 41
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 42
Validity of New Notes . . . . . . . . . . . . . . . . . . . . . . . 43
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 7 World Trade Center, New York, New York 10048;
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511; and copies of such material can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such information may also be
accessed electronically by means of the Commission's home page on the
Internet (http://www.sec.gov.) Such reports, proxy statements and other
information can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 on which the Company's
common stock is listed.
This Prospectus constitutes a part of a registration statement on Form
S-4 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules
and regulations of the Commission, and reference is hereby made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Notes. Any statements
contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety
by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1995;
(ii) the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 29, 1996, June 28, 1996 and September 27,
1996; and
(iii) the Company's Current Report on Form 8-K dated April 18, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the Exchange Offer of the Notes shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from and
after the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
(including any beneficial owner) to whom a copy of this Prospectus has been
delivered, on the written or oral request of any such person, a copy of any
or all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference, other than exhibits to such
documents for which the Company may impose a copying charge. Requests for
such copies should be directed to Michael P. Sherman, Secretary, Fingerhut
Companies, Inc., 4400 Baker Road, Minnetonka, Minnesota 55343 (612) 932-3100.
5
<PAGE>
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND IS SUBJECT TO,
THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED ELSEWHERE AND
INCORPORATED BY REFERENCE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED OR
UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN THIS PROSPECTUS TO THE
COMPANY INCLUDE FINGERHUT COMPANIES, INC. AND ITS SUBSIDIARIES.
THE COMPANY
The Company is a direct-to-the-consumer marketing company that sells a
broad range of products and services directly to consumers via catalogs,
telemarketing, television and other media. The Company conducts its
direct-to-the-consumer marketing business through three principal
subsidiaries, Fingerhut Corporation ("Fingerhut"), Figi's Inc. ("Figi's") and
Infochoice USA, Inc. ("Infochoice"). Fingerhut has been in the direct mail
marketing business for over 45 years and sells general merchandise using
catalogs and other direct marketing solicitations. Fingerhut's merchandise
includes a broad mix of quality brand name and private label products, many
of which are specially manufactured or packaged to appeal to its customers.
See "Business."
The Company conducts its financial services business through Metris
Companies Inc. ("Metris"), an information-based direct marketer of consumer
credit products, extended service plans, and fee-based products and services
to moderate income consumers. See "Business--Financial Services Business
Segment." Metris is an indirect subsidiary of the Company and recently sold
17% of its outstanding shares of common stock in an initial public offering
(the "Metris Offering"). See "--Recent Developments--Metris Initial Public
Offering" below.
The Company was incorporated in Minnesota in 1978 as a successor to a
business originally established in 1948. The Company's principal executive
office is located at 4400 Baker Road, Minnetonka, Minnesota 55343, telephone
number (612) 932-3100.
RECENT DEVELOPMENTS
METRIS INITIAL PUBLIC OFFERING
On August 20, 1996 the Company formed Metris as an indirect wholly owned
subsidiary of the Company to operate certain financial services businesses
previously operated as a division of the Company (collectively, the
"Financial Services Business"). On October 30, 1996, Metris completed the
initial public offering of shares of common stock representing 17% of its
outstanding shares of common stock. In connection with the Metris
Offering, the Company contributed all of the Financial Services Business to
Metris. Unless otherwise noted herein, the information in this Prospectus
gives effect to such contribution to Metris, but does not give effect to the
Metris Offering. See "Business--Financial Services Business Segment" below.
FINGERHUT NATIONAL BANK
The Company has received final approval from the Office of the Comptroller
of the Currency to establish a credit card bank ("Fingerhut National Bank")
in order to streamline its credit operations by establishing more uniform
national lending practices. It is currently anticipated that Fingerhut
National Bank will be the primary if not the exclusive extender of credit to
Fingerhut's customers beginning in January 1997. Fingerhut National Bank will
have responsibility for its own credit policy decisions. It is anticipated
that Fingerhut National Bank will originate both closed-end installment
payment receivables and open-end revolving accounts.
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6
<PAGE>
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NEW BANK FACILITIES
On September 16, 1996, the Company restructured its bank credit
facilities. The Company's existing revolving credit facility (the "Revolving
Credit Facility") was amended and restated to, among other things, reduce the
aggregate commitments for revolving borrowings and letters of credit from
$400 million to $200 million (the "Amended Revolving Credit Facility"). The
Amended Revolving Credit Facility will continue to be guaranteed by
subsidiaries of the Company, including Fingerhut but excluding Metris and its
subsidiaries, Figi's and Infochoice, and will terminate in September 2001.
On September 16, 1996, Metris entered into a revolving credit facility
with the same group of lenders as in the Amended Revolving Credit Facility.
Metris' facility (the "Metris Revolving Credit Facility") provides for
aggregate commitments of $300 million. The proceeds from borrowings under the
Metris Revolving Credit Facility are to be used by Metris to provide for
working capital and other general corporate purposes. Metris' obligations
under the Metris Revolving Credit Facility are secured by a pledge of the
capital stock of all of Metris' subsidiaries except Direct Merchants Credit
Card Bank, National Association ("Direct Merchants Bank"). In addition, the
Metris Revolving Credit Facility is guaranteed by the Company, Fingerhut and
all other subsidiaries that guarantee the Amended Revolving Credit Facility,
and certain of Metris' subsidiaries. The Metris Revolving Credit Facility
will terminate in September 2001.
INCREASE IN ASSET-BACKED COMMERCIAL PAPER PROGRAM
On September 16, 1996, the Metris Master Trust (formerly the Fingerhut
Financial Services Master Trust) issued asset-backed certificates with
maximum proceeds of approximately $512 million. These certificates will be
used to support an increase in the Company's asset-backed commercial paper
program.
THE EXCHANGE OFFER
THE EXCHANGE OFFER . . . . . . . . . . . Up to $125,000,000 aggregate principal
amount of New Notes are being
offered in exchange for a like
aggregate principal amount of Old
Notes. Old Notes may be tendered
for exchange in whole or in part in
a principal amount of $1,000 and
integral multiples thereof,
provided that if any Old Note is
tendered for exchange in part, the
untendered principal amount
thereof must be $250,000 or any
integral multiple of $1,000 in
excess thereof. The Company is
making the Exchange Offer in order
to satisfy its obligations under
the Registration Rights Agreement
relating to the Old Notes. For a
description of the procedures for
tendering Old Notes, see "The
Exchange Offer--Procedures for
Tendering Old Notes."
EXPIRATION DATE . . . . . . . . . . . . 5:00 p.m., New York City time, on
February 3, 1997 (such time on
such date being hereinafter called
the "Expiration Date") unless the
Exchange Offer is
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7
<PAGE>
- -------------------------------------------------------------------------------
extended by the Company (in which
case the term "Expiration Date"
shall mean the latest date and time to
which the Exchange Offer is extended).
See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
CONDITIONS TO THE EXCHANGE OFFER . . . . The Exchange Offer is subject to
certain conditions, which may be
waived by the Company in its sole
discretion. The Exchange Offer is
not conditioned upon any minimum
principal amount of Old Notes being
tendered. See "The Exchange Offer--
Conditions to the Exchange Offer."
The Company reserves the right in
its sole and absolute discretion,
subject to applicable law, at any
time and from time to time, (i) to
delay the acceptance of the Old
Notes for exchange, (ii) to
terminate the Exchange Offer if
certain specified conditions have
not been satisfied, (iii) to extend
the Expiration Date of the Exchange
Offer and retain all Old Notes
tendered pursuant to the Exchange
Offer, subject, however, to the
right of holders of Old Notes to
withdraw their tendered Old Notes,
or (iv) to waive any condition or
otherwise amend the terms of the
Exchange Offer in any respect. See
"The Exchange Offer--Expiration
Date; Extensions; Amendments."
WITHDRAWAL RIGHTS . . . . . . . . . . . . Tenders of Old Notes may be
withdrawn at any time on or prior
to the Expiration Date by
delivering a written notice of such
withdrawal to the Exchange Agent in
conformity with certain procedures
set forth below under "The Exchange
Offer--Withdrawal Rights."
PROCEDURES FOR TENDERING OLD NOTES . . . Tendering holders of Old Notes must
complete and sign a Letter of
Transmittal in accordance with the
instructions contained therein and
forward the same by mail, facsimile
or hand delivery, together with any
other required documents, to the
Exchange Agent, either with the Old
Notes to be tendered or in
compliance with the specified
procedures for guaranteed delivery
of Old Notes. Certain brokers,
dealers, commercial banks, trust
companies and other nominees may
also effect tenders by book-entry
transfer. Holders of Old Notes
registered in the name of a broker,
dealer, commercial bank, trust
company or other nominee are urged
to contact such person promptly if
they wish to tender Old Notes
pursuant to the Exchange Offer. See
"The Exchange Offer--Procedures for
Tendering Old Notes."
Letters of Transmittal and
certificates representing Old Notes
should not be sent to the Company.
Such documents should only be sent
to the Exchange Agent.
- -------------------------------------------------------------------------------
8
<PAGE>
- -------------------------------------------------------------------------------
Questions regarding how to tender and
requests for information should be
directed to the Exchange Agent. See
"The Exchange Offer--Exchange Agent."
RESALES OF NEW NOTES . . . . . . . . . . The Company is making the Exchange
Offer in reliance on the position
of the staff of the Division of
Corporation Finance of the
Commission as set forth in certain
interpretive letters addressed to
third parties in other
transactions. However, the Company
has not sought its own interpretive
letter and there can be no
assurance that the staff of the
Division of Corporation Finance of
the Commission would make a similar
determination with respect to the
Exchange Offer as it has in such
interpretive letters to third
parties. Based on these
interpretations by the staff of the
Division of Corporation Finance,
and subject to the two immediately
following sentences, the Company
believes that New Notes issued
pursuant to this Exchange Offer in
exchange for Old Notes may be
offered for resale, resold and
otherwise transferred by a holder
thereof (other than a holder who is
a broker-dealer) without further
compliance with the registration
and prospectus delivery
requirements of the Securities Act,
provided that such New Notes are
acquired in the ordinary course of
such holder's business and that
such holder is not participating,
and has no arrangement or
understanding with any person to
participate, in a distribution
(within the meaning of the
Securities Act) of such New Notes.
However, any holder of Old Notes
who is an "affiliate" of the
Company or who intends to
participate in the Exchange Offer
for the purpose of distributing the
New Notes, or any broker-dealer who
purchased the Old Notes from the
Company to resell pursuant to Rule
144A or any other available
exemption under the Securities Act,
(a) will not be able to rely on the
interpretations of the staff of the
Division of Corporation Finance of
the Commission set forth in the
above-mentioned interpretive
letters, (b) will not be permitted
or entitled to tender such Old
Notes in the Exchange Offer and (c)
must comply with the registration
and prospectus delivery
requirements of the Securities Act
in connection with any sale or
other transfer of such Old Notes
unless such sale is made pursuant
to an exemption from such
requirements. In addition, as
described below, if any
broker-dealer holds Old Notes
acquired for its own account as a
result of market-making or other
trading activities and exchanges
such Old Notes for New Notes, then
such broker-dealer must deliver a
prospectus meeting the requirements
of the Securities Act in connection
with any resales of such New Notes.
Each holder of Old Notes who wishes
to exchange Old Notes for New Notes
in the Exchange Offer will
- -------------------------------------------------------------------------------
9
<PAGE>
- -------------------------------------------------------------------------------
be required to represent that (i)
it is not an "affiliate" of the
Company, (ii) any New Notes to be
received by it are being acquired
in the ordinary course of its
business, (iii) it has no
arrangement or understanding with
any person to participate in a
distribution (within the meaning of
the Securities Act) of such New
Notes, and (iv) if such holder is
not a broker-dealer, such holder is
not engaged in, and does not intend
to engage in, a distribution
(within the meaning of the
Securities Act) of such New Notes.
Each broker-dealer that receives
New Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it acquired the
Old Notes for its own account as
the result of market-making
activities or other trading
activities and must agree that it
will deliver a prospectus meeting
the requirements of the Securities
Act in connection with any resale
of such New Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, a broker-dealer will
not be deemed to admit that it is
an "underwriter" within the meaning
of the Securities Act. Based on the
position taken by the staff of the
Division of Corporation Finance of
the Commission in the interpretive
letters referred to above, the
Company believes that
broker-dealers who acquired Old
Notes for their own accounts as a
result of market-making activities
or other trading activities
("Participating Broker-Dealers")
may fulfill their prospectus
delivery requirements with respect
to the New Notes received upon
exchange of such Old Notes (other
than Old Notes which represent an
unsold allotment from the original
sale of the Old Notes) with a
prospectus meeting the requirements
of the Securities Act, which may be
the prospectus prepared for an
exchange offer so long as it
contains a description of the plan
of distribution with respect to the
resale of such New Notes.
Accordingly, this Prospectus, as it
may be amended or supplemented from
time to time, may be used by a
Participating Broker-Dealer in
connection with resales of New
Notes received in exchange for Old
Notes where such Old Notes were
acquired by such Participating
Broker-Dealer for its own account
as a result of market-making or
other trading activities. Subject
to certain provisions set forth in
the Registration Rights Agreement
and to the limitations described
below under "The Exchange
Offer--Resale of New Notes", the
Company has agreed that this
Prospectus, as it may be amended or
supplemented from time to time, may
be used by a Participating
Broker-Dealer in connection with
resales of such New Notes for a
period ending 180 days after the
Expiration Date (subject to
extension under certain limited
circumstances) or, if earlier, when
all such New Notes have been
disposed of by such
- -------------------------------------------------------------------------------
10
<PAGE>
- -------------------------------------------------------------------------------
Participating Broker-Dealer. See
"Plan of Distribution." Any
Participating Broker-Dealer who
is an "affiliate" of the Company
may not rely on such
interpretive letters and must
comply with the registration and
prospectus delivery requirements of
the Securities Act in connection
with any resale transaction. See
"The Exchange Offer--Resales of New
Notes."
EXCHANGE AGENT . . . . . . . . . . . . . The exchange agent with respect to
the Exchange Offer is First Bank
National Association (the "Exchange
Agent"). The addresses, and
telephone and facsimile numbers of
the Exchange Agent are set forth in
"The Exchange Offer--Exchange
Agent" and in the Letter of
Transmittal.
USE OF PROCEEDS . . . . . . . . . . . . The Company will not receive any
cash proceeds from the issuance of
the New Notes offered hereby. See
"Use of Proceeds From Sale of Old
Notes."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS . . . . . . Holders of Old Notes should review
the information set forth under
"Certain United States Federal
Income Tax Considerations" prior to
tendering Old Notes in the Exchange
Offer.
THE NEW NOTES
SECURITIES OFFERED . . . . . . . . . . . Up to $125,000,000 aggregate
principal amount of the Company's
7.375% Senior Notes Due 1999 which
have been registered under the
Securities Act. The New Notes will
be issued and the Old Notes were
issued under an Indenture dated as
of September 15, 1996 (the
"Indenture") between the Company
and First Bank National
Association, as trustee (the
"Trustee"). The New Notes and any
Old Notes which remain outstanding
after consummation of the Exchange
Offer will constitute a single
series of debt securities under the
Indenture and, accordingly, will
vote together as a single class for
purposes of determining whether
holders of the requisite percentage
in outstanding principal amount
thereof have taken certain actions
or exercised certain rights under
the Indenture. See "Description of
the New Notes--General." The terms
of the New Notes are identical in
all material respects to the terms
of the Old Notes, except that (i)
the New Notes have been registered
under the Securities Act and
therefore are not subject to
certain restrictions on transfer
applicable to the Old Notes and
will not be entitled to
registration rights or other rights
under the Registration Rights
Agreement, (ii) the New Notes are
issuable in minimum denominations
of $1,000 compared to minimum
denominations of $250,000 for
- -------------------------------------------------------------------------------
11
<PAGE>
- -------------------------------------------------------------------------------
the Old Notes and (iii) the New Notes
will not provide for any increase
in the interest rate thereon. See
"The Exchange Offer--Purpose of the
Exchange Offer," "Description of
the New Notes" and "Description of
the Old Notes."
MATURITY DATE . . . . . . . . . . . . . . September 15, 1999.
INTEREST PAYMENT DATES . . . . . . . . . March 15 and September 15 of each
year, commencing on the first such
date following the original issuance
of the New Notes.
DENOMINATIONS . . . . . . . . . . . . . . The New Notes will be issued in
minimum denominations of $1,000
and integral multiples of $1,000
in excess thereof.
REDEMPTION . . . . . . . . . . . . . . . The New Notes may not be redeemed
prior to maturity.
SINKING FUND . . . . . . . . . . . . . . None.
RANKING . . . . . . . . . . . . . . . . . The New Notes will constitute
unsecured unsubordinated
indebtedness of the Company and
will rank PARI PASSU with all other
unsecured and unsubordinated
indebtedness of the Company for
borrowed money. Because the Company
is a holding company, the New Notes
will be effectively subordinated to
all existing and future
indebtedness, trade payables,
guarantees, lease obligations and
letter of credit obligations of the
Company's subsidiaries. See "Risk
Factors--Holding Company Structure;
Effective Subordination."
ABSENCE OF MARKET FOR THE NEW
NOTES . . . . . . . . . . . . . . . . The New Notes will be a new issue of
securities for which there currently
is no market. Although Bear,
Stearns & Co. Inc., Smith Barney
Inc. and First Chicago Capital
Markets, Inc., the initial
purchasers of the Old Notes (the
"Initial Purchasers"), have
informed the Company that they each
currently intend to make a market
in the New Notes, they are not
obligated to do so, and any such
market making may be discontinued
at any time without notice.
Accordingly, there can be no
assurance as to the development or
liquidity of any market for the New
Notes. The Company currently does
not intend to apply for listing of
the New Notes on any securities
exchange or for quotation through
the National Association of
Securities Dealers Automated
Quotation System.
FOR FURTHER INFORMATION REGARDING THE NEW NOTES, SEE "DESCRIPTION OF
THE NEW NOTES."
- -------------------------------------------------------------------------------
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE DECIDING WHETHER TO ACCEPT THE EXCHANGE OFFER. THIS
PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL
AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS
IMPORTANCE OF FOURTH QUARTER; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's business is subject to the seasonal variations in demand
that the Company believes are generally associated with the direct marketing
and retail industries. Historically, the Company has realized a significant
portion of its sales and net income during the fourth quarter. Over the past
several years, the Company has observed that customers waited until later in
the fourth quarter to order merchandise from the Company's catalogs,
following a trend which has affected the retail industry as a whole. The
Company's annual results could be adversely affected if the Company's sales
were to be substantially below seasonal norms during the fourth quarter of
any year. In addition to seasonal variations, the Company experiences
variances in quarterly results from year to year that result from changes in
the timing of its promotions and the types of customers and products promoted
and, to some extent, variations in dates of holidays and the timing of
quarter ends resulting from a 52/53 week year.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
The Notes are obligations exclusively of the Company. The Company is a
holding company substantially all of the consolidated assets of which are
held by its subsidiaries. Accordingly, the cash flow of the Company and the
consequent ability to service its debt, including the Notes, are dependent
upon the earnings of such subsidiaries. Because the Company is a holding
company, the Notes will be effectively subordinated to all existing and
future indebtedness, trade payables, guarantees, lease obligations and letter
of credit obligations of the Company's subsidiaries. Therefore, the Company's
rights and the rights of its creditors, including the holders of the Notes,
to participate in the assets of any subsidiary upon the latter's liquidation
or reorganization will be subject to the prior claims of such subsidiary's
creditors, except to the extent that the Company may itself be a creditor
with recognized claims against the subsidiary, in which case the claims of
the Company would still be effectively subordinate to any security interest
in, or mortgages or other liens on, the assets of such subsidiary and would
be subordinate to any indebtedness of such subsidiary senior to that held by
the Company. As of September 27, 1996 the Company's wholly-owned subsidiaries
had $1.6 million of outstanding indebtedness, and Metris had indebtedness
outstanding under the Metris Revolving Credit Facility. As described above
under "Summary--Recent Developments--New Bank Facilities," the Company may
borrow up to $200 million under the Amended Revolving Credit Facility and
Metris may borrow up to $300 million under the Metris Revolving Credit
Facility. All of the available $500 million under these credit facilities is
guaranteed by Fingerhut. In addition, as of September 27, 1996, the Company
had outstanding $145 million aggregate principal amount of outstanding senior
notes (excluding the Old Notes), which $145 million of senior notes are also
guaranteed by Fingerhut. The Notes are also effectively subordinated to the
lease obligations of the Company's subsidiaries, which payments totalled $38.6
million in fiscal year 1995, and other liabilities, including trade payables,
the amount of which could be material. The Indenture does not limit the
amount of Indebtedness the Company and its subsidiaries may incur. See
"Description of the New Notes."
INCREASES IN POSTAL AND PAPER COSTS
The Company mails its catalogs and ships most of its merchandise through
the United States Postal Service. The Company experienced a significant
increase in postage costs in fiscal 1995. In addition, the Company
experienced price increases in 1995 for paper that is used in the production
of its
13
<PAGE>
catalogs which further increased the Company's cost of doing business in 1995
and further continued in 1996. Additional increases in postal rates or paper
costs may have a material adverse impact on the Company's results of
operations to the extent that the Company is unable to offset such increase
by raising selling prices or by implementing more efficient mailing, delivery
and order fulfillment systems.
FUNDING AND SECURITIZATION CONSIDERATIONS
The Company depends heavily upon the securitization of its subsidiaries'
accounts receivable and credit card loans to fund its operations and to date
has been able to complete securitization transactions on terms that it
believes are favorable. There can be no assurance, however, that the
securitization market will continue to offer attractive funding alternatives.
In addition, the Company's ability to securitize the assets of its
subsidiaries depends on the continued availability of credit enhancement on
acceptable terms and the continued favorable legal, regulatory, accounting
and tax environment for securitization transactions. While the Company does
not at present foresee any significant problems in any of these areas, any
such adverse change could force the Company to rely on other potentially more
expensive funding sources. Adverse changes in the performance of the
securitized assets of the Company's subsidiaries, including increased
delinquencies and losses, could result in a downgrade or withdrawal of the
ratings on the outstanding certificates under these securitization
transactions or cause early amortization of such certificates. This could
jeopardize the ability of the Company's subsidiaries to effect other
securitization transactions on acceptable terms, thereby decreasing the
Company's liquidity and forcing the Company to rely on other funding sources
to the extent available.
CONSUMER SPENDING
The success of the Company's operations depends upon a number of economic
conditions affecting disposable consumer income such as employment, business
conditions, interest rates and taxation. Adverse changes in these economic
conditions may restrict consumer spending. There can be no assurance that
weak economic conditions or changes in the retail environment or other
economic factors that have an impact on the level of consumer spending would
not have a material adverse impact on the Company.
CREDIT RISKS
Fingerhut's installment sales practices and Metris' and Fingerhut
National Bank's credit card operations are subject to all of the risks
associated with unsecured credit transactions, including (1) the risk of
increasing delinquencies and credit losses during economic downturns, (2) the
risk that an increasing number of customers will default on the payment of
their outstanding balances or seek protection under bankruptcy laws,
resulting in accounts being charged off as uncollectible, (3) the risk of
fraud, and (4) in the case of revolving credit accounts, the risk that
increases in discretionary repayment of account balances by customers will
result in diminished finance charge or other income. In addition, general
economic factors, such as the rate of inflation, unemployment levels and
interest rates may affect the Company's target market customers (moderate
income consumers) more severely than other market segments. In addition,
Metris' credit card portfolio, as of the date hereof, consists of accounts
which have been generated in the last 24 months and, as a result, there can
be no assurance as to the levels of delinquencies and losses that can be
expected over time with respect to such portfolio.
INTEREST RATE RISK
Fingerhut's and Fingerhut National Bank's closed-end installment
contracts are fixed-priced, fixed-term contracts and Metris' credit card
accounts generally have finance charges set as a variable rate with a spread
above a designated prime rate or other designated index. Fingerhut National
Bank's revolving credit card accounts currently have finance charges set at a
fixed rate. The Company intends to manage interest rate risk through asset
and liability management. Fluctuations in interest rates may adversely affect
the cost of funds of Fingerhut, Fingerhut National Bank and Metris.
14
<PAGE>
REGULATORY MATTERS
The Company's business is subject to regulation by a variety of state and
federal laws and regulations related to advertising, time payment pricing,
offering and extending credit, charging and collecting state sales and use
taxes and product safety. The Company's practices in certain of these areas
are subject to periodic inquiries and proceedings by various regulatory
agencies. None of these actions has had a material adverse effect upon the
Company. While the Company believes it is in material compliance with all
such laws and regulations, if the Company is found not to be in compliance
with any such laws and regulations, it could become subject to cease and
desist orders, injunctive proceedings, obligations to collect additional
sales and use taxes, obligations for prior uncollected sales and use taxes,
civil fines and other penalties. The occurrence of any of the foregoing could
adversely affect the Company's results of operations and financial condition.
Fingerhut relies on the Minnesota "time-price" doctrine in establishing
and collecting installment payments on products sold in many states. Under
this doctrine, the difference between the time price and cash price for the
same goods is not treated as interest subject to regulation under laws
governing the extension of credit. In other states, Fingerhut is subject to
regulations that limit maximum finance charges and require refunding of
finance charges to customers under certain circumstances. Certain individuals
who have purchased goods from Fingerhut have filed suit challenging the
applicability of the time-price doctrine to Fingerhut's business. Any change
of law with respect to Fingerhut's use of the time-price doctrine or
otherwise negatively affecting its credit practices could have an adverse
effect on the Company's results of operations and financial condition.
Metris and Fingerhut National Bank are subject to numerous Federal and
state consumer protection laws that impose requirements related to offering
and extending credit. The United States Congress and the states may enact
laws and amendments to existing laws to regulate further the credit card
industry or to reduce finance charges or other fees or charges applicable to
credit card and other consumer revolving loan accounts. Such laws, as well as
any new laws or rulings which may be adopted, may adversely affect the
ability of Metris to collect on account balances or maintain previous levels
of periodic rate finance charges and other fees and charges with respect to
the accounts. Any failure by the Company to comply with such legal
requirements also could adversely affect its ability to collect the full
amount of the account balances. Fingerhut National Bank and Direct Merchants
Bank are also subject to regulation by the Federal Reserve Board, the Federal
Deposit Insurance Corporation and the Office of the Comptroller of the
Currency. Such regulations include limitations on the extent to which
Fingerhut National Bank or Direct Merchants Bank can finance or otherwise
supply funds to their respective affiliates through dividends, loans or
otherwise.
Changes in Federal and state bankruptcy and debtor relief laws could
adversely affect the Company if such changes result in, among other things,
additional administrative expenses and accounts being written off as
uncollectible.
FOREIGN SUPPLIERS
Fingerhut purchases, directly or indirectly, a significant portion
(approximately 36% in fiscal 1995) of its merchandise from foreign suppliers.
Although substantially all of the Company's foreign purchases are denominated
in U.S. dollars, the Company is subject to the risks of doing business
abroad, including increases in import duties, decreases in quotas, adverse
fluctuations in currency exchange rates, increased customs regulations and
political turmoil. The occurrence of any of the foregoing could adversely
affect the Company's earnings.
15
<PAGE>
COMPETITION
The direct marketing industry includes a wide variety of specialty and
general merchandise retailers and is both highly fragmented and highly
competitive. The Company's direct-to-the consumer segment sells its products
to customers in all states of the United States and competes in the purchase
and sale of merchandise with all retailers, including general and specialty
catalog marketers, television shopping marketers, retail department stores,
discount department stores and variety stores, many of which are national
chains. The loss of any significant portion of the Company's market share to
other retailers could adversely affect the Company's earnings.
As a marketer of consumer credit products, Metris faces increasing
competition from numerous providers of financial services, many of which have
greater resources than Metris. In particular, Metris' credit card business
competes with national, regional and local bank card issuers as well as
issuers of other general purpose credit cards, such as American Express,
Discover Card and Diners Club. Many of these issuers are substantially larger
and have more seasoned credit card portfolios than the Company and often
compete for customers by offering lower interest rates or fee levels. In
general, customers are attracted to credit card issuers largely on the basis
of price, credit limit and other product features and customer loyalty is
often limited.
CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case
in compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of
Old Notes which remain outstanding will not be entitled to any rights to have
such Old Notes registered under the Securities Act or to any similar rights
under the Registration Rights Agreement (subject to certain limited
exceptions). The Company currently does not intend to register under the
Securities Act any Old Notes which remain outstanding after consummation of
the Exchange Offer (subject to such limited exceptions, if applicable).
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes have been designated for
trading in the Private Offerings, Resale and Trading through Automatic
Linkages ("PORTAL") market, to the extent that Old Notes are tendered and
accepted in connection with the Exchange Offer, any trading market for Old
Notes which remain outstanding after the Exchange Offer could be adversely
affected.
The New Notes and any Old Notes which remain outstanding after
consummation of the Exchange Offer will constitute a single series of debt
securities under the Indenture and, accordingly, will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount thereof have taken certain actions
or exercised certain rights under the Indenture. See "Description of the New
Notes --General."
The Old Notes provide that, if the Exchange Offer is not consummated by
February 24, 1997, the interest rate borne by the Old Notes will increase by
0.50% per annum commencing February 25, 1997, until the Exchange Offer is
consummated. See "Description of the Old Notes." Following consummation of
the Exchange Offer, the Old Notes will not be entitled to any increase in the
interest rate thereon. The New Notes will not be entitled to any such
increase in the interest rate thereon.
16
<PAGE>
ABSENCE OF PUBLIC MARKET
The Old Notes were issued to, and the Company believes are currently
owned by, a relatively small number of beneficial owners. The Old Notes have
not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
the New Notes. Although the New Notes will generally be permitted to be
resold or otherwise transferred by the holders (who are not affiliates of the
Company) without compliance with the registration requirements under the
Securities Act, they will constitute a new issue of securities with no
established trading market. The Company has been advised by the Initial
Purchasers that the Initial Purchasers presently intend to make a market in
the New Notes. However, the Initial Purchasers are not obligated to do so and
any market-making activity with respect to the New Notes may be discontinued
at any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the Exchange Offer. Accordingly, no assurance can be
given that an active public or other market will develop for the New Notes or
the Old Notes or as to the liquidity of or the trading market for the New
Notes or the Old Notes. If an active public market does not develop, the
market price and liquidity of the New Notes may be adversely affected.
If a public trading market develops for the New Notes, future trading
prices of such securities will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and
the market for similar securities. Depending on prevailing interest rates,
the market for similar securities and other factors, including the financial
condition of the Company, the New Notes may trade at a discount.
Notwithstanding the registration of the New Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the
Securities Act) of the Company may publicly offer for sale or resell the New
Notes only in compliance with the provisions of Rule 144 under the Securities
Act.
Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, holders of the Old Notes
desiring to tender such Old Notes in exchange for New Notes should allow
sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to the tenders
of Old Notes for exchange.
17
<PAGE>
USE OF PROCEEDS FROM SALE OF OLD NOTES
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes in
exchange for Old Notes as described in this Prospectus, the Company will
receive Old Notes in like principal amount. The Old Notes surrendered in
exchange for the New Notes will be retired and cancelled. Accordingly, the
issuance of the New Notes will not result in any change in the indebtedness
of the Company.
The net proceeds to the Company from the sale of the Old Notes was
approximately $124 million. The Company has used all of such net proceeds
from the issuance of the Old Notes to repay short-term indebtedness under the
Amended Revolving Credit Facility which was incurred for general corporate
purposes.
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization
of the Company at September 27, 1996. The issuance of the New Notes in
exchange for the Old Notes pursuant to the Exchange Offer will have no effect
on the capitalization of the Company. See "Use of Proceeds From Sale of Old
Notes."
September 27, 1996
------------------
(in thousands)
Short-term debt:
Revolving credit facility(1) . . . . . . . . . . . . . . $ 120,000
Current portion of long-term debt . . . . . . . . . . . . 92
---------
Total short-term debt . . . . . . . . . . . . . . . . $ 120,092
---------
---------
Long-term debt, less current maturities:
Senior notes . . . . . . . . . . . . . . . . . . . . . . $ 145,000
7.375% Senior Notes Due 1999(2) . . . . . . . . . . . . . 125,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,518
---------
Total long-term debt . . . . . . . . . . . . . . . . . $ 271,518
Shareholders' equity:
Common Stock - $.01 per share:
authorized 100,000,000 shares, issued and
outstanding 46,160,196 shares . . . . . . . . . . . . . $ 462
Additional paid-in capital . . . . . . . . . . . . . . . 263,751
Unearned compensation . . . . . . . . . . . . . . . . . . (2,381)
Earnings reinvested . . . . . . . . . . . . . . . . . . . 288,535
---------
Total stockholders' equity . . . . . . . . . . . . . . $ 550,367
---------
Total capitalization. . . . . . . . . . . . . . . . . . . $ 821,885
---------
---------
- -------------
(1) On September 16, 1996 the Company amended the revolving credit
facility and entered into the Amended Revolving Credit Facility. See
"Recent Developments--New Bank Facilities."
(2) On September 24, 1996 the Company completed a private placement of the
Old Notes Subject to this Exchange Offer.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following sets forth certain selected consolidated financial data,
which should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 29, 1995 and
the quarterly report on form 10-Q for the quarter ended September 27, 1996
incorporated by reference herein. The selected consolidated Statement of
Earnings and Statement of Position financial data set forth below for each of
the years in the five-year period ended December 29, 1995 and as of the end
of each such year has been derived from the Consolidated Financial Statements
of the Company which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected consolidated Statement of Earnings
and Statement of Position financial data as of December 29, 1995 and December
30, 1994 and for each of the years in the three-year period ended December
29, 1995 and the report thereon, is incorporated by reference herein. The
selected consolidated Statement of Earnings and Statement of Position
financial data as of and for the thirty-nine weeks ended September 27, 1996
and September 29, 1995 is derived from the Company's unaudited consolidated
financial statements, which in the opinion of management include all
adjustments, consisting of only normal, recurring adjustments, necessary for
a fair presentation of the financial position and results of operations. The
results for the thirty-nine weeks ended September 27, 1996 are not
necessarily indicative of the results to be achieved for the full fiscal year.
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Fiscal Year Ended
------------------------- ------------------------------------------------------------------
Sept. 27, Sept. 29, Dec. 29, Dec. 30, Dec. 31, Dec. 25, Dec. 27,
1996 1995 1995 1994 1993(c) 1992 1991
----------- ---------- ---------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA: (in thousands except ratios and share data)
REVENUES:
Net sales . . . . . . . . . . . . . $1,034,832 $1,158,026 $1,826,339 $1,718,647 $1,634,009 $1,470,628 $1,314,636
Finance income and
other revenues . . . . . . . . . 250,029 178,962 283,617 215,738 173,899 135,486 113,792
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,284,861 1,336,988 2,109,956 1,934,385 1,807,908 1,606,114 1,428,428
---------- ---------- ---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Product cost. . . . . . . . . . . . 535,507 586,670 892,736 854,461 821,357 711,764 621,531
Administrative and
selling expenses . . . . . . . . 483,317 480,966 755,891 701,582 619,009 558,416 497,770
Provision for uncollectible
accounts . . . . . . . . . . . . 181,218 162,833 276,688 229,396 194,494 186,372 179,085
Discount on sale of
accounts receivable . . . . . . . 49,522 55,849 82,392 53,736 26,713 22,325 24,460
Interest expense, net . . . . . . . 21,719 18,884 25,943 24,284 34,456 33,307 24,184
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and
expenses . . . . . . . . . . . . 1,271,283 1,305,202 2,033,650 1,863,459 1,696,029 1,512,184 1,347,030
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income
taxes (b) . . . . . . . . . . . . 13,578 31,786 76,306 70,926 111,879 93,930 81,398
---------- ---------- ---------- ---------- ---------- ---------- ----------
Provision for income
taxes . . . . . . . . . . . . . . 4,919 11,255 25,448 25,001 36,551 32,124 27,840
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings(b). . . . . . . . . . . $ 8,659 $ 20,531 $ 50,858 $ 45,925 $ 75,328 $ 61,806 $ 53,558
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings per share(a)(b) . . . . . . $ .18 $ .42 $ 1.05 $ .91 $ 1.50 $ 1.19 $ 1.07
Dividends . . . . . . . . . . . . . $ .12 $ .12 $ .16 $ .16 $ .16 $ .16 $ .16
Weighted average
shares . . . . . . . . . . . . . . 48,680,145 48,481,302 48,478,971 50,270,419 50,101,739 51,937,936 49,960,546
STATEMENT OF POSITION DATA:
Total assets . . . . . . . . . . . $1,269,827 $1,239,662 $1,281,077 $1,097,933 $ 988,302 $ 925,649 $ 801,999
Total current liabilities . . . . . $ 418,383 $ 540,137 $ 556,163 $ 323,628 $ 249,268 $ 269,113 $ 292,875
Total long-term debt . . . . . . . $ 271,518 $ 146,460 $ 146,564 $ 246,516 $ 246,852 $ 247,190 $ 119,164
Stockholders' equity . . . . . . . $ 550,367 $ 518,559 $ 547,490 $ 500,950 $ 472,389 $ 399,591 $ 384,149
OTHER DATA:
Ratio of earnings to fixed
charges(d) . . . . . . . . . . . 1.32 1.99 2.75 2.82 3.34 3.06 3.40
</TABLE>
- ------------
(a) Based on a weighted average of 48,478,971; 50,270,419; 50,101,739;
51,937,936 and 49,960,546 shares of common stock and common stock
equivalents for the fiscal years ended December 29, 1995; December 30,
1994; December 31, 1993; December 25, 1992 and December 27, 1991,
respectively.
(b) 1994 earnings before income taxes include a $29.9 million charge ($19.4
million after tax) relating to unusual items. 1995 earnings before income
taxes include an $8.0 million adjustment ($5.3 million after tax) to these
unusual items.
(c) In 1993, the Company sold certain assets of COMB Corporation and FDC, Inc.,
a subsidiary of Figi's Inc.
(d) For the purposes of such computation (i) earnings consist of earnings from
continuing operations before income taxes, plus fixed charges adjusted to
exclude capitalized interest, plus a proportional share of income or loss
before income taxes of 50 percent owned companies, less equity in
undistributed earnings of companies owned less than 50 percent; and (ii)
fixed charges consist of interest, including amounts capitalized,
amortization of debt discount, premium and expense and a portion of rental
expense deemed representative of the interest factor.
19
<PAGE>
BUSINESS
The Company is a direct-to-the-consumer marketing company that sells a
broad range of products and services directly to consumers via catalogs,
telemarketing, television and other media. The Company had 1995 revenues of
$2.110 billion. The Company conducts its direct-to-the-consumer marketing
business through three principal subsidiaries, Fingerhut, Figi's and
Infochoice. Fingerhut has been in the direct mail marketing business for over
45 years and sells general merchandise using catalogs and other direct
marketing solicitations. Fingerhut's merchandise includes a broad mix of
quality brand name and private label products, many of which are specially
manufactured or packaged to appeal to its customers. Fingerhut offers
extended payment terms on all purchases under fixed term, fixed payment
installment contracts and makes substantially all of its sales on credit
utilizing its own closed-end credit. Fingerhut has used its extensive
database, credit programs and proprietary database segmentation software to
establish a dominant position in this market, with a large base of loyal,
repeat customers.
The Company conducts its financial services business through Metris, an
information-based direct marketer of consumer credit products, extended
service plans, and fee-based products and services to moderate income
consumers (with annual household incomes of $15,000 to $35,000). Metris'
consumer credit products currently are unsecured and secured credit cards,
including the Fingerhut co-branded MasterCard-Registered Trademark- and the
Direct Merchants Bank MasterCard. Metris' customers and prospects include
both Fingerhut's existing customers and individuals who are not Fingerhut
customers but for whom credit bureau information is available. Metris also
provides extended service plans on certain categories of products sold by
Fingerhut that extend service coverage beyond the manufacturer's warranty.
See "Summary--Recent Developments--Metris Initial Public Offering."
DIRECT-TO-THE-CONSUMER MARKETING BUSINESS SEGMENT
The Company's direct-to-the-consumer marketing business segment is
conducted through Fingerhut, Figi's and Infochoice.
FINGERHUT CORPORATION
INTRODUCTION
Fingerhut, one of the largest catalog marketers in the United States,
sells general merchandise to moderate income consumers. It is the only large
general merchandise retailer in the United States that serves this market
exclusively through catalog direct marketing. The median age of Fingerhut's
customers is slightly lower than the national average and young families are
a significant portion of its customer base.
MARKETING
Marketing activities are divided into three primary programs: new
customer acquisition, a transitional program and existing customer programs.
During 1995, Fingerhut mailed approximately 591 million catalogs and other
promotions to existing and prospective customers.
NEW CUSTOMER ACQUISITION PROGRAMS: Fingerhut's new customer acquisition
program is designed to identify and attract new customers on a cost-effective
basis. The primary sources of new customers are rented lists, advertisements
in magazines and newspapers, catalog requests and other direct marketing
solicitations. Fingerhut mails catalogs and other multi-product offerings to
prospective customers and adds such customers to its database as responses
are received. These programs are intended to identify and target new
customers who will become long-term Fingerhut customers. New customers
typically account for approximately 20% of Fingerhut's net sales.
20
<PAGE>
Fingerhut's determinations as to which prospective customers to solicit,
which products to offer and which media to use are based upon the projected
long-term profitability and internal rates of return of the program.
Maintaining acceptable financial rates of return on new customers depends on
balancing the cost of acquisition of new customers with their long-term
profitability to Fingerhut. To determine whether the cost to obtain new
customers is acceptable, Fingerhut maintains a system that monitors
profitability by source of new customers, by type of product and by type of
promotional media. Fingerhut also continuously tests various media, products,
offerings and incentives and analyzes the results in order to maximize the
effectiveness of its customer acquisition efforts.
TRANSITIONAL PROGRAMS: After first-time buyers commence payments on their
initial purchases, they are placed into a transitional program. The amount of
time a first-time buyer remains in a transitional program and the number and
type of products he or she is offered depends on the buyer's purchasing and
payment practices. A customer is placed on Fingerhut's promotable customer
list after demonstrating his or her creditworthiness.
EXISTING CUSTOMER PROGRAMS: Fingerhut reaches its existing customers
through extensive promotional mailing efforts, primarily catalogs, and
through telemarketing. In 1995, Fingerhut mailed 155 different catalogs and
other promotions to its established customers. These mailings included
general merchandise catalogs, specialty catalogs, small and large
multi-product mailers and single product promotions.
Management believes that the key factors in optimizing the profitability
of its existing customer list are developing long-term repeat buyers and
balancing customer response with appropriate credit losses and customer
return rates for each segment of its customer list. Fingerhut promotes
customer satisfaction and loyalty by extending credit; by using a number of
marketing devices, including targeted promotions, deferred payments, 30-day
free home trials, a customer satisfaction policy, free gifts, merchandise
giveaways, and personalized mailings; and by offering attractive brand name
and private label merchandise.
DATABASE
Fingerhut is a leader in the development and use of information-based
marketing concepts in the direct mail industry, using computer technology,
proprietary software and a proprietary database containing information on
more than 30 million individuals, including approximately 10 million
customers who have made a purchase from Fingerhut within the past 24 months.
This database contains names, addresses, behavioral characteristics, general
demographic information and other information provided by the customer.
Fingerhut has entered into an exclusive seven year license with Metris
allowing Metris to use the information in the Fingerhut database for
marketing financial service products. See "--Financial Services Business
Segment" below.
CREDIT MANAGEMENT
Fingerhut generally does not require its customers to provide traditional
credit information in order to approve purchases on credit. Instead of using
traditional credit applications, Fingerhut has developed sophisticated and
automated proprietary techniques for evaluating the creditworthiness of new
and existing customers and for selecting those customers who will receive
various categories of mailings. Management believes that Fingerhut's more
than 45 years of experience in the mail order business, its database
containing purchase and payment histories of more than 30 million people and
its significant investment in computer technology and proprietary analytical
models give Fingerhut a unique ability to analyze the creditworthiness of
customers in its market. The goal of the analysis is not to achieve the
lowest possible credit losses but to balance credit losses and return rates
with customer response, thereby optimizing profitability. Consequently,
Fingerhut's planned credit losses typically are higher than other direct mail
and retail companies.
21
<PAGE>
Once a customer places an order, Fingerhut employs proprietary techniques
designed to identify customers whose orders can be automatically shipped,
customers from whom additional information, including credit applications,
must be obtained and reviewed and customers to whom credit is declined. After
purchases are shipped, customer payments are continuously monitored to
identify credit problems as early as possible. Fingerhut has a flexible
policy of working with certain delinquent customers, including adjusting
their payment schedules, which Fingerhut believes reduces default rates and
maintains customer loyalty.
Substantially all of Fingerhut's sales are made utilizing its own
closed-end credit program, which uses fixed term, fixed payment installment
plans. Monthly payments are made by customers and processed by Fingerhut
through the use of coupons contained in payment books delivered with each
order shipment. Payment terms to existing customers generally range from 4 to
36 monthly payments. In addition, a majority of sales are to customers who
receive a deferred payment option, which extends the due date of the first
payment by approximately four to five months. Many customers pay their
accounts in full before the end of the scheduled payment term.
The Company has received final approval from the Office of the
Comptroller of the Currency to establish Fingerhut National Bank in order to
streamline its credit operations by establishing more uniform national
lending practices. It is currently anticipated that Fingerhut National Bank
will be the primary, if not the exclusive, extender of credit to Fingerhut
customers beginning in January 1997. Fingerhut National Bank will have the
responsibility for its own credit policy decisions, but in the near term it
is expected to issue credit on a basis substantially similar to that
historically used by Fingerhut. It is anticipated that Fingerhut National
Bank will originate both closed-end installment payment receivables and
open-end revolving accounts.
MERCHANDISING
Fingerhut offers a broad mix of brand name and private label consumer
products, including electronics, housewares, home textiles, apparel,
furniture, home accessories, jewelry, sporting goods and toys, tools,
automotive, lawn and garden, and financial service products. In 1995,
Fingerhut offered approximately 16,000 different products. Fingerhut's gross
retail sales mix by product category for 1995 is shown in the following table:
PERCENT OF
GROSS RETAIL SALES
------------------
Electronics . . . . . . . . . . . . . . . . . . 21%
Home Textiles . . . . . . . . . . . . . . . . . 18
Housewares . . . . . . . . . . . . . . . . . . 17
Furniture/Home Accessories . . . . . . . . . . 10
Leisure . . . . . . . . . . . . . . . . . . . . 9
Apparel . . . . . . . . . . . . . . . . . . . . 8
Jewelry . . . . . . . . . . . . . . . . . . . . 8
Tools/Automotive/Lawn & Garden . . . . . . . . 6
Financial Service Products and Other . . . . . 3
---
100%
---
---
Fingerhut selects merchandise to be offered to its customers by
evaluating historical product and category demand and analyzing emerging
merchandise trends in conjunction with proprietary marketing information.
Fingerhut is constantly developing unique brand name and private label
product groupings, such as coordinated kitchen ensembles, coordinated bed and
bath ensembles and tool sets, targeted to appeal to its customers and to add
value and/or style to its merchandise.
Fingerhut's general merchandise catalogs feature a wide array of
products; they are updated and published throughout the year, including a
496-page holiday big book. Specialty catalogs mailed to targeted portions of
Fingerhut's customer list permit Fingerhut to expand the product selection
and intensify the growth opportunities for certain product categories. These
specialty catalogs include outdoor living, jewelry, electronics,
domestics/housewares, gifts, juvenile, seniors, home fitness, home
improvement and Spanish-language catalogs.
22
<PAGE>
COSTS OF MAILING
In 1995, the Company spent an aggregate of $296 million on postage
(including the cost of parcel shipments that were passed on to customers) of
which 48% was attributable to the mailing of promotional materials, 44% was
attributable to parcel shipments and 8% was attributable to various
correspondence with customers. As is customary in the direct mail industry,
the Company passes on the cost of parcel shipments directly to the customer
as part of the shipping and handling charge. The costs of mailing promotional
material and certain other correspondence (including postage) are not
directly passed on to customers, but are considered in the Company's overall
product pricing and mailing strategies.
The Company substantially reduces mailing costs by effectively using
discounts offered by the United States Postal Service from the basic postal
rates. For example, Fingerhut sorts mailings by zip code to the carrier route
level and also prints the "zip plus four" bar-code to obtain optimum postal
discounts, resulting in savings not always available to smaller direct mail
companies. In January 1995, the United States Postal Service increased its
first class, third class and fourth class postage rates. In addition, the
cost of paper increased. To reduce the effect of the postal and paper
increases, Fingerhut took steps to reduce its operating expenses and intends
to continue to improve the efficiency of its mailings by reviewing mailing
depth criteria and catalog size.
FIGI'S INC.
Figi's is a mail order retailer of specialty food gifts (such as quality
cheeses, smoked meats, candies and baked goods) and other gifts headquartered
in Marshfield, Wisconsin. The Company acquired Figi's in 1981. Figi's is one
of the largest direct mail food gifts marketers in the United States, with
1995 net sales of approximately $83 million.
New customers are acquired from sources similar to those used by
Fingerhut, although Figi's customers include both moderate income consumers
attracted by Figi's in-house credit terms and more affluent customers who use
credit cards. Sales using Figi's interest-free, three payment credit terms
constituted approximately 83% of its net sales in 1995.
Figi's offerings are made predominantly in catalogs mailed prior to
holidays and other gift-giving occasions such as Christmas, Easter,
Valentine's Day and Mother's Day. Figi's business is highly seasonal, with
approximately 81% of its net sales in the fourth quarter. Like Fingerhut,
Figi's seeks to develop repeat business from customers by offering a
"satisfaction assured" policy.
INFOCHOICE USA, INC.
Infochoice markets specially selected products primarily through
30-minute direct response television advertisements commonly known as
"infomercials." These advertisements provide entertaining and informative
product demonstrations and often feature a well known entertainer or other
recognized individual. Infochoice's advertisements are distributed through
cable networks and broadcast television stations. During 1995, these products
included the Body by Jake-Registered Trademark- Ab and Back Plus-TM- and the
Bissell-Registered Trademark- Plus-TM- vacuum. Infochoice's gross retail
sales mix by product category in 1995 was: 89% fitness/leisure and 11%
housewares.
23
<PAGE>
FINANCIAL SERVICES BUSINESS SEGMENT
The Company's financial services business segment is conducted through
Metris, an information-based direct marketer of consumer credit products,
extended service plans, and fee-based products and services to moderate
income consumers. Metris provides credit to this market by utilizing a
risk-based pricing strategy based on proprietary databases and credit scoring
systems. The Company has entered into agreements with Metris to provide for
the exclusive use of Fingerhut's proprietary database to market Metris'
products and services.
Metris' consumer credit products currently are unsecured and secured
credit cards, including the Fingerhut co-branded MasterCard and the Direct
Merchants Bank MasterCard. Metris' customers and prospects include both
Fingerhut's existing customers and individuals who are not Fingerhut
customers but for whom credit bureau information is available. Once a
prospective customer is targeted, Metris utilizes its proprietary credit
scoring models and a risk-based pricing strategy to assign the annual
percentage rate, annual fee and credit line based upon the expected risk of
the individual prospect. As a result of the risk profile that is typical of
Metris' customers, approximately 82% of the existing credit card accounts
carry an annual fee, annual percentage rates range from prime plus 6.45% to
prime plus 14.20%, and the average initial credit line is approximately
$1,700.
Metris also provides extended service plans on certain categories of
products sold by Fingerhut that extend service coverage beyond the
manufacturer's warranty. Although these plans historically have been
available only on consumer electronics, Metris has recently begun to offer
these plans for jewelry and furniture, and may offer plans on additional
types of products in the future.
Metris markets its fee-based products and services, including third party
insurance, membership clubs, card registration and debt waiver programs, to
its credit card customers and to Fingerhut's customers. As a result of
Metris' direct marketing and cross-selling efforts, approximately 53% of
Metris' credit card customers have purchased one or more fee-based products.
As an additional service, Metris develops highly tailored marketing lists,
derived from its proprietary database, for third parties.
At year-end 1995, Metris was the 23rd largest MasterCard issuer based on
number of cards issued, with over 700,000 total credit card accounts and
$543.6 million total managed loans outstanding. At March 31, 1996, Metris was
the 52nd largest credit card issuer in the United States, based on managed
credit card loan balances. As of September 30, 1996 Metris had approximately
1.1 million total credit card accounts and $1.277 billion in total managed
loans outstanding. For the first nine months of 1996, Metris had total
revenues of approximately $105.7 million and net income of approximately
$14.7 million.
Metris has entered into a number of intercompany agreements with the
Company and/or Fingerhut. In addition to providing Metris exclusive use of
the Fingerhut database for the marketing of financial service products, the
agreements provide for continued access to information about Fingerhut
customers, for marketing of extended service plans and for a variety of
administrative and other services during the term (generally seven years) of
these agreements.
24
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into
the Registration Rights Agreement with the Initial Purchasers, pursuant to
which the Company agreed to file and to use its best efforts to cause to
become effective with the Commission a registration statement with respect to
the exchange of the Old Notes for debt securities with terms identical in all
material respects to the terms of the Old Notes. A copy of the Registration
Rights Agreement has been filed as an Exhibit to the Registration Statement
of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations
of the Company under the Registration Rights Agreement. The form and terms
of the New Notes are the same as the form and terms of the Old Notes except
that: (i) the New Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Old Notes and will not be entitled to registration and other rights
under the Registration Rights Agreement, (ii) the New Notes are issuable in
minimum denominations of $1,000 compared to minimum denominations of $250,000
for the Old Notes, and (iii) the New Notes will not provide for any increase
in the interest rate thereon. In that regard, the Old Notes provide, among
other things, that, if the Exchange Offer is not consummated by February 24,
1997, the interest rate borne by the Old Notes commencing on February 25,
1997, will increase by 0.50% per annum until the Exchange Offer is
consummated. Upon consummation of the Exchange Offer, holders of Old Notes
will not be entitled to any increase in the rate of interest thereon or any
further registration rights under the Registration Rights Agreement, except
under limited circumstances. See "Risk Factors--Consequences of a Failure to
Exchange Old Notes" and "Description of the Old Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company who desires to
deliver such Old Notes by book-entry transfer at The Depository Trust Company.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal,
to exchange up to $125,000,000 aggregate principal amount of New Notes for a
like aggregate principal amount of Old Notes properly tendered on or prior to
the Expiration Date (as defined below) and not properly withdrawn in
accordance with the procedures described below. The Company will issue,
promptly after the Expiration Date, an aggregate principal amount of up to
$125,000,000 of New Notes in exchange for a like principal amount of
outstanding Old Notes tendered and accepted in connection with the Exchange
Offer. Holders may tender their Old Notes in whole or in part in a principal
amount of $1,000 and integral multiples thereof, provided that if any Old
Note is tendered for exchange in part, the untendered principal amount
thereof must be $250,000 or any integral multiple of $1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered. As of the date of this Prospectus $125,000,000
aggregate principal amount of Old Notes is outstanding.
25
<PAGE>
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for or
are tendered but not accepted in connection with the Exchange Offer will
remain outstanding and be entitled to the benefits of the Indenture, but will
not be entitled to any further registration rights under the Registration
Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Notes" and "Description of
Old Notes."
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Old Notes in connection with the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes in connection with the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "--Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN
FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
February 3, 1997 unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i)
to delay the acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer (whether or not any Old Notes have theretofore been accepted
for exchange) if the Company determines, in its sole and absolute discretion,
that any of the events or conditions referred to under "--Conditions to the
Exchange Offer" have occurred or exist or have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all Old Notes
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Old Notes to withdraw their tendered Old Notes as described under
"--Withdrawal Rights," and (iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, or if
the Company waives a material condition of the Exchange Offer, the Company
will promptly disclose such amendment by means of a prospectus supplement
that will be distributed to the registered holders of the Old Notes, and the
Company will extend the Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company may choose to make any public
announcement and subject to applicable law, the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to an appropriate news agency.
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ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, New Notes for
Old Notes validly tendered and not withdrawn (pursuant to the withdrawal
rights described under "--Withdrawal Rights") promptly after the Expiration
Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered
and accepted for exchange pursuant to the Exchange Offer will be made only
after timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depositary Trust Company ("DTC"), (ii) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, and (iii) any other documents
required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company
will be deemed to have accepted for exchange, and thereby exchanged, Old
Notes validly tendered and not withdrawn as, if and when the Company gives
oral or written notice to the Exchange Agent of the Company's acceptance of
such Old Notes for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Company for the purpose of receiving tenders
of Old Notes, Letters of Transmittal and related documents, and as agent for
tendering holders for the purpose of receiving Old Notes, Letters of
Transmittal and related documents and transmitting New Notes to validly
tendering holders. Such exchange will be made promptly after the Expiration
Date. If for any reason whatsoever, acceptance for exchange or the exchange
of any Old Notes tendered pursuant to the Exchange Offer is delayed (whether
before or after the Company's acceptance for exchange of Old Notes) or the
Company extends the Exchange Offer or is unable to accept for exchange or
exchange Old Notes tendered pursuant to the Exchange Offer, then, without
prejudice to the Company's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Company and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered Old Notes and such Old Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "--Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant
and agree in the Letter of Transmittal that it has full power and authority
to tender, exchange, sell, assign and transfer Old Notes, that the Company
will acquire good, marketable and unencumbered title to the tendered Old
Notes, free and clear of all liens, restrictions, charges and encumbrances,
and the Old Notes tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon
request, execute and deliver any additional documents deemed by the Company
or the Exchange Agent to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the Old Notes tendered pursuant to the
Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER. Except as set forth below, in order for Old Notes to be
validly tendered pursuant to the Exchange Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must be received by
the Exchange Agent at one of its addresses set forth under "--Exchange
Agent," and either (i) tendered Old Notes must be received by the Exchange
Agent, or (ii) such Old Notes must be tendered pursuant to the procedures for
book-entry transfer set forth below and a book-entry confirmation must be
received by the Exchange Agent, in each case on or prior to the Expiration
Date, or (iii) the guaranteed delivery procedures set forth below must be
complied with.
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If less than all of the Old Notes are tendered, a tendering holder should
fill in the amount of Old Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution
that is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Old Notes by causing DTC to transfer such Old
Notes into the Exchange Agent's account at DTC in accordance with DTC's
procedures for transfers. However, although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at
DTC, the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other required
documents, must in any case be delivered to and received by the Exchange
Agent at its address set forth under "--Exchange Agent" on or prior to the
Expiration Date, or the guaranteed delivery procedure set forth below must be
complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Notes need not be endorsed
and signature guarantees on the Letter of Transmittal are unnecessary unless
(a) a certificate for the Old Notes is registered in a name other than that
of the person surrendering the certificate or (b) such registered holder
completes the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" in the Letter of Transmittal. In the case of (a) or
(b) above, such certificates for Old Notes must be duly endorsed or
accompanied by a properly executed bond power, with the endorsement or
signature on the bond power and on the Letter of Transmittal guaranteed by a
firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an
"eligible guarantor institution," including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv)
a national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association (an "Eligible Institution"), unless surrendered on
behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Notes pursuant to
the Exchange Offer and the certificates for such Old Notes are not
immediately available or time will not permit all required documents to reach
the Exchange Agent on or before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such Old Notes may
nevertheless be tendered, provided that all of the following guaranteed
delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of
Transmittal, is received by the Exchange Agent, as provided
below, on or prior to Expiration Date; and
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(iii) the certificates (or a book-entry confirmation) representing
all tendered Old Notes, in proper form for transfer,
together with a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), with any required
signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent
within five New York Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or
transmitted by facsimile or mail to the Exchange Agent and must include a
guarantee by an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees and any other documents required by the Letter of Transmittal.
Accordingly, the delivery of New Notes might not be made to all tendering
holders at the same time, and will depend upon when Old Notes, book-entry
confirmations with respect to Old Notes and other required documents are
received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to
any of the procedures described above will constitute a binding agreement
between the tendering holder and the Company upon the terms and subject to
the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties.
The Company reserves the absolute right, in its sole and absolute discretion,
to reject any and all tenders determined by it not to be in proper form or
the acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject
to applicable law, to waive any of the conditions of the Exchange Offer as
set forth under "--Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Notes of any particular holder whether or
not similar conditions or irregularities are waived in the case of other
holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will
be final and binding. No tender of Old Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent nor any other person shall be under any duty to
give any notification of any irregularities in tenders or incur any liability
for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion,
of such person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
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RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of
the staff of the Division of Corporation Finance of the Commission as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, the Company has not sought its own interpretive letter
and there can be no assurance that the staff of the Division of Corporation
Finance of the Commission would make a similar determination with respect to
the Exchange Offer as it has in such interpretive letters to third parties.
Based on these interpretations by the staff of the Division of Corporation
Finance, and subject to the two immediately following sentences, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
a holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and that such holder is not participating,
and has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of such New Notes.
However, any holder of Old Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing
New Notes, or any broker-dealer who purchased Old Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the
staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Old Notes in the Exchange Offer and (c) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any sale or other transfer of such Old Notes unless
such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Notes acquired
for its own account as a result of market-making or other trading activities
and exchanges such Old Notes for New Notes, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes
in the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is
not a broker-dealer, such holder is not engaged in, and does not intend to
engage in, a distribution (within the meaning of the Securities Act) of such
New Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old
Notes for its own account as the result of market-making activities or other
trading activities and must agree that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Company
believes that broker-dealers who acquired Old Notes for their own accounts as
a result of market-making activities or other trading activities
("Participating Broker-Dealers") may fulfill their prospectus delivery
requirements with respect to the New Notes received upon exchange of such Old
Notes (other than Old Notes which represent an unsold allotment from the
original sale of the Old Notes) with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer for its own account
as a result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Company has
agreed that this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with
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resales of such New Notes for a period ending 180 days after the Expiration
Date (subject to extension under certain limited circumstances described
below) or, if earlier, when all such New Notes have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of the Company may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or which causes this Prospectus to omit to state a
material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of New Notes pursuant to this Prospectus
until the Company has amended or supplemented this Prospectus to correct such
misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such Participating Broker-Dealer or the Company
has given notice that the sale of the New Notes may be resumed, as the case
may be. If the Company gives such notice to suspend the sale of the New
Notes, it shall extend the 180-day period referred to above during which
Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the
period from and including the date of the giving of such notice to and
including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales
of the New Notes or to and including the date on which the Company has given
notice that the sale of New Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex
or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth under
"--Exchange Agent" on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to
be withdrawn, the aggregate principal amount of Old Notes to be withdrawn,
and (if certificates for such Old Notes have been tendered) the name of the
registered holder of the Old Notes as set forth on the Old Notes, if
different from that of the person who tendered such Old Notes. If Old Notes
have been delivered or otherwise identified to the Exchange Agent, then prior
to the physical release of such Old Notes, the tendering holder must submit
the serial numbers shown on the particular Old Notes to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Notes tendered for the account of an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in "--Procedures for Tendering
Old Notes," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Old Notes, in which case
a notice of withdrawal will be effective if delivered to the Exchange Agent
by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will
not be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "--Procedures for
Tendering Old Notes."
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All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
promptly after withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 7.375% per annum from the
most recent date to which interest has been paid or duly provided for on the
Old Note surrendered in exchange for such New Note or, if no interest has
been paid or duly provided for on such Old Note, from September 27, 1996 (the
date of original issuance of such Old Notes). Interest on the New Notes will
be payable semiannually on March 15 and September 15 of each year, commencing
on the first such date following the original issuance date of the New Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided
for on such Old Notes prior to the original issue date of the New Notes or,
if no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and will be deemed to have waived the
right to receive any interest on such Old Notes accrued from and after such
Interest Payment Date or, if no such interest has been paid or duly provided
for, from and after September 27, 1996.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept
for exchange, or to exchange, any Old Notes for any New Notes, and, as
described below, may terminate the Exchange Offer (whether or not any Old
Notes have theretofore been accepted for exchange) or may waive any
conditions to or amend the Exchange Offer, if any of the following conditions
have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than broker-dealers and
any such holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes; or
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or Minnesota or New York state authorities which, in the Company's
judgment, would reasonably be expected to impair the ability of the Company
to proceed with the Exchange Offer;
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(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Company's
judgment, would reasonably be expected to impair the ability of the
Company to proceed with the Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any
state securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge
of the Company, threatened for that purpose;
(g) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby; or
(h) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for
exchange) or may waive any such condition or otherwise amend the terms of the
Exchange Offer in any respect. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company will promptly disclose
such waiver by means of a prospectus supplement that will be distributed to
the registered holders of the Old Notes, and the Company will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
First Bank National Association, has been appointed as Exchange Agent for
the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent as follows:
First Bank National Association
180 East Fifth Street
St. Paul, Minnesota 55108
Attention: Corporate Trust
Telephone: (612) 244-0733
Facsimile: (612) 244-0712
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes, and in handling or tendering
for their customers.
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Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to
be delivered to, or are to be issued in the name of, any person other than
the registered holder of the Old Notes tendered, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes in connection
with the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and the New Notes are to be issued under the
Indenture dated as of September 15, 1996 (the "Indenture") between the
Company and First Bank National Association, as Trustee (the "Trustee"). The
summaries of certain provisions of the Indenture, the Old Notes and the New
Notes set forth below and under "Description of the Old Notes" do not purport
to be complete and are subject to and are qualified in their entirety by
reference to all of the provisions of the Indenture and the forms of the
certificates evidencing the Old Notes and the New Notes, which documents have
been filed or incorporated by reference as exhibits to the Registration
Statement and are incorporated herein by reference. See "Available
Information." Certain capitalized terms used herein are defined in the
Indenture. As used in this "Description of the New Notes," all references to
the "Company" shall mean Fingerhut Companies, Inc., excluding, unless the
context shall otherwise require, its subsidiaries.
The Indenture does not limit the aggregate principal amount of debt
securities which may be issued thereunder and provides that debt securities
may be issued thereunder from time to time in one or more series.
The Old Notes and the New Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, holders
of the Old Notes who do not exchange their Old Notes for New Notes will vote
together with the holders of New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
holders thereunder (including acceleration following an Event of Default)
must be taken, and certain rights must be exercised, by specified minimum
percentages of the aggregate principal amount of the outstanding debt
securities of the relevant series. In determining whether holders of the
requisite percentage in principal amount have given any notice, consent or
waiver or taken any other action permitted under the Indenture, any Old Notes
which remain outstanding after the Exchange Offer will be aggregated with the
New Notes and the holders of such Old Notes and New Notes will vote together
as a single series for all such purposes. Accordingly, all references herein
to specified percentages in aggregate principal amount of the outstanding
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount of the Old Notes
and New Notes then outstanding.
The New Notes and the Old Notes are sometimes referred to as,
collectively, the "Notes" and, individually, a "Note."
The New Notes will be unsecured and unsubordinated obligations of the
Company and will be limited to an aggregate principal amount of $125,000,000.
Each New Note will bear interest at the rate of 7.375% per annum from the
most recent date to which interest has been paid or duly provided for on
the Old Note surrendered in exchange for such New Note or, if no interest
has been paid or duly
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provided for on such Old Note, from September 27, 1996, payable semiannually
on March 15 and September 15 of each year (each, an "Interest Payment Date"),
commencing with the first Interest Payment Date occurring after the date of
original issuance of such New Note, to the person in whose name such New Note
is registered at the close of business on the March 1 or September 1 next
preceding such Interest Payment Date. Interest on the New Notes will be
computed on the basis of a 360-day year of twelve 30-day months. The New
Notes will mature on September 15, 1999. The New Notes may not be redeemed
prior to maturity and will not be subject to any sinking fund.
The New Notes will not provide for any increase in the interest rate
thereon. For a discussion of the circumstances in which the interest rate on
the Old Notes may be temporarily increased, see "Description of the Old
Notes."
FORM, DENOMINATION AND REGISTRATION
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000 in
excess thereof.
Principal and interest on the New Notes will be payable, and New Notes
may be registered for transfer or exchange, at an office or agency maintained
by the Company in New York City, except that, at the option of the Company,
interest may be paid by check mailed to the persons entitled thereto. No
service charge may be made to a holder for any registration of transfer or
exchange of the New Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
In case any New Note shall become mutilated, defaced, destroyed, lost or
stolen, the Company will execute and, upon the Company's request, the Trustee
will authenticate and deliver a New Note, of like tenor and equal principal
amount in exchange and substitution for such New Note (upon surrender and
cancellation thereof) or in lieu of and substitution for such New Note. In
case such New Note is destroyed, lost or stolen, the applicant for a
substituted New Note shall furnish to the Company and the Trustee such
security or indemnity as may be required by them to hold each of them
harmless, and, in every case of destruction, loss or theft of such New Note,
the applicant shall also furnish to the Company or the Trustee satisfactory
evidence of the destruction, loss or theft of such New Note and of the
ownership thereof. Upon the issuance of any substituted New Note, the Company
may require the payment by the registered holder thereof of a sum sufficient
to cover fees and expenses connected therewith.
RANKING; HOLDING COMPANY STRUCTURE
The Old Notes are and the New Notes will be unsecured unsubordinated
obligations of the Company and rank and will rank on a parity in right of
payment with all other unsecured and unsubordinated indebtedness of the
Company for borrowed money.
The Old Notes are and the New Notes will be obligations exclusively of
the Company. The Company is a holding company substantially all of whose
consolidated assets are held by its subsidiaries. Accordingly, the cash flow
of the Company and the consequent ability to service its debt, including the
Notes, are largely dependent upon the earnings of such subsidiaries. Because
the Company is a holding company, the Old Notes are and the New Notes will be
effectively subordinated to all existing and future indebtedness, trade
payables, guarantees, lease obligations and letter of credit obligations of
the Company's subsidiaries. See "Risk Factors--Holding Company Structure;
Effective Subordination."
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RESTRICTIVE COVENANTS
LIMITATIONS ON SECURED DEBT. The Indenture provides that the Company will
not itself, and will not permit any Restricted Subsidiary (defined below) to,
incur, issue, assume or guarantee any notes, bonds, debentures or other
similar evidences of indebtedness for money borrowed (herein called "debt"),
secured by pledge of, or mortgage or other lien on, any Principal Property
(defined below), now owned or hereafter owned by the Company or any
Restricted Subsidiary, or any shares of stock or debt of any Restricted
Subsidiary (herein called "liens"), without effectively providing that the
Debt Securities of each series then Outstanding (together with, if the
Company shall so determine, any other debt of the Company or such Restricted
Subsidiary then existing or thereafter created which is not subordinate to
the Debt Securities of each series then Outstanding) shall be secured equally
and ratably with such secured debt. The foregoing restrictions do not apply,
however, to (a) liens on any Principal Property acquired, constructed or
improved by the Company or any Restricted Subsidiary after the date of the
applicable Indenture which are created or assumed contemporaneously with, or
within 120 days of, such acquisition, construction or improvement, to secure
or provide for the payment of all or any part of the cost of such
acquisition, construction or improvement; (b) liens on property, shares of
capital stock or debt existing at the time of acquisition thereof, whether by
merger, consolidation, purchase, lease or otherwise (including liens on
property, shares of capital stock or debt of a corporation existing at the
time such corporation becomes a Restricted Subsidiary); (c) liens in favor of
the Company or any Restricted Subsidiary; (d) liens in favor of the United
States of America or any State thereof, or any department, agency or
instrumentality or political subdivision thereof, or political entity
affiliated therewith, or in favor of any other country, or any political
subdivision thereof, to secure partial, progress, advance or other payments;
(e) certain liens imposed by law, such as mechanics', workmen's, repairmen's,
materialmen's, carriers', warehousemen's, vendors' or other similar liens
arising in the ordinary course of business; (f) certain pledges or deposits
under workmen's compensation or similar legislation or in certain other
circumstances; (g) certain liens in connection with legal proceedings,
including certain liens arising out of judgments or awards; (h) liens for
certain taxes or assessments; (i) certain liens consisting of restrictions on
the use of real property which do not interfere materially with the
property's use; (j) liens existing on the first date on which the Debt
Securities are authenticated; or (k) any extension, renewal or replacement,
as a whole or in part, of any lien referred to in the foregoing clauses (a)
to (j), inclusive. (Section 1007)
Notwithstanding the restrictions described above, the Company or any
Restricted Subsidiary may incur, issue, assume or guarantee debt secured by
liens without equally and ratably securing the Debt Securities of each series
then Outstanding, provided, that at the time of such incurrence, issuance,
assumption or guarantee, after giving effect thereto and to the retirement of
any debt which is concurrently being retired, the aggregate amount of all
outstanding debt secured by liens so incurred (other than liens permitted as
described in clauses (a) through (k) above), together with the aggregate
amount of Attributable Debt incurred pursuant to the second paragraph under
the caption "--Limitations on Sale and Leaseback Transactions" below, does
not at such time exceed 25% of Consolidated Net Tangible Assets (defined
below) of the Company. (Section 1007)
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS. Sale and leaseback
transactions by the Company or any Restricted Subsidiary involving a
Principal Property are prohibited unless either (a) the Company or such
Restricted Subsidiary would be entitled, without equally and ratably securing
the Debt Securities of each series then Outstanding, to incur debt secured by
a lien on such property, pursuant to the provisions described in clauses (a)
through (k) above under "Limitations on Secured Debt,"; or (b) the Company,
within 120 days, applies to the retirement of its Funded Debt (defined below)
(subject to credits for certain voluntary retirements of Funded Debt) an
amount not less than the greater of (i) the net proceeds of the sale of the
Principal Property leased pursuant to such arrangement or (ii) the fair
market value of the Principal Property so leased. This restriction will not
apply to a sale and leaseback transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries or involving the
taking back of a lease for a period of less than three years.
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Notwithstanding the restrictions described above, the Company or any
Restricted Subsidiary may enter into a Sale and Leaseback Transaction,
provided, that at the time of such transaction, after giving effect thereto,
the aggregate amount of all Attributable Debt (defined below) in respect of
sale and leaseback transactions existing at such time (other than sale and
leaseback transactions permitted as described above), together with the
aggregate amount of all outstanding debt incurred pursuant to the second
paragraph under the caption "--Limitations on Secured Debt" above, does not
at such time exceed 25% of Consolidated Net Tangible Assets of the Company.
(Section 1008)
CERTAIN DEFINITIONS. The term "Attributable Debt" means the total net
amount of rent (discounted at the rate of interest implicit in the terms of
the lease) required to be paid during the remaining term of any lease.
(Section 101)
The term "Consolidated Net Tangible Assets" means the aggregate amount of
assets (less applicable reserves and other properly deductible items) after
deducting therefrom (a) all current liabilities (excluding any indebtedness
for money borrowed having a maturity of less than 12 months from the date of
the most recent consolidated balance sheet of the Company but which by its
terms is renewable or extendable beyond 12 months from such date at the
option of the borrower) and (b) all goodwill, trade names, patents,
unamortized debt discount and expense and any other like intangibles, all as
set forth on the most recent consolidated balance sheet of the Company and
computed in accordance with generally accepted accounting principles.
Notwithstanding the foregoing, the term "Consolidated Net Tangible Assets"
shall not include any assets nor shall it deduct any liabilities of Metris
and its subsidiaries. (Section 101)
The term "Funded Debt" means debt which by its terms matures at or is
extendible or renewable at the option of the obligor to a date more than 12
months after the date of the creation of such debt. (Section 101)
The term "Principal Property" means any plant, office facility,
warehouse, distribution center or equipment located within the United States
of America (other than its territories or possessions) and owned by the
Company or any Subsidiary, the gross book value (without deduction of any
depreciation reserves) of which on the date as of which the determination is
being made exceeds 1% of Consolidated Net Tangible Assets, except any such
property which is not of material importance to the business conducted by the
Company and its subsidiaries, taken as a whole. (Section 101)
The term "Restricted Subsidiary" means any subsidiary of the Company,
other than Metris or any subsidiary of Metris, which owns or leases a
Principal Property. (Section 101)
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default"
with respect to the Debt Securities of any series issued pursuant to such
Indenture, unless otherwise provided with respect to such series: (1) failure
to pay any interest on any Debt Security of that series when due and payable,
continued for 30 days; (2) failure to pay principal of or any premium on any
Debt Security of that series at its maturity; (3) failure to deposit any
sinking fund payment, when and as due, in respect of any Debt Security of
that series; (4) failure to perform any other covenant of the Company in the
Indenture (other than a covenant included in the Indenture solely for the
benefit of a series of Debt Securities other than that series), continued for
60 days after written notice as provided in the Indenture; (5) default under
any indenture or instrument (other than the Indenture or any Debt Security)
under which the Company or any Restricted Subsidiary shall have outstanding
or shall have guaranteed the payment of at least $10,000,000 aggregate
principal amount of indebtedness for money borrowed which default (a) is
caused by failure to pay the principal of or premium, if any, or interest on
such indebtedness prior to the expiration of the grace period provided in
such indebtedness on the date of such default or (b) results in acceleration
of such indebtedness prior to its express maturity and such acceleration has
not been annulled within 10 days after written notice as provided in the
Indenture; (6) certain events in
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bankruptcy, insolvency or reorganization involving the Company; and (7) any
other Event of Default provided with respect to Debt Securities of that
series. (Section 501)
If an Event of Default with respect to any series of Debt Securities
Outstanding under the Indenture occurs and is continuing, then either the
Trustee or the holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of that series by notice as provided in the
Indenture may declare the principal amount of all of the Debt Securities of
that series to be due and payable immediately. At any time after a
declaration of acceleration with respect to Debt Securities of any series has
been made, but before a judgment or decree for payment of money has been
obtained by the Trustee, the holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of that series may, under certain
circumstances, rescind and annul such acceleration. (Section 502)
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the holders, unless such holders shall
have offered to the Trustee reasonable indemnity. (Sections 601, 603) Subject
to such provisions for the indemnification of the Trustee, the holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Debt Securities of that series. (Section 512)
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 704)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of not less than a majority
in aggregate principal amount of the Outstanding Debt Securities of each
series affected by such modification or amendment; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the holder of each
Outstanding Debt Security affected thereby, change the Stated Maturity of the
principal of, or any installment of principal of or interest on, any Debt
Security, reduce the principal amount of, or premium or interest on, any Debt
Security, reduce the amount of principal of an Original Issue Discount Debt
Security due and payable upon acceleration of the Maturity thereof, change
the place of payment where or coin or currency in which the principal of, or
any premium or interest on, any Debt Security is payable, impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debt Security, reduce the percentage in principal amount of Outstanding Debt
Securities of any series, the consent of the holders of which is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults or
modify any of the above provisions. (Section 902)
The holders of not less than a majority in aggregate principal amount of
the Outstanding Debt Securities of each series may, on behalf of the holders
of all Debt Securities of that series, waive, insofar as that series is
concerned, compliance by the Company with certain restrictive provisions of
the Indenture. (Section 1010) The holders of not less than a majority in
aggregate principal amount of the Outstanding Debt Securities of each series
may, on behalf of the holders of all Debt Securities of that series, waive
any past default under the Indenture with respect to Debt Securities of that
series, except a default (1) in the payment of principal of, or any premium
or interest on, any Debt Security of such series, or (2) in respect of a
covenant or provision of the Indenture which cannot be modified or amended
without the consent of the holder of each Outstanding Debt Security of such
series affected. (Section 513)
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The Indenture provides that, in determining whether the holders of the
requisite principal amount of the Outstanding Debt Securities have given any
request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (1) the principal amount of an Original Issue Discount Debt
Security that will be deemed to be Outstanding will be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon acceleration of the Maturity thereof to such date, and (2)
the principal amount of a Debt Security denominated in a foreign currency or
currency unit that will be deemed to be Outstanding will be the United States
dollar equivalent, determined as of the date of original issuance of such
Debt Security, of the principal amount of such Debt Security (or, in the case
of an Original Issue Discount Debt Security, the United States dollar
equivalent, determined as of the date of original issuance of such Debt
Security, of the amount determined as provided in (1) above). (Section 101)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of the Holders of any of the Outstanding
Debt Securities under the Indenture, may consolidate or merge with or into,
or convey, transfer or lease its properties and assets substantially as an
entirety to, any Person which is a corporation, partnership or trust
organized and validly existing under the laws of any domestic jurisdiction,
provided that (1) any successor Person assumes by supplemental indenture the
Company's obligations on the Debt Securities and under the Indenture, (2)
after giving effect to the transaction no Event of Default, and no event
which, after notice or lapse of time, would become an Event of Default, shall
have occurred and be continuing under the Indenture, (3) as a result of such
transaction the properties or assets of the Company would not become subject
to any encumbrance which would not be permitted under the Indenture, and (4)
the Company would have delivered an Officers' Certificate and an Opinion of
Counsel, each stating that such transaction or supplemental indenture,
complies with the Indenture. (Section 801)
DEFEASANCE PROVISIONS
DEFEASANCE AND DISCHARGE. The Indenture provides that, if principal of
and any interest on the Debt Securities are denominated and payable in United
States dollars, the Company will be discharged from any and all obligations
in respect of the Debt Securities (except for certain obligations to register
the transfer or exchange of Debt Securities, to replace stolen, lost or
mutilated Debt Securities, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit with the Trustee, in trust, of money, U.S.
Government Obligations (as defined) or a combination thereof, which through
the payment of interest and principal thereof in accordance with their terms
will provide money in an amount sufficient to pay any installment of
principal of (and premium, if any) and interest on and any mandatory sinking
fund payments in respect of the Debt Securities on the Stated Maturity of
such payments in accordance with the terms of the Indenture and such Debt
Securities. Such discharge may only occur if there has been a change in
applicable Federal law or the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling to the
effect that such a discharge will not be deemed, or result in, a taxable
event with respect to holders of the Debt Securities; and such discharge will
not be applicable to any Debt Securities then listed on the New York Stock
Exchange if the provision would cause said Debt Securities to be de-listed as
a result thereof. (Section 403) The term "U.S. Government Obligations" is
defined to mean direct obligations of the United States of America, backed by
its full faith and credit. (Section 101)
DEFEASANCE OF CERTAIN COVENANTS. The Company may omit to comply with
certain restrictive covenants described in Sections 1005 (Maintenance of
Properties), 1006 (Payment of Taxes and Other Claims) and 1007 (Restrictions
on Liens) of the Indenture. To exercise such option, the Company must deposit
with the Trustee money, U.S. Government Obligations or a combination thereof,
which through the payment of interest and principal thereof in accordance
with their terms will provide money in an amount sufficient to pay any
installment of principal of (and premium, if any) and interest on and any
mandatory sinking fund payments in respect of the Debt Securities on the
Stated Maturity of such payments in accordance with the terms of the
Indenture and such Debt Securities. The Company will
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also be required to deliver to the Trustee an opinion of counsel to the
effect that the deposit and related covenant defeasance will not cause the
holders of the Debt Securities to recognize income, gain or loss for Federal
income tax purposes. (Section 1009)
DEFEASANCE AND EVENTS OF DEFAULT. In the event the Company exercises its
option to omit compliance with certain covenants of the Indenture and the
Debt Securities are declared due and payable because of the occurrence of any
Event of Default, the amount of money and U.S. Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities at the time of their Stated Maturity but may not be sufficient to
pay amounts due on the Debt Securities at the time of the acceleration
resulting from such Event of Default. However, the Company shall remain
liable for such payments.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
REGARDING THE TRUSTEE
The Trust Indenture Act contains limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions with the Company and its
subsidiaries from time to time, provided that if the Trustee acquires any
conflicting interest it must eliminate such conflict upon the occurrence of
an Event of Default, or else resign. The Trustee is a lender under the
Amended Revolving Credit Facility and the Metris Revolving Credit Facility
and also provides other banking services for the Company in the ordinary
course of business.
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the
New Notes, except that (i) the Old Notes have not been registered under the
Securities Act, are subject to certain restrictions on transfer and are
entitled to certain registration rights under the Registration Rights
Agreement (which rights will terminate upon consummation of the Exchange
Offer, except under limited circumstances); (ii) the New Notes are issuable
in minimum denominations of $1,000 and integral multiples thereof compared to
minimum denominations of $250,000 and integral multiples of $1,000 in excess
thereof for the Old Notes; and (iii) the New Notes will not provide for any
increase in the interest rate thereon. In that regard, the Old Notes provide
that, in the event that the Exchange Offer is not consummated on or prior to
February 24, 1997, or a shelf registration statement (the "Shelf Registration
Statement") with respect to the resale of the Old Notes is not declared
effective within 75 days after the required filing date therefor (the
"Effectiveness Date"), additional interest on the principal amount of the Old
Notes will accrue at a rate of 0.50% per annum commencing on February 25, 1997
or the Effectiveness Date, as the case may be (the "Additional Interest");
provided, however, that if the Company reasonably requests holders of Old
Notes to provide certain information called for by the Registration Rights
Agreement for inclusion in any such Shelf Registration Statement, then Old
Notes owned by holders who do not deliver such information to the Company as
required pursuant to the Registration Rights Agreement will not be entitled
to any such Additional Interest. Upon the consummation of the Exchange Offer
or the effectiveness of a Shelf Registration Statement, as the case may be,
Additional Interest will cease to accrue. The New Notes are not entitled to
any such Additional Interest. In addition, the Old Notes and the New Notes
will constitute a single series of debt securities under the Indenture. See
"Description of the New Notes--General." Accordingly, holders of Old Notes
should review the information set forth under "Risk Factors--Certain
Consequences of a Failure to Exchange Old Notes" and "Description of the New
Notes."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
considerations to holders of the New Notes who are subject to U.S. net income
tax with respect to the New Notes ("U.S. persons") and who will hold the New
Notes as capital assets. There can be no assurance that the U.S. Internal
Revenue Service (the "IRS") will take a similar view of the purchase,
ownership or disposition of the New Notes. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended, and regulations,
rulings and judicial decisions now in effect, all of which are subject to
change. It does not include any description of the tax laws of any state,
local or foreign governments or any estate or gift tax considerations that
may be applicable to the New Notes or holders thereof. It does not discuss
all aspects of federal income taxation that may be relevant to a particular
investor in light of such investor's particular investment circumstances or
to certain types of investors subject to special treatment under the federal
income tax laws (for example, dealers in securities or currencies, S
corporations, life insurance companies, tax-exempt organizations, taxpayers
subject to the alternative minimum tax and non-U.S. persons) and also does
not discuss New Notes held as a hedge against currency risks or as part of a
straddle with other investments or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprised of a
New Note and one or more other investments, or situations in which the
functional currency of the holders is not the U.S. dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer
should consult their own tax advisors with respect to their particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes should not be a taxable event to
holders for federal income tax purposes. The exchange of Old Notes for New
Notes pursuant to the Exchange Offer should not be treated as an "exchange"
for federal income tax purposes because the New Notes should not be
considered to differ materially in kind or extent from the Old Notes and
because the exchange will occur by operation of the terms of the Old Notes.
If, however, the exchange of the Old Notes for the New Notes were treated as
an exchange for federal income tax purposes, such exchange should constitute
a recapitalization for federal income tax purposes. Accordingly, the New
Notes should have the same issue price as the Old Notes, and a holder should
have the same adjusted basis and holding period in the New Notes as the
holder had in the Old Notes immediately before the exchange.
INTEREST ON THE NEW NOTES
A holder of a New Note will be required to report interest earned on the
New Note as ordinary interest income for federal income tax purposes in
accordance with the holder's method of tax accounting.
DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note generally will be the holder's
purchase price for the Old Note. Upon the sale, exchange, redemption,
retirement or other disposition of a New Note, a holder will recognize gain
or loss equal to the difference (if any) between the amount realized and the
holder's tax basis in the New Note. Such gain or loss will be long-term
capital gain or loss if the New Note has been held for more than one year and
otherwise will be short-term capital gain or loss (with certain exceptions to
the characterization as capital gain if the New Note was acquired at a market
discount).
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BACKUP WITHHOLDING
A holder of a New Note may be subject to backup withholding at the rate
of 31% with respect to interest paid on the New Note and proceeds from the
sale, exchange, redemption or retirement of the New Note, unless such holder
(a) is a corporation or comes within certain other exempt categories and,
when required, demonstrates that fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of a New Note who does not provide the Company
with the holder's correct taxpayer identification number may be subject to
penalties imposed by the IRS.
A holder of a New Note who is not a U.S. person will generally be exempt
from backup withholding and information reporting requirements, but may be
required to comply with certification and identification procedures in order
to obtain an exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the
holder's federal income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in
connection with resales of New Notes received in exchange for Old Notes if
such Old Notes were acquired by such Participating Broker-Dealers for their
own accounts as a result of market-making activities or other trading
activities. The Company has agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such New Notes for a period
ending 180 days after the Expiration Date (subject to extension under certain
limited circumstances described herein) or, if earlier, when all such New
Notes have been disposed of by such Participating Broker-Dealer. See "The
Exchange Offer--Resales of New Notes." The Company will not receive any cash
proceeds from the issuance of the New Notes offered hereby. New Notes
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing
of options on the New Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account in
connection with the Exchange Offer and any broker or dealer that participates
in a distribution of such New Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale
of New Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
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VALIDITY OF NEW NOTES
The validity of the New Notes being issued in the Exchange Offer will be
passed upon for the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 29, 1995 and December 30, 1994 and for each of the fiscal years in
the three-year period ended December 29, 1995, incorporated by reference
herein, have been audited and reported upon by KPMG Peat Marwick LLP,
independent certified public accountants. Such financial statements and
schedule have been incorporated by reference herein in reliance upon the
reports of said firm, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 521 of the Minnesota Business Corporation Act (the "MBCA") (Minn.
Stat. Section 302A.521) generally provides that unless its articles or bylaws
provide otherwise, a corporation shall indemnify officers and directors made
or threatened to be made a party to a proceeding by reason of any such
person's present or former capacity as a director or officer against
judgments, penalties, fines, settlements and reasonable expenses incurred by
the person in connection with the proceeding, if, with respect to the acts or
omissions of the person complained of in the proceeding, the person: (1) has
not been indemnified by another party for the same amounts; (2) acted in good
faith; (3) received no improper personal benefit and the procedures for
director conflicts of interest, if applicable, have been satisfied; (4) in
the case of a criminal proceeding, had no reasonable cause to believe the
conduct was unlawful; and (5) reasonably believed that the conduct was in the
best interests of the corporation.
The MBCA provides that unless a corporation's articles of incorporation
or bylaws provide otherwise, if a person is made or threatened to be made a
party to a proceeding, the person is entitled, upon written request to the
corporation, to advance payment or reimbursement by the corporation of
reasonable expenses (a) upon receipt by the corporation of a written
affirmation by the person of a good faith belief that the criteria for
indemnification have been satisfied and a written undertaking by the person
to repay all amounts so paid or reimbursed by the corporation, if it is
ultimately determined that the criteria for indemnification have not been
satisfied, and (b) after a determination that the facts then known to those
making the determination would not preclude indemnification.
The MBCA also permits a corporation to purchase and maintain insurance on
behalf of a person in that person's official capacity against any liability
asserted against and incurred by the person in or arising from that capacity,
whether or not the corporation would have been required to indemnify the
person against the liability.
The Bylaws of the Registrant provide for indemnification of its officers
and directors to the fullest extent permitted under the MBCA.
The Registrant currently maintains a policy insuring, subject to certain
exceptions, its directors and officers and the directors and officers of its
subsidiaries against liabilities which may be incurred by such persons acting
in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
* 4.1 Indenture dated as of September 15, 1996 between the Company and First
Bank National Association , as trustee.
* 4.2 Registration Rights Agreement, dated as of September 27, 1996, between
the Company and Bear, Stearns & Co. Inc., Smith Barney Inc. and First
Chicago Capital Markets, Inc.
* 4.3 Form of Security for 7.375% Senior Notes Due 1999 originally issued by
the Company on September 27, 1996.
* 4.4 Form of Security for 7.375% Senior Notes Due 1999 to be issued by the
Company and registered under the Securities Act of 1933.
* 5 Opinion and consent of Dorsey & Whitney LLP.
II-1
<PAGE>
* 12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG Peat Marwick LLP.
* 23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5).
* 24 Powers of Attorney (included on Page II-5).
* 25 Statement of Eligibility under the Trust Indenture Act
of 1939 on Form T-1 of First Bank National Association.
* 99.1 Form of Letter of Transmittal.
* 99.2 Form of Notice of Guaranteed Delivery.
* 99.3 Form of Exchange Agent Agreement.
- -----------------
* Previously filed
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minnetonka, State of Minnesota, on December 31, 1996.
FINGERHUT COMPANIES, INC.
By /s/ Peter G. Michielutti
_____________________________
Peter G. Michielutti
(Senior Vice President,
Finance and Chief Financial
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dated indicated.
SIGNATURE TITLE DATE
--------- ----- ----
* Chairman of the Board, Chief December 31, 1996
- ------------------------ Executive Officer and President;
Theodore Deikel and Director (Principal Executive
Officer)
* Senior Vice President, Finance December 31, 1996
- ------------------------ and Chief Financial Officer
Peter G. Michielutti (Principal Financial Officer)
* Corporate Controller December 31, 1996
- ------------------------ (Principal Accounting Officer)
Thomas C. Vogt
* Director December 31, 1996
- ------------------------
Wendell R. Anderson
* Director December 31, 1996
- ------------------------
Edwin C. Gage
* Director December 31, 1996
- ------------------------
Stanley S. Hubbard
* Director December 31, 1996
- -------------------------
Richard M. Kovacevich
* Director December 31, 1996
- -------------------------
Dudley C. Mecum
* Director December 31, 1996
- -------------------------
John M. Morrison
- ------------------------------
* by /s/ Peter G. Michielutti
-------------------------
Peter G. Michielutti,
Attorney-in-fact
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<PAGE>
EXHIBIT INDEX
Number Description Page
- ------ ----------- ----
23.1 Consent of KPMG Peat Marwick LLP.
II-4
<PAGE>
EXHIBIT 23.1
AUDITORS' CONSENT
The Board of Directors
Fingerhut Companies, Inc.:
We consent to the use of our reports incorporated herein by reference and
to the references to our firm under the headings "Selected Consolidated
Financial Information" and "Experts" in the Registration Statement.
Our report covering the basic consolidated financial statements refers to a
change in the method of accounting for long-lived assets in fiscal 1995.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 30, 1996
