-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hb4Miz9qa9JrQaA2Ds3DSRCqww7KrXQiRe2pL4N+MS4q0Crf+oyElHm/u2foxLlI GKyu14ing9GZcHOV+VNM2A== 0000740126-96-000012.txt : 19961113 0000740126-96-000012.hdr.sgml : 19961113 ACCESSION NUMBER: 0000740126-96-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINGERHUT COMPANIES INC CENTRAL INDEX KEY: 0000740126 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 411396490 STATE OF INCORPORATION: MN FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08668 FILM NUMBER: 96658855 BUSINESS ADDRESS: STREET 1: 4400 BAKER RD CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129323100 MAIL ADDRESS: STREET 2: 4400 BAKER ROAD CITY: MINNETONKA STATE: MN ZIP: 55343 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Quarter Ended 1-8668 September 27, 1996 Commission File Number ___________________________ FINGERHUT COMPANIES, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1396490 (State of Incorporation) (I.R.S. Employer Identification No.) 4400 Baker Road, Minnetonka, Minnesota 55343 (Address of principal executive offices) (612) 932-3100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ As of November 7, 1996, 46,513,680 shares of the Registrant's Common Stock, $.01 par value, were outstanding. FINGERHUT COMPANIES, INC. FORM 10-Q September 27, 1996 TABLE OF CONTENTS Part I - Financial Information Page Item 1. Financial Statements Consolidated Statements of Earnings (Unaudited) - thirteen weeks and thirty-nine weeks ended September 27, 1996 and September 29, 1995.............. 3 Consolidated Statements of Financial Position (Unaudited) - September 27, 1996, September 29, 1995 and December 29, 1995.................................. 4 Consolidated Statements of Cash Flows (Unaudited) - thirty-nine weeks ended September 27, 1996 and September 29, 1995 .................................... 5 Condensed Notes to Consolidated Financial Statements (Unaudited)................................. 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition .................... 11 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K ...................... 21 Signatures...................................................... 23 FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands of dollars, except share and per share data) (Unaudited) Thirteen Weeks Ended Thirty-Nine Weeks Ended Sept. 27, Sept. 29, Sept. 27, Sept. 29, 1996 1995 1996 1995 Revenues: Net sales $ 346,444 $ 397,029 $1,034,832 $1,158,026 Finance income and other revenues 95,433 72,503 250,029 178,962 441,877 469,532 1,284,861 1,336,988 Costs and expenses: Product cost 175,675 202,664 535,507 586,670 Administrative and selling expenses 163,441 166,306 483,317 480,966 Provision for uncollectible accounts 63,611 59,660 181,218 162,833 Discount on sale of accounts receivable 18,586 21,162 49,522 55,849 Interest expense, net 7,134 6,499 21,719 18,884 428,447 456,291 1,271,283 1,305,202 Earnings before income taxes 13,430 13,241 13,578 31,786 Provision for income taxes 4,865 4,688 4,919 11,255 Net earnings $ 8,565 $ 8,553 $ 8,659 $ 20,531 Earnings per share $ .18 $ .18 $ .18 $ .42 Dividends $ .04 $ .04 $ .12 $ .12 Weighted average 48,624,018 48,801,047 48,680,145 48,481,302 shares See accompanying Condensed Notes to Consolidated Financial Statements. FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands of dollars) (Unaudited) Sept. 27, Sept. 29, December 29, 1996 1995 1995 ASSETS Current assets: Cash and cash equivalents $ 42,580 $ 63,369 $ 66,109 Customer accounts receivable, net 398,973 370,163 464,176 Inventories, net 210,017 203,850 156,352 Promotional material 102,944 117,022 80,357 Deferred income taxes 128,465 105,632 131,035 Other 16,865 19,352 23,542 Total current assets 899,844 879,388 921,571 Property and equipment, net 286,326 277,724 279,455 Excess of cost over fair value of net assets acquired, net 43,845 44,954 44,047 Customer lists, net 11,090 12,385 11,201 Other assets 28,722 25,211 24,803 $1,269,827 $1,239,662 $1,281,077 LIABILITIES Current liabilities: Accounts payable $ 198,756 $ 223,056 $ 185,475 Accrued payroll and employee benefits 25,777 29,220 39,872 Other accrued liabilities 61,091 52,950 70,879 Accrued unusual charges 1,063 7,780 2,458 Revolving credit facility 120,000 127,000 115,000 Current portion of long-term debt 92 100,131 100,099 Current income taxes payable 11,604 - 42,380 Total current liabilities 418,383 540,137 556,163 Long-term debt, less current portion 271,518 146,460 146,564 Deferred income taxes 21,965 26,023 23,096 Other non-current liabilities 7,594 8,483 7,764 719,460 721,103 733,587 STOCKHOLDERS' EQUITY Preferred stock - - - Common stock 462 459 459 Additional paid-in capital 263,751 258,474 258,917 Unearned compensation (2,381) - - Earnings reinvested 288,535 259,626 288,114 Total stockholders' equity 550,367 518,559 547,490 $1,269,827 $1,239,662 $1,281,077 See accompanying Condensed Notes to Consolidated Financial Statements. FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) (Unaudited) Thirty-nine Weeks Ended Sept. 27, Sept. 29, 1996 1995 Cash flows from operating activities: Net earnings $ 8,659 $ 20,531 Adjustments to reconcile net earnings to net cash used by operating activities: Depreciation and amortization 37,431 32,785 Amortization of unearned compensation 2,409 - Change in operating assets and liabilities: Customer accounts receivable, net 65,203 (18,558) Inventories, net (53,665) (44,802) Promotional material and other current assets (15,910) (54,165) Accounts payable 13,281 66,935 Accrued payroll and employee benefits (14,095) (10,671) Accrued liabilities (11,183) (19,528) Current income taxes payable (30,494) (41,028) Deferred and other income taxes 1,439 15,384 Other (6,613) (5,234) Net cash used by operating activities (3,538) (58,351) Cash flows from investing activities: Additions to property and equipment (41,464) (81,485) Net cash used by investing activities (41,464) (81,485) Cash flows from financing activities: Proceeds from long-term debt 125,000 - Repayments of long-term debt (100,053) (261) Revolving credit facility 5,000 127,000 Issuance of common stock 1,609 4,441 Repurchase of common stock (4,536) (7,862) Cash dividends paid (5,547) (5,495) Net cash provided by financing activities 21,473 117,823 Net decrease in cash and cash equivalents (23,529) (22,013) Cash and cash equivalents at beginning of period 66,109 85,382 Cash and cash equivalents at end of period $ 42,580 $ 63,369 Supplemental noncash investing and financing activities: Tax benefit from exercise of non-qualified stock options $ 282 $ 1,299 Issuance of restricted stock $ 4,790 $ - Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 28,627 $ 18,200 Cash paid during the period for income taxes $ 34,162 $ 36,981 Included in cash and cash equivalents were liquid investments with original maturities of fifteen days or less. See accompanying Condensed Notes to Consolidated Financial Statements. FINGERHUT COMPANIES, INC. AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited 1. Consolidated financial statements The consolidated financial statements of Fingerhut Companies, Inc. (the "Company") reflect the financial position and results of operations of the Company and its wholly owned subsidiaries. The consolidated financial statements as of September 27, 1996 and September 29, 1995 and for the thirteen and thirty-nine weeks ended September 27, 1996 and September 29, 1995, included herein are unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The interim financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's 1995 Annual Report to Shareholders and incorporated by reference in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission. The results of operations for the interim period should not be considered indicative of the results to be expected for the entire year. 2. Reclassifications Customer allowances, which were previously classified as "Administrative and selling expenses," have been reclassified to "Net sales". These amounts totaled $7.0 million and $9.2 million for the thirteen weeks ended September 27, 1996 and September 29, 1995, respectively, and $21.8 million and $22.0 million for the respective thirty-nine week periods. All prior-period financial information has been reclassified to conform with this year's presentation which had no effect on net earnings. 3. Earnings per share Earnings per share was computed by dividing net earnings by the weighted average shares of common stock and common stock equivalents outstanding during the periods. The dilutive effect of the potential exercise of outstanding options to purchase shares of common stock was calculated using the treasury stock method. 4. Customer accounts receivable, net Customer accounts receivable, net of amounts sold, consisted of the following: (In thousands of dollars) Sept. 27, Sept. 29, December 29, 1996 1995 1995 Customer installment receivables $ 422,829 $ 449,066 $ 511,174 Reserve for uncollectible accounts, net of anticipated recoveries (98,656) (88,138) (106,669) Reserve for returns and exchanges (10,691) (14,511) (13,442) Other reserves (17,315) (17,333) (18,571) Net collectible amount 296,167 329,084 372,492 Unearned finance income (20,328) (20,118) (24,885) Customer installment receivables, net 275,839 308,966 347,607 Credit card and other receivables, net 134,282 64,324 122,567 Reserve for uncollectible accounts (8,540) (1,486) (3,679) Other reserves (2,608) (1,641) (2,319) Credit card and other receivables, net 123,134 61,197 116,569 Total customer accounts receivable, net $ 398,973 $ 370,163 $ 464,176 Credit card and other receivables, net consist primarily of credit card loans held for securitization, retained interests in securitized loans, unbilled interest and fees, and other amounts due from or to the trust as a result of securitizations. These amounts include interest-bearing deposits, which constitute amounts subject to liens by the certificateholders of the individual securitizations and amounts deposited in an investor reserve account held by the trustee for the benefit of the trust's certificateholders. In addition, these amounts include the excess servicing asset, which represents the net gain recorded at any point in time for loans sold under the asset securitizations, net of recourse reserves for securitized loans. Certain reclassifications were made to the the prior-period credit card reserves to conform with the current year's presentation, however, these reclassifications had no effect on total reserves or receivables. 5. Stockholders' equity During the thirty-nine week period ended September 27, 1996, 107,700 shares of common stock were issued related to the exercise of employee stock options and 78,727 shares of common stock were issued under the Fingerhut Companies, Inc. Employee Stock Purchase Plan. The Company also repurchased at prevailing market prices 330,800 shares of its common stock for an aggregate of $4.5 million. The total shares of common stock outstanding as of September 27, 1996 was 46,160,196. In February 1996, 368,746 shares of restricted stock were issued under the Fingerhut Companies, Inc. 1995 Long-Term Incentive and Stock Option Plan to certain key members of management. Twenty-five percent of the shares vested on March 31, 1996 and, subject to continued employment, 25% vests on March 31, 1997 with the remaining 50% vesting on August 31, 1998. The unearned portion of the awards is being amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense totaled $.5 million and $3.1 million for the thirteen and thirty-nine week periods ended September 27, 1996, respectively, which included tax assistance payments made by the Company with respect to the first 25% of the awards that vested. 6. Executive retirement plan On February 14, 1996, the Company adopted a Supplemental Executive Retirement Plan (the "SERP") that covers officers or other senior management employees of the Company selected for participation by the Compensation Committee. Under the SERP, the Company will pay a benefit to a participant whose employment relationship with the Company is completely severed either (a) at or after age 65 with five years of service or (b) at or after age 55, if the participant has five years of service and the sum of the participant's age and years of service equals at least 70. 7. Dissolution of joint venture On June 5, 1996, the Company reached an agreement with Montgomery Ward & Co., Incorporated to withdraw as a partner in the Montgomery Ward Direct L.P. joint venture. In connection with this transaction, the Company recorded a pretax charge of $.8 million. 8. Financing Arrangements On September 16, 1996, the Company restructured its bank credit facilities. The Company's existing 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 and will terminate in September 2001. On September 16, 1996, Metris Companies Inc. ("Metris"), an indirect wholly owned subsidiary of the Company, 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 and is to be used by Metris 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 Fingerhut Companies, Inc., Fingerhut Corporation, and all other subsidiaries that guarantee the Amended Revolving Credit Facility. The Metris Revolving Credit Facility will terminate in September 2001. On September 27, 1996, Fingerhut closed the private placement of $125 million of three-year Senior Notes. The Senior Notes contain a 7.375% interest rate and mature in September 1999. The net proceeds from the sale of the Notes were used to reduce short-term indebtedness of the Company incurred under its Amended Revolving Credit Facility. In connection with the sale of the Senior Notes, the Company entered into a registration rights agreement pursuant to which it agreed to file a registration statement with the Securities and Exchange Commission with respect to an offer to exchange the privately placed Senior Notes for senior notes of the Company with substantially identical terms (the "Exchange Notes"). 9. Subsequent events On October 17, 1996, the Company declared a cash dividend in the amount of $.04 per share, aggregating approximately $1.8 million, payable on November 15, 1996, to the shareholders of record as of the close of business on November 4, 1996. In October 1996, the Company issued 21,414 shares of common stock under the Fingerhut Companies, Inc. Employee Stock Purchase Plan and 2,000 shares related to the exercise of employee stock options. On October 25, 1996, Metris completed an initial public offering of 3,258,333 shares of its common shares at $16 a share. The transaction reduced the Company's ownership interest to approximately 83%. Metris realized net cash proceeds of approximately $47.7 million from the sale of shares, after underwriting discounts and commissions and estimated expenses of the offering. On November 4, 1996, the Company filed a registration statement on Form S-4 with the Securities and Exchange Commission with respect to the Exchange Notes referred to in Note 8. The amount, interest rate and maturity date of the Exchange Notes will be identical to the privately placed Senior Notes. The privately placed Senior Notes that are tendered in exchange for the Exchange Notes will be cancelled. FINGERHUT COMPANIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRTEEN AND THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 DIRECT-TO-THE-CONSUMER MARKETING SEGMENT STATEMENT OF OPERATIONS (In thousands of dollars, except share and per share data) (Unaudited) Thirteen Weeks Ended Thirty-Nine Weeks Ended Sept. 27, Sept. 29, Sept. 27, Sept. 29, 1996 1995 1996 1995 Revenues: Net sales $ 344,979 $ 392,910 $1,024,998 $1,146,317 Finance income and other revenues 58,265 59,227 160,139 157,582 403,244 452,137 1,185,137 1,303,899 Costs and expenses: Product cost 174,815 202,119 533,250 583,887 Administrative and selling expenses 141,005 157,947 422,469 459,558 Provision for uncollectible accounts 58,228 58,550 170,662 161,189 Discount on sale of accounts receivable 18,586 21,162 49,522 55,849 Interest expense, net 6,614 5,698 19,552 18,349 399,248 445,476 1,195,455 1,278,832 Earnings (loss) before income taxes 3,996 6,661 (10,318) 25,067 Provision for income taxes 1,233 2,155 (4,281) 8,668 Net earnings (loss) $ 2,763 $ 4,506 $ (6,037) $ 16,399 Results of Operations Third Quarter Direct-to-the-Consumer Marketing Segment Net sales for the current 13-week period were $345.0 million compared to net sales of $392.9 million for the related period in 1995, a decrease of 12%. Fingerhut Corporation ("Fingerhut"), the Company's core business in this segment, generated third quarter net sales of $338.9 million compared to $379.5 million in the same period in 1995, a decrease of 11%. Net sales from Fingerhut's new customer acquisition programs decreased 36% to $44.3 million. The decrease was the result of the Company's strategy to shift mailings into the fourth quarter. This enables Fingerhut to leverage off the peak mail order season, which typically produces enhanced response rates. Net sales from Fingerhut's existing customer list declined 5% to $294.6 million primarily due to the planned reduction in mailings to improve advertising productivity. The decrease was partially offset by a higher average order size as well as a 7% increase in sales per mailing during the quarter. Finance income and other revenues for the current 13-week period decreased 2% to $58.3 million from $59.2 million in the comparable 1995 period. The slight decrease was due primarily to the decline in net sales as a result of the Company's strategy to reduce mailings, which was partially offset by the effect of lengthened payment plans. Product cost for the current 13-week period was 50.7% of net sales, or $174.8 million, compared to 51.4% of net sales, or $202.1 million, during the comparable prior-year period. The decrease as a percent of net sales was primarily due to reduced refurbishing costs associated with lower returns. This decrease as a percent of net sales was partially offset by the impact of margin reductions in the core catalog business. Administrative and selling expenses for the current 13-week period were $141.0 million, or 40.9% of net sales, compared to $157.9 million, or 40.2% of net sales, in the comparable prior-year period. The higher expense ratio was primarily driven by the startup of two phone centers in Tampa, Florida, which occurred during the current 13-week period, as well as planned increases in depreciation costs. The provision for uncollectible accounts for the third quarter of 1996 was $58.2 million, or 16.9% of net sales, compared to $58.4 million, or 14.9% of net sales, for the same prior-year period. The increase in the provision as a percent of net sales was primarily due to the higher delinquency levels experienced on both new customer and existing customer receivables. During the third quarter, the impact of a systems error was discovered which had caused the suspension of collection activities on approximately 600,000 accounts which contributed to higher delinquency levels. In addition, the ramp up of a new collections center during the quarter may have reduced the overall effectiveness of collection efforts. While management has responded with aggressive collection efforts to minimize bad debt exposure, should the higher delinquency levels persist, additional provisions for uncollectible accounts, which could be material, will be required. Discount on sale of accounts receivable for the 13-week period ended September 27, 1996 was $18.6 million compared to $21.2 million for the comparable period in 1995. The decrease resulted primarily from lower amortization expense due to the expiration of an interest rate cap agreement in December 1995. Net interest expense for the current 13-week period was $6.6 million compared to $5.7 million in the third quarter of 1995. The increase was primarily due to the higher utilization of the revolving credit agreement used to fund general corporate purposes. The effective consolidated tax rate, which includes both the Direct-to-the- Consumer Marketing and Financial Services Segments, for the third quarter of 1996 was 36.2% compared with 35.4% in the comparable prior-year period. As a result of the items discussed above, the Direct-to-the-Consumer Marketing Segment generated net income for the 13-week period ended September 27, 1996 of $2.8 million, or $.06 per share, compared to third quarter 1995 net earnings of $4.5 million, or $.10 per share. Financial Services Segment (Metris Companies Inc.) Metris Companies Inc. ("Metris") is an information-based direct marketer of consumer credit products, extended service plans and fee-based products and services to moderate income consumers. Currently, the segment operates three core business lines: (1) consumer credit products, which presently consist of credit card lending through various MasterCard credit card products issued by Direct Merchants Credit Card Bank, National Association ("Direct Merchants Bank"), (2) sales of extended service plans to the Company's customers, and (3) fee-based products and services, which presently include third-party insurance, card registration, debt waiver programs and membership clubs. The segment generates interest and other income through finance charges assessed on outstanding credit card loans, credit card fees, including annual membership, interchange income, and other revenues from sales of fee-based products and services to its customer base, in addition to revenues from the sales of extended service plans to the Company's customers. The segment's profitability is affected by credit card account and loan growth, interest spreads on loans, credit card activity, mix of warrantable product sales and demand for extended service plans, credit quality (delinquencies and chargeoffs), the level of solicitation and promotional (marketing) expenses, and servicing and other administrative costs. Metris records its income on a calendar quarter basis instead of under the Company's fiscal quarter basis. The difference between the Company's fiscal basis and the segment's calendar basis reporting was not material to the consolidated financial statements of the Company for any of the periods reported. Consequently, period-end references for Metris reflect its calendar basis versus the fiscal basis of the Company. Net income for the three months ended September 30, 1996 was $5.8 million, or $.12 per share, compared to net income of $4.0 million, or $.08 per share, for the comparable prior-year period. The increase in net income is a result of an increase in net interest income and other operating income partially offset by increases in the provision for loan losses and other operating expenses. These increases were largely attributable to the growth in average managed loans from $248.6 million for the quarter ended September 30, 1995 to $1.2 billion for the current quarter ended September 30, 1996. Thirty-Nine Week Period Direct-to-the-Consumer Marketing Segment Net sales for the 39-week period ended September 27, 1996 were $1.025 billion compared to $1.146 billion for the corresponding period in 1995, a decrease of 11%. Fingerhut had year-to-date net sales of $997.3 million compared to $1.069 billion in the same period in 1995, a decrease of 7%. Net sales from Fingerhut's new customer acquisition programs decreased 8% to $190.3 million. Net sales from Fingerhut's existing customer list declined 6% to $807.0 million. Both decreases were primarily due to a planned reduction in mailings, partially offset by higher average order sizes and higher sales per mailing. Finance income and other revenues year-to-date was $160.1 million compared to $157.6 million for the same period in 1995. The increase (on a lower sales base) was primarily due to the effect of lengthened payment plans. Product cost for the 39-week period ended September 27, 1996 was 52.0% of net sales, or $533.3 million, compared to 50.9% of net sales, or $583.9 million, during the comparable prior-year period. The increase as a percent of net sales was primarily due to margin reductions, which began during the second half of fiscal year 1995, as a result of offering lower retail prices on selected products to improve the customer value package. In addition, margins were reduced due to a shift in sales mix to lower margin product categories. Administrative and selling expenses year-to-date were $422.5 million, or 41.2% of net sales, compared to $459.6 million, or 40.1% of net sales, in the comparable prior-year period. The increase as a percent of net sales was primarily due to the impact of higher depreciation costs as well as the third quarter startup of two phone centers in Tampa, Florida. These increases were partially offset by lower selling expenses (as a percentage of net sales) as a result of higher sales per mailing on Fingerhut's core catalog business. The provision for uncollectible accounts year-to-date was $170.7 million, or 16.7% of net sales, compared to $161.2 million, or 14.1% of net sales, in the comparable prior-year period. The increase in the provision as a percent of net sales was primarily due to the higher delinquency levels experienced on both new customer and existing customer receivables. During the third quarter, the impact of a systems error was discovered which had caused the suspension of collection activities on approximately 600,000 accounts which contributed to higher delinquency levels. In addition, the ramp up of a new collections center during the quarter may have reduced the overall effectiveness of collection efforts. While management has responded with aggressive collection efforts to minimize bad debt exposure, should the higher delinquency levels persist, additional provisions for uncollectible accounts, which could be material, will be required. Discount on sale of accounts receivable for the 39-week period ended September 27, 1996 was $49.5 million compared to $55.8 million for the comparable period in 1995. The decrease resulted primarily from the lower interest rates as a result of interest rate swap transactions the Company entered into in June and July 1995. Lower amortization expense also contributed to the decrease due to the expiration of an interest rate cap agreement in December 1995. Net interest expense year-to-date was $19.6 million compared to $18.3 million in the comparable prior-year period. The increase was primarily due to the higher utilization of the revolving credit agreement used to fund general corporate purposes. The effective consolidated tax rate, which includes both the Direct-to-the- Consumer Marketing and Financial Services Segments, for the first 39 weeks of 1996 was 36.2% compared with 35.4% in the prior year. As a result of the items discussed above, the Direct-to-the-Consumer Marketing Segment incurred a net loss for the 39-week period ended September 27, 1996 of $6.0 million, or $(.12) per share, compared to year- to-date 1995 net earnings of $16.4 million, or $.33 per share. Financial Services Segment Net income for the nine months ended September 30, 1996, was $14.7 million, or $.30 per share, compared to $4.1 million, or $.09 per share, for the comparable period in the prior-year. The increase in net income was largely attributable to the growth in average managed loans from $112 million for the nine month period ended September 30, 1995 to $890 million for the nine month period ended September 30, 1996. In addition, other fee-based product revenues increased to $20.5 million over the $3.8 million recorded for the comparable prior-year period. Liquidity and Capital Resources (Consolidated) The Company funds its operations through internally generated funds, the sale of accounts receivable pursuant to the Fingerhut Master Trust and the Metris Master Trust (formerly known as the Fingerhut Financial Services Master Trust), borrowings under the Revolving Credit Facilities and issuance of long-term debt and common stock. The cumulative proceeds from the sale of Fingerhut accounts receivable were $1.092 billion and $1.254 billion for the periods ending September 27, 1996 and December 29, 1995, respectively. This compared to $1.034 billion and $1.096 billion for the periods ending September 29, 1995 and December 30, 1994. Net cumulative proceeds received from the sale of MasterCard receivables were $1.120 billion for the period ending September 30, 1996 and $445.3 million for the period ending December 31, 1995, of which $10.7 million and $25.8 million, respectively, was deposited in an investor reserve account held by the trustee of the Metris Master Trust for the benefit of the Trust's certificateholders. Net proceeds received from the sale of MasterCard receivables were $249.7 million as of September 30, 1995, of which $14.4 million was deposited in an investor reserve account. The Revolving Credit Facilities were amended in September 1996 to increase the aggregate commitments to $500.0 million, of which $200 million represents Fingerhut's credit facility and $300 million represents Metris' credit facility, which is guaranteed by Fingerhut Companies, Inc. and Fingerhut Corporation. The expiration dates of these facilities were extended to September 2001. As of September 27, 1996, the Company had outstanding revolving credit balances of $120.0 million and outstanding letters of credit of $5.9 million. As of September 29, 1995, the Company had an outstanding revolving credit balance of $127.0 million and outstanding letters of credit of $4.6 million. Additional outstanding open letters of credit under a separate agreement aggregated $37.6 million and $52.2 million at September 27, 1996 and September 29, 1995, respectively. In September 1996, Fingerhut sold $125 million of three-year notes via a private placement in order to refinance maturing existing long-term debt. As a result of this financing, the Company had an aggregate amount of fixed rate notes outstanding of $270.0 million as of September 27, 1996. This compared to aggregate fixed rate notes outstanding of $245.0 million as of September 29, 1995. In addition, the Fingerhut Master Trust Series 1994-1 certificates enter into amortization periods, during which collections on the securitized receivables will be used to pay down the principal portion of the underlying certificates, beginning in December 1996. The Company believes the Fingerhut Master Trust will be able to issue a new series of certificates to replace the amortizing certificates. The Company used $3.5 million of cash for operations during the 39-week period ended September 27, 1996, compared with $58.4 million for the related period in 1995. This net $54.9 million decrease in cash used for operations resulted from decreased working capital requirements, partially offset by the $11.9 million decrease in net earnings. The most significant items affecting working capital were changes in customer accounts receivable, promotional material and other current assets, and accounts payable. The change in customer accounts receivable from a $18.6 million use of cash in 1995 to a $65.2 million source of cash in 1996 resulted primarily from the decrease in net sales due to the Company's strategy to reduce mailings. The $38.3 million decrease in use of cash for promotional material and other current assets was due to lower inventory levels as a result of the planned reduction in mailings. The above factors were partially offset by the change in accounts payable from a $66.9 million source of cash in 1995 to a $13.3 million source of cash in 1996, which was due to a reduction in inventory purchases as well as lower promotional material levels. Net cash used by investing activities for the 39-week period ended September 27, 1996 was $41.5 million, compared to $81.5 million for the comparable period in 1995. The lower level of spending in 1996 was primarily due to a significant reduction in capital expenditures relating to the western distribution center in Spanish Fork, Utah, as well as the data and technology center in Plymouth, Minnesota, which opened in the second quarter of 1995. During 1994, the Company's Board of Directors authorized the repurchase of up to 2.5 million shares of the Company's common stock that may be made from time to time at prevailing prices in the open market or by block purchase and may be discontinued at any time. The purchases are made within certain restrictions relating to volume, price and timing in order to minimize the impact of the purchase on the market for the Company's common stock. No purchases were made during the first quarter ended March 29, 1996. During the second quarter of 1996, the Company repurchased at prevailing market prices 249,800 shares of its common stock for an aggregate of $3.4 million. During the current 13-week period, the Company repurchased 81,000 shares for an aggregate of $1.1 million. Total purchases to date under this plan were 1,352,300 shares for an aggregate of $21.1 million. On October 17, 1996, the Company declared a cash dividend of $.04 per share, or an aggregate of $1.8 million, payable on November 15, 1996, to the shareholders of record as of the close of business on November 4, 1996. In October 1996, the Company issued 21,414 shares of common stock under the Fingerhut Companies, Inc. Employee Stock Purchase Plan and 2,000 shares related to the exercise of employee stock options. The Company believes it will have sufficient funds available to meet current and future commitments. Forward Looking Statements Fingerhut Companies, Inc. (the "Company"), or persons acting on behalf of the Company, or outside reviewers retained by the Company making statements on behalf of the Company, or underwriters, from time to time make, in writing or orally, "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995 (the "Act"). When used in conjunction with an identified forward-looking statement, this Cautionary Statement is for the purpose of qualifying for the "safe harbor" provisions of the Act and is intended to be a readily available written document that contains factors which could cause results to differ materially from such forward-looking statements. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. The following factors, among others, may materially affect the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company: seasonal variations in demand generally associated with the direct marketing and retail industries; increases in postal and paper costs; dependence on the securitization of the Company's subsidiaries' accounts receivable and credit card loans to fund operations; economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and taxation; risks associated with unsecured credit transactions; interest rate risks; 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; risks of doing business with foreign suppliers; and the highly fragmented and competitive industry in which the Company operates. Each of these factors is more fully discussed in Exhibit 99 to this Form 10-Q. Reference to this Cautionary Statement or Exhibit 99 in the context of a forward-looking statement or statements shall be deemed to be a statement that any or more of these factors may cause actual results to differ materially from those anticipated in such forward-looking statement or statements. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.c(i) Amended and Restated Series 1995-1 Supplement dated as of September 16, 1996, to the Pooling and Servicing Agreement dated as of May 26, 1995 among Metris Receivables, Inc. (formerly Fingerhut Financial Services Receivables, Inc.), as Transferor, Direct Merchants Credit Card Bank, National Association, as Servicer and The Bank of New York (Delaware), as Trustee (the "Metris Pooling and Servicing Agreement")(Incorporated by reference to Exhibit 10.a(i) to Metris Companies Inc.'s Registration Statement on Form S-1 (No. 333- 10831). 10.c(ii) Series 1996-1 Supplement dated as of April 23, 1996, to the Metris Pooling and Servicing Agreement (Incorporated by reference to Exhibit 10.a(ii) to Metris Companies Inc.'s Registration Statement on Form S-1 (No. 333- 10831). 10.c(iii) Amendment No. 1 dated as of June 10, 1996, to the Metris Pooling and Servicing Agreement (Incorporated by reference to Exhibit 10.a(iii) to Metris Companies Inc.'s Registration Statement on Form S-1 (No. 333- 10831). 10.a(iv) Amendment No. 2 dated as of September 16, 1996, to the Metris Pooling and Servicing Agreement (Incorporated by reference to Exhibit 10.a(iv) to Metris Companies Inc.'s Registration Statement on Form S-1 (No. 333- 10831). 10.n Amended and Restated Revolving Credit and Letter of Credit Facility Agreement dated as of September 16, 1996, among Fingerhut Companies, Inc., the Guarantor party thereto, the Lenders party thereto, the Issuing Banks party thereto, and The Chase Manhattan Bank, as Administrative Agent. 10.o(iv) Fifth Amendment dated as of August 14, 1996, to the Purchase Agreement dated as of January 14, 1991, relating to the Registrant's 10.12% Senior Notes, due December 30, 1997. 10.p Revolving Credit and Letter of Credit Facility Agreement dated as of September 16, 1996, among Metris Companies Inc., the Lenders party thereto, the Issuing Banks party thereto, and The Chase Manhattan Bank, as Administrative Agent (Incorporated by reference to Exhibit 10.s to Metris Companies Inc.'s Registration Statement on Form S-1 (No. 333-10831). 10.s(iii) Fourth Amendment dated as of August 14, 1996, to the Purchase Agreement dated as of June 15, 1992 relating to the Registrant's 8.92% Senior Unsecured Notes. 11 Computation of Earnings per Share 27 Financial Data Schedule 99 Cautionary Statement Regarding Forward Looking Statements (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FINGERHUT COMPANIES, INC. Date: November 11, 1996 By: /s/ Peter G. Michielutti Peter G. Michielutti Chief Financial Officer (Principal Financial Officer) Date: November 11, 1996 By: /s/ John C. Manning John C. Manning Vice President, Finance Date: November 11, 1996 By: /s/ Thomas C. Vogt Thomas C. Vogt Corporate Controller (Principal Accounting Officer) EX-11 2 Exhibit 11 FINGERHUT COMPANIES, INC. AND SUBSIDIARIES Computation of Earnings Per Share (In thousands of dollars, except per share data) Unaudited Thirteen Weeks Ended Thirty-nine Weeks Ended Sept. 27, Sept. 29, Sept. 27, Sept. 29, 1996 1995 1996 1995 Primary Net earnings (a) $ 8,565 $ 8,553 $ 8,659 $ 20,531 Weighted average shares of common stock outstanding 46,181,050 45,897,854 46,224,968 45,798,385 Common stock equivalents 2,442,968 2,903,193 2,455,177 2,682,917 Weighted average shares of common stock and common stock equivalents 48,624,018 48,801,047 48,680,145 48,481,302 Primary earnings per share of common stock and common stock equivalents (a/b) $ .18 $ .18 $ .18 $ .42 Fully diluted Net earnings (c) $ 8,565 $ 8,553 $ 8,659 $ 20,531 Weighted average shares of common stock outstanding 46,181,050 45,897,854 46,224,968 45,798,385 Common stock equivalents 2,444,628 2,961,016 2,498,521 2,877,264 Weighted average shares of common stock and common stock equivalents (d) 48,625,678 48,858,870 48,723,489 48,675,649 Fully diluted earnings per share of common stock and common stock equivalents (c/d) $ .18 $ .18 $ .18 $ .42 Common stock equivalents for primary earnings per share are computed by the treasury stock method using the average market price. Common stock equivalents for quarterly fully diluted earnings per share are computed by the treasury stock method using the ending market price, average market price for the last month or the average of the fully diluted monthly amounts used in the quarter, whichever is higher. Common stock equivalents for year-to-date fully diluted earnings per share are computed by the treasury stock method using the ending market price or the average of the fully diluted monthly amounts used in the period, whichever is higher. EX-27 3
5 This schedule contains summary financial information extracted from the consolidated financial statements of Fingerhut Companies, Inc. for the quarter ended September 27, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-27-1996 SEP-27-1996 42,580 0 557,111 158,138 210,017 899,844 449,833 163,507 1,269,827 418,383 271,518 0 0 462 549,905 1,269,827 1,034,832 1,284,861 535,507 1,200,042 49,522 181,218 21,719 13,578 4,919 8,659 0 0 0 8,659 .18 .18
EX-10 4 EXHIBIT 10.N Page $200,000,000 AMENDED AND RESTATED REVOLVING CREDIT AND LETTER OF CREDIT FACILITY AGREEMENT Dated as of October 29, 1990 As Amended and Restated as of September 16, 1996 among FINGERHUT COMPANIES, INC., THE GUARANTORS NAMED HEREIN, THE LENDERS NAMED HEREIN, NATIONSBANK, N.A., as Co-Agent, BANK OF AMERICA ILLINOIS, as an Issuing Bank, FIRST BANK NATIONAL ASSOCIATION, as an Issuing Bank, NORWEST BANK MINNESOTA, N.A., as an Issuing Bank, and THE CHASE MANHATTAN BANK, as Administrative Agent and an Issuing Bank TABLE OF CONTENTS ARTICLE I Definitions 1 SECTION 1.01. Defined Terms 1 SECTION 1.02. Terms Generally 21 ARTICLE II The Credits 21 SECTION 2.01. Commitments 21 SECTION 2.02. Loans 22 SECTION 2.03. Competitive Bid Procedure 24 SECTION 2.04. Standby Borrowing Procedure 26 SECTION 2.05. Refinancings, Continuances and Conversions of Loans 27 SECTION 2.06. Fees 29 SECTION 2.07. Evidence of Debt; Repayment of Loans 30 SECTION 2.08. Interest on Loans 30 SECTION 2.09. Default Interest 31 SECTION 2.10. Alternate Rate of Interest 31 SECTION 2.11. Termination and Reduction of Commitments 32 SECTION 2.12. Prepayment 32 SECTION 2.13. Reserve Requirements; Change in Circumstances 33 SECTION 2.14. Change in Legality 36 SECTION 2.15. Letters of Credit 37 SECTION 2.16. Indemnity 40 SECTION 2.17. Pro Rata Treatment 41 SECTION 2.18. Sharing of Setoffs 41 SECTION 2.19. Payments 42 SECTION 2.20. Taxes 42 ARTICLE III Representations and Warranties 45 SECTION 3.01. Organization; Powers 45 SECTION 3.02. Authorization 46 SECTION 3.03. Enforceability 46 SECTION 3.04. Governmental Approvals 46 SECTION 3.05. Financial Statements 46 SECTION 3.06. No Material Adverse Change 47 SECTION 3.07. Title to Properties; Possession Under Leases 47 SECTION 3.08. Subsidiaries 47 SECTION 3.09. Litigation; Compliance with Laws 47 SECTION 3.10. Agreements 47 SECTION 3.11. Federal Reserve Regulations 48 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act 48 SECTION 3.13. Use of Proceeds 48 SECTION 3.14. Tax Returns 48 SECTION 3.15. No Material Misstatements 48 SECTION 3.16. Employee Benefit Plans 49 SECTION 3.17. Environmental Matters 49 ARTICLE IV Conditions of Lending 50 ARTICLE V Affirmative Covenants 51 SECTION 5.01. Existence; Businesses and Prop erties 51 SECTION 5.02. Insurance 51 SECTION 5.03. Obligations and Taxes 52 SECTION 5.04. Financial Statements, Reports, etc. 52 SECTION 5.05. Litigation and Other Notices 54 SECTION 5.06. Employee Benefits 54 SECTION 5.07. Maintaining Records; Access to Properties and Inspections 55 SECTION 5.08. Additional Guarantors 55 SECTION 5.09. Ownership of Metris Companies Inc. 56 ARTICLE VI Negative Covenants 56 SECTION 6.01. Liens 56 SECTION 6.02. Sale and Lease-Back Transactions 58 SECTION 6.03. Mergers, Consolidations, Sales of Assets and Acquisitions 58 SECTION 6.04. EBIT Ratio 60 SECTION 6.05. Leverage Ratio 60 SECTION 6.06. Minimum Consolidated Net Worth 60 SECTION 6.07. Funding Ratio 60 SECTION 6.08. Limitations on Restrictions on Dividends by Subsidiaries. 60 SECTION 6.09. Limitations on Fingerhut Receivables, Inc. 60 ARTICLE VII Events of Default 61 ARTICLE VIII The Administrative Agent 65 ARTICLE IX Guarantee 68 ARTICLE X Miscellaneous 71 SECTION 10.01. Notices 71 SECTION 10.02. Survival of Agreement 71 SECTION 10.03. Binding Effect 72 SECTION 10.04. Successors and Assigns 72 SECTION 10.05. Expenses; Indemnity 76 SECTION 10.06. Right of Setoff 77 SECTION 10.07. Applicable Law 77 SECTION 10.08. Waivers; Amendment 77 SECTION 10.09. Interest Rate Limitation 78 SECTION 10.10. Entire Agreement 78 SECTION 10.11. Waiver of Jury Trial 78 SECTION 10.12. Severability 79 SECTION 10.13. Counterparts 79 SECTION 10.14. Headings 79 SECTION 10.15. Jurisdiction; Consent to Service of Process 79 SECTION 10.16. Confidentiality 80 Exhibits Exhibit A-1 Form of Competitive Bid Request Exhibit A-2 Form of Notice of Competitive Bid Request Exhibit A-3 Form of Competitive Bid Exhibit A-4 Form of Competitive Bid Accept/Reject Letter Exhibit A-5 Form of Standby Borrowing Request Exhibit B Form of Assignment and Acceptance Schedules Schedule 2.01 Commitments Schedule 3.08 Subsidiaries Schedule 3.09 Litigation Schedule 3.14 Tax Returns Schedule 6.01 Liens AMENDED AND RESTATED REVOLVING CREDIT AND LETTER OF CREDIT FACILITY AGREEMENT dated as of October 29, 1990, as amended and restated as of September 16, 1996, among FINGERHUT COMPANIES, INC., a Minnesota corporation (the "Borrower"), FINGERHUT CORPORATION, a Minnesota corporation (the "Guarantor", and together with any Subsidiary which shall become a Guarantor pursuant to Section 5.08, the "Guarantors"), the lenders listed in Schedule 2.01 hereto (the "Lenders"), NATIONSBANK, N.A., as co-agent for the Lenders (in such capacity, the "Co-Agent"), BANK OF AMERICA ILLINOIS, as an issuing bank, NORWEST BANK MINNESOTA, N.A., as an issuing bank, FIRST BANK NATIONAL ASSOCIATION, as an issuing bank, and THE CHASE MANHATTAN BANK, as administrative agent for the Lenders and as an issuing bank. The Borrower has requested the Lenders to extend credit to the Borrower in an aggregate principal amount of up to $200,000,000, of which (i) the full amount minus the LC Exposure (as defined herein) shall be available in the form of revolving credit loans and competitive advances (pursuant to a procedure under which the Borrower may invite the Lenders to bid on an uncommitted basis on borrowings by the Borrower) and (ii) the full amount minus the aggregate outstanding principal amount of revolving credit loans and competitive advances shall be available in the form of letters of credit. Such credit will mature five years after the Restatement Closing Date (as hereinafter defined). The proceeds of all such borrowings and such letters of credit are to be used by the Borrower and its subsidiaries to provide working capital and for other general corporate purposes. The Lenders are willing to extend such credit to the Borrower on the terms and subject to the conditions herein set forth. Accordingly, the Borrower, the Guarantor, the Lenders and the Administrative Agent agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "ABR Borrowing" shall mean a Borrowing comprised of ABR Standby Loans. "ABR Standby Loan" shall mean any Standby Loan bearing interest at a rate determined by reference to the Alternate Base Rate. "Accounts" shall mean all accounts, accounts receivable, other receivables, contract rights, chattel paper, and related instruments and documents, insurance claims and proceeds, and notes, whether now owned or hereafter acquired by the Borrower or any Subsidiary. "Administrative Agent" shall mean The Chase Manhattan Bank, together with its affiliates, as the arranger of the Commitments and as the agent for the Lenders under this Agreement. "Administrative Agent Fees" shall have the meaning assigned to such term in Section 2.06(b). "Affiliate" shall mean, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the Assessment Rate. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quota tions for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be presumed conclusive absent manifest error but subject to rebuttal by the Borrower) that it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate or both for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "Assessment Rate" shall mean for any date the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Administrative Agent as the then current net annual assessment rate that will be employed in determining amounts payable by the Administrative Agent to the Federal Deposit Insurance Corporation (or any successor) for insurance by such Corporation (or such successor) of time deposits made in dollars at the Administrative Agent's domestic offices. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B. "Big Six Accounting Firm" shall mean any of Price Waterhouse & Co., Arthur Andersen & Co., Ernst & Young, KPMG Peat Marwick LLP, Deloitte & Touche and Coopers & Lybrand or their respective successors. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Borrowing" shall mean a group of Loans of a single Type made by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a single date and as to which a single Interest Period is in effect. "Business Day" shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are permitted to open for business in New York City; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease" shall have the meaning given such term in the definition of Capital Lease Obligation. "Capital Lease Obligations" of any Person shall mean the obligations of such Person to pay rent or other amounts under any lease (a "Capital Lease") of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP consistently applied and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP consistently applied. A "Change in Control" shall be deemed to have occurred if (a) any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower or any Person directly or indirectly Controlling the Borrower or (b) at any time, individuals who on the Restatement Closing Date were directors of the Borrower (together with any replacement or additional directors nominated or appointed by the majority of directors then in office) cease to constitute a majority of the Board of Directors of the Borrower. "Change in Control Date" shall mean the date on which the Required Lenders shall have requested the termination of the Commitments following the earlier of (x) the filing with the Securities and Exchange Commission of a Schedule 13D (or any similar or successor report or schedule) or any amendment thereto pursuant to Regulation 13D or any similar or successor regulation promulgated under the Exchange Act with respect to the Borrower or any Person directly or indirectly Controlling the Borrower indicating that an event which constitutes a Change in Control has occurred, or (y) the date that the Borrower becomes aware that an event which constitutes a Change in Control has occurred. "Code" shall mean the Internal Revenue Code of 1986, as the same may be amended from time to time. "Commitment" shall mean, with respect to each Lender, the Commitment of such Lender to make Loans hereunder in an amount not in excess of the amount set forth opposite such Lender's name in Schedule 2.01 hereto as such Lender's Commitment may be permanently terminated or reduced from time to time pursuant to Section 2.11 or adjusted from time to time pursuant to Section 10.04. "Commitment Percentage" shall mean, as to any Lender at any time, the percentage which such Lender's Commitment then constitutes of the aggregate Commitments. "Competitive Bid" shall mean an offer by a Lender to make a Competitive Loan pursuant to Section 2.03. "Competitive Bid Accept/ Reject Letter" shall mean a notification made by the Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4 hereto. "Competitive Bid Rate" shall mean, as to any Competitive Bid made by a Lender pursuant to Section 2.03(b), (i) in the case of a Eurodollar Competitive Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest offered by the Lender making such Competitive Bid. "Competitive Bid Request" shall mean a request made pursuant to Section 2.03 in the form of Exhibit A-1 hereto. "Competitive Borrowing" shall mean a borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted by the Borrower under the bidding procedure described in Section 2.03. "Competitive Loan" shall mean a Loan pursuant to the bidding procedure described in Section 2.03. Each Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan. "Consolidated Interest Expense" shall mean, for any period, gross total expenses of the Borrower and its consolidated Subsidiaries accounted for as interest expense for such period, including the portion of rental payments under Capital Lease Obligations deemed to represent interest in accordance with GAAP consistently applied and all fees owed with respect to letters of credit (exclusive of commissions, discounts and other amounts payable solely at the time of issuance or amendment of letters of credit) and excluding discounts at which Accounts are sold under the Receivables Transfer Program, all as determined on a consolidated basis in conformity with GAAP consistently applied and adjusted to avoid the double counting of any items. "Consolidated Net Income" shall mean, for any period, the net income (or loss), before consideration of any gains or charges resulting from extraordinary items, of the Borrower and its consolidated Subsidiaries for such period, as determined on a consolidated basis in conformity with GAAP consistently applied. "Consolidated Net Worth" shall mean, as at any date of determination, the consolidated stockholders' equity of the Borrower and its consolidated Subsidiaries, as determined on a consolidated basis in conformity with GAAP consistently applied. "Control" shall have the meaning given such term in Rule 12b-2 under the Exchange Act and "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Card Bank" shall mean Direct Merchants Credit Card Bank, National Association, Fingerhut National Bank, and any other Person that issues credit cards to be formed or acquired by the Borrower or one of the Subsidiaries. "Credit Event" shall mean each Borrowing, each issuance of a Letter of Credit and each amendment of a Letter of Credit that increases the principal amount thereof. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "Designated Debt" shall mean, as at any date, all obligations of the Borrower and its consolidated Subsidiaries which are (or, as of such date, should be) accounted for as indebtedness on a consolidated balance sheet of the Borrower in conformity with GAAP consistently applied whether such obligations are classified as long-term or short-term under GAAP consistently applied. "dollars" or "$" shall mean lawful money of the United States of America. "Earnings Before Interest and Taxes" shall mean, with respect to the Borrower and its Subsidiaries for any period, the sum for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense and (iii) the provision for income taxes on a consolidated basis, in each case for such period, computed and calculated in accordance with GAAP consistently applied. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that is a member of a group of which the Borrower is a member and that is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 412 of the Code, that is treated as a single employer under Section 414 of the Code. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Competitive Borrowing" shall mean a Borrowing comprised of Eurodollar Competitive Loans. "Eurodollar Competitive Loan" shall mean any Competitive Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II. "Eurodollar Loan" shall mean any Eurodollar Competitive Loan or Eurodollar Standby Loan. "Eurodollar Standby Borrowing" shall mean a Borrowing composed of Eurodollar Standby Loans. "Eurodollar Standby Loan" shall mean any Standby Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Exchange Act" shall mean the Securities Exchange Act of 1934. "Facility Fee" shall have the meaning assigned to such term in Section 2.06(a). "Facility Fee Percentage" shall mean the applicable percentage per annum set forth below based upon the ratings by S&P and Moody's, respectively, applicable on such date to the Index Debt: Rating Percentage Category 1 A+/A1 .0800% or above Category 2 A, A-/A2, A3 .1000% Category 3 BBB+/Baa1 .1250% Category 4 BBB/Baa2 .1500% Category 5 BBB-/Baa3 .1750% Category 6 below BBB-/ below Baa3 .2500% For purposes of the foregoing, (i) if at any time either S&P or Moody's shall not have in effect a rating for Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then the Facility Fee Percentage shall be deemed to be .2500% per annum; (ii) if the ratings established or deemed to have been established by S&P or Moody's for the Index Debt shall fall within different Categories, the Facility Fee Percentage shall be based on the numerically higher Category (with Category 6 being the numerically highest Category); and (iii) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which such change is first announced by the applicable rating agency. Each change in the Facility Fee Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if any such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the nonavailability of ratings from such rating agency (and pending the effectiveness of such amendment, the Facility Fee Percentage will be determined by reference to the rating most recently in effect from such rating agency). "Fees" shall mean the Facility Fee, the LC Fee, the Issuance and Amendment Fees, and other fees referred to in paragraph (d) of Section 2.06 and the Administrative Agent Fees. "Financial Officer" of any corporation shall mean the chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of such corporation. "Fingerhut Liquidity Agreement" shall mean the Amended and Restated Liquidity Agreement, dated as of May 26, 1995, among Fingerhut Owner Trust, the lenders parties thereto and The Chase Manhattan Bank, as Administrative Agent, as amended from time to time. "Fingerhut Master Trust" shall mean (i) the Fingerhut Master Trust formed pursuant to that certain Pooling and Servicing Agreement dated as of June 29, 1994, among Fingerhut Corporation, as servicer, FRI as transferor, and Bank of New York (Delaware), as trustee, as amended or supplemented from time to time, (ii) the Fingerhut Owner Trust formed pursuant to that certain Owner Trust Agreement between FRI, as depositor, and Wilmington Trust Company, as owner trustee (the "Fingerhut Owner Trust") and (iii) any other independent trust formed for the purpose of acquiring interests in the accounts receivable of the Borrower or any of its Subsidiaries and issuing certificates of beneficial interest in such receivables or commercial paper pursuant to a Receivables Transfer Program. "Fingerhut Owner Trust" shall have the meaning given such term in the definition of "Fingerhut Master Trust". "Fixed Rate Borrowing" shall mean a Borrowing comprised of Fixed Rate Loans. "Fixed Rate Loan" shall mean any Competitive Loan bearing interest at a fixed percentage rate per annum (expressed in the form of a decimal to no more than four decimal places) specified by the Lender making such Loan in its related Competitive Bid. "FRI" shall mean (i) Fingerhut Receivables, Inc., a Subsidiary which is a Delaware special purpose corporation formed for the purpose of purchasing customer accounts receivable from Fingerhut Corporation or other Subsidiaries and transferring such receivables to an independent trust pursuant to a Receivables Transfer Program and (ii) any other special purpose Subsidiary formed pursuant to a Receivables Transfer Program. "GAAP" shall mean generally accepted accounting principles in the United States. "Governmental Authority" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body with jurisdiction over the Borrower, any Subsidiary or any Lender, as the case may be. "Guarantee" of or by any Person shall mean, without duplication, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the "primary obligor") (or any other obligation of a primary obligor if the anticipated liability of such guarantor shall have been reserved against in the financial statements of such guarantor or quantified in the notes thereto), including third party mortgages or third party security interests, in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness or other obligation, (b) to purchase property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment of such Indebtedness or other obligation or (c) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor for purposes of enabling the primary obligor to pay such Indebtedness or other obligation; provided, however, that the term Guarantee shall not include endorsements for collection or deposit, in either case, in the ordinary course of business. For purposes of determining compliance with any covenant contained herein, the "amount" of any Guarantee shall be deemed to equal (i) the lesser of the amount of the Indebtedness guaranteed or otherwise benefited by such Guarantee or the maximum amount of the Borrower's or the applicable Subsidiary's liability with respect to such Guarantee or (ii) if such Guarantee shall not be a guarantee of Indebtedness, the amount of the anticipated liability reserved against in connection with such Guarantee in the most recent balance sheet of the guarantor or any anticipated liability of the guarantor thereunder quantified in the notes accompanying such balance sheet. "Indebtedness" of any Person shall mean, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, deben tures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property or assets purchased by such Person, (e) all obligations of such Person issued or assumed as the deferred purchase price of property or services (other than trade payables and payroll expenses, so long as such trade payables and payroll expenses are incurred in the ordinary course of business), (f) Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed to the extent of the amount of such Indebtedness or, if such Indebtedness is nonrecourse, to the extent of the lesser of the amount of such Indebtedness and the value of the property securing such Indebtedness, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, and (i) all obligations of such Person, actual or contingent, as an account party in respect of letters of credit other than trade letters of credit and bankers' acceptances. Notwithstanding the foregoing, Indebtedness shall exclude sales of Accounts accounted for as sales under GAAP and obligations in respect of Rate Protection Agreements. The Indebtedness of any Person shall include the Indebtedness of any partnership (other than the Fingerhut Master Trust) in which such Person is a general partner. "Index Debt" shall mean the senior unsecured, non- credit enhanced long-term debt of the Borrower. "Interest Payment Date" shall mean, with respect to any Loan, the last day of the Interest Period applicable thereto and, in the case of a Eurodollar Loan with an Interest Period of more than three months' duration or a Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day that would have been an Interest Payment Date for such Loan had successive Interest Periods of three months' duration or 90 days' duration, as the case may be, been applicable to such Loan and, in addition, the date of any refinancing or conversion of such Loan with or to a Loan of a different Type. "Interest Period" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 and December 31, (ii) the Maturity Date and (iii) the date of prepayment of such Borrowing and (c) as to any Fixed Rate Borrowing, the period commencing on the date of such Borrowing and ending on the date specified in the Competitive Bids in which the offer to make the Fixed Rate Loans comprising such Borrowing was extended, which shall not be earlier than seven days after the date of such Borrowing or later than 360 days after the date of such Borrowing; provided, however, that, if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Euro dollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Issuing Banks" shall mean The Chase Manhattan Bank, Bank of America Illinois, Norwest Bank Minnesota, N.A., First Bank National Association and one or more other Lenders which shall be designated in writing from time to time by the Borrower with the consent of such Lender and the Administrative Agent, which consent, in the case of the Administrative Agent, shall not be unreasonably withheld. "LC Commitment" shall mean, with respect to each Lender, the commitment of such Lender to acquire participations in Letters of Credit hereunder as set forth in Section 2.15, in an amount not in excess of the amount set forth opposite such Lender's name as its LC Commitment in Schedule 2.01, as the same may be permanently reduced from time to time pursuant to Section 2.11. "LC Disbursement" shall mean any payment or dis bursement made by the Issuing Bank under or pursuant to a Letter of Credit. "LC Exposure" shall mean, at any time, the sum of (a) the aggregate undrawn amount of all Letters of Credit out standing at such time and (b) the aggregate amount of all LC Disbursements for which the Lenders have not been reimbursed pursuant to Section 2.15 (and, when used with respect to a particular Lender, shall mean such Lender's pro rata share, based upon its LC Commitment, of such aggregate LC Exposure). "LC Fee" shall have the meaning set forth in Section 2.06(c). "Letter of Credit" shall mean any letter of credit issued pursuant to the terms of Section 2.15(a). "Leverage Ratio" shall mean, at any time, the ratio of (a) Designated Debt of the Borrower at such time to (b) the sum of Consolidated Net Worth at such time and Designated Debt of the Borrower at such time. "LIBO Rate" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate at which dollar deposits approximately equal in principal amount to (i) in the case of a Standby Borrowing, the Administrative Agent's portion of such Eurodollar Borrowing and (ii) in the case of a Competitive Borrowing, a principal amount that would have been the Administrative Agent's portion of such Competitive Borrowing had such Competitive Borrowing been a Standby Borrowing, and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LIBOR Spread" shall mean, with respect to the LC Fee or the Loans comprising any Eurodollar Standby Borrowing, the applicable percentage per annum set forth below based upon the ratings by S&P and Moody's, respectively, applicable on such date to the Index Debt: Rating Percentage Category 1 A+/A1 or above .1700% Category 2 A, A-/A2, A3 .2000% Category 3 BBB+/Baa1 .2250% Category 4 BBB/Baa2 .2500% Category 5 BBB-/Baa3 .3250% Category 6 below BBB-/ below Baa3 .5000% For purposes of the foregoing, (i) if at any time either S&P or Moody's shall not have in effect a rating for the Index Debt (other than by reason of the circumstances referred to in the last sentence of this definition), then the LIBOR Spread shall be deemed to be .5000%; (ii) if the ratings established or deemed to have been established by S&P or Moody's for the Index Debt shall fall within different Categories, the LIBOR Spread shall be based on the numerically higher Category (with Category 6 being the numerically highest Category); and (iii) if any rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which such change is first announced by the applicable rating agency. Each change in the LIBOR Spread shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P or Moody's shall change, or if any such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the nonavailability of ratings from such rating agency (and pending the effectiveness of such amendment, the LIBOR Spread will be determined by reference to the rating most recently in effect from such rating agency). "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall mean a Competitive Loan or a Standby Loan, whether made as a Eurodollar Loan, an ABR Standby Loan or a Fixed Rate Loan, as permitted hereby. "Margin" shall mean, as to any Eurodollar Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to or subtracted from the LIBO Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. "Margin Stock" shall have the meaning given such term under Regulation U. "Material Adverse Effect" shall mean (a) a materially adverse effect on the business, assets, operations or financial condition of the Borrower and the Subsidiaries taken as a whole, (b) material impairment of the ability of the Borrower or any Significant Subsidiary to perform any material obligation under this Agreement or (c) material impairment of any of the material rights of or benefits available to the Lenders under this Agreement. "Maturity Date" shall mean September 16, 2001. "Metris" shall mean Metris Companies Inc., an indirect Subsidiary of the Borrower. "Metris Facility" shall have the meaning given such term in Section 10.03. "Moody's" shall mean Moody's Investors Service, Inc., and its successors. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Note Purchase Agreement" shall mean, collectively, (a) the Purchase Agreement dated January 14, 1991, between the Borrower and each of the purchasers listed in Schedule 1 thereto, with respect to the Borrower's 10.12% Senior Notes, Series B, and (b) the Purchase Agreement dated as of June 15, 1992, between the Borrower and each of the purchasers listed in Schedule 1 thereto, in each case, as the same may be amended, supplemented, modified or restated from time to time as permitted thereby. "Obligations" shall mean (a) the Borrower's obligations in respect of the due and punctual payment of principal of and interest on the Loans when and as due, whether at maturity or upon any Interest Payment Date, by acceleration, upon one or more dates set for prepayment or otherwise, (b) all amounts required to be paid by the Borrower under Section 2.15 or otherwise in respect of any LC Disbursement, (c) all Fees, expenses, indemnities, reimbursements and other obligations, monetary or otherwise, of the Borrower under this Agreement and (d) all obligations, monetary or otherwise, of each Subsidiary under this Agreement. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Person" shall mean any natural person, corporation, limited liability company, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "Plan" shall mean any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code which is maintained for employees of the Borrower or any ERISA Affiliate. "Private Placement Indebtedness" shall mean the indebtedness of the Borrower issued pursuant to the Note Purchase Agreement. "Purchasers" shall mean each of the purchasers of notes issued pursuant to the Note Purchase Agreement. "Rate Protection Agreements" shall mean interest rate protection or exchange rate hedging agreements, foreign currency exchange agreements or other interest or exchange rate hedging, cap or collar arrangements. "Receivables Financing Amount" shall mean, at any time, the sum of (i) the aggregate original amount paid to the Borrower and/or its Subsidiaries with respect to the purchase of interests in Accounts sold under a Receivables Transfer Program (other than that conducted through the Fingerhut Master Trust), as reduced from time to time by the aggregate amount of collections of cash or negotiable instruments and other proceeds of the sold Accounts that have been distributed to the purchasers of such interests in the Accounts and (ii) in the case of the Receivables Transfer Program conducted through the Fingerhut Master Trust, the outstanding amount, without duplication, of investor certificates issued by the Fingerhut Master Trust at any given time, but not including any investor certificates owned by FRI or the exchangeable transferor certificate representing the retained interest in Fingerhut Master Trust not represented by any other investor certificates. "Receivables Transfer Program" shall mean (i) the structured receivables program conducted pursuant to that certain Purchase Agreement dated as of June 29, 1994, between Fingerhut Corporation and FRI and that certain Pooling and Servicing Agreement dated as of June 29, 1994, among FRI, Fingerhut Corporation and Bank of New York (Delaware), each as amended and supplemented from time to time or replaced by a similar agreement and related agreements; (ii) the owner trust commercial paper program conducted pursuant to an owner trust agreement between FRI, as depositor, and Wilmington Trust Company, as owner trustee, a liquidity agreement among the Fingerhut Owner Trust, The Chase Manhattan Bank, as agent, and the lenders party thereto, and related agreements under which the Owner Trust would issue commercial paper and (iii) any other program under which the Borrower and/or any of its Subsidiaries sell interests in its Accounts to one or more purchasers on a limited recourse basis as determined in accordance with GAAP, but excluding any sales of Accounts made in conjunction with any sale of other assets of the Borrower or any of the Subsidiaries. Interests in Accounts sold by the Borrower and/or any of its Subsidiaries under clause (i) above will for all purposes be deemed sold pursuant to a Receivables Transfer Program as of the date the Accounts are initially transferred to FRI. "Register" shall have the meaning given such term in Section 10.04(d). "Regulation D" shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation G" shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Replacement Letter of Credit" shall mean a letter of credit issued by a bank with a rating of at least A by both Moody's and S&P, for the benefit of the Administrative Agent to secure the repayment of any future drawings under any outstanding Letters of Credit issued hereunder. "Reportable Event" shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code). "Required Lenders" shall mean, (i) at any time, Lenders having Commitments representing at least a majority of the Total Commitment or (ii) for purposes of acceleration of the Loans pursuant to clause (ii) of the last paragraph of Article VII and for purposes of any demands in respect of the guarantee contained in Article IX, Lenders holding Loans and having LC Exposures representing a majority of the aggregate principal amount of the Loans and the aggregate LC Exposure then outstanding. "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Restatement Closing Date" shall mean September 16, 1996. "Sale-Leaseback Transaction" shall have the meaning given such term in Section 6.02. "S&P" shall mean Standard & Poor's Ratings Services and its successors. "Secured Parties" shall have the meaning given such term in the Pledge Agreement. "Significant Subsidiary" shall mean at any time (a) for purposes of Section 5.08, any guarantor of the Private Placement Indebtedness and (b) for all other purposes, (i) Fingerhut Corporation, (ii) any Subsidiary of the Borrower with revenues during the fiscal year of the Borrower most recently ended greater than or equal to 10% of the total revenues of the Borrower and its Subsidiaries during such year, computed and consolidated in accordance with GAAP consistently applied ("Consolidated Revenues"), (iii) any Subsidiary of the Borrower with assets as of the last day of the Borrower's most recently ended fiscal year greater than or equal to 10% of the total assets of the Borrower and its Subsidiaries at such date, computed in accordance with GAAP consistently applied ("Consolidated Assets"), (iv) any Subsidiary with stockholders' equity as of the last day of the Borrower's most recently ended fiscal year (limited, with respect to any Subsidiary that is not wholly owned by the Borrower or any combination of one or more wholly owned Subsidiaries, to the portion of stockholders' equity attributable to the Borrower's or such Subsidiary's ownership interest) greater than or equal to 10% of the stockholders' equity of the Borrower and its Subsidiaries at such date, computed and consolidated in accordance with GAAP consistently applied ("Net Stockholders' Equity"), (v) any Subsidiary designated in writing by the Borrower as a Significant Subsidiary; (vi) any Subsidiary created or acquired by the Borrower after the date hereof that falls within one of clauses (i) through (v) or (vii) any Subsidiary in existence on the date hereof which comes to meet one of (i) through (v) after the date hereof; provided that if at any time (x) the aggregate revenues of all Subsidiaries that are not Significant Subsidiaries during any fiscal year of the Borrower shall exceed 25% of Consolidated Revenues for such fiscal year, (y) the aggre gate assets of all Subsidiaries that are not Significant Subsidi aries as of the last day of any fiscal year of the Borrower shall exceed 25% of Consolidated Assets at such date or (z) the aggregate stockholders' equity of all Subsidiaries that are not Significant Subsidiaries as of the last day of any fiscal year of the Borrower shall exceed 25% of Net Stockholders' Equity at such date, then, in either case, the term Significant Subsidiary shall be deemed to include such Subsidiaries (as determined pursuant to the next following sentence) of the Borrower as may be required so that none of clause (x), (y) or (z) above shall continue to be true. For purposes of the proviso to the next preceding sentence, the Subsidiaries which shall be deemed to be Significant Subsidiaries shall be determined based on the percentage that the assets of each such Subsidiary are of Consolidated Assets, with the Subsidiary with the highest such percentage being selected first, and each other Subsidiary required to satisfy the requirements set forth in such proviso being selected in descending order of such percentage. "Standby Borrowing" shall mean a borrowing consisting of simultaneous Standby Loans from each of the Lenders. "Standby Borrowing Request" shall mean a request made pursuant to Section 2.04 in the form of Exhibit A-5 hereto. "Standby Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Standby Loans hereunder as set forth in Schedule 2.01, as such commitment may be permanently terminated or reduced from time to time pursuant to Section 2.11. "Standby Loans" shall mean the revolving loans made by the Lenders to the Borrower pursuant to Section 2.01. Each Standby Loan shall be a Eurodollar Standby Loan or an ABR Standby Loan. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which the Administrative Agent is subject for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" shall mean, with respect to any Person (herein referred to as the "parent"), any corporation, limited liability company, partnership, association or other business entity of which securities or other ownership interests repre senting more than 50% of the ordinary voting power or more than 50% of the general partnership or membership interests are, at the time any determination is being made, owned, controlled or held by the parent and/or one or more subsidiaries of the parent. "Subsidiary" shall mean any subsidiary of the Borrower including any subsidiary of the Borrower created or acquired by the Borrower after the date hereof other than Fingerhut Master Trust. "Total Commitment" shall mean, at any time, the aggregate amount of Commitments of all the Lenders, as in effect at such time. "Total LC Commitment" shall mean, at any time, the aggregate amount of the Lenders' LC Commitments, as in effect at such time. "Total Liabilities" of the Borrower shall mean, without duplication, all Indebtedness of the Borrower and obligations of the Borrower and the consolidated Subsidiaries which are accounted for as liabilities on a consolidated balance sheet of the Borrower in conformity with GAAP as in effect on the Restatement Closing Date. "Transactions" shall have the meaning assigned to such term in Section 3.02. "TV Shopping Companies" shall mean Infochoice USA, Inc. (formerly USA Direct Incorporated) and its Subsidiaries. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall include the LIBO Rate, the Alternate Base Rate and any Competitive Bid Rate. "Withdrawal Liability" shall mean liability to a Multi employer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that, for purposes of determining compliance with any covenant set forth in Article VI, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in preparing the Borrower's audited financial statements referred to in Section 3.05. ARTICLE II The Credits SECTION 2.01. Commitments. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Standby Loans to the Borrower, at any time and from time to time on and after the Restatement Closing Date and until the earlier of the Maturity Date and the termination of the Commitment of such Lender, in an aggregate principal amount at any time outstanding not to exceed such Lender's Commitment minus the amount by which the Competitive Loans outstanding at such time and the LC Exposure at such time shall be deemed to have used such Lender's Commitment pursuant to Section 2.17, subject, however, to the condition that at all times the outstanding aggregate principal amount of all Standby Loans made by each Lender shall equal the product of (A) the percentage which its Commitment represents of the Total Commitment times (B) the outstanding aggregate principal amount of all Standby Loans made pursuant to Section 2.04 (except as a result of a default by any Lender in its obligation to make any Standby Loan). Each Lender agrees that as of the Restatement Closing Date the respective Commitment of each Lender shall be as set forth on Schedule 2.01. Such Commitments may be terminated or reduced from time to time pursuant to Section 2.11. (b) Within the foregoing limits, the Borrower may borrow, pay or prepay and reborrow hereunder, on and after the Restatement Closing Date and prior to the Maturity Date, subject to the terms, conditions and limitations set forth herein. SECTION 2.02. Loans. (a) Each Standby Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their Commitments; provided, however, that the failure of any Lender to make any Standby Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.03. The Standby Loans or Competitive Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) in the case of Standby Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments). At no time shall (A) the sum of (I) the outstanding aggregate principal amount of all Standby Loans made by all Lenders, (II) the out standing aggregate principal amount of all Competitive Loans made by all Lenders and (III) the LC Exposure exceed (B) the Total Commitment. (b) Each Standby Borrowing shall be comprised entirely of Eurodollar Standby Loans or ABR Standby Loans and each Competitive Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans as the Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that the Borrower shall not be entitled to request any Borrowing which, if made, would result in an aggregate of more than ten separate Standby Loans of any Lender being outstanding at any one time. For purposes of the foregoing, Standby Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Standby Loans. (c) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 2:00 p.m., New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the Borrower with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the amounts so accepted and Standby Loans shall be made by the Lenders pro rata in accordance with their Commitments, subject to Section 2.17. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this para graph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corre sponding amount. If and to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Effective Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement but without interest being payable to such Lender prior to the date such amounts shall have been repaid by it. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Competitive Bid Procedure. (a) In order to request Competitive Bids, the Borrower shall hand- deliver or telecopy to the Administrative Agent a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case of a Euro dollar Competitive Borrowing, not later than 10:00 a.m., New York City time, four Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before a proposed Competitive Borrowing. No ABR Standby Loan shall be requested in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit A-1 may be rejected in the Administrative Agent's sole discretion, and the Administrative Agent shall promptly notify the Borrower of such rejection by telecopier. Such request shall in each case refer to this Agreement and specify (x) whether such Borrowing is to be a Euro dollar Borrowing or a Fixed Rate Borrowing, (y) the date of such Borrowing (which shall be a Business Day) and the aggregate principal amount thereof which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000, and (z) the Interest Period with respect thereto (which may not end after the Maturity Date). Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall invite by telecopier (in the form set forth in Exhibit A-2) the Lenders to bid, on the terms and conditions of this Agreement, to make Competitive Loans pursuant to the Competitive Bid Request. (b) Each Lender may, in its sole discretion, make one or more Competitive Bids to the Borrower responsive to a Competitive Bid Request. Each Competitive Bid by a Lender must be received by the Administrative Agent via telecopier, in the form of Exhibit A-3, (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City time, three Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, on the day of a proposed Competitive Borrow ing. Multiple bids will be accepted by the Administrative Agent. Competitive Bids that do not conform substantially to the format of Exhibit A-3 may be rejected by the Administrative Agent after conferring with, and upon the instruction of, the Borrower, and the Administrative Agent shall notify the Lender making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and specify (x) the principal amount (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrow ing requested by the Borrower) of the Competitive Loan or Loans that the Lender is willing to make to the Borrower, (y) the Competitive Bid Rate or Rates at which the Lender is prepared to make the Competitive Loan or Loans and (z) the Interest Period (which shall be the Interest Period set forth in the applicable Competitive Bid Request) and the last day thereof. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify the Administrative Agent via telecopier (I) in the case of Eurodollar Competitive Loans, not later than 10:00 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the day of a proposed Competitive Borrowing; provided, however, that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable. (c) The Administrative Agent shall promptly notify the Borrower by telecopier of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Lender that made each bid. The Administrative Agent shall send a copy of all Competitive Bids to the Borrower for its records as soon as practicable after completion of the bidding process set forth in this Section 2.03. (d) The Borrower may in its sole and absolute discretion, subject only to the provisions of this paragraph (d), accept or reject any Competitive Bid referred to in paragraph (c) above. The Borrower shall notify the Administrative Agent by telephone, confirmed by telecopier in the form of a Competitive Bid Accept/ Reject Letter in the form of Exhibit A-4, whether and to what extent it has decided to accept or reject any of or all the bids referred to in paragraph (c) above, (x) in the case of a Eurodollar Competitive Borrowing, not later than 11:00 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City time, on the day of a proposed Competitive Borrowing; provided, however, that (i) the failure by the Borrower to give such notice shall be deemed to be a rejection of all the bids referred to in paragraph (c) above, (ii) the Borrower shall not accept a bid made at a particular Competitive Bid Rate if the Borrower has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iv) if the Borrower shall accept a bid or bids made at a particular Competitive Bid Rate but the amount of such bid or bids shall cause the total amount of bids to be accepted by the Borrower to exceed the amount specified in the Competitive Bid Request, then the Borrower shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further, however, that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner which shall be in the discretion of the Borrower. A notice given by the Borrower pursuant to this paragraph (d) shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopier sent by the Administrative Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted. (f) A Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request. (g) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to the Borrower one quarter of an hour earlier than the latest time at which the other Lenders are required to submit their bids to the Administrative Agent pursuant to paragraph (b) above. (h) All Notices required by this Section 2.03 shall be given in accordance with Section 10.01. SECTION 2.04. Standby Borrowing Procedure. In order to request a Standby Borrowing, the Borrower shall hand deliver or telecopy to the Administrative Agent a borrowing request in the form of Exhibit A-5 hereto (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time, three Business Days before any such proposed Borrowing and (b) in the case of an ABR Borrowing, not later than 12:00 noon, New York City time (except that the Borrower shall use its best efforts to make such request by 11:00 a.m., New York City time), on the day of such proposed Standby Borrowing. No Fixed Rate Loan shall be requested or made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable and shall in each case specify (i) whether such Borrowing is to be a Eurodollar Borrowing or an ABR Borrowing, (ii) the date of such Borrowing (which shall be a Business Day) and the amount thereof and (iii) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Borrowing is specified in any such notice, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. If the Borrower shall not have given notice in accordance with this Section 2.04 of its election to refinance, continue or convert a Standby Borrowing prior to the end of the Interest Period in effect for such Borrowing, then the Borrower shall (unless such Borrowing is repaid at the end of such Interest Period) be deemed to have given notice of an election to convert or continue such Borrowing with an ABR Borrowing. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.04 and of each Lender's portion of the requested Borrowing. SECTION 2.05. Refinancings, Continuances and Conversions of Loans. (a) The Borrower may refinance all or any part of any Competitive Borrowing at the end of the Interest Period thereof with a Borrowing of the same or a different Type made pursuant to Section 2.03 or Section 2.04, and the Borrower may refinance all or any part of a Standby Borrowing with a Competitive Borrowing of the same or a different Type made pursuant to Section 2.04, in each case subject to the conditions and limitations set forth herein and elsewhere in this Agreement. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.07 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Lenders to the Administrative Agent or by the Administrative Agent to the Borrower pursuant to Section 2.02(c); provided, however, that (i) if the principal amount extended by a Lender in a refinancing is greater than the principal amount extended by such Lender in the Borrowing being refinanced, then such Lender shall pay such difference to the Administrative Agent for distribution to the Lenders described in (ii) below, (ii) if the principal amount extended by a Lender in the Borrowing being refinanced is greater than the principal amount being extended by such Lender in the refinancing, the Administrative Agent shall return the difference to such Lender out of amounts received pursuant to (i) above, and (iii) to the extent any Lender fails to pay the Administrative Agent amounts due from it pursuant to (i) above, any Loan or portion thereof being refinanced shall not be deemed repaid in accordance with Section 2.07 and shall be payable by the Borrower. (b) The Borrower shall have the right at any time upon prior irrevocable notice to the Administrative Agent (i) not later than 12:00 (noon), New York City time, one Business Day prior to conversion, to convert any Eurodollar Standby Borrowing into an ABR Borrowing, (ii) not later than 10:00 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Standby Borrowing or to continue any Eurodollar Standby Borrowing as a Eurodollar Standby Borrowing for an additional Interest Period, (iii) not later than 10:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Standby Borrowing to another permissible Interest Period and (iv) not later than 10:00 a.m. New York City time, on the date of such proposed Borrowing, to continue any ABR Borrowing for an additional Interest Period, subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Standby Borrowing, as the case may be; (ii) if less than all the outstanding principal amount of any Standby Borrowing shall be converted or continued, the aggregate principal amount of such Standby Borrowing converted or continued shall be an integral multiple of $1,000,000 and not less than $5,000,000; (iii) if any Eurodollar Standby Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Borrower shall pay, upon demand, any amounts due to the Banks pursuant to Section 2.16; (iv) any portion of a Standby Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Standby Borrowing; (v) any portion of a Eurodollar Standby Borrowing which cannot be converted into or continued as a Eurodollar Standby Borrowing by reason of clause (iv) above shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; and (vi) no Interest Period may be selected for any Eurodollar Standby Borrowing that would end later than the Maturity Date. Each notice pursuant to this Section 2.05(b) shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Standby Borrowing that the Borrower requests be converted or continued, (ii) whether such Standby Borrowing is to be converted to or continued as a Eurodollar Standby Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (iv) if such Standby Borrowing is to be converted to or continued as a Eurodollar Standby Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Standby Borrowing, the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall promptly advise the other Lenders of any notice given pursuant to this Section 2.05(b) and of each Lender's portion of any converted or continued Standby Borrowing. If the Borrower shall not have given notice in accordance with this Section 2.05(b) to continue any Standby Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.05(b) to convert such Standby Borrowing), such Standby Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be continued into a new Interest Period as an ABR Borrowing. SECTION 2.06. Fees. (a) The Borrower agrees to pay to each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31, and on the date on which the Commitment of such Lender shall be terminated as provided herein, a facility fee (the "Facility Fee") equal to the Facility Fee Percentage in effect from time to time on the amount of the Commitment of such Lender, whether used or unused, during the quarter then ended (or shorter period commencing with the Restatement Closing Date or ending with the Maturity Date or any date on which the Commitment of such Lender shall be terminated). The Facility Fee shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as the case may be. The Facility Fee due to each Lender shall commence to accrue on the Restatement Closing Date and shall cease to accrue on the earlier of (I) the Maturity Date and (II) the termination of the Commitment of such Lender as provided herein. (b) The Borrower agrees to pay to the Administrative Agent on the Restatement Closing Date, the fees (the "Administrative Agent Fees") relating to this Agreement at the times and in the amounts agreed upon in the letter agreement dated July 1, 1996, between the Borrower and The Chase Manhattan Bank. (c) The Borrower agrees to pay each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31, and on the date on which the Commitment of such Lender shall be terminated as provided herein, a fee (the "LC Fee") equal to a percentage per annum equal to the LIBOR Spread in effect on such date on such Lender's pro rata share, based upon its Commitment, of the average daily amount of all Letters of Credit outstanding during the preceding quarter (or shorter period commencing with the Restatement Closing Date or ending with the earlier of the Maturity Date and any date on which the Commitment of such Lender shall be terminated). The LC Fee shall be computed on the basis of the actual number of days elapsed in a year of 365 or 366 days, as the case may be. The LC Fee due to each Lender shall commence to accrue on the Restatement Closing Date and shall cease to accrue on the date on which the Commitment of such Lender shall have terminated as provided herein. (d) The Borrower agrees to pay to each Issuing Bank its issuance and amendment fees (the "Issuance and Amendment Fees") as agreed upon from time to time in connection with the issuance of and amendment of the Letters of Credit. Each Issuing Bank has furnished or will furnish to the Borrower a schedule of the Issuance and Amendment Fees in effect on the Restatement Closing Date. The Borrower agrees to pay each Issuing Bank such other fees as may be agreed upon by the Borrower and such Issuing Bank. (e) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders. Once paid, none of the Fees shall be refundable under any circumstances. SECTION 2.07. Evidence of Debt; Repayment of Loans. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Lender resulting from each Loan made by it from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type of each Loan and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. The entries made in the accounts maintained pursuant to this paragraph (a) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrower to repay the Loans in accordance with their terms. (b) The outstanding principal balance of each Competitive Loan and Standby Loan shall be payable (i) in the case of a Competitive Loan, on the earlier of the last day of the Interest Period applicable to such Loan and on the Maturity Date and (ii) in the case of a Standby Loan, on the Maturity Date. SECTION 2.08. Interest on Loans. (a) Subject to the provisions of Sections 2.09 and 2.10, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Lender making such Loan and accepted by the Borrower pursuant to Section 2.03 and (ii) in the case of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the LIBOR Spread. Interest on each Eurodollar Borrowing shall be payable on each applicable Interest Payment Date. The LIBO Rate for each Interest Period shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. The Administrative Agent shall promptly advise the Borrower and each Lender of such determination. (b) Subject to the provisions of Section 2.09, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of (i) 365 or 366 days, as the case may be, during any period in which the Alternate Base Rate is based on the Prime Rate, and (ii) 360 days, during any period in which the Alternate Base Rate is based on the Base CD Rate or the Federal Funds Effective Rate) at a rate per annum equal to the Alternate Base Rate. Interest on each ABR Borrowing shall be payable on each applicable Interest Payment Date. The Alternate Base Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. The Administrative Agent shall promptly advise the Borrower and each Lender of such determination. (c) Subject to the provisions of Section 2.09, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Lender making such Loan and accepted by the Borrower pursuant to Section 2.03. Interest on each Fixed Rate Loan shall be payable on the Interest Payment Dates applicable to such Loan except as otherwise provided in this Agreement. SECTION 2.09. Default Interest. If the Borrower shall default in the payment of the principal of or interest on any Loan, or any reimbursement obligation in respect of an LC Disbursement, becoming due hereunder, whether by scheduled maturity, notice of prepayment, acceleration or otherwise, the Borrower shall on demand from time to time from the Administrative Agent or the Required Lenders pay interest, to the extent permitted by applicable law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Alternate Base Rate plus 2%. SECTION 2.10. Alternate Rate of Interest. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have determined that dollar deposits in the principal amounts of the Eurodollar Loans comprising such Borrowing are not generally available in the London interbank market, or that the rates at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Lenders of making or maintaining Eurodollar Loans during such Interest Period, or that reasonable means do not exist for ascertaining the LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give written notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any request by the Borrower for a Eurodollar Competitive Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be rejected by the Administrative Agent and (ii) any request by the Borrower for a Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to be a request for an ABR Bor rowing. The Administrative Agent agrees to give written notice to the Borrower promptly after it determines that the conditions giving rise to any notice under the first sentence of this paragraph shall no longer be in effect. Each determination by the Administrative Agent hereunder shall be presumed conclusive absent manifest error but subject to rebuttal by the Borrower. SECTION 2.11. Termination and Reduction of Commitments. (a) The Commitments and the LC Commitments shall be automatically terminated on the earlier of (i) the Maturity Date and (ii) the Change in Control Date. (b) Upon at least three Business Days' prior irrevocable written notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment or the Total LC Commitment; provided, however, that (i) each partial reduction of the Total Commitment or the Total LC Commitment, as the case may be, shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $5,000,000; (ii) no such termination or reduction shall be made which would reduce the Total Commitment to an amount less than the sum of the aggregate outstanding principal amount of the Loans and the LC Exposure, (iii) no such termination or reduction shall be made which would reduce the Total Commitment below the Total LC Commitment and (iv) no such termination or reduction shall be made which would reduce the Total LC Commitment below the LC Exposure. (c) Each reduction in the Total Commitment or the Total LC Commitment hereunder shall be made ratably among the Lenders in accordance with their respective Commitments or LC Commitments, as applicable. The Borrower shall pay to the Administrative Agent for the account of the Lenders, on the date of each termination or reduction hereunder, the Facility Fee on the amount of the Commitments so terminated or reduced accrued through the date of such termination or reduction. SECTION 2.12. Prepayment. (a) The Borrower shall have the right at any time and from time to time to prepay any Standby Borrowing, in whole or in part, upon giving written notice (or telephone notice promptly confirmed by written notice) to the Administrative Agent: (i) before 12:00 noon, New York City time, three Business Days prior to prepayment, in the case of Eurodollar Loans and before 12:00 noon, New York City time, one Business Day prior to prepayment, in the case of ABR Standby Loans; provided, however, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $5,000,000. The Borrower shall not have the right to prepay any Competitive Borrowing. (b) On the date of any termination or reduction of the Commitments pursuant to Section 2.11(a) or (b), (i) in the case of Section 2.11(a), the Borrower shall pay or prepay the principal of all Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder, and the Borrower shall forthwith deposit cash with the Administrative Agent in an amount equal to the aggregate LC Exposure or shall deliver to the Administrative Agent a Replacement Letter of Credit drawable without condition and in a face amount equal to the aggregate LC Exposure and otherwise satisfactory in all respects to the Administrative Agent, which Letter of Credit or cash deposit shall serve as collateral security for the repayment of any further drawings under the Letters of Credit, and (ii) in the case of Section 2.11(b), the Borrower shall pay or prepay so much of the Standby Borrowings as shall be necessary in order that the sum of the aggregate principal amount of the Competitive Loans and Standby Loans outstanding and the LC Exposure will not exceed the Total Commitment, after giving effect to such termination or reduction. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.16 but otherwise without premium or penalty. All prepayments under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.13. Reserve Requirements; Change in Circumstances. (a) Notwithstanding any other provision herein, if after the Restatement Closing Date, any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the inter pretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Lender or such Issuing Bank of the principal of or interest on any Eurodollar Loan or Fixed Rate Loan made by such Lender or any Fees or other amounts payable hereunder, including reimburse ment of drawings under the Letters of Credit (other than changes in respect of taxes imposed on the overall net income of such Lender by any Governmental Authority as a result of a present or former connection between the jurisdiction of the Governmental Authority imposing such tax on such Lender (except a connection arising solely from such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement)), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by such Lender, or shall impose on such Lender or the London interbank market any other condition affecting this Agree ment or any Eurodollar Loan or Fixed Rate Loan made by such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed by such Lender to be material, then the Borrower will pay to such Lender upon demand such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this paragraph with respect to any Competitive Loan if it shall have been aware of the change giving rise to such request and of the impact of such change on the cost of making such Competitive Loans at the time of submission of the Competitive Bid pursuant to which such Competitive Loan shall have been made. (b) If any Lender shall have determined that the adoption after the Restatement Closing Date of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or any Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender pursuant hereto to a level below that which such Lender or such Lender's holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered after the date hereof. (c) A certificate of a Lender setting forth such amount or amounts, along with the Lender's method of computation of such amounts, as shall be necessary to compensate such Lender (or participating banks or other entities pursuant to Section 10.04) as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Borrower and shall be presumed conclusive absent manifest error but subject to rebuttal by the Borrower. The Borrower shall pay each Lender the amount shown as due on any such certificate delivered by it within 10 days of its receipt of the same. In the event any Lender delivers such a certificate, the Borrower may, at its own expense, require such Lender to transfer and assign in whole or in part, without recourse (in accordance with Section 10.04) all or part of its interests, rights and obligations under this Agreement to an assignee which shall assume such assigned obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) such assignment shall not conflict with any law, rule or regulation or order of any court or other Governmental Authority, (ii) the Borrower shall have received a written consent of the Administrative Agent in the case of an entity that is not a Lender, which consent shall not unreasonably be withheld, and (iii) the Borrower or such assignee shall have paid to the assigning Lender in immediately available funds the principal of and interest accrued to the date of such payment on the Loans made by it hereunder and all other amounts owed to it hereunder as of such date. Any Lender claiming any additional amounts payable pursuant to this Section 2.13 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any additional amount which may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. (d) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Lender's right to demand compensation with respect to such period or any other period; provided, however, that no Lender shall be entitled to compensation for any such increased costs or reductions unless it shall have submitted a certificate under paragraph (c) above with respect thereto not more than 90 days after the date that such Lender knows that such increased costs have been incurred or such reduction suffered. Notwithstanding any other provision of this Section 2.13, no Lender shall demand compensation for any increased cost or reduction referred to above if it shall not at the time be the general policy of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements, and each Lender shall in good faith endeavor to allocate increased costs or reductions fairly among all of its affected commitments and credit extensions (whether or not it seeks compensation from all affected borrowers). The protection of this Section 2.13 shall be available to each Lender regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. SECTION 2.14. Change in Legality. (a) Notwith standing any other provision herein contained, if any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent, such Lender may: (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon such Lender shall not submit a Competitive Bid in response to a request for Eurodollar Competitive Loans and any request by the Borrower for a Eurodollar Standby Borrowing shall, as to such Lender only, be deemed a request for an ABR Standby Loan unless such declaration shall be subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Standby Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Standby Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Standby Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.14, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. The Administrative Agent agrees to give written notice to the Borrower promptly after it determines that the conditions giving rise to any notice under paragraph (a) above shall no longer be in effect. (c) Each Lender agrees to use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or to change the jurisdiction of its applicable lending office if the making of such filing or change would enable such Lender to legally make or maintain any Eurodollar Loan referred to in paragraph (a) of this Section 2.14; provided, however, that (i) such Lender shall not be required to make such filing or change if, in the sole determination of such Lender, such action would be otherwise disadvantageous to such Lender and (ii) until such time as such Lender shall have determined that it can make or maintain such Eurodollar Loan, the Lender may take the actions referred to in Section 2.14(a). SECTION 2.15. Letters of Credit. (a) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Issuing Bank shall issue and deliver to the Borrower at any time and from time to time on or after the Restatement Closing Date and prior to the fifth Business Day before the Maturity Date, Letters of Credit for the account of the Borrower or any Subsidiary; provided, however, that such Issuing Bank shall not issue any Letter of Credit if, immediately after giving effect to such issuance, the LC Exposure at such time would exceed the Total LC Commitment or if the sum of the LC Exposure and the aggregate principal amount of the outstanding Loans would exceed the Total Commitment. Each Letter of Credit (x) shall be in form as shall have been agreed upon in writing by the Borrower, the Administrative Agent and such Issuing Bank, (y) shall be in a minimum principal amount of $2,000 and (z) shall permit drawings upon the presentation of one or more sight drafts and such other documents as shall be specified by the Borrower in the applicable notice delivered pursuant to paragraph (b) below and shall expire on a date not later than the fifth Business Day prior to the Maturity Date, except that Letters of Credit may expire on a date later than the Maturity Date (but in any event no later than the first anniversary of the Maturity Date), subject to the conditions set forth in Section 2.15(g). (b) The Borrower shall give such Issuing Bank written or telecopy notice or notice via computer modem not later than 10:00 a.m., New York City time, one Business Day (or such shorter period as shall be acceptable to such Issuing Bank and the Administrative Agent) prior to any proposed issuance of a Letter of Credit. Each such notice shall refer to this Agreement and shall specify (i) the date on which such Letter of Credit is to be issued (which shall be a Business Day), the account party on the Letter of Credit and the face amount thereof (which shall be an amount in dollars), (ii) the name and address of the benefici ary, (iii) whether such Letter of Credit shall permit a single drawing or multiple drawings, (iv) the form of the sight draft and any other documents required to be presented at the time of any drawing (together with the exact wording of such documents or copies thereof) and (v) the expiry date of such Letter of Credit. Such Issuing Bank shall give the Administrative Agent, which shall in turn give to each Lender, prompt written or telecopy advice of any notice received from the Borrower pursuant to this Section 2.15. (c) By the issuance of a Letter of Credit and without any further action on the part of such Issuing Bank or the Lenders in respect thereof, such Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender's pro rata percentage, based upon its LC Commitment, of the face amount of such Letter of Credit, effective upon the issuance of such Letter of Credit; provided, however, that no Lender shall be required to acquire participations in Letters of Credit that would result in its pro rata percentage, based upon its LC Commitment, of the LC Exposure exceeding its LC Commit ment, as the same may be reduced from time to time in accordance with Section 2.11. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees severally and not jointly to pay to the Administrative Agent, on behalf of such Issuing Bank, in accordance with paragraph (e) below, such Lender's pro rata percentage, based upon its LC Commitment, of each unreimbursed LC Disbursement made by such Issuing Bank; provided, however, that the Lenders shall not be obligated to make any such payment with respect to any payment or disbursement made under any Letter of Credit as a result of the gross negligence or wilful misconduct of such Issuing Bank. Notwithstanding the foregoing, if, as permitted by Section 2.15(f), an Issuing Bank has separately agreed with the Borrower that the Issuing Bank will be held to a higher standard of care, such standard shall govern as between the Issuing Bank and the Lenders. (d) Each Lender acknowledges and agrees that its acquisition of participations pursuant to paragraph (c) above in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of any Default or Event of Default hereunder, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Promptly after it shall have ascertained that any draft and any accompanying documents presented under a Letter of Credit appear to be in conformity with the terms and conditions of such Letter of Credit, such Issuing Bank shall give written or telecopy notice to the Borrower and the Administrative Agent of the receipt and amount of such draft and the date on which payment thereon will be made. If the Administrative Agent shall not have received from the Borrower the payment required pursuant to paragraph (f) below by 12:00 noon, New York City time, on the date on which payment of a draft presented under any Letter of Credit has been made, the Administrative Agent shall promptly notify such Issuing Bank and each Lender of the LC Disbursement and, in the case of each Lender, its pro rata percentage, based upon its LC Commitment of such LC Disbursement. Each Lender shall pay to the Administrative Agent, not later than 2:00 p.m., New York City time, on such date, such Lender's percentage of such LC Disbursement, which the Administrative Agent shall promptly pay to such Issuing Bank. The Administrative Agent will promptly remit to each Lender such Lender's percentage of any amounts subsequently received by the Administrative Agent from the Borrower in respect of such LC Disbursement; provided that amounts so received for the account of any Lender prior to payment by such Lender of amounts required to be paid by it hereunder in respect of any LC Disbursement shall be remitted to such Issuing Bank. (f) If such Issuing Bank shall pay any draft presented under a Letter of Credit, the Borrower shall pay to such Issuing Bank or to the Administrative Agent for the account of such Issuing Bank or, if the Administrative Agent shall have received the payments provided in paragraph (e) above with respect to such drawing, for the accounts of the Lenders, an amount equal to the amount of such draft before 12:00 noon, New York City time, on the date of payment of such draft. The obligations of the Borrower under this paragraph (f) shall be absolute, unconditional and irrevocable and shall be satisfied strictly in accordance with their terms irrespective of: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any other Person may at any time have against the beneficiary under any Letter of Credit, the Administrative Agent, such Issuing Bank or any other Lender (other than the defense of payment in accordance with the terms of this Agreement or a defense based on the gross negligence or wilful misconduct of the Administrative Agent or such Issuing Bank) or any other Person in connection with this Agreement or any other transaction; (iii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; provided that payment by such Issuing Bank under such Letter of Credit against presentation of such draft or document shall not have constituted gross negligence, wilful misconduct or breached any other standard agreed to in writing by the applicable Issuing Bank; (iv) payment by such Issuing Bank under a Letter of Credit against presentation of a draft or other document which does not comply in any immaterial respect with the terms of such Letter of Credit; provided that such payment shall not have constituted gross negligence or wilful misconduct; or (v) any other circumstance or event whatsoever, whether or not similar to any of the foregoing; provided that such other circumstance or event shall not have been the result of gross negligence or wilful misconduct of such Issuing Bank. It is understood that in making any payment under a Letter of Credit (x) such Issuing Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever, and (y) any noncompliance in any immaterial respect of the documents presented under a Letter of Credit with the terms thereof shall, in either case, not be deemed wilful misconduct or gross negligence of such Issuing Bank. Notwithstanding the foregoing, to the extent such Issuing Bank has separately agreed with the Borrower to a standard of care which varies from that set forth above, such standard shall govern as between the Borrower and such Issuing Bank. (g) In the event any Letters of Credit shall have an expiry date after the Maturity Date, the Borrower shall, prior to the Business Day before the Maturity Date, forthwith deposit cash with the Administrative Agent, in an amount equal to the aggregate LC Exposure, or deliver to the Administrative Agent a Replacement Letter of Credit drawable without condition and in a face amount equal to the aggregate LC Exposure and otherwise satisfactory in all respects to the Administrative Agent, which cash deposit or Replacement Letter of Credit shall serve as collateral security for the repayment of any future drawings under such Letters of Credit. (h) Each Issuing Bank hereby agrees to share, pro rata in accordance with its LC Exposure, with all Secured Parties, its security interest in all documents and goods in which it will have a security interest in connection with the issuance of any Letter of Credit and to share on the same basis all amounts recovered by such Issuing Bank in connection with any such security interest. SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender against any loss or reasonable expense which such Lender may sustain or incur as a consequence of (a) any failure by the Borrower to fulfill on the date of any Borrowing hereunder the applicable conditions set forth in Article IV, (b) any failure by the Borrower to borrow or to refinance, convert or continue any Loan hereunder after irrevocable notice of such Borrowing, refinancing, conversion or continuation has been given pursuant to Section 2.03, 2.04 or 2.05, (c) any payment, prepayment or conversion of a Eurodollar Loan required by any other provision of this Agreement or otherwise made or deemed made on a date other than the last day of the Interest Period applicable thereto or (d) the occurrence of any Event of Default, including, in each such case, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, converted, continued or not borrowed (based on the LIBO Rate or, in the case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for the period from the date of such payment, prepayment or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such Lender in reemploying the funds so paid, prepaid or not borrowed for such period or Interest Period, as the case may be. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.16 and the method of calculation employed by such Lender shall be delivered to the Borrower and shall be presumed conclusive absent manifest error but subject to rebuttal by the Borrower. SECTION 2.17. Pro Rata Treatment. Except as required under Section 2.14, each Standby Borrowing, each payment or pre payment of principal of any Standby Borrowing, each payment of interest on the Standby Loans, each payment of the Facility Fee, each payment of the LC Fees, each reduction of the Commitments and each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata among the Lenders in accor dance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Standby Loans). Each payment of principal of any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. For purposes of determining the available Commitments of the Lenders at any time, each outstand ing Competitive Borrowing shall be deemed to have utilized the Commitments of the Lenders (including those Lenders which shall not have made Loans as part of such Competitive Borrowing) pro rata in accordance with such respective Commitments. Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Standby Loan or Loans as a result of which the unpaid principal portion of the Standby Loans made by it shall be proportionately less than the unpaid principal portion of the Standby Loans of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Standby Loans of such other Lender, so that the aggregate unpaid principal amount of the Standby Loans and participations in Standby Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Standby Loans then outstanding as the principal amount of its Standby Loans, prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Standby Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; provided, however, that, if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Standby Loan deemed to have been so purchased may exercise any and all rights of banker's lien, set off or counterclaim with respect to any and all moneys owing by the Borrower to such Lender by reason thereof as fully as if such Lender had made a Standby Loan directly to the Borrower in the amount of such participation. SECTION 2.19. Payments. (a) The Borrower shall make each payment (including principal of or interest on any Borrowing or any Fees (other than the fees referred to in paragraph (d) of Section 2.06) or other amounts) hereunder not later than 12:00 noon, New York City time, on the date when due in dollars to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, in immediately available funds. (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest, if applicable. SECTION 2.20. Taxes. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.19, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income or earnings of the Administrative Agent or any Lender (or any transferee or assignee thereof, including a participation holder (any such entity being called a "Transferee")) and franchise taxes imposed by any Governmental Authority on the Administrative Agent or any Lender (or Transferee) as a result of a present or former connection between the jurisdiction of the Governmental Authority imposing such tax on the Administrative Agent or such Lender (except a connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement) (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders (or any Transferee) or the Administrative Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Lender (or Transferee) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law; provided, however, that no Transferee of any Lender shall be entitled to receive any greater payment under this paragraph (a) than such Lender would have been entitled to receive with respect to the rights assigned, participated or otherwise transferred unless such assignment, participation or transfer shall have been made at a time when the circumstances giving rise to such greater payment did not exist. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender (or Transferee) and the Administrative Agent for the full amount of Taxes and Other Taxes paid by such Lender (or Transferee) or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. Such indemnification shall be made within 30 days after the date any Lender (or Transferee) or the Administrative Agent, as the case may be, makes written demand therefor. If a Lender (or Transferee) or the Administrative Agent shall become aware that it is entitled to receive a refund in respect of Taxes or Other Taxes as to which it has been indemnified by the Borrower pursuant to this Section 2.20, it shall promptly notify the Borrower of the avail ability of such refund and shall, within 30 days after receipt of a request by the Borrower, apply for such refund at the Borrower's expense. If any Lender (or Transferee) or the Administrative Agent receives a refund in respect of any Taxes or Other Taxes as to which it has been indemnified by the Borrower pursuant to this Section 2.20, it shall promptly notify the Borrower of such refund and shall, within 30 days after receipt of a request by the Borrower (or promptly upon receipt, if the Borrower has requested application for such refund pursuant hereto), repay such refund to the Borrower (to the extent of amounts that have been paid by the Borrower under this Section 2.20 with respect to such refund), net of all out-of- pocket expenses of such Lender and without interest (except to the extent such refund includes any interest); provided that the Borrower, upon the request of such Lender (or Transferee) or the Administrative Agent, agrees to return such refund (plus penalties, interest or other charges) to such Lender (or Transferee) or the Administrative Agent in the event such Lender (or Transferee) or the Administrative Agent is required to repay such refund. Nothing contained in this paragraph (c) shall require any Lender (or Transferee) or the Administrative Agent to make available any of its tax returns (or any other information relating to its taxes which it deems to be confidential). (d) Within 30 days after the date of any payment of Taxes or Other Taxes withheld by the Borrower in respect of any payment to any Lender (or Transferee) or the Administrative Agent, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 10.01, the original or a certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of the principal of and interest on all Loans made hereunder. (f) Upon the written request of the Borrower, each Lender (or Transferee) that is organized under the laws of a jurisdiction outside the United States shall, if legally able to do so, prior to the immediately following due date of any payment by the Borrower hereunder, deliver to the Borrower such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto, including Internal Revenue Service Form 1001 or Form 4224 and any other certificate or statement of exemption required by Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any subsequent version thereof or successors thereto, properly completed and duly executed by such Lender (or Transferee) establishing that such payment is (i) not subject to United States Federal withholding tax under the Code because such payment is effectively connected with the conduct by such Lender (or Transferee) of a trade or business in the United States or (ii) totally exempt from United States Federal withholding tax, or subject to a reduced rate of such tax under a provision of an applicable tax treaty. Unless the Borrower and the Administrative Agent have received forms or other documents satis factory to them indicating that such payments hereunder are not subject to United States Federal withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate. (g) The Borrower shall not be required to pay any additional amounts to any Lender (or Transferee) in respect of United States Federal withholding tax pursuant to paragraph (a) above if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or Transferee) to comply with the provisions of paragraph (f) above; provided, however, the Borrower shall be required to pay those amounts to any Lender (or Transferee) it was required to pay hereunder prior to the failure of such Lender (or Transferee) to comply with the provisions of paragraph (f). (h) Any Lender (or Transferee) claiming any additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender (or Transferee). ARTICLE III Representations and Warranties The Borrower represents and warrants to each of the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and the Significant Subsidiaries (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify is not materially likely to result in a Material Adverse Effect, and (d) has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and each other agreement or instrument contemplated thereby to which it is or will be a party and to borrow hereunder. SECTION 3.02. Authorization. The execution, delivery and performance by the Borrower and the Guarantor of this Agreement, the Borrowings and issuances of Letters of Credit (collectively, the "Transactions") (a) have been duly authorized by all requisite corporate and, if required, stockholder action and (b) will not (i) violate (A) any provision of law, statute, rule or regulation, or of the certificate or articles of incorporation or other constitutive documents or by-laws of the Borrower or any Significant Subsidiary, (B) any order of any Governmental Authority or (C) any provision of any material indenture, agreement or other instrument to which the Borrower or any Significant Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (iii) result in the creation or imposition of any Lien upon or with respect to any property or assets now owned or hereafter acquired by the Borrower or any Subsidiary. SECTION 3.03. Enforceability. This Agreement has been duly executed and delivered by the Borrower and the Guarantor and constitutes, a legal, valid and binding obligation of the Borrower or the Guarantor party thereto enforceable against the Borrower or the Guarantor in accordance with its terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity). SECTION 3.04. Governmental Approvals. No action, consent or approval of, registration or filing with or any other action by any Governmental Authority is or will be required by the Borrower or any of the Subsidiaries in connection with the Transactions, except such as have been made or obtained and are in full force and effect. SECTION 3.05. Financial Statements. The Borrower has heretofore furnished to the Lenders (a) its consolidated balance sheets and statements of earnings and statements of cash flows (i) as of and for the fiscal year ended December 29, 1995, audited by and accompanied by the opinion of KPMG Peat Marwick LLP, independent public accountants, and (ii) as of and for the 26-week period ended June 28, 1996, and (b) its consolidating balance sheets and statements of earnings and cash flows (limited, in the case of such statements of cash flows, to the Borrower, the Significant Subsidiaries and such other Subsidiaries as the Borrower may elect) as of and for the fiscal year and the 26-week period ended on the respective dates set forth in (a) above. Such financial statements present fairly the financial condition and results of operations of the Borrower and its consolidated Subsidiaries as of such dates and for such periods. Such financial statements and the notes thereto were prepared in accordance with GAAP applied on a consistent basis, except as disclosed in such statements and notes. SECTION 3.06. No Material Adverse Change. There has been no material adverse change in the business, assets, operations or financial condition of the Borrower and the Subsidiaries, taken as a whole, since December 29, 1995. SECTION 3.07. Title to Properties; Possession Under Leases. (a) Each of the Borrower and the Significant Subsidi aries has good and marketable title to, or valid, subsisting and enforceable leasehold interests in, all its material properties and assets, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes. All such material properties and assets are free and clear of Liens, other than Liens expressly permitted by Section 6.01. (b) Each of the Borrower and the Significant Subsidiaries has complied with all material obligations under all material leases to which it is a party and all such leases are in full force and effect. Each of the Borrower and the Subsidiaries enjoys peaceful and undisturbed possession under all such material leases. SECTION 3.08. Subsidiaries. Schedule 3.08 sets forth as of the Restatement Closing Date a list of all Subsidiaries of the Borrower and the percentage of the shares of each class of capital stock owned beneficially or of record by the Borrower therein. SECTION 3.09. Litigation; Compliance with Laws. (a) Except as set forth in Schedule 3.09, there are not any actions, suits or proceedings at law or in equity or by or before any Governmental Authority pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Significant Subsidiary or any business, property or rights of any such Person (i) which involve this Agreement or the Transactions or (ii) which would be materially likely to result in a Material Adverse Effect. (b) Neither the Borrower nor any of the Significant Subsidiaries is in violation of any law, rule or regulation, or in default with respect to any judgment, writ, injunction or decree of any Governmental Authority, where such violation or default would be materially likely to result in a Material Adverse Effect. SECTION 3.10. Agreements. (a) Neither the Borrower nor any of the Significant Subsidiaries is a party to any agreement or instrument or subject to any corporate restriction that would be materially likely to result in a Material Adverse Effect. (b) Neither the Borrower nor any of its Significant Subsidiaries is in default in any manner under any provision of any indenture or other agreement or instrument evidencing Indebtedness, or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets are or may be bound, where such default would be materially likely to result in a Material Adverse Effect. SECTION 3.11. Federal Reserve Regulations. (a) Neither the Borrower nor any of the Significant Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or carry Margin Stock or to extend credit to others for the purpose of purchasing or carrying Margin Stock or to refund indebtedness originally incurred for such purpose, or (ii) for any purpose which entails a violation of, or which is inconsistent with, the provisions of the regulations of the Board, including Regulation G, U or X. SECTION 3.12. Investment Company Act; Public Utility Holding Company Act. Neither the Borrower nor any Significant Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regula tion under, the Public Utility Holding Company Act of 1935. SECTION 3.13. Use of Proceeds. The Borrower will use the proceeds of the Loans and the Letters of Credit only for working capital, the purchase of goods and services by the Borrower and the Subsidiaries and other general corporate purposes. SECTION 3.14. Tax Returns. Except as described in Schedule 3.14, each of the Borrower and the Significant Subsidiaries has filed or caused to be filed all Federal, state and material local tax returns required to have been filed by it and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, except taxes or assessments that are being contested in good faith by appropriate proceedings and for which the Borrower shall have set aside on its books whatever reserves are required in accordance with GAAP consistently applied. SECTION 3.15. No Material Misstatements. (a) No report, financial statement, schedule or other information relating to historical events or conditions furnished to the Lenders or the Administrative Agent by the Borrower, in connection with this Agreement contains any material misstatement of fact or omitted or omits to state any material fact necessary to make the statements therein, when taken as a whole, not mis leading. (b) Based upon all information currently available to the Borrower, any report, projection, schedule or other information relating to forecast of future events or conditions furnished to the Lenders or the Administrative Agent by the Borrower in connection with this Agreement has been prepared on a reasonable basis based upon reasonable assumptions. SECTION 3.16. Employee Benefit Plans. The Borrower and each of its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder with respect to the employee benefit plans (as defined in Section 3(3) of ERISA) of the Borrower and its ERISA Affiliates. No Reportable Event has occurred in respect of any Plan of the Borrower or any ERISA Affiliate. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed by more than $5,000,000 the value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed $20,000,000. Neither the Borrower nor any ERISA Affiliate has incurred any Withdrawal Liability that would be materially likely to have a Material Adverse Effect. Neither the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, where such reorganization or termination would be materially likely to result, through increases in the contributions required to be made to such Plan or otherwise, in a Material Adverse Effect. SECTION 3.17. Environmental Matters. Each of the Borrower and the Subsidiaries has complied in all material respects with all material Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control. Neither the Borrower nor any Subsidiary has received notice of any failure so to comply which alone or together with any other such failure is materially likely to result in a Material Adverse Effect. The Borrower's and the Sub sidiaries' plants do not manage any hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants, as those terms are used in the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Hazardous Materials Transportation Act, the Toxic Substance Control Act, the Clean Air Act, the Clean Water Act or any other applicable law, in violation of any such law or any regulations promulgated pursuant thereto or in any other applicable law where such violation is materially likely to result, individually or together with other violations, in a Material Adverse Effect. ARTICLE IV Conditions of Lending The obligations of the Lenders to make Loans hereunder and of the Issuing Banks to issue Letters of Credit hereunder, and the effectiveness of any amendment to a Letter of Credit that increases the principal amount thereof, are subject to the satisfaction of the conditions that, on the date of each Credit Event, including each Borrowing in which Loans are refinanced as contemplated by Section 2.05(a), but excluding each Borrowing in which Loans are continued or converted as contemplated in Section 2.05(b): (a) In the case of a Borrowing, the Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 or Section 2.04, as applicable, or, in the case of an issuance of a Letter of Credit, the Issuing Bank shall have received a notice in accordance with Section 2.15(b). (b) The representations and warranties set forth in Article III hereof (except, in the case of a refinancing of a Standby Borrowing with a new Standby Borrowing that does not increase the aggregate principal amount of the Loans of any Lender outstanding or in the case of an issuance of a Letter of Credit that does not increase the aggregate LC Exposure, the representations set forth in Sections 3.06 and 3.09(a)) shall be true and correct in all material respects on and as of the date of such Credit Event with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) The Borrower shall be in compliance with all the terms and provisions set forth herein on its part to be observed or performed, and at the time of and immediately after such Credit Event no Event of Default or Default shall have occurred and be continuing. Each Credit Event, excluding each Borrowing in which Loans are continued or converted as contemplated in Section 2.05(b), shall be deemed to constitute a representation and warranty by the Borrower on the date of such Borrowing as to the matters specified in paragraphs (b) and (c) of this Article IV (and, without limiting the foregoing, a representation and warranty that such Borrowing, or the incurrence of reimbursement obligations in respect of such Letter of Credit, is permitted under the Note Purchase Agreement). ARTICLE V Affirmative Covenants The Borrower covenants and agrees with each Lender and the Administrative Agent that, so long as this Agreement shall remain in effect, the principal of or interest on any Loan, any Fees or any other expenses or amounts payable hereunder shall be unpaid or any Letter of Credit shall remain outstanding, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and will cause each of the Subsidiaries to: SECTION 5.01. Existence; Businesses and Properties. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.03 and with regard to any Subsidiary which has no significant assets and no significant liabilities. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated (except as permitted pursuant to Section 6.03); comply in all material respects with all applicable laws, rules, regula tions and orders of any Governmental Authority, whether now in effect or hereafter enacted, the failure to comply with which would be materially likely to result in a Material Adverse Effect; and at all times maintain and preserve all property material to the conduct of such business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. SECTION 5.02. Insurance. Keep its insurable properties adequately insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. SECTION 5.03. Obligations and Taxes. Pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment and discharge shall not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Borrower shall have set aside on its books whatever reserves are required in accordance with GAAP. SECTION 5.04. Financial Statements, Reports, etc. In the case of the Borrower, furnish to the Administrative Agent and each Lender (by delivery of a regular or periodic report filed under the Exchange Act containing such items or otherwise): (a) within 100 days after the end of each fiscal year, its consolidated and consolidating balance sheets and related statements of earnings and cash flows (limited, in the case of such consolidating statements of cash flows, to the Borrower, the Significant Subsidiaries, and any other Subsidiaries as the Borrower may elect) showing the financial condition of the Borrower and its consolidated Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, (i) in the case of such consolidated statements, audited by KPMG Peat Marwick LLP or any other Big Six Accounting Firm and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied (except for changes concurred in by the Borrower's independent public accountants and disclosed in such statements or the notes thereto) and (ii) in the case of such consolidating statements, certified by one of its Financial Officers as accurately reflecting the assets and liabilities of the Borrower and the consolidated Subsidiaries and the cash flows of the Borrower and the Subsidiaries listed therein; (b) within 50 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated and consolidating balance sheets and related statements of earnings and cash flow (limited, in the case of such consolidating statements of cash flows, to the Borrower, the Significant Subsidiaries and any other Subsidiaries as the Borrower may elect) showing the financial condition of the Borrower and its consolidated subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers in the case of such consolidated statements, as fairly presenting the financial condition and results of operations of the Borrower on a consolidated basis in accordance with GAAP consistently applied (except for changes concurred in by the Borrower's independent public accountants and disclosed in such statements or the notes thereto, subject to normal year- end audit adjustments; (c) concurrently with any delivery of financial statements under (a) or (b) above, (x) a certificate of the accounting firm, in the case of (a), or Financial Officer, in the case of (b), referred to in the applicable paragraph certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (y) a certificate of a Financial Officer setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the covenants contained in Sections 6.04, 6.05, 6.06 and 6.07; (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by it with the Securities and Exchange Commission, or any Governmental Authority succeeding to any of or all the functions of said Commission, or with any national securities exchange, or distributed to its shareholders, as the case may be; and (e) as soon as reasonably practicable, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. SECTION 5.05. Litigation and Other Notices. Furnish to the Administrative Agent and each Lender prompt written notice of the following promptly after a Responsible Officer of the Borrower or any Subsidiary becomes aware of the same: (a) any Event of Default or Default, specifying the nature and extent thereof and the corrective action (if any) proposed to be taken with respect thereto; (b) the filing or commencement of, or receipt of notice of intention of any Person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority, against the Borrower or any Affiliate thereof which would be materially likely to result in a Material Adverse Effect; (c) any development affecting or relating to the Borrower or any Subsidiary that in the reasonable judgment of the Borrower has resulted in, or is materially likely to result in, a Material Adverse Effect referred to in clause (a) of the definition of such term; (d) (i) any filing with the Securities and Exchange Commission of a Schedule 13D (or any similar or successor report or schedule) or any amendment thereto pursuant to Regulation 13D or any similar or successor regulation promulgated under the Exchange Act with respect to the Borrower or any Person Controlling the Borrower and indicating that an event which constitutes a Change in Control has occurred, but in any event no later than three Business Days after the date of any such filing with the Securities and Exchange Commission and (ii) the occurrence of any event which constitutes a Change in Control; and (e) the issuance by any Governmental Authority of any injunction, order, decision or other restraint prohibiting, or having the effect of prohibiting, the Loans or the initiation of any litigation or similar proceeding seeking any such injunction, order or other restraint. SECTION 5.06. Employee Benefits. (a) Comply in all material respects with the applicable provisions of ERISA and the Code with respect to the employee benefit plans (as defined in Section 3(3) of ERISA) of the Borrower and the ERISA Affiliates and (b) furnish to the Administrative Agent (i) as soon as possible after, and in any event within 30 days after any Responsible Officer of the Borrower or any ERISA Affiliate knows or has reason to know that any Reportable Event has occurred that alone or together with any other Reportable Event could reasonably be expected to result in liability of the Borrower or any ERISA Affiliate to the PBGC in an aggregate amount exceeding $5,000,000, a statement of a Financial Officer setting forth details as to such Reportable Event and the action that the Borrower or such ERISA Affiliate proposes to take with respect thereto, together with a copy of the notice, if any, of such Reportable Event to the PBGC, (ii) promptly after receipt thereof, a copy of any notice that the Borrower or any ERISA Affiliate may receive from the PBGC relating to the intention of the PBGC to terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a trustee to administer any such Plan, (iii) within 10 days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code a notice of failure to make a required installment or other payment with respect to a Plan, a statement of a Financial Officer setting forth details as to such failure and the action that the Borrower proposes to take with respect thereto, together with a copy of any such notice given to the PBGC and (iv) promptly and in any event within 30 days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, both within the meaning of Title IV of ERISA. SECTION 5.07. Maintaining Records; Access to Properties and Inspections. Maintain or cause to be maintained at all times true and complete books and records of its financial operations and permit the Administrative Agent or any Lender and their designated representatives reasonable access after reason able notice to all such books and records and to any of the properties or assets of the Borrower and the Subsidiaries during regular business hours in order that the Administrative Agent and the Lenders may make such examinations and make abstracts from such books and records and may discuss the affairs, finances and accounts with, and be advised as to the same by, Financial Officers and, after consultation with the Borrower, the independent accountants of the Borrower or any Subsidiary, all as the Administrative Agent or any Lender may reasonably deem appropriate for the purpose of verifying the accuracy of the various reports delivered by the Borrower or any Subsidiary thereof to the Administrative Agent and/or the Lenders pursuant to this Agreement or for otherwise ascertaining compliance with this Agreement. Except during the continuance of any Event of Default, all requests by Lenders under this Section shall be made through and coordinated by the Administrative Agent with a view to minimizing inconvenience to the Borrower and its Subsidiaries. SECTION 5.08. Additional Guarantors. Unless the Guarantors have been released or their obligations have been terminated pursuant to the last two paragraphs of Article IX, on or prior to (i) the direct or indirect acquisition by the Borrower of any Subsidiary which at the time of such acquisition shall be a Significant Subsidiary or (ii) the thirtieth Business Day after the availability of financial statements revealing that any Subsidiary other than a Guarantor, Figi's Inc., FRI, any of the TV Shopping Companies, Metris or any subsidiary of Metris shall have become a Significant Subsidiary, cause such Subsidiary to execute and deliver to the Administrative Agent one or more instruments as the Administrative Agent shall request satisfac tory to the Administrative Agent in form and substance undertaking the obligations of a Guarantor hereunder. SECTION 5.09. Ownership of Metris Companies Inc. In the case of the Borrower, own (directly or indirectly) at all times, beneficially and of record, free and clear of all Liens, at least 51% (on a fully diluted basis) of the economic and voting interest in the common stock of Metris. ARTICLE VI Negative Covenants The Borrower covenants and agrees with each Lender and the Administrative Agent that, so long as this Agreement shall remain in effect, the principal of or interest on any Loan, any Fees or any other expenses or amounts payable hereunder shall be unpaid or any Letter of Credit shall remain outstanding, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, and will not cause or permit any of the Subsidiaries to: SECTION 6.01. Liens. Create, incur, assume or permit to exist any Lien on any property or assets, including stock or other securities of any Person (other than assets sold pursuant to the Receivables Transfer Program) now owned or hereafter acquired or assign or convey any rights to or security interests in any future revenue, except: (a) Liens on property or assets of the Borrower and its Subsidiaries existing on the Restatement Closing Date which (with the exception of existing Liens consisting of the interests of lessors under Capital Leases) are set forth in Schedule 6.01; provided that such Liens shall secure only those obligations which they secure on the Restatement Closing Date; (b) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition and (ii) such Lien does not apply to any other property or assets of the Borrower or any Subsidiary; (c) Liens for taxes not yet due or which are being contested in compliance with Section 5.03 and judgment liens securing judgments which have not given rise to Events of Default; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business and securing obligations that are not due or that are being contested in compliance with Section 5.03; (e) pledges and deposits made in the ordinary course of business in compliance with workmen's compensation, unemployment insurance and other social security laws or regulations; (f) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases (other than Capital Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) zoning restrictions, easements, rights-of-way, restrictions on use of real property and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and do not materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (h) other Liens to secure Indebtedness of the Borrower and/or any Subsidiary, so long as after giving effect thereto, the sum of (A) the aggregate outstanding principal amount of Indebtedness secured by Liens under this Section 6.01(h) and (B) the aggregate outstanding capitalized amount of the obligations of the Borrower and the Subsidiaries to pay rent or other amounts as a result of all Sale-Leaseback Transactions permitted under Section 6.02 does not exceed 25% of Consolidated Net Worth at such time; (i) the interest of any lessor under any Capital Lease and purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Borrower or any Subsidiary and financed with Indebtedness; provided that (i) such lessor's interests or security interests secure only Indebtedness, (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within 90 days after such acquisition (or construction) and (iii) such security interests do not apply to any other property or assets; and (j) Liens created by the "Collateral Documents" referred to in the Metris Facility. SECTION 6.02. Sale and Lease-Back Transactions. Enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property which it intends to use for substantially the same purpose or purposes as the property being sold or transferred (a "Sale-Leaseback Transaction"), except that the Borrower and the Subsidiaries at any time may enter into any Sale-Leaseback Transaction so long as after giving effect thereto, the sum of (a) the aggregate outstanding capitalized amount of the obligations of the Borrower and the Subsidiaries to pay rent or other amounts as a result of such all Sale-Leaseback Transactions and (b) the aggregate outstanding principal amount of Indebtedness referred to in Section 6.01(h) does not exceed 25% of Consolidated Net Worth at such time. SECTION 6.03. Mergers, Consolidations, Sales of Assets and Acquisitions. Merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or, except for sales of accounts receivable pursuant to the Receivables Transfer Program, sell, transfer, lease or other wise dispose of (in one transaction or in a series of transac tions) all or any substantial part of its assets (whether now owned or hereafter acquired) or sell, transfer, lease or otherwise dispose of any capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in one transaction or a series of transactions) all or any substantial part of the assets of any other Person, except that: (a) the Borrower and any Subsidiary may purchase and sell inventory in the ordinary course of business; (b) the Borrower may sell all or part of the outstanding capital stock or assets of Figi's Inc. and/or any of the subsidiaries of Figi's Inc. for consideration at least equal to the fair market value of the capital stock or assets being sold; (c) if immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing (i) any wholly owned Subsidiary may (A) merge or consolidate into the Borrower in a transaction in which the Borrower is the surviving corporation or (B) transfer assets to the Borrower and (ii) any wholly owned Subsidiary may merge into or consolidate with or transfer assets to or acquire assets from any other wholly owned Subsidiary in a transaction in which the surviving entity is a wholly owned Subsidiary and no Person other than the Borrower or a wholly owned Subsidiary receives any consideration; (d) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing, the Borrower or any Subsidiary at any time may sell, transfer or otherwise dispose of all or any part of the assets of any Subsidiary (including the outstanding capital stock of such Subsidiary) to any Person, provided that (i) the consideration in respect of such disposition is at least equal to the fair market value of such assets and (ii) the book value of such assets (or capital stock), when added to the aggregate book value of all other assets (or capital stock) previously disposed of pursuant to this paragraph (d), does not exceed 25% of Consolidated Net Worth at such time (immediately prior to giving effect to such disposition); (e) if at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing and subject to the further conditions set forth below, the Borrower or any Subsidiary may acquire all or any part of the assets or capital stock or equity interest of any other Person or may merge or consolidate with such Person in a transaction in which the Borrower or such Subsidiary is the surviving corporation; provided, however, that prior to the consummation of such transaction, the Borrower shall have provided to the Administrative Agent a certificate in reasonable detail demonstrating that such merger, acquisition, or consolida tion will not, on a pro forma basis, cause a breach of the covenants contained in any of Sections 6.04, 6.05, 6.06 or 6.07 hereof and will not otherwise cause a breach of any other covenant required to be performed or observed by the Borrower or any Subsidiary hereunder; (f) subject to Section 5.09, the Borrower or Metris may sell the capital stock of Metris for consideration at least equal to the fair market value of the capital stock being sold; (g) if at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing, the Borrower may sell, contribute or otherwise dispose of all or a portion of the outstanding capital stock of any of the TV Shopping Companies or their joint ventures; and (h) any Credit Card Bank may sell credit cardholder accounts (and the related Accounts) of Fingerhut Corporation customers to the Borrower or any wholly owned Subsidiary. SECTION 6.04. EBIT Ratio. In the case of the Borrower, permit the ratio of (a) Earnings before Interest and Taxes for any period of 12 consecutive months to (b) Consolidated Interest Expense for any period of 12 consecutive months to be less than the greater of (i) 2.5 to 1 and (ii) any more restrictive ratio that corresponds to the percentage set forth in Section 8.8 (or any analogous provision) of the Note Purchase Agreement (it being understood that, for example, 3.0 to 1 corresponds to 300%). SECTION 6.05. Leverage Ratio. In the case of the Borrower, permit the Leverage Ratio to exceed the lesser of (a) 0.6 to 1 and (b) any more restrictive ratio that corresponds to the percentage set forth in Section 8.1(d) (or any analogous provision) of the Note Purchase Agreement (it being understood that, for example, 0.5 to 1 corresponds to 50%). SECTION 6.06. Minimum Consolidated Net Worth. In the case of the Borrower, permit Consolidated Net Worth at any time to be less than $375,000,000. SECTION 6.07. Funding Ratio. In the case of the Borrower, permit the ratio of (a) the sum of Total Liabilities and the Receivables Financing Amount to (b) Consolidated Net Worth plus the minority equity interest in Metris to be greater than 6.0 to 1.0. SECTION 6.08. Limitations on Restrictions on Dividends by Subsidiaries. Permit or place, or permit any Subsidiary to permit or place, any restriction, directly or indirectly on (i) the payment of dividends or other distributions by any Subsidiary to the Borrower or (ii) the making of advances or other cash payments by any Subsidiary to the Borrower, except, in either case (x) as specifically set forth in the Note Purchase Agreement or this Agreement, (y) as may be required under a Receivables Transfer Program with respect to the frequency of dividends from FRI or (z) as may be required by non-consensual restrictions imposed by applicable requirements of law. SECTION 6.09. Limitations on Fingerhut Receivables, Inc. Permit FRI to engage in any business or business activity other than the purchasing, holding, owning and selling of the Accounts of the Borrower and its subsidiaries and any activities incidental to and necessary or convenient for the accomplishment of such purposes. ARTICLE VII Events of Default In case of the happening of any of the following events ("Events of Default"): (a) any representation or warranty made or deemed made in or in connection with this Agreement or the borrowings hereunder, or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with or pursuant to this Agreement, shall prove to have been false or misleading in any respect material to the interests of the Lenders when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise, or default shall be made in the payment of any reimbursement obligation in respect of any Letter of Credit when and as the same shall become due and payable; (c) default shall be made in the payment of any interest on any Loan or any Fee (other than an amount referred to in (b) above) due hereunder, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days; (d) default shall be made in the due observance or performance of any covenant, condition or agreement contained in Section 5.01(a) (but only with respect to the Borrower, any Guarantor or any Significant Subsidiary), Section 5.05(a), Section 5.09 or Article VI (other than Section 6.01); (e) default shall be made in the due observance or performance of any covenant, condition or agreement contained in Section 5.05(b), (c), (d) or (e) or Sec tion 6.01 and such default shall continue unremedied for a period of 10 Business Days; (f) default shall be made in the due observance or performance of any covenant, condition or agreement contained hereunder (other than those specified in clause (b), (c), (d) or (e) above) and such default shall continue unremedied for a period of 30 Business Days after notice thereof from the Administrative Agent or the Required Lenders to the Borrower; (g) the Borrower or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $10,000,000 or fail to pay any amount in excess of $10,000,000 due in respect of any Rate Protection Agreement, in each case when and as the same shall become due and payable (after giving effect to any applicable period of grace specified in the instrument evidencing or governing such Indebtedness or Rate Protection Agreement), (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evi dencing or governing any such Indebtedness in a principal amount in excess of $10,000,000 after giving effect to any applicable period of grace specified in the instrument evidencing or governing such Indebtedness, if the effect of any failure referred to in this clause (ii) is to cause such Indebtedness to become due prior to its stated maturity, or (iii) fail to observe or perform any term, covenant, condition or agreement contained in the Note Purchase Agreement or any other agreement or instrument evidencing or governing any of the Private Placement Indebtedness if the effect of any failure referred to in this clause (iii) is to cause, or to permit the holder or holders of such Private Placement Indebtedness (or any Person acting on their behalf) to cause, with the giving of notice if required, all or any portion of such Private Placement Indebtedness to become due prior to its stated maturity; (h) (i) an event of default, termination event or similar event shall occur which results in the suspension or termination of the Borrower's ability to sell receivables for cash pursuant to the Receivables Transfer Program or (ii) the Borrower shall fail to maintain the existence of the Receivables Transfer Program for a period of 30 con secutive days other than as a result of an event or condition described in clause (i) of this paragraph (h). (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Borrower or any Subsidiary, or of a substantial part of the property or assets of the Borrower or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of the property or assets of the Borrower or a Subsidiary or (iii) the winding- up or liquidation of the Borrower or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (j) the Borrower or any Subsidiary shall (i) volun tarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (i) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substan tial part of the property or assets of the Borrower or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (k) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof (unless such judgment is covered by insurance and the insurer has offered to defend such judgment or acknowledged, in writing, its liability with respect thereto) and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any Subsidiary to enforce any such judgment (unless the Borrower or Subsidiary, as applicable, has previously established reserves under GAAP consistently applied for the full amount of such judgment); (l) a Reportable Event or Reportable Events, or a failure to make a required installment or other payment (within the meaning of Section 412(n)(1) of the Code) shall have occurred with respect to any Plan or Plans that reasonably could be expected to result in liability of the Borrower to the PBGC or to a Plan in an aggregate amount exceeding $10,000,000 and, within 30 days after the reporting of any such Reportable Event to the Administrative Agent or after the receipt by the Administrative Agent of the statement required pursuant to Section 5.06(b)(iii) hereof, the Administrative Agent shall have notified the Borrower in writing that (i) the Required Lenders have made a determination that, on the basis of such Reportable Event or Reportable Events or the failure to make a required payment, there are reasonable grounds (A) for the termination of such Plan or Plans by the PBGC, (B) for the appointment by the appropriate United States district court of a trustee to administer such Plan or Plans or (C) for the imposition of a lien in favor of a Plan and (ii) as a result thereof an Event of Default exists hereunder; or a trustee shall be appointed by a United States district court to administer any such Plan or Plans; or the PBGC shall institute proceedings (including giving notice of intent thereof) to terminate any such Plan or Plans; (m)(i) the Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA Affiliate does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner and (iii) the amount of such Withdrawal Liability specified in such notice, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date or dates of such notification) either (A) exceeds $10,000,000 or requires payments exceeding $5,000,000 in any year or (B) is less than $10,000,000 but any Withdrawal Liability payment remains unpaid 30 days after such payment is due; or (n) the Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if solely as a result of such reorganization or termination the aggregate annual contributions of the Borrower and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or have been or are being terminated have been or will be increased over the amounts required to be contributed to such Multiemployer Plans for their most recently completed plan years by an amount exceeding $5,000,000; then, and in every such event (other than an event with respect to the Borrower described in paragraph (i) or (j) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Borrower, take any of the following actions, at the same or different times: (i) terminate forthwith the Commitments; (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein to the contrary notwithstanding and (iii) require that the Borrower deposit cash with the Administrative Agent, in an amount equal to the aggregate LC Exposure, as collateral security for the repayment of any future drawings under the Letters of Credit; and in any event with respect to the Borrower described in para graph (i) or (j) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein to the contrary notwithstanding, and the Borrower shall forthwith be required to deposit cash with the Administrative Agent in an amount equal to the aggregate LC Exposure or shall deliver to the Administrative Agent a Replacement Letter of Credit drawable without condition and in a face amount equal to the aggregate LC Exposure and otherwise satisfactory in all respects to the Administrative Agent, which Letter of Credit or cash deposit shall serve as collateral security for the repayment of any further drawings under the Letters of Credit. ARTICLE VIII The Administrative Agent In order to expedite the transactions contemplated by this Agreement, the Administrative Agent is hereby appointed to act as agent on behalf of the Lenders. Each of the Lenders, and each subsequent holder of any Loan by its acceptance thereof, hereby irrevocably authorizes the Administrative Agent to take such actions on behalf of such Lender or holder and to exercise such powers as are specifically delegated to the Administrative Agent by the terms and provisions hereof, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrower of any Event of Default specified in this Agreement of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute to each Lender copies of all notices, financial statements and other materials delivered by the Borrower pursuant to this Agreement as received by the Administrative Agent. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his own gross negligence or wilful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any Subsidiary of any of the terms, conditions, covenants or agreements contained herein. The Administrative Agent shall not be responsible to the Lenders or the holders of the Loans for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement, or other notes, instruments or agreements. The Administrative Agent shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders and each subsequent holder of any Loan. The Administrative Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper Person or Persons. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall have any responsibility to the Borrower on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Borrower of any of their respective obligations hereunder or in connection herewith. The Administrative Agent may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, (i) the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Borrower and (ii) the Administrative Agent, at the request of the Borrower and with the consent of the Required Lenders (which consent shall not be unreasonably withheld) shall resign. Upon any such resignation, the Borrower shall have the right to appoint a successor, subject to the approval of the Required Lenders (which approval shall not be unreasonably withheld). If no successor shall have been so appointed by the Borrower and approved by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation or the Required Lenders consent to the resignation of the Administrative Agent, then (i) the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, if the Administrative Agent shall have resigned by notifying the Lenders or (ii) otherwise, the Required Lenders may appoint a successor Administrative Agent to replace the terminated Administrative Agent, in each case which successor shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. With respect to the Loans made by it and the Letter of Credit participations acquired by it hereunder, the Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not the Administrative Agent, and the Administrative Agent and its Affili ates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent. Each Lender agrees (i) to reimburse the Administrative Agent, on demand, in the amount of its pro rata share (based on its Commitment hereunder) of any expenses incurred for the benefit of the Lenders by the Administrative Agent, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, which shall not have been reimbursed by the Borrower and (ii) to indemnify and hold harmless the Administrative Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as the Administrative Agent or any of them in any way relating to or arising out of this Agreement or any action taken or omitted by it or any of them under this Agreement, to the extent the same shall not have been reimbursed by the Borrower; provided that no Lender shall be liable to the Administrative Agent for any portion of such liabilities, obliga tions, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or wilful misconduct of the Administrative Agent or any of its directors, officers, employees or agents. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and informa tion as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder. ARTICLE IX Guarantee To induce the Lenders to make the Loans, the Issuing Banks to issue the Letters of Credit for the account of the Borrower and the Subsidiaries and the Lenders to acquire participations in the Letters of Credit, the Guarantor hereby unconditionally and irrevocably guarantees, as a primary obligor and not merely as a surety, the due and punctual payment and performance of all Obligations. The Guarantor hereby agrees that its guarantee of the Obligations shall be joint and several with the guarantee of any Subsidiary which becomes a Guarantor pursuant to Section 5.08. All payments by the Guarantor shall be in lawful money of the United States of America. Each and every default in payment of the principal of and premium, if any, or interest on any Obligations shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. The Guarantor waives presentation to, demand of payment from and protest to the Borrower of any of the Obligations, and also waives notice of acceptance of this Guarantee and notice of protest for nonpayment and all other formalities. The obligations of the Guarantor hereunder shall not be discharged or impaired or otherwise affected by (a) the failure or delay of any Lender or the Administrative Agent to assert any claim or demand or to enforce any right or remedy against the Borrower, the Guarantor or any other Person under the provisions of this Agreement or otherwise; (b) any extension or renewal of any of the Obligations; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement, any guarantee or any other agreement or instrument; (d) the release of (or the failure to perfect a security interest in) any security held by the Administrative Agent or any Lender for the performance of any of the Obligations; (e) the failure or delay of any Lender or the Administrative Agent to exercise any right or remedy against any other Guarantor or any other guarantor of the Obligations; (f) the release of any other Guarantor; (g) the failure of any Lender or the Administrative Agent to assert any claim or demand or to enforce any remedy under this Agreement, any guarantee or any other agreement or instrument; (h) any default, failure or delay, wilful or otherwise, in the performance of the Obligations; or (i) any other act, omission or delay to do any other act which may or might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a discharge of the Guarantor as a matter of law or equity or which would impair or eliminate any right of the Guarantor to subrogation. The Guarantor further agrees that this Guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by any Lender to any security held for payment of the Obligations or to any balance of any deposit account or credit on the books of such Lender in favor of the Borrower or any other Person. The Administrative Agent and the Lenders, in their sole discretion, shall have the right to proceed first and directly against the Guarantor. The obligations of the Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. The Guarantor further agrees that this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment, or any part thereof, on any Obligation is rescinded or must otherwise be restored by any Lender upon the bankruptcy or reorganization of the Borrower or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Administrative Agent or any Lender may have at law or in equity against the Guarantor by virtue hereof, upon the failure of the Borrower to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, prepayment or otherwise, the Guarantor hereby promises to and will, upon receipt of written demand by the Administrative Agent or the Required Lenders, forthwith pay, or cause to be paid, to the Administrative Agent for distribution to the Lenders in cash an amount equal to the sum of (i) the unpaid principal amount of such Obligations then due, (ii) accrued and unpaid interest on such Obligations and (iii) all other monetary Obligations then due, and thereupon the Lenders shall assign (without recourse or warranty of any kind) such Obligations owed to it and paid by the Guarantor, together with their rights in respect of all security interests in the property and assets of the Borrower, if any, then held by them in respect of such Obliga tions, to the Guarantor, such assignment to be pro tanto to the extent to which the Obligations in question were discharged by the Guarantor, or make such other disposition thereof as the Guarantor shall direct (all without recourse to the Administrative Agent or any Lender and without any representation or warranty by the Administrative Agent or such Lender). Upon payment by the Guarantor of any sums to the Lenders hereunder, all rights of the Guarantor against the Borrower arising as a result thereof shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full of all the Obligations and, if any payment shall be made to the Guarantor on account of such rights prior to the indefeasible payment in full of all the Obligations, such payment shall forthwith be paid to the Lenders to be credited and applied against the Obligations to the extent necessary to discharge such Obligations. The Guarantor waives notice of and hereby consents to any agreements or arrangements whatsoever by the Administrative Agent or the Lenders with any other Person pertaining to the Obligations, including agreements and arrangements for payment, extension, subordination, composition, arrangement, discharge or release of the whole or any part of the Obligations, or for the discharge or surrender of any or all security, or for compromise, whether by way of acceptance of part payment or otherwise, and the same shall in no way impair the Guarantor's liability hereunder. Nothing shall discharge or satisfy the liability of the Guarantor hereunder except the full performance and payment of the Obligations. Each reference herein to the Lenders or a Lender shall be deemed to include their or its successors and assigns, in whose favor the provisions of this Guarantee shall also inure. If at any time the Purchasers shall release any of the guarantors guaranteeing the obligations of the Borrower under the Note Purchase Agreement, and such guarantor is a Guarantor hereunder at such time, such Guarantor shall be, and is hereby without further action by the Lenders or any other Person, released from the guarantee provided in this Article IX (or in any other document, in the case of a Subsidiary that becomes a Guarantor after the Restatement Closing Date), provided, that, as an additional condition to such release, the Administrative Agent shall have received confirmation from each of S&P and Moody's that, subsequent to such release, the Index Debt shall be rated BBB- or above by S&P and Baa3 or above by Moody's. The obligations of each Guarantor under this Article IX shall automatically terminate upon (a) any disposition, in compliance with the terms of Section 6.03, by the Borrower, directly or indirectly, of capital stock of such Guarantor following which disposition such Guarantor is no longer a Subsidiary or (b) any sale, in compliance with the terms of Section 6.03, of all or substantially all of the assets of such Guarantor that results in such Guarantor no longer being a Significant Subsidiary. ARTICLE X Miscellaneous SECTION 10.01. Notices. Notices and other com munications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopier, as follows: (a) if to the Borrower, to it at 4400 Baker Road, Minnetonka, Minnesota 55343, Attention of Chief Financial Officer (Telecopy No. 612-932-3750); (b) if to the Administrative Agent, to it at Chase Agency Services, Grand Central Tower, 140 East 45th Street, New York, NY 10017, Attention: Miranda Chin (Telecopy No. 212-622-1308) and, in the case of Competitive Bid matters, with a copy to Chase Securities Inc., Ten South LaSalle Street, Suite 2300, Chicago, Illinois 60603-1097, Attention of Paul Doran (Telecopy No. (312) 346-9310); and (c) if to a Lender, to it at its address (or telecopy number) set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy or other telegraphic communications equipment of the sender, or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 10.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 10.01. SECTION 10.02. Survival of Agreement. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Lenders and shall survive the making by the Lenders of the Loans, regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not been terminated. SECTION 10.03. Binding Effect. This Agreement shall become effective when (a) this Agreement shall have been executed by the Borrower, the Guarantor, the Administrative Agent and each Lender; (b) the Administrative Agent shall have received, with a counterpart for each Lender, a copy of the resolutions of the Board of Directors of the Borrower and the Guarantor authorizing the execution, delivery and performance of this Agreement certified by the Secretary or an Assistant Secretary of the Borrower or the Guarantor, as the case may be, as of the Closing Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded; (c) the Administrative Agent shall have received, with a counterpart for each Lender, true and complete copies of the certificate of incorporation and by-laws of the Borrower and the Guarantor, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of the Borrower or the Guarantor, as the case may be; (d) the Administrative Agent shall have received, with a counterpart for each Lender, the executed legal opinion of counsel to the Borrower and the Guarantor (which may be in-house), in form and substance reasonably satisfactory to the Administrative Agent; (e) a $300,000,000 Revolving Credit and Letter of Credit Facility (the "Metris Facility") for Metris shall have become effective; and (f) a $400,000,000 increase in the Fingerhut Liquidity Agreement and concurrent increases in the Class B, Class C and Owner Trust Certificates associated therewith shall have become effective; and thereafter this Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior consent of all the Lenders. SECTION 10.04. Successors and Assigns. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Borrower, the Administrative Agent or the Lenders that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided, however, that (i) except in the case of an assignment to a Lender or an Affiliate of such Lender, the Borrower, the Issuing Banks and the Administrative Agent must give their prior written consent to such assignment (which consent, in each case, shall not be unreasonably withheld); (ii) unless otherwise agreed by the Borrower and the Administrative Agent, the amount of the Commit ment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $4,000,000 (or, if less, the then- remaining Commitment of the assigning Lender) and the amount of the Commitment of such Lender remaining after such assignment shall not be less than $4,000,000 or shall be zero; (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (to be paid by the assignee or the assignor); and (iv) after giving effect thereto, (x) the Commitment Percentage of the assigning Lender shall equal such Lender's "Commitment Percentage" under and as defined in the Metris Facility and (y) the Commitment Percentage of the assignee shall equal such assignee's "Commitment Percentage" under and as defined in the Metris Facility. Upon acceptance and recording pursuant to paragraph (e) of this Section 10.04, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender there under shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto (but shall continue to be entitled to the benefits of Sections 2.13, 2.16, 2.20 and 10.05, as well as to any Fees accrued for its account hereunder and not yet paid)). Notwithstanding the foregoing, any Lender assigning its rights and obligations under this Agreement may retain any Competitive Loans made by it outstanding at such time, and in such case shall retain its rights hereunder in respect of any Loans so retained until such Loans have been repaid in full in accordance with this Agreement. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Standby Loans and Competitive Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no respon sibility with respect to any statements, warranties or repre sentations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent shall maintain at one of its offices in the City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, an administrative questionnaire in form satisfactory to the Administrative Agent completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Borrower and the Administrative Agent to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Lender and the Issuing Banks. (f) Each Lender may without the consent of the Borrower or the Administrative Agent sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.13 and 2.16 limited, as to each participant, to the amount the selling Lender could claim and (iv) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, or extending any scheduled principal payment date or date fixed for the payment of principal of or interest on the Loans). (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.04, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure of information designated by the Borrower as confidential, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of such confidential information. It is understood that confidential information relating to the Borrower would not ordinarily be provided in connection with assignments or participations of Competitive Loans. (h) Notwithstanding the limitations set forth in paragraph (b) above, (i) any Lender may at any time assign or pledge all or any portion of its rights under this Agreement to a Federal Reserve Bank and (ii) any Lender which is a "fund" may at any time assign or pledge all or any portion of its rights under this Agreement to secure such Lender's indebtedness, in each case without the prior written consent of the Borrower or the Administrative Agent; provided that each such assignment shall be made in accordance with applicable law and no such assignment shall release a Lender from any of its obligations hereunder. In order to facilitate any such assignment, the Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a registered promissory note or notes evidencing the Loans made to the Borrower by the assigning Lender hereunder. (i) The Borrower shall not assign or delegate any of its respective rights and duties hereunder. SECTION 10.05. Expenses; Indemnity. (a) The Borrower agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation of this Agreement or in connection with any amendments, modifica tions or waivers of the provisions hereof (whether or not the transactions hereby contemplated shall be consummated) or incurred by the Administrative Agent, Issuing Banks or any Lender in connection with the enforcement or protection of their rights in connection with this Agreement or in connection with the Loans made hereunder, including the reasonable fees and disbursements of Simpson Thacher & Bartlett, counsel for the Administrative Agent, and, in connection with any such amendment, modification or waiver, the fees and disbursements of any common counsel, and, in connection with any such enforcement or protection, the fees and disbursements of any counsel for the Administrative Agent or any Lender. The Borrower further agrees that it shall indemnify the Administrative Agent, the Issuing Bank and the Lenders from and hold them harmless against any documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of this Agreement. (b) The Borrower agrees to indemnify the Administrative Agent, the Issuing Banks, each Lender and their directors, officers, employees and agents (each such Person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the Transactions and the other transactions contemplated thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; provided, however, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee; provided further, however, that the Borrower will only be liable for the fees of a single firm which shall act as common counsel for the Lenders, except in the case where (i) a Lender reasonably determines based upon the written advice of legal counsel, a copy of which shall be provided to the Borrower, in its judgment that having common counsel would present such counsel with a conflict of interest, (ii) a Lender reasonably concludes that there may be legal defenses available to it that are different from or in addition to those available to other Lenders or (iii) defense of any action or proceeding is not assumed by the Lenders. (c) The provisions of this Section 10.05 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement, or any investigation made by or on behalf of the Administrative Agent or any Lender. All amounts due under this Section 10.05 shall be payable on written demand therefor accompanied by evidence in reasonable detail sufficient to identify the nature and amount of the expense so incurred. SECTION 10.06. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. Each Lender agrees promptly to notify the Borrower of any such setoff and the application thereof made by such Lender. SECTION 10.07. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 10.08. Waivers; Amendment. (a) No failure or delay of the Administrative Agent, the Issuing Bank or any Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by para graph (b) below, and then such waiver or consent shall be effec tive only in the specific instance and for the purpose for which given. No notice or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders; provided, however, that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Lender affected thereby, (ii) change the Commitment or decrease the Facility Fee of any Lender without the prior written consent of such Lender, (iii) amend or modify the provisions of Sec tion 2.17, the provisions of this Section or the definition of the "Required Lenders", without the prior written consent of each Lender or (iv) release or otherwise limit or modify the obligations of any Guarantor (except as provided in Article IX), in each case without the prior written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. Each Lender and each holder of a Loan shall be bound by any waiver, amendment or modification authorized by this Section, and any consent by any Lender or holder of a Loan pursuant to this Section shall bind any Person subsequently acquiring a Loan from it. SECTION 10.09. Interest Rate Limitation. Notwith standing anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges which are treated as interest under applicable law (collectively, the "Charges"), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by any Lender, shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by such Lender in accordance with applicable law, the rate of interest payable in respect of the Loans held by such Lender, together with all Charges payable to such Lender, shall be limited to the Maximum Rate. SECTION 10.10. Entire Agreement. This Agreement and the letter agreement referred to in Section 2.06 constitute the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 10.11. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agree ment by, among other things, the mutual waivers and certifications in this Section 10.11. SECTION 10.12. Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 10.13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 10.03. SECTION 10.14. Headings. The cover page, the Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 10.15. Jurisdiction; Consent to Service of Process. (a) Each of the parties hereto agrees that a final judgment in any New York State court or any Federal court of the United States of America sitting in New York City shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party hereto may have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction. (b) The Borrower and each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or here after have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.16. Confidentiality. Unless otherwise agreed to in writing by the Borrower, the Administrative Agent and each Lender hereby agree to keep all Proprietary Information (as defined below) confidential and not to disclose or reveal any Proprietary Information to any Person other than the Administrative Agent's or such Lender's directors, officers, employees, Affiliates and agents and to actual or potential assignees and participants, and then only on a confidential basis; provided, however, that the Administrative Agent or any Lender may disclose Proprietary Information (a) as required by law, rule, regulation or judicial process, (b) to its attorneys and accountants or (c) as requested or required by any state or Federal or foreign authority or examiner regulating banks or banking. For purposes of this Agreement, the term "Proprietary Information" shall include all information about the Borrower or any of its Affiliates which has been furnished by the Borrower or any of its Affiliates, whether furnished before or after the date hereof, and regardless of the manner in which it is furnished; provided, however, that Proprietary Information does not include information which (x) is or becomes generally available to the public other than as a result of a disclosure by the Administrative Agent or any Lender not permitted by this Agreement, (y) was available to the Administrative Agent or any Lender on a nonconfidential basis prior to its disclosure to the Administrative Agent or such Lender by the Borrower or any of its Affiliates from a Person who is not otherwise bound by a confidentiality agreement with the Company or any of its Affiliates or is not otherwise prohibited from transmitting the information to the Administrative Agent or such Lender or (z) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a Person other than the Borrower or its Affiliates who is not otherwise bound by a confidentiality agreement with the Company or any of its Affiliates, or is not otherwise prohibited from transmitting the information to the Administrative Agent or such Lender. In addition, the terms of any confidentiality agreement between any Lender and the Parent or the Borrower will remain in full force and effect pursuant to the terms thereof. IN WITNESS WHEREOF, the Borrower, the Administrative Agent, the Guarantor and the Lenders have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. FINGERHUT COMPANIES, INC., as Borrower By Name: Title: By Name: Title: FINGERHUT CORPORATION, as a Guarantor By Name: Title: THE CHASE MANHATTAN BANK, individually and as Administrative Agent and an Issuing Bank By Name: Title: NATIONSBANK, N.A., individually and as Co-Agent By Name: Title: BANK OF AMERICA ILLINOIS, individually and as an Issuing Bank By Name: Title: THE BANK OF NEW YORK By Name: Title: THE BANK OF NOVA SCOTIA By Name: Title: BANK OF TOKYO- MITSUBISHI, LTD., Chicago Branch By Name: Title: COMMERZBANK AKTIENGESELLSCHAFT, Grand Cayman Branch By Name: Title: By Name: Title: CAISSE NATIONALE DE CREDIT AGRICOLE By Name: Title: CREDIT LYONNAIS CHICAGO BRANCH By Name: Title: THE DAI-ICHI KANGYO BANK, LTD. By Name: Title: DEUTSCHE BANK AG-CHICAGO BRANCH and/or CAYMAN ISLAND BRANCH By Name: Title: By Name: Title: DEUTSCHE GENOSSENSCHAFTSBANK-CAYMAN ISLAND BRANCH By Name: Title: By Name: Title: FIRST BANK N.A., individually and as an Issuing Bank By Name: Title: THE FIRST NATIONAL BANK OF CHICAGO By Name: Title: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By Name: Title: THE FUJI BANK, LIMITED, CHICAGO BRANCH By Name: Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO BRANCH By Name: Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, CHICAGO BRANCH By Name: Title: THE MITSUI TRUST AND BANKING COMPANY, LIMITED, NEW YORK BRANCH By Name: Title: NORDDEUTSCHE LANDESBANK GIROZENTRALE-NEW YORK and/or CAYMAN ISLAND BRANCH By Name: Title: By Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, individually and as an Issuing Bank By Name: Title: THE SAKURA BANK, LIMITED By Name: Title: UNION BANK OF SWITZERLAND, NEW YORK BRANCH By Name: Title: By Name: Title: THE YASUDA TRUST AND BANKING CO., LIMITED By Name: Title: EX-10 5 EXHIBIT 10.0(IV) EXECUTION COPY FINGERHUT COMPANIES, INC. $25,000,000 10.12% Senior Notes, Series B, due December 30, 1997 FIFTH AMENDMENT AGREEMENT Dated as of August 14, 1996 to PURCHASE AGREEMENT dated as of January 14, 1991 as amended by First Amendment Agreement dated as of March 1, 1992 Second Amendment Agreement dated as of June 17, 1994 Third Amendment Agreement dated as of October 30, 1995 and Fourth Amendment Agreement dated as of June 4, 1996 FIFTH AMENDMENT AGREEMENT, dated as of August 14, 1996, (this "Amendment"), between FINGERHUT COMPANIES, INC., a Minnesota corporation (the "Company"), and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA (the "Noteholder). Preliminary Statement Reference is made to the Purchase Agreement dated as of January 14, 1991, between the Company and the Noteholder, pursuant to which the Company issued and sold its 10.12% Senior Notes, Series B, due December 30, 1997, in the aggregate principal amount of $25,000,000 (the "Series B Notes" or the "Notes"), as amended by the amendments dated as of March 1, 1992, June 17, 1994, October 30, 1995 and June 4, 1996 (as amended, the "Purchase Agreement"). Unless otherwise defined in this Amendment, capitalized terms used herein with definition shall have the meanings set forth in the Purchase Agreement. The Company has requested the amendment of certain covenants in the Purchase Agreement. Accordingly, the Company and the Noteholder hereby agree as follows: ARTICLE I Conditions Precedent to Effectiveness of Amendment This Amendment is expressly subject to and shall become effective only upon satisfaction of each of the following conditions (such date upon which all of such conditions are satisfied being herein called the "Effective Date"): SECTION 1.01. There shall exist on the Effective Date no Default or Event of Default under the Loan Documents and the documents related thereto, both before and after giving effect to this Amendment. SECTION 1.02. The Noteholder shall have received a certificate, dated as of the Effective Date and signed by a Responsible Officer of the Company, stating that, as of the Effective Date, (i) all of the obligations of the Company to be performed prior to or as of the Effective Date under this Amendment have been performed; (ii) the representations and warranties contained in Article IV of this Amendment are accurate and complete, and (iii) all of the conditions to the effectiveness of this Agreement have been satisfied in full. SECTION 1.03. All corporate and other proceedings and all documents incident to the transactions contemplated by this Amendment shall be satisfactory in form and substance to the Noteholder, and the Noteholder shall have received copies of all documents and records relating thereto which it may reasonably request. SECTION 1.04. In consideration for having entered into this Amendment, the Noteholder shall have received in immediately available funds the one-time payment by the Company of additional interest in an amount equal to 0.250% of the outstanding principal balance of the Notes as of the Effective Date. ARTICLE II Amendment to Article I of the Purchase Agreement Section 1.6 of the Purchase Agreement is hereby amended by deleting such section in its entirety and designating such section with the phrase "Intentionally left blank". ARTICLE III Amendments to Article VII of the Purchase Agreement SECTION 3.01. (a) Section 7.5 of the Purchase Agreement is hereby amended by (i) deleting the word "and" at the end of paragraph (e), (ii) inserting the word "and" at the end of paragraph (f) and (iii) inserting after paragraph (f) the following paragraph: "(g) Certificateholder Statements. Within fifty (50) days after the end of each of the first three fiscal quarters of each fiscal year of the Company and within one hundred (100) days after the end of each fiscal year of the Company, any monthly certificateholder statements required to be delivered by the Fingerhut Master Trust or any similar independent trust formed by the Company or any Subsidiary for the purpose of acquiring interests in the Company's customer accounts receivable and issuing certificates of beneficial interest in such receivables or commercial paper." (b) Section 7.05(c)(y)(B) of the Purchase Agreement shall be deemed to include a reference to Section 8.13 of the Purchase Agreement. SECTION 3.02. Section 7.13 of the Purchase Agreement is hereby amended (i) by amending the first sentence thereof to read as set forth below and (ii) by deleting clause (c) of such section in its entirety and designating such clause with the phrase "Intentionally left blank": "On or prior to (i) the direct or indirect acquisition by the Company of any Subsidiary which at the time of such acquisition shall be a Significant Subsidiary or (ii) the fifth Business Day after the availability of financial statements revealing that any Subsidiary (other than (A) a Guarantor, (B) either of the MWD Subsidiaries, (C) FRI, (D) any of the TV Shopping Companies, (E) the Credit Card Bank or (F) any of the Financial Services Companies) shall have become a Significant Subsidiary, the Company agrees that the Company will cause such Subsidiary to (x) unconditionally guarantee the payment and performance of all obligations and liabilities of the Company under this Agreement and the Notes, all upon the terms set forth in the Guaranty, and (y) execute and deliver or cause to be delivered to the Noteholders one or more such instruments as the Noteholders may request in form and substance undertaking the obligations of a Guarantor; provided that, notwithstanding any other provision of this Section 7.13, if any Subsidiary that is not one of the Financial Services Companies guarantees the payment or performance of any obligations or liabilities of any of the Financial Services Companies, the Company will cause such Subsidiary to (x) unconditionally guarantee the payment and performance of all obligations and liabilities of the Company under this Agreement and the Notes, all upon the terms set forth in the Guaranty, and (y) execute and deliver or cause to be delivered to the Noteholders one or more such instruments as the Noteholders may request in form and substance undertaking the obligations of a Guarantor. ARTICLE IV Amendments to Article VIII of the Purchase Agreement SECTION 4.01. Section 8.1 of the Purchase Agreement is hereby amended by restating paragraph (d) thereof in its entirety as follows: "(d) additional Indebtedness of the Company or any Subsidiary, provided that immediately after the incurrence of such additional Indebtedness and after giving effect thereto, Consolidated Indebtedness of the Company and the Subsidiaries does not exceed 60% of the sum of (x) the then outstanding Consolidated Indebtedness of the Company and the Subsidiaries and (y) the then Consolidated Net Worth of the Company and the Subsidiaries, and provided, further, that any such additional Indebtedness of any Subsidiary which is otherwise permitted by this clause (d) shall also be permitted by 8.2; for purposes of any computation under this clause (d), Indebtedness of the Company and the Subsidiaries shall not include (i) Indebtedness incurred as a result of the sale of accounts receivable on a nonrecourse basis pursuant to the Receivables Transfer Agreement or (ii) Guarantees permitted by clauses (a) through (e), inclusive, of 8.14." SECTION 4.02. Section 8.2 of the Purchase Agreement is hereby amended by restating such section in its entirety as follows: "SECTION 8.2. Subsidiary Indebtedness. The Company will not at any time permit the outstanding amount of Indebtedness of all Subsidiaries to exceed $15,000,000, provided, however, that such amount shall not include (a) any Guarantee permitted by clauses (a) through (e), inclusive, of Section 8.14, (b) Indebtedness of any Wholly-Owned Subsidiary owing to the Company or to any other Wholly-Owned Subsidiary, (c) Indebtedness of any of the Financial Services Companies that in the aggregate does not exceed Four Hundred Million Dollars ($400,000,000) for all such Financial Services Companies, (d) any guarantees by the Company or any Subsidiaries of any obligations of any of the Financial Services Companies that in the aggregate do not exceed Four Hundred Million Dollars ($400,000,000) for all such Financial Services Companies, provided that such guarantees are permitted pursuant to paragraph (g) of Section 8.14 hereof, or (e) up to $27,000,000 of Capitalized Leases and other Indebtedness listed in Schedule 8.2 hereto and any renewals or replacements of such Capitalized Leases and any extensions, renewals, refundings or replacements of such Indebtedness, except that (i) all renewals or replacements of any such Capitalized Lease must be in respect of similar equipment or replacement equipment of a similar type, (ii) the amount of Indebtedness (including, without limitation, Capitalized Lease Obligations in respect of any such Capitalized Lease) represented by any such extension, renewal, refunding or replacement must be permitted to be incurred as additional Indebtedness pursuant to clause (d) of Section 8.1 and (iii) in the event that (x) the amount of Indebtedness (including, without limitation, Capitalized Lease Obligations in respect of any such Capitalized Lease) represented, at any time, by all of such Capitalized Leases and other Indebtedness listed in Schedule 8.2 hereto, including any extension, renewal, refunding or replacement thereof, is greater than $27,000,000 or (y) any such extension, renewal, refunding of replacement would cause any additional property (other than the equipment referred to in clause (i) above of the Company or any Subsidiary to become subject to any Capitalized Lease or otherwise subject to any Lien, such greater amount of Indebtedness (including, without limitation, obligations in respect of any such Capitalized Lease) must be permitted to be incurred or remain outstanding as Indebtedness under this Section 8.2, but without giving effect to the provisos hereof and any Lien on any such additional property must be permitted by Section 8.3, and provided further, that any Indebtedness that is a Guarantee and that, except for clause (a) above, would be included within such aggregate outstanding amount must also be permitted by Section 8.14." SECTION 4.03. Section 8.3 of the Purchase Agreement is hereby amended by restating the preamble thereof in its entirety as follows: "The Company will not, and will not permit any Subsidiary, other than any of the Financial Services Companies, to, create, incur, assume or permit to exist any Lien upon any of the property or assets, including capital stock (other than assets sold on a nonrecourse basis pursuant to the Receivables Transfer Agreement, but notwithstanding the exceptions set forth below, no Lien shall at any time be permitted with respect to (i) any of the capital stock of FRI or any Subsidiary that is also a subsidiary of FRI, other than any of the Financial Services Companies, or (ii) any of the capital stock of the TV Shopping Companies or any Subsidiary that is also a subsidiary of the TV Shopping Companies except for only such capital stock that is pledged to secure Indebtedness of only the TV Shopping Companies or any such subsidiary, which Indebtedness (x) is then permitted under the other provisions of this 8.3 and the other provisions of this Agreement to be incurred and (y) is at all times nonrecourse to the Company and the Subsidiaries other than the TV Shopping Companies or any subsidiary of the TV Shopping Companies), now owned or hereafter acquired by it or on any income or rights in respect of any thereof, except:" SECTION 4.04. Section 8.4 of the Purchase Agreement is hereby amended by restating such section in its entirely as follows: "SECTION 8.4. Disposition of Stock and Indebtedness of Subsidiaries. The Company will not, and will not permit any Subsidiary, other than any of the Financial Services Companies, to, sell or otherwise dispose of any shares of stock of, or any Indebtedness of, a Subsidiary owned by the Company or another Subsidiary, except: (a) sales or other dispositions to the Company or to a Wholly-Owned Subsidiary; (b) (i) sales, contributions or other dispositions of all or a portion of the capital stock or Indebtedness of any of the TV Shopping Companies or their joint ventures or (ii) a dividend of all or a portion of the capital stock of any of the TV Shopping Companies to the shareholders of the Company; excluding, however, any such sale, contribution or other disposition that would result in such TV Shopping Company no longer being a Subsidiary, unless (x) immediately prior thereto and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (y) if substantially all of the capital stock of any of the TV Shopping Companies held by the Company or any Subsidiary shall have been sold, contributed or otherwise disposed of to a person other than the Company or a Subsidiary, all of the Indebtedness of such TV Shopping Company held by the Company or any Subsidiary shall at such time have been sold, contributed or otherwise disposed of to a person other than the Company or a Subsidiary; (c) sales or other dispositions in which all shares of stock and all Indebtedness of any Subsidiary at the time owned by the Company and all other Subsidiaries are sold or otherwise disposed of as an entirety for a consideration which represents the fair value at the time of sale of the shares and Indebtedness so sold, provided that in the case of transactions pursuant to this clause (c): (i) immediately after such sale or other disposition (such sale or other disposition being herein called the `8.4 Transaction') and after giving effect thereto, no Default shall have occurred and be continuing; (ii) at the time of the 8.4 Transaction, such Subsidiary shall not own, directly or indirectly, any shares of stock or any Indebtedness of the Company or of any other Subsidiary (unless all shares of stock and all Indebtedness of such other Subsidiary at the time owned, directly or indirectly, by the Company and all Subsidiaries are simultaneously being sold or otherwise disposed of as permitted by this clause (c)); and (iii) the sum of the net book values of (x) the assets of such Subsidiary, plus (y) the assets of each other Subsidiary, if any, the stock and Indebtedness of which were sold or otherwise disposed of pursuant to this clause (c) during the 12-month period ending on the close of business on the date of the 8.4 Transaction, plus (z) the assets of the Company and of each Subsidiary, if any, which were sold, leased, or otherwise disposed of, and the assets of each Subsidiary, if any, which merged or consolidated, pursuant to clause (d) of Section 8.5 during the 12-month period ending on the close of business on the date of the 8.4 Transaction, did not, after giving effect to the 8.4 Transaction, constitute more than 10% of the Consolidated Net Tangible Assets of the Company and the Subsidiaries as of the end of the then most recently completed fiscal year of the Company, provided that if the proceeds from an 8.4 Transaction or an 8.5 Transaction referred to in clause (d) of Section 8.5 (x) are reinvested within one year after the consummation of the 8.4 Transaction or the 8.5 Transaction in a similar line of business, or (y) are applied within 180 days of the consummation of the 8.4 Transaction or the 8.5 Transaction to the prepayment of senior Indebtedness of the Company, such assets shall not be included in such 10% calculation, and provided, further, that, in the case of an 8.4 Transaction with respect to an MWD Subsidiary, the proceeds of such 8.4 Transaction that are subject to the preceding proviso shall be limited to an amount equal to the aggregate amount of all outstanding loans and advances and all capital contributions (including the ownership of Preferred Stock) made by the Company and the Subsidiaries to such MWD Subsidiary or to Montgomery Ward Direct; and (d) (i) sales, contributions or other dispositions or all of a portion of the capital stock or Indebtedness of any of the Financial Services Companies or (ii) a dividend of all or a portion of the capital stock of any of the Financial Services Companies to the shareholders of the Company, provided, that immediately prior thereto and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing." SECTION 4.05. Section 8.8 of the Purchase Agreement is hereby amended by restating such section in its entirety as follows: "Section 8.8 INTEREST COVERAGE RATIO. (a) At any time prior to the initial public offering of the common stock of the Financial Services Companies, the Company will not at any time permit Consolidated Net Earnings Before Interest and Taxes of the Company and the Subsidiaries for the period of the four then most recently completed fiscal quarters of the Company to be less than 250% of Consolidated Interest Expense of the Company and the Subsidiaries for the period of the four then most recently completed fiscal quarters of the Company. (b) At any time after the later to occur of (x) December 27, 1996 and (y) the initial public offering of the common stock of the Financial Services Companies, the Company will not at any time permit Consolidated Net Earnings Before Interest and Taxes of the Company and the Subsidiaries for the period of the four (4) then most recently completed fiscal quarters of the Company to be less than two hundred fifty percent (250%) of Consolidated Interest Expense of the Company and the Subsidiaries for the period of the four (4) then most recently completed fiscal quarters of the Company; provided that for the purposes of any calculations pursuant to this Section 8.8(b), (x) the amount of any Interest Expense of the Financial Services Companies shall be included in Consolidated Interest Expense of the Company and the Subsidiaries only to the extent that the related Indebtedness of the Financial Services Companies is guaranteed by the Company or any Subsidiary, (y) the Net Earnings of the Financial Services Companies shall be included in the determination of such Consolidated Net Earnings Before Interest and Taxes; provided that the amount of such Net Earnings of the Financial Services Companies so included shall not exceed the lesser of (A) 250% of the aggregate Interest Expense related to Indebtedness of the Financial Services Companies that is included in the calculation of such Consolidated Interest Expense and (B) the amount of Net Earnings of the Financial Services Companies excluding any cash dividends paid during such period by the Financial Services Companies to the Company and the Subsidiaries (other than the Financial Services Companies), and (z) cash dividends paid during such period by the Financial Services Companies to the Company and the Subsidiaries (other than the Financial Services Companies) shall be included in the determination of such Consolidated Net Earnings Before Interest and Taxes." SECTION 4.06. Section 8.9 of the Purchase Agreement is hereby amended by restating paragraph (a) thereof in its entirety as follows: "(a)(i) make and permit to remain outstanding investments in the capital stock of any Subsidiary or any person which immediately after such investment is made will be a Subsidiary, provided, that immediately after the making of any investment in the capital stock of any person which immediately after such investment is made will be a Subsidiary and after giving effect thereto, no Default shall have occurred and be continuing and the Company would be permitted to incur at least One Dollar ($1) of additional Indebtedness pursuant to clause (d) of Section 8.1 hereof, and provided, further, that if any Subsidiary shall cease to be a Subsidiary, then for purposes of this Agreement, every investment by the Company or any other Subsidiary in such former Subsidiary which remains outstanding shall be deemed to have been made immediately after such former Subsidiary ceased to be a Subsidiary; or (ii) make and permit to remain outstanding investments in any of the Financial Services Companies, provided, that (A) in the event that any person acquires shares of capital stock of any of the Financial Services Companies pursuant to the exercise of any options or pursuant to any employee stock purchase, compensation or incentive plan, additional investments by the Company or any Subsidiary that is not one of the Financial Services Companies in the capital stock of any of the Financial Services Companies shall be permitted pursuant to this clause (ii) of Section 8.9(a) hereof only in order to maintain the Company's ownership of such capital stock such that the shares of capital stock of such Financial Services Companies owned by the Company represent at least 80% of the outstanding capital stock of such Financial Services Companies and (B) any loans or advances from the Company or any Subsidiary that is not one of the Financial Services Companies to any of the Financial Services Companies shall not exceed Ten Million Dollars ($10,000,000) in the aggregate." SECTION 4.07. Section 8.13 of the Purchase Agreement is hereby amended by restating such section in its entirety as follows: "SECTION 8.13. Transactions with Affiliates. Except as set forth in Schedule 8.13, the Company will not, and will not permit any Subsidiary to, sell or transfer any property or assets (except for the Transferred Assets) to, or purchase or acquire any property or assets (except for the Transferred Assets) from, or otherwise engage in any other transactions with, any of its Affiliates, other than Fingerhut Financial Services Corporation, except: (a)(i) so long as no Default or Event of Default shall have occurred and be continuing, any transactions between the Company and any Significant Subsidiary or transactions between Significant Subsidiaries , provided, however, that the Company may not sell or transfer assets related to the direct retail marketing business of the Company with a book value in the aggregate for all such sales and transfers in excess of 5% of the Company's Consolidated Net Worth at the time of any such sale or transfer to any of the Financial Services Companies, and (ii) during the continuance of a Default or Event of Default, only such transactions entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or any Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate; (b) so long as no Default or Event of Default shall have occurred and be continuing, any transactions between the Company or any Subsidiary and any Affiliate (other than the Company or a Subsidiary) in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate; (c) so long as no Default or Event of Default shall have occurred and be continuing, any transactions between the Company or any Significant Subsidiary and any Subsidiary that is not a Significant Subsidiary or transactions between Subsidiaries that are not Significant Subsidiaries entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or any such Subsidiary, as the case may be, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate; provided, however, that nothing in this clause (iii) shall, so long as no Default or Event of Default shall have occurred and be continuing, prohibit any such transactions that are not entered into upon such fair and reasonable and no less favorable terms, so long as any such transaction (such as, without limitation, transactions involving the sharing of computer services) does not involve the transfer or sale of assets or property; (d) any transactions between the Company or any Subsidiary and Montgomery Ward Direct permitted by 8.9(j), 8.14(e) or 8.14(f) and any other transactions between the Company or any Subsidiary and Montgomery Ward Direct entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person other than Montgomery Ward Direct; provided, however, that any determination with respect to whether any transaction between the Company or any Subsidiary and Montgomery Ward Direct satisfies the foregoing requirements shall be made by considering the relationship taken as a whole between the Company and its Subsidiaries, on the one hand, and Montgomery Ward Direct, on the other; (e) any transactions between the Company or any Subsidiary and FRI, the Fingerhut Master Trust or any transferee thereunder pursuant to the Receivables Transfer Agreement; (f) at any time the Company owns, directly or indirectly, at least 10% of the capital stock of any of the TV Shopping Companies that is not a Subsidiary, any transactions between the Company or any Subsidiary and such TV Shopping Company entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or become entitled to in an arm's-length transaction with a person that is not an Affiliate; provided, however, that any determination with respect to whether any transaction between the Company or any Subsidiary and such TV Shopping Company satisfies the foregoing requirements shall be made by considering the relationship taken as a whole between the Company and the Subsidiaries, on the one hand, and such TV Shopping Company, on the other; and (g) (i) the transfer of the Transferred Assets in connection with or in contemplation of an initial public offering of the common stock of the Financial Services Companies, (ii) any of the transactions among the Company or any Subsidiary and any of the Financial Services Companies contemplated by the Intercompany Agreements, provided that any extension or renewal by the Company or any Subsidiary of any of the Intercompany Agreements shall be (A) upon terms no less favorable to the Company than the original terms of such Intercompany Agreements or (B) upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate, (iii) any sale or transfer of assets among the Company or any Subsidiary and any of the Financial Services Companies entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate and (iv) any transaction between any of the Financial Services Companies; provided that, notwithstanding any other provision of this Section 8.13, the Company may not sell or transfer any customer accounts receivable generated by the Company or any Subsidiary that is not one of the Financial Services Companies to any of the Financial Services Companies." SECTION 4.08. Section 8.14 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: "SECTION 8.14. Guarantees. The Company will not, and will not permit any Subsidiary, other than Fingerhut Financial Services Corporation, to, create, incur, assume or permit to exist any Guarantee, except (a) the Guaranty; (b) the Guarantees of the Subsidiaries incurred (i) as guarantors of the Existing Notes under the Existing Guarantees and any Guarantee of the Subsidiaries that may be required to be incurred pursuant to the Existing Purchase Amendments and (ii) as guarantors of the Obligations (as defined in the Bank Credit Agreement) under the Bank Credit Agreement; and (c) Guarantees of Indebtedness of the Subsidiaries permitted by Section 8.2 and Guarantees of Operating Leases of the Subsidiaries not prohibited by Section 8.12; (d) Guarantees of additional Indebtedness of the Company permitted by clause (d) of Section 8.1, provided that the instrument representing any such Guarantee contains an acknowledgement of the existence of the Guaranty and an agreement on the part of the beneficiary of such Guarantee not to contest the validity of the Guaranty or the Notes; (e) Guarantees by the MWD Subsidiaries of Indebtedness of Montgomery Ward Direct; provided that immediately after the creation, incurrence, assumption or existence of any such Guarantee and after giving effect thereto the aggregate amount of Indebtedness of Montgomery Ward Direct guaranteed by the outstanding Guarantees permitted under this clause (e) and under clause (f) of 8.14, without duplication, shall not exceed an amount equal to the difference between $30,000,000 and the aggregate amount of all outstanding loans and advances and all capital contributions made by the MWD Subsidiaries to Montgomery Ward Direct; (f) Guarantees by the Company of Indebtedness of Montgomery Ward Direct, provided that such Guarantees are permitted by clause (d) of 8.1 and that immediately after the creation, incurrence, assumption or existence of any such Guarantee and after giving effect thereto the aggregate amount of Indebtedness of Montgomery Ward Direct guaranteed by the outstanding Guarantees permitted under this clause (f) and under clause (e) of 8.14, without duplication, shall not exceed an amount equal to the difference between $30,000,000 and the aggregate amount of all outstanding loans and advances and all capital contributions made by the MWD Subsidiaries to Montgomery Ward Direct; (g) (i) Guarantees by the Company or any Subsidiary of Indebtedness or other obligations of any of the Financial Services Companies, provided, that such Guarantees are permitted by clause (d) of Section 8.1 hereof and (ii) Guarantees by any of the Financial Services Companies of Indebtedness or other obligations of any of the Financial Services Companies; (h) additional Guarantees by the Company of Indebtedness or other obligations, provided that such Guarantees are permitted by clause (d) of 8.1 and that immediately after the creation, incurrence, assumption or existence of such additional Guarantee and after giving effect thereto the aggregate amount of all Indebtedness and other obligations guaranteed by the outstanding Guarantees of the Company permitted under this clause (h) does not exceed $5,000,000; and (i) Notwithstanding anything in the foregoing, no Guarantee of Indebtedness shall at any time be permitted to be made by FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, the Credit Card Bank or any Subsidiary that is a subsidiary of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries or the Credit Card Bank, other than (i) as permitted under clause (e) with respect to the MWD Subsidiaries and (ii) Guarantees of Indebtedness of one or more of the TV Shopping Companies by one of such TV Shopping Companies." SECTION 4.09. The following Section 8.18 shall be added to the Purchase Agreement immediately following Section 8.17 thereof: "SECTION 8.18. Funding Ratio. A violation of Section 6.07 of the Bank Credit Agreement shall constitute a Default under this Agreement, regardless of whether the Banks shall have waived any default resulting from any such violation under the Bank Credit Agreement." ARTICLE IV Amendments to Article X of the Purchase Agreement Section 10.2 of the Purchase Agreement is hereby amended by (i) replacing the definition of "Net Worth" and (ii) inserting the following additional definitions in alphabetical order: "Financial Services Companies -- shall mean, collectively, (i) a newly formed Delaware corporation into which the Company will transfer the Transferred Assets in connection with or in contemplation of the initial public offering of the common stock of such entity, (ii) Direct Merchants Credit Card Bank, National Association, (iii) Fingerhut Financial Services Receivables, Inc., (iv) DMCCB, Inc., (v) Fingerhut Financial Services Corporation and (vi) any subsidiary of such newly formed Delaware corporation hereafter formed. Intercompany Agreements -- shall mean any agreements entered into between the Company or any Subsidiary that is not one of the Financial Services Companies and any of the Financial Services Companies prior to or as of the date of closing of, and in connection with or in contemplation of, the initial public offering of the common stock of the Financial Services Companies (including, without limitation, the Database Access Agreement, the Co-Brand Agreement, the Administrative Services Agreement, the Data Sharing Agreement, the Tax Sharing Agreement, the Extended Service Plan Agreement, the Services Agreement, the Transfer Agreement and the Registration Rights Agreement). Net Worth -- (i) of any person other than the Company shall mean, as of any date as of which the amount thereof is to be determined, the stockholders' equity of such person and (ii) of the Company shall mean, as of any date as of which the amount thereof is to be determined, the sum of (A) the stockholders' equity of the Company immediately following the initial public offering of the common stock of the Financial Services Companies, excluding any minority equity interest in any of the Financial Services Companies, (B) the cumulative Net Earnings of the Company, excluding the Net Earnings of the Financial Services Companies, from the date of the initial public offering of the common stock of the Financial Services Companies to the date as of which the amount thereof is to be determined, and (C) the aggregate amount of cash dividends received by the Company or any of the Subsidiaries from any of the Financial Services Companies from the date of the initial public offering of the common stock of the Financial Services Companies to the date as of which the amount thereof is to be determined; provided, that, for the purposes of clauses (i) and (ii) above, any computation of Consolidated Net Worth of the Company and the Subsidiaries shall not include the equity interest of the Company or any Subsidiary in the undistributed earnings of Montgomery Ward Direct. Transferred Assets -- shall mean, collectively, (i) the capital stock of (A) Direct Merchants Credit Card Bank, National Association (B) Fingerhut Financial Services Receivables, Inc., (C) DMCCB, Inc. and (D) Fingerhut Financial Services Corporation and (ii) certain assets of the Company related to its extended service plan, third-party insurance and financial services businesses with an aggregate book value not to exceed (A) in the case of MasterCard credit card receivables, One Billion, Two Hundred Million Dollars ($1,200,000,000) in receivables existing as of July 7, 1996, plus the amount of any additional receivables arising subsequent to July 7, 1996, and prior to the closing date of the initial public offering of the common stock of the Financial Services Companies, and (B) in the case of all other assets related to the extended service plan, third-party insurance and financial services businesses, One Hundred Fifty Million Dollars ($150,000,000)." ARTICLE VI Amendments to the Pledge Agreement Upon the satisfaction of the conditions for the valid and binding effect of this Amendment set forth in Section 8.01 hereof, the Pledge Agreement is hereby terminated, the security interest in the Pledged Stock under the Pledge Agreement is hereby released and the Collateral Agent is hereby directed to return any stock certificates therefor to the Company. ARTICLE VII Representations and Warranties SECTION 7.01. The Company hereby represents and warrants to the Noteholder as of the Effective Date: (a) Each of the Company, the Guarantors, the Significant Subsidiaries and the Pledgors is duly organized, validly existing and in good standing in its jurisdiction of incorporation. (b) The Company has the power to enter into this Amendment and to perform its obligations hereunder. (c) The execution and delivery by the Company of this Amendment and the performance of its obligations hereunder have been duly authorized, and this Amendment will, upon execution and delivery thereof, be duly executed and delivered thereby and will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable laws affecting the enforcement of creditors' rights generally and principles of equity. (d) Neither the execution nor delivery by the Company of this Amendment nor the performance by it of its obligations hereunder or under the Purchase Agreements (as amended as contemplated hereby), the Notes, the Pledge Agreement or the Guaranty of each Guarantor: (1) will adversely affect the enforceability against the Company of the Purchase Agreement or the Notes, against the Guarantors of the Guaranty or against any Pledgor of the security interest in the Pledged Stock under the Pledge Agreement; (2) will require the taking of any action or the giving of any consent or approval by, or the making or any registration or filing with, any Governmental Authority or other person other than such actions, consents, approvals, registrations and filings as have heretofore been taken, given or made (as the case may be); (3) will violate any provision of the articles of incorporation or by-laws of any of the Company, any Guarantor, any Significant Subsidiary or any Pledgor or any provision of any law, rule, regulation, order or decree of any Governmental Authority applicable thereto; (4) will violate or constitute a default under any material agreement to which any of the Company, any Guarantor, any Significant Subsidiary or any Pledgor is a party or by which any of its properties or assets is or may be bound; or (5) will result in the creation or imposition of any Lien on the properties or assets of the Company, any Guarantor, any Significant Subsidiary or any Pledgor other than (i) Liens in favor of the Collateral Agent for the benefit of the Secured Parties under the Pledge Agreement and (ii) as contemplated by the Receivables Transfer Agreement. (e) Neither this Amendment nor any certificate furnished in connection herewith nor any other document or statement furnished to the Noteholder in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Except as expressly disclosed in documents filed by the Company or any Subsidiary with the Commission and delivered by the Company to the Noteholder prior to the Effective Date, there is no fact known to the Company (except for general economic or political conditions) which materially adversely affects, or, so far as the Company can now reasonably foresee, would be likely to materially and adversely affect, the business, properties, prospects, operations or condition, financial or otherwise, of the Company and the Subsidiaries taken as a whole or the ability of the Company or any Significant Subsidiary to perform any material obligation under any Loan Document, which has not been disclosed in writing to the Noteholder. (f) There exists no Default or Event of Default under the Loan Documents either before or after giving effect to this Amendment. (g) The businesses operated by (A) Direct Merchants Credit Card Bank, National Association, (B) Fingerhut Financial Services Receivables, Inc., (C) DMCCB, Inc. and (D) Fingerhut Financial Services Corporation are substantially as described in Schedule I attached hereto. ARTICLE VIII Miscellaneous SECTION 8.01. This Amendment shall not be valid and binding upon the Company or any Noteholder under the Purchase Agreement until the execution hereof by the Noteholder and complete satisfaction by the Company of the conditions precedent set forth in Article I, and upon the execution hereof by such Noteholder, and compliance by the Company with said conditions precedent, this Amendment shall be valid and binding upon the Company and each Noteholder under the Purchase Agreement with respect to each provision of this Amendment. SECTION 8.02. This Amendment embodies the entire agreement and understanding of the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any one or more of the provisions contained in this Amendment, or in the Purchase Agreement as amended hereby, or in any Note, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein, and any other applications thereof, shall not in any way be affected or impaired thereby. SECTION 8.03. This Amendment is intended to be governed by the laws of the State of New York and shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of such State. SECTION 8.04. This Amendment shall bind and inure to the benefit of the respective successors and assigns of the Company and the Noteholder. SECTION 8.05. Except as otherwise expressly provided herein, nothing contained in this Amendment shall, or shall be construed to, modify, invalidate or otherwise affect any provision of the Purchase Agreement or any right of the Noteholder arising thereunder. SECTION 8.06. The execution of this Amendment by the Noteholder shall not in any way constitute, or be construed as, a waiver of any provision of, or of any Default or Event of Default otherwise existing under, the Purchase Agreement, nor shall it constitute an agreement or obligation of the Noteholder to give its consent to any future amendment of the Purchase Agreement or to any future transaction which would, absent consent of the Noteholder, constitute a Default or Event of Default under the Purchase Agreement. SECTION 8.07. Except as specifically provided herein, the Purchase Agreement is in all respects ratified and confirmed, and all the terms, conditions and provisions thereof shall be and remain in full force and effect. For any and all purposes, from and after the Effective Date, any and all references hereafter to the Purchase Agreement, and all references to "this Agreement" in the Purchase Agreement, shall refer to such Purchase Agreement as hereby amended. SECTION 8.08. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient and by the different parties hereto on separate counterpart (provided that the Company will execute each counterparts), and each of which, when so executed, shall be deemed to be an original, but all such counterparts shall constitute but one and the same agreement. SECTION 8.09. The Company will pay, or cause to be paid, the reasonable out-of-pocket costs and expenses of the Noteholder in connection with entering into this Amendment and the consummation of all transactions contemplated hereby, and the Company will also indemnify and hold each Noteholder harmless from and against all liability and loss with respect to or resulting from all claims on account of brokers' or finders' fees or commissions in connection with this Amendment or any of the transactions contemplated hereby. The obligations of the Company under this Section 8.09 shall survive payment of any Note issued under the Purchase Agreement. IN WITNESS WHEREOF, the Company and the Noteholder have caused this Amendment to be executed by their respective officer or officers thereto duly authorized. FINGERHUT COMPANIES, INC., by Name: Title: and by Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, by Name: Title: Schedule I Direct Merchants Credit Card Bank, National Association A limited purpose credit card bank. Fingerhut Financial Services Receivables, Inc. A bankruptcy-remote special purpose subsidiary that is the transferor under the Receivables Transfer Program relating to credit card receivables. DMCCB, Inc. A subsidiary holding lease obligations for the office of Direct Merchants Credit Card Bank, National Association. Fingerhut Financial Services Corporation A subsidiary that provides marketing and administrative services to Direct Merchants Bank and markets and services extended product service plans and other financial services products. EX-10 6 EXHIBIT 10.S(III) EXECUTION COPY FINGERHUT COMPANIES, INC. $60,500,000 8.92% Senior Unsecured Notes, Series A, due June 15, 2002 $14,500,000 8.92% Senior Unsecured Notes, Series B, due June 15, 2004 FOURTH AMENDMENT AGREEMENT Dated as of August 14, 1996 to PURCHASE AGREEMENT dated as of June 15, 1992 as amended by First Amendment Agreement dated as of June 17, 1994 Second Amendment Agreement dated as of October 30, 1995 and Third Amendment Agreement dated as of June 4, 1996 FOURTH AMENDMENT AGREEMENT, dated as of August 14, 1996 (this "Amendment"), between FINGERHUT COMPANIES, INC., a Minnesota corporation (the "Company"), and the Noteholders (as defined below). Preliminary Statement Reference is made to the Purchase Agreement dated as of June 15, 1992, between the Company and the Purchasers listed in Schedule 1 thereto and their assigns (the "Noteholders"), pursuant to which the Company issued and sold its 8.92% Senior Unsecured Notes, Series A, due June 15, 2002, in the aggregate principal amount of $60,500,000 (the "Series A Notes"), and its 8.92% Senior Unsecured Notes, Series B, due June 15, 2004, in the aggregate principal amount of $14,500,000 (the "Series B Notes"), as amended by amendments dated as of June 17, 1994, October 30, 1995 and June 4, 1996 (as amended, the "Purchase Agreement"). The Series A Notes and the Series B Notes are hereinafter collectively referred to herein as the "Notes". Unless otherwise defined in this Amendment, capitalized terms used herein without definition shall have the meanings set forth in the Purchase Agreement. The Company has requested the amendment of certain covenants in the Purchase Agreement. Accordingly, the Company and the Noteholders hereby agree as follows: ARTICLE I Conditions Precedent to Effectiveness of Amendment This Amendment is expressly subject to and shall become effective only upon satisfaction of each of the following conditions (such date upon which all of such conditions are satisfied being herein called the "Effective Date"): SECTION 1.01. There shall exist on the Effective Date no Default or Event of Default under the Purchase Agreement, both before and after giving effect to this Amendment. SECTION 1.02. The Noteholders shall have received a certificate, dated as of the Effective Date and signed by a Responsible Officer of the Company, stating that, as of the Effective Date, (i) all of the obligations of the Company to be performed prior to or as of the Effective Date under this Amendment have been performed; (ii) the representations and warranties contained in Article IV of this Amendment are accurate and complete, and (iii) all of the conditions to the effectiveness of this Amendment have been satisfied in full. SECTION 1.03. All corporate and other proceedings and all documents incident to the transaction contemplated by this Amendment shall be satisfactory in form and substance to the Noteholders, and the Noteholders shall have received copies of all documents and records relating thereto which they may reasonably request. SECTION 1.04. In consideration for having entered into this Amendment, the Noteholders shall have received in immediately available funds the one-time payment by the Company of additional interest in an amount equal to 0.250% of the outstanding principal balance of the Notes as of the Effective Date. ARTICLE II Amendments to Article VII of the Purchase Agreements SECTION 2.01. (a) Section 7.5 of the Purchase Agreement is hereby amended by (i) deleting the word "and" at the end of paragraph (d), (ii) inserting the word "and" at the end of paragraph (e) and (iii) inserting after paragraph (e) the following paragraph: "(f) Certificateholder Statements. Within fifty (50) days after the end of each of the first three fiscal quarters of each fiscal year of the Company and within one hundred (100) days after the end of each fiscal year of the Company, any monthly certificateholder statements required to be delivered by the Fingerhut Master Trust or any similar independent trust formed by the Company or any Subsidiary for the purpose of acquiring interests in the Company's customer accounts receivable and issuing certificates of beneficial interest in such receivables or commercial paper." (b) Section 7.5(c)(y)(B) of the Purchase Agreement shall be deemed to include a reference to Section 8.13 of the Purchase Agreement. SECTION 2.02. Section 7.11 of the Purchase Agreements is hereby amended by amending the first sentence thereof to read as set forth below: "On or prior to (i) the direct or indirect acquisition by the Company of any Subsidiary which at the time of such acquisition shall be a Significant Subsidiary or (ii) the fifth Business Day after the availability of financial statements revealing that any Subsidiary (other than (A) a Guarantor, (B) either of the MWD Subsidiaries, (C) FRI, (D) any of the TV Shopping Companies, (E) the Credit Card Bank or (F) any of the Financial Services Companies) shall have become a Significant Subsidiary, the Company agrees that the Company will cause such Subsidiary to (x) unconditionally guarantee the payment and performance of all obligations and liabilities of the Company under this Agreement and the Notes, all upon the terms set forth in the Guaranty, and (y) execute and deliver or cause to be delivered to the Noteholders one or more such instruments as the Noteholders may request in form and substance undertaking the obligations of a Guarantor; provided that, notwithstanding any other provision of this Section 7.11, if any Subsidiary that is not one of the Financial Services Companies guarantees the payment or performance of any obligations or liabilities of any of the Financial Services Companies, the Company will cause such Subsidiary to (x) unconditionally guarantee the payment and performance of all obligations and liabilities of the Company under this Agreement and the Notes, all upon the terms set forth in the Guaranty, and (y) execute and deliver or cause to be delivered to the Noteholders one or more such instruments as the Noteholders may request in form and substance undertaking the obligations of a Guarantor." ARTICLE III Amendments to Article VIII of the Purchase Agreements SECTION 3.01. Section 8.1 of the Purchase Agreements is hereby amended by restating paragraph (d) thereof in its entirety as follows: "(d) additional Indebtedness of the Company or any Subsidiary, provided that immediately after the incurrence of such additional Indebtedness and after giving effect thereto, Consolidated Indebtedness of the Company and the Subsidiaries does not exceed 60% of the sum of (x) the then outstanding Consolidated Indebtedness of the Company and the Subsidiaries and (y) the then Consolidated Net Worth of the Company and the Subsidiaries, and provided, further, that any such additional Indebtedness of any Subsidiary which is otherwise permitted by this clause (d) shall also be permitted by 8.2; for purposes of any computation under this clause (d), Indebtedness of the Company and the Subsidiaries shall not include (i) Indebtedness incurred as a result of the sale of accounts receivable on a nonrecourse basis pursuant to the Receivables Transfer Agreement or (ii) Guarantees permitted by clauses (a) through (e), inclusive, of 8.14." SECTION 3.02. Section 8.2 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: "SECTION 8.2. Secured Indebtedness; Subsidiary Indebtedness. (a) Secured Indebtedness. The Company will not, and will not permit any Subsidiary, other than any of the Financial Services Companies, to incur or suffer to exist any Secured Indebtedness, except (i) Secured Indebtedness to the extent permitted by clause (c) of 8.1 and (ii) Indebtedness permitted by clause (d) of 8.1, provided that (x) any Lien securing any such Secured Indebtedness is permitted by 8.3 and (y) no property or asset which has been subjected to any Lien in favor of the Collateral Agent for the benefit of the Secured Parties may secure Indebtedness other than Indebtedness under the Bank Credit Agreement (and any extension, renewal, refunding or replacement thereof) and the Existing Notes. "(b) Subsidiary Indebtedness. The Company will not at any time permit the outstanding amount of Indebtedness of all Subsidiaries to exceed $15,000,000, provided, however, that such amount shall not include (a) any Guarantee permitted by clauses (a) through (e), inclusive, of Section 8.14, (b) Indebtedness of any Wholly-Owned Subsidiary owing to the Company or to any other Wholly-Owned Subsidiary, (c) Indebtedness of any of the Financial Services Companies that in the aggregate does not exceed Four Hundred Million Dollars ($400,000,000) for all such Financial Services Companies, (d) any guarantees by the Company or any Subsidiaries of any obligations of any of the Financial Services Companies that in the aggregate do not exceed Four Hundred Million Dollars ($400,000,000) for all such Financial Services Companies, provided that such guarantees are permitted pursuant to paragraph (g) of Section 8.14 hereof, or (e) up to $27,000,000 of Capitalized Leases and other Indebtedness listed in Schedule 8.2 hereto and any renewals or replacements of such Capitalized Leases and any extensions, renewals, refundings or replacements of such Indebtedness, except that (a) all renewals or replacements of any such Capitalized Lease must be in respect of similar equipment or replacement equipment of a similar type, (b) the amount of Indebtedness (including, without limitation, Capitalized Lease Obligations in respect of any such Capitalized Lease) represented by any such extension, renewal, refunding or replacement must be permitted to be incurred as additional Indebtedness pursuant to clause (d) of Section 8.1 and (c) in the event that (x) the amount of Indebtedness (including, without limitation, Capitalized Lease Obligations in respect of any such Capitalized Lease) represented, at any time, by all of such Capitalized Leases and other Indebtedness listed in Schedule 8.2 hereto, including any extension, renewal, refunding or replacement thereof, is greater than $27,000,000 or (y) any such extension, renewal, refunding of replacement would cause any additional property (other than the equipment referred to in clause (a) above) of the Company or any Subsidiary to become subject to any Capitalized Lease or otherwise subject to any Lien, such greater amount of Indebtedness (including, without limitation, obligations in respect of any such Capitalized Lease) must be permitted to be incurred or remain outstanding as Indebtedness under this Section 8.2, but without giving effect to the provisos hereof and any Lien on any such additional property must be permitted by Section 8.3, and provided further, that any Indebtedness that is a Guarantee and that, except for clause (a) above, would be included within such aggregate outstanding amount must also be permitted by Section 8.14." SECTION 3.03. Section 8.3 of the Purchase Agreements is hereby amended by restating the preamble thereof in its entirety as follows: "The Company will not, and will not permit any Subsidiary, other than any of the Financial Services Companies, to, create, incur, assume or permit to exist any Lien upon any of the property or assets, including capital stock (other than assets sold on a nonrecourse basis pursuant to the Receivables Transfer Agreement, but notwithstanding the exceptions set forth below, no Lien shall at any time be permitted with respect to (i) any of the capital stock of FRI or any Subsidiary that is also a subsidiary of FRI, other than any of the Financial Services Companies, or (ii) any of the capital stock of the TV Shopping Companies or any Subsidiary that is also a subsidiary of the TV Shopping Companies except for only such capital stock that is pledged to secure Indebtedness of only the TV Shopping Companies or any such subsidiary, which Indebtedness (x) is then permitted under the other provisions of this 8.3 and the other provisions of this Agreement to be incurred and (y) is at all times nonrecourse to the Company and the Subsidiaries other than the TV Shopping Companies or any subsidiary of the TV Shopping Companies), now owned or hereafter acquired by it or on any income or rights in respect of any thereof, except:" SECTION 3.04. Section 8.4 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: "SECTION 8.4. Disposition of Stock and Indebtedness of Subsidiaries. The Company will not, and will not permit any Subsidiary, other than any of the Financial Services Companies, to, sell or otherwise dispose of any shares of stock of, or any Indebtedness of, a Subsidiary owned by the Company or another Subsidiary, except: (a) sales or other dispositions to the Company or to a Wholly-Owned Subsidiary; and (b) (i) sales, contributions or other dispositions of all or a portion of the capital stock or Indebtedness of any of the TV Shopping Companies or their joint ventures or (ii) a dividend of all or a portion of the capital stock of any of the TV Shopping Companies to the shareholders of the Company; excluding, however, any such sale, contribution or other disposition that would result in such TV Shopping Company no longer being a Subsidiary, unless (x) immediately prior thereto and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (y) if substantially all of the capital stock of any of the TV Shopping Companies held by the Company or any Subsidiary shall have been sold, contributed or otherwise disposed of to a person other than the Company or a Subsidiary, all of the Indebtedness of such TV Shopping Company held by the Company or any Subsidiary shall at such time have been sold, contributed or otherwise disposed of to a person other than the Company or a Subsidiary; (c) sales or other dispositions in which all shares of stock and all Indebtedness of any Subsidiary at the time owned by the Company and all other Subsidiaries are sold or otherwise disposed of as an entirety for a consideration which represents the fair value at the time of sale of the shares and Indebtedness so sold, provided that in the case of transactions pursuant to this clause (c): (i) immediately after such sale or other disposition (such sale or other disposition being herein called the "8.4 Transaction") and after giving effect thereto, no Default shall have occurred and be continuing; (ii) at the time of the 8.4 Transaction, such Subsidiary shall not own, directly or indirectly, any shares of stock or any Indebtedness of the Company or of any other Subsidiary (unless all shares of stock and all Indebtedness of such other Subsidiary at the time owned, directly or indirectly, by the Company and all Subsidiaries are simultaneously being sold or otherwise disposed of as permitted by this clause (c)); and (iii) the sum of the net book values of (x) the assets of such Subsidiary, plus (y) the assets of each other Subsidiary, if any, the stock and Indebtedness of which were sold or otherwise disposed of pursuant to this clause (c) during the 12-month period ending on the close of business on the date of the 8.4 Transaction, plus (z) the assets of the Company and of each Subsidiary, if any, which were sold, leased, or otherwise disposed of, and the assets of each Subsidiary, if any, which merged or consolidated, pursuant to clause (d) of Section 8.5 during the 12-month period ending on the close of business on the date of the 8.4 Transaction, did not, after giving effect to the 8.4 Transaction, constitute more than 10% of the Consolidated Net Tangible Assets of the Company and the Subsidiaries as of the end of the then most recently completed fiscal year of the Company, provided that if the proceeds from an 8.4 Transaction or an 8.5 Transaction (x) are reinvested within one year after the consummation of the 8.4 Transaction or the 8.5 Transaction in a similar line of business, or (y) are applied within 180 days of the consummation of the 8.4 Transaction or the 8.5 Transaction to the prepayment of senior Indebtedness of the Company, such assets shall not be included in such 10% calculation; and provided, further, that, in the case of an 8.4 Transaction with respect to an MWD Subsidiary, the proceeds of such 8.4 Transaction that are subject to the preceding proviso shall be limited to an amount equal to the aggregate amount of all outstanding loans and advances and all capital contributions (including the ownership of Preferred Stock) made by the Company and the Subsidiaries to such MWD Subsidiary or to Montgomery Ward Direct; and (d) (i) sales, contributions or other dispositions or all of a portion of the capital stock or Indebtedness of any of the Financial Services Companies or (ii) a dividend of all or a portion of the capital stock of any of the Financial Services Companies to the shareholders of the Company, provided that, immediately prior thereto and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing." SECTION 3.05. Section 8.8 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: "Section 8.8 INTEREST COVERAGE RATIO. (a) At any time prior to the initial public offering of the common stock of the Financial Services Companies, the Company will not at any time permit Consolidated Net Earnings Before Interest and Taxes of the Company and the Subsidiaries for the period of the four then most recently completed fiscal quarters of the Company to be less than 250% of Consolidated Interest Expense of the Company and the Subsidiaries for the period of the four then most recently completed fiscal quarters of the Company. (b) At any time after the later to occur of (x) December 27, 1996, and (y) the initial public offering of the common stock of the Financial Services Companies, the Company will not at any time permit Consolidated Net Earnings Before Interest and Taxes of the Company and the Subsidiaries for the period of the four (4) then most recently completed fiscal quarters of the Company to be less than two hundred fifty percent (250%) of Consolidated Interest Expense of the Company and the Subsidiaries for the period of the four (4) then most recently completed fiscal quarters of the Company; provided that for the purposes of any calculations pursuant to this Section 8.8(b), (x) the amount of any Interest Expense of the Financial Services Companies shall be included in Consolidated Interest Expense of the Company and the Subsidiaries only to the extent that the related Indebtedness of the Financial Services Companies is guaranteed by the Company or any Subsidiary, (y) the Net Earnings of the Financial Services Companies shall be included in the determination of such Consolidated Net Earnings Before Interest and Taxes; provided that the amount of such Net Earnings of the Financial Services Companies so included shall not exceed the lesser of (A) 250% of the aggregate Interest Expense related to Indebtedness of the Financial Services Companies that is included in the calculation of such Consolidated Interest Expense and (B) the amount of Net Earnings of the Financial Services Companies excluding any cash dividends paid during such period by the Financial Services Companies to the Company and the Subsidiaries (other than the Financial Services Companies), and (z) cash dividends paid during such period by the Financial Services Companies to the Company and the Subsidiaries (other than the Financial Services Companies) shall be included in the determination of such Consolidated Net Earnings Before Interest and Taxes." SECTION 3.06. Section 8.9 of the Purchase Agreement is hereby amended by restating paragraph (a) thereof in its entirety as follows: (a) (i) make and permit to remain outstanding investments in the capital stock of any Subsidiary or any person which immediately after such investment is made will be a Subsidiary, provided that, immediately after the making of any investment in the capital stock of any person which immediately after such investment is made will be a Subsidiary and after giving effect thereto, no Default shall have occurred and be continuing and the Company would be permitted to incur at least One Dollar ($1) of additional Indebtedness pursuant to clause (d) of Section 8.1 hereof, and provided further that, if any Subsidiary shall cease to be a Subsidiary, then for purposes of this Agreement, every investment by the Company or any other Subsidiary in such former Subsidiary which remains outstanding shall be deemed to have been made immediately after such former Subsidiary ceased to be a Subsidiary; or (ii) make and permit to remain outstanding investments in any of the Financial Services Companies, provided that (A) in the event that any person acquires shares of capital stock of any of the Financial Services Companies pursuant to the exercise of any options or pursuant to any employee stock purchase, compensation or incentive plan, additional investments by the Company or any Subsidiary that is not one of the Financial Services Companies in the capital stock of any of the Financial Services Companies shall be permitted pursuant to this clause (ii) of Section 8.9(a) hereof only in order to maintain the Company's ownership of such capital stock such that the shares of capital stock of such Financial Services Companies owned by the Company represent at least 80% of the outstanding capital stock of such Financial Services Companies and (B) any loans or advances from the Company or any Subsidiary that is not one of the Financial Services Companies to any of the Financial Services Companies shall not exceed Ten Million Dollars ($10,000,000) in the aggregate. SECTION 3.07. Section 8.13 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: "SECTION 8.13. Transactions with Affiliates. Except as set forth in Schedule 8.13, the Company will not, and will not permit any Subsidiary to, sell or transfer any property or assets (except for the Transferred Assets) to, or purchase or acquire any property or assets (except for the Transferred Assets) from, or otherwise engage in any other transactions with, any of its Affiliates, other than Fingerhut Financial Services Corporation, except: (a) (i) so long as no Default or Event of Default shall have occurred and be continuing, any transactions between the Company and any Significant Subsidiary or transactions between Significant Subsidiaries; provided, however, that the Company may not sell or transfer assets related to the direct retail marketing business of the Company with a book value in the aggregate for all such sales and transfers in excess of 5% of the Company's Consolidated Net Worth at the time of any such sale or transfer to any of the Financial Services Companies, and (ii) during the continuance of a Default or Event of Default, only such transactions entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or any Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate; (b) so long as no Default or Event of Default shall have occurred and be continuing, any transactions between the Company or any Subsidiary and any Affiliate (other than the Company or a Subsidiary) entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate; (c) so long as no Default or Event of Default shall have occurred and be continuing, any transactions between the Company or any Significant Subsidiary and any Subsidiary that is not a Significant Subsidiary or transactions between Subsidiaries that are not Significant Subsidiaries entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or any such Subsidiary, as the case may be, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate; provided, however, that nothing in this clause (c) shall, so long as no Default or Event of Default shall have occurred and be continuing, prohibit any such transactions that are not entered into upon such fair and reasonable and no less favorable terms, so long as any such transaction (such as, without limitation, transactions involving the sharing of computer services) does not involve the transfer or sale of assets or property; (d) any transaction between the Company or any Subsidiary and Montgomery Ward Direct permitted by 8.9(j), 8.14(e) or 8.14(f) and any other transactions between the Company or any Subsidiary and Montgomery Ward Direct entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person other than Montgomery Ward Direct; provided, however, that any determination with respect to whether any transaction between the Company or any Subsidiary and Montgomery Ward Direct satisfies the foregoing requirements shall be made by considering the relationship taken as a whole between the Company and its Subsidiaries, on the one hand, and Montgomery Ward Direct, on the other; (e) any transactions between the Company or any Subsidiary and FRI, the Fingerhut Master Trust or any transferee thereunder pursuant to the Receivables Transfer Agreement; (f) at any time the Company owns, directly or indirectly, at least 10% of the capital stock of any of the TV Shopping Companies that is not a Subsidiary, any transactions between the Company or any Subsidiary and such TV Shopping Company entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or become entitled to in an arm's-length transaction with a person that is not an Affiliate; provided, however, that any determination with respect to whether any transaction between the Company or any Subsidiary and such TV Shopping Company satisfies the foregoing requirements shall be made by considering the relationship taken as a whole between the Company and the Subsidiaries, on the one hand, and such TV Shopping Company, on the other; and (g) (i) the transfer of the Transferred Assets in connection with or in contemplation of an initial public offering of the common stock of the Financial Services Companies, (ii) any of the transactions among the Company or any Subsidiary and any of the Financial Services Companies contemplated by the Intercompany Agreements, provided that any extension or renewal by the Company or any Subsidiary of any of the Intercompany Agreements shall be (A) upon terms no less favorable to the Company than the original terms of such Intercompany Agreements or (B) upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate, (iii) any sale or transfer of assets among the Company or any Subsidiary and any of the Financial Services Companies entered into in the ordinary course of business and upon fair and reasonable terms no less favorable than the Company or such Subsidiary, as applicable, could obtain or could become entitled to in an arm's-length transaction with a person which was not an Affiliate and (iv) any transaction between any of the Financial Services Companies; provided that, notwithstanding any other provision of this Section 8.13, the Company may not sell or transfer any customer accounts receivable generated by the Company or any Subsidiary that is not one of the Financial Services Companies to any of the Financial Services Companies." SECTION 3.08. Section 8.14 of the Purchase Agreements is hereby amended by restating such section in its entirety as follows: "SECTION 8.14. Guarantees. The Company will not, and will not permit any Subsidiary, other than Fingerhut Financial Services Corporation and its subsidiaries, to, create, incur, assume or permit to exist any Guarantee, except (a) the Guaranty; (b) the Guarantees of the Subsidiaries incurred (i) as guarantors of the Existing Notes under the Existing Guarantees and any Guarantee of the Subsidiaries that may be required to be incurred pursuant to the Existing Purchase Agreements and (ii) as guarantors of the Obligations under the Bank Credit Agreement; (c) Guarantees of Indebtedness of the Subsidiaries permitted by Section 8.2 and Guarantees of Operating Leases of the Subsidiaries not prohibited by Section 8.12; (d) Guarantees of additional Indebtedness of the Company permitted by clause (d) of Section 8.1, provided that the instrument representing any such Guarantee contains an acknowledgement of the existence of the Guaranty and an agreement on the part of the beneficiary of such Guarantee not to contest the validity of the Guaranty or the Notes; (e) Guarantees by the MWD Subsidiaries of Indebtedness of Montgomery Ward Direct; provided that immediately after the creation, incurrence, assumption or existence of any such Guarantee and after giving effect thereto the aggregate amount of Indebtedness of Montgomery Ward Direct guaranteed by the outstanding Guarantees permitted under this clause (e) and under clause (f) of 8.14, without duplication, shall not exceed an amount equal to the difference between $30,000,000 and the aggregate amount of all outstanding loans and advances and all capital contributions made by the MWD Subsidiaries to Montgomery Ward Direct; (f) Guarantees by the Company of Indebtedness of Montgomery Ward Direct, provided that such Guarantees are permitted by clause (d) of 8.1 and that immediately after the creation, incurrence, assumption or existence of any such Guarantee and after giving effect thereto the aggregate amount of Indebtedness of Montgomery Ward Direct guaranteed by the outstanding Guarantees permitted under this clause (f) and under clause (e) of 8.14, without duplication, shall not exceed an amount equal to the difference between $30,000,000 and the aggregate amount of all outstanding loans and advances and all capital contributions made by the Company or any Subsidiary to Montgomery Ward Direct; (g) (i) Guarantees by the Company or any Subsidiary of Indebtedness or other obligations of any of the Financial Services Companies, provided that such Guarantees are permitted by clause (d) of Section 8.1 hereof and (ii) Guarantees by any of the Financial Services Companies of Indebtedness or other obligations of any of the Financial Services Companies; (h) additional Guarantees by the Company of Indebtedness or other obligations, provided that such Guarantees are permitted by clause (d) of 8.1 and that immediately after the creation, incurrence, assumption or existence of such additional Guarantee and after giving effect thereto the aggregate amount of all Indebtedness and other obligations guaranteed by the outstanding Guarantees of the Company permitted under this clause (h) does not exceed $5,000,000; and (i) Notwithstanding anything in the foregoing, no Guarantee of Indebtedness shall at any time be permitted to be made by FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries, the Credit Card Bank or any Subsidiary that is a subsidiary of FRI, any of the TV Shopping Companies, either of the MWD Subsidiaries or the Credit Card Bank, other than (i) as permitted under clause (e) with respect to the MWD Subsidiaries and (ii) Guarantees of Indebtedness of one or more of the TV Shopping Companies by one of such TV Shopping Companies." SECTION 3.09. The following Section 8.18 shall be added to the Purchase Agreement immediately following Section 8.17 thereof: "SECTION 8.18. Funding Ratio. A violation of Section 6.07 of the Bank Credit Agreement shall constitute a Default under this Agreement, regardless of whether the Banks shall have waived any default resulting from any such violation under the Bank Credit Agreement." ARTICLE IV Amendments to Article X of the Purchase Agreement Section 10.2 of the Purchase Agreement is hereby amended by (i) replacing the definition of "Net Worth" and (ii) inserting the following additional definitions in alphabetical order: "Financial Services Companies--shall mean, collectively, (i) a newly formed Delaware corporation into which the Company will transfer the Transferred Assets in connection with or in contemplation of the initial public offering of the common stock of such entity, (ii) Direct Merchants Credit Card Bank, National Association, (iii) Fingerhut Financial Services Receivables, Inc., (iv) DMCCB, Inc., (v) Fingerhut Financial Services Corporation and (vi) any subsidiary of such newly formed Delaware corporation hereafter formed. Intercompany Agreements--shall mean any agreements entered into between the Company or any Subsidiary that is not one of the Financial Services Companies and any of the Financial Services Companies prior to or as of the date of closing of, and in connection with or in contemplation of, the initial public offering of the common stock of the Financial Services Companies (including, without limitation, the Database Access Agreement, the Co-Brand Agreement, the Administrative Services Agreement, the Data Sharing Agreement, the Tax Sharing Agreement, the Extended Service Plan Agreement, the Services Agreement, the Transfer Agreement and the Registration Rights Assessment). Net Worth--(i) of any person other than the Company shall mean, as of any date as of which the amount thereof is to be determined, the stockholders' equity of such person and (ii) of the Company shall mean, as of any date as of which the amount thereof is to be determined, the sum of (A) the stockholders' equity of the Company immediately following the initial public offering of the common stock of the Financial Services Companies, excluding any minority equity interest in any of the Financial Services Companies, (B) the cumulative Net Earnings of the Company, excluding the Net Earnings of the Financial Services Companies, from the date of the initial public offering of the common stock of the Financial Service Companies to the date as of which the amount thereof is to be determined, and (C) the aggregate amount of cash dividends received by the Company or any of the Subsidiaries from any of the Financial Services Companies from the date of the initial public offering of the common stock of the Financial Services Companies to the date as of which the amount thereof is to be determined; provided that, for the purposes of clauses (i) and (ii) above, any computation of Consolidated Net Worth of the Company and the Subsidiaries shall not include the equity interest of the Company or any Subsidiary in the undistributed earnings of Montgomery Ward Direct. Transferred Assets--shall mean, collectively (i) the capital stock of (A) Direct Merchants Credit Card Bank, National Association, (B) Fingerhut Financial Services Receivables, Inc., (C) DMCCB, Inc. and (D) Fingerhut Financial Services Corporation and (ii) certain assets of the Company related to its extended service plan, third-party insurance and financial services businesses with an aggregate book value not to exceed (A) in the case of MasterCard credit card receivables, One Billion, Two Hundred Million Dollars ($1,200,000,000) in receivables existing as of July 7, 1996, plus the amount of any additional receivables arising subsequent to July 7, 1996, and prior to the closing date of the initial public offering of the common stock of the Financial Services Companies, and (B) in the case of all other assets related to the extended service plan, third- party insurance and financial services businesses, One Hundred Fifty Million Dollars ($150,000,000)." ARTICLE V Representations and Warranties SECTION 5.01. The Company hereby represents and warrants to the Noteholders as of the Effective Date: (a) Each of the Company, the Guarantors and the Significant Subsidiaries is duly organized, validly existing and in good standing in its jurisdiction of incorporation. (b) The Company has the power to enter into this Amendment and to perform its obligations hereunder. (c) The execution and delivery by the Company of this Amendment and the performance of its obligations hereunder have been duly authorized, and this Amendment will, upon execution and delivery thereof, be duly executed and delivered thereby and will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable laws affecting the enforcement of creditors' rights generally and principles of equity. (d) Neither the execution nor delivery by the Company of this Amendment nor the performance by it of its obligations hereunder or under the Purchase Agreement (as amended as contemplated hereby), the Notes or the Guaranty of each Guarantor: (1) will adversely affect the enforceability against the Company of the Purchase Agreement or the Notes, or against the Guarantors of the Guaranty; (2) will require the taking of any action or the giving of any consent or approval by, or the making or any registration or filing with, any Governmental Authority or other person other than such actions, consents, approvals, registrations and filings as have heretofore been taken, given or made (as the case may be); (3) will violate any provision of the articles of incorporation or by-laws of any of the Company or any Guarantor or any provision of any law, rule, regulation, order or decree of any Governmental Authority applicable thereto; (4) will violate or constitute a default under any material agreement to which any of the Company or any Guarantor is a party or by which any of its properties or assets is or may be bound; or (5) will result in the creation or imposition of any Lien on the properties or assets of the Company or any Guarantor other than as contemplated by the Receivables Transfer Agreement. (e) Neither this Amendment nor any certificate furnished in connection herewith nor any other document or statement furnished to the Noteholders in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. Except as expressly disclosed in documents filed by the Company or any Subsidiary with the Commission and delivered by the Company to the Noteholders prior to the Effective Date, there is no fact known to the Company (except for general economic or political conditions) which materially adversely affects, or, so far as the Company can now reasonably foresee, would be likely to materially and adversely affect, the business, properties, prospects, operations or condition, financial or otherwise, of the Company and the Subsidiaries taken as a whole or the ability of the Company or any Significant Subsidiary to perform any material obligation under the Purchase Agreement, which has not been disclosed in writing to the Noteholders. (f) There exists no Default or Event of Default under the Purchase Agreement either before or after giving effect to this Amendment. (g) The businesses operated by (A) Direct Merchants Credit Card Bank, National Association, (B) Fingerhut Financial Services Receivables, Inc., (C) DMCCB, Inc. and (D) Fingerhut Financial Services Corporation are substantially as described in Schedule I attached hereto. ARTICLE VI Miscellaneous SECTION 6.01. This Amendment shall not be valid and binding upon the Company or any Noteholder under the Purchase Agreement until the execution hereof by a Majority- in-Interest of Noteholders and complete satisfaction by the Company of the conditions precedent set forth in Article I, and upon the execution hereof by such Noteholders, and compliance by the Company with said conditions precedent, this Amendment shall be valid and binding upon the Company and each Noteholder under the Purchase Agreement with respect to each provision of this Amendment. SECTION 6.02. This Amendment embodies the entire agreement and understanding of the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any one or more of the provisions contained in this Amendment, or in the Purchase Agreement as amended hereby, or in any Note, or any application thereof, shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein, and any other applications thereof, shall not be in any way be affected or impaired thereby. SECTION 6.03. This Amendment is intended to be governed by the laws of the State of New York and shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of such State. SECTION 6.04. This Amendment shall bind and inure to the benefit of the respective successors and assigns of the Company and the Noteholders. SECTION 6.05. Except as otherwise expressly provided herein, nothing contained in this Amendment shall, or shall be construed to, modify, invalidate or otherwise affect any provision of the Purchase Agreement or any right of the Noteholders arising thereunder. SECTION 6.06. The execution of this Amendment by the Noteholder shall not in any way constitute, or be construed as, a waiver of any provision of, or of any Default or Event of Default otherwise existing under, the Purchase Agreement, nor shall it constitute an agreement or obligation of the Noteholders to give their consent to any future amendment of the Purchase Agreement or to any future transaction which would, absent consent of the Noteholders, constitute a Default or Event of Default under the Purchase Agreement. SECTION 6.07. Except as specifically provided herein, the Purchase Agreement is in all respects ratified and confirmed, and all the terms, conditions and provisions thereof shall be and remain in full force and effect. For any and all purposes, from and after the Effective Date, any and all references hereafter to any Purchase Agreement, and all references to "this Agreement" in the Purchase Agreement, shall refer to such Purchase Agreement as hereby amended. SECTION 6.08. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient and by the different parties hereto on separate counterparts (provided that the Company will execute each counterpart), and each of which, when so executed, shall be deemed to be an original, but all such counterparts shall constitute but one and the same agreement. SECTION 6.09. The Company will pay, or cause to be paid, the reasonable out-of-pocket costs and expenses of the Noteholder in connection with entering into this Amendment and the consummation of all transactions contemplated hereby, and the Company will also indemnify and hold each Noteholder harmless from and against all liability and loss with respect to or resulting from all claims on account of brokers' or finders' fees or commissions in connection with this Amendment or any of the transactions contemplated hereby. The obligations of the Company under this Section 6.09 shall survive payment of any Note issued under any Purchase Agreement. IN WITNESS WHEREOF, the Company and the Noteholders have caused this Amendment to be executed by their respective officers thereto duly authorized. FINGERHUT COMPANIES, INC., by Name: Title: by Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, by Name: Title: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, by Name: Title: AMERICAN FAMILY LIFE INSURANCE COMPANY, by Name: Title: GENERAL AMERICAN LIFE INSURANCE COMPANY, by Name: Title: ST. LOUIS REINSURANCE COMPANY, by Name: Title: BERKSHIRE LIFE INSURANCE COMPANY, by Name: Title: SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY, by Name: Title: STATE MUTUAL INSURANCE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: GUARANTEE RESERVE LIFE INSURANCE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: SECURITY LIFE INSURANCE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: UNITED OF OMAHA LIFE INSURANCE COMPANY, by Name: Title: THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: MIMLIC FUNDING, INC., by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: NATIONAL TRAVELERS LIFE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: THE RELIABLE LIFE INSURANCE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: MUTUAL TRUST LIFE INSURANCE COMPANY, by MIMLIC ASSET MANAGEMENT COMPANY, by Name: Title: INDIANAPOLIS LIFE INSURANCE COMPANY, by Name: Title: Schedule I Direct Merchants Credit Card Bank, National Association A limited purpose credit card bank. Fingerhut Financial Services Receivables, Inc. A bankruptcy-remote special purpose subsidiary that is the transferor under the Receivables Transfer Program relating to credit card receivables. DMCCB, Inc. A subsidiary holding lease obligations for the office of Direct Merchants Credit Card Bank, National Association. Fingerhut Financial Services Corporation A subsidiary that provides marketing and administrative services to Direct Merchants Bank and markets and services extended product service plans and other financial services products. EX-99 7 Exhibit 99 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The Company desires to take advantage of the new "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is filing this cautionary statement in connection with such safe harbor legislation. The Company's Form 10-K, the Company's Annual Report to Shareholders, this or any other Form 10-Q or any Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. The words "believe," "expect," "anticipate," "intends," "estimate," "forecast," "project" and similar expressions identify forward-looking statements. The Company wishes to caution investors that any forward-looking statements made by or on behalf of the Company are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors include, but are not limited to the Risk Factors listed below (many of which have been discussed in prior SEC filings by the Company). Though the Company has attempted to list comprehensively these important factors, the Company wishes to caution investors that other factors may in the future prove to be important in affecting the Company's results of operations. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Investors are further cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company's views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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. 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 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' 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 18 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 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. 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 and Metris. 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 restricting 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 is 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. Direct Merchants Bank is 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 Direct Merchants Bank can finance or otherwise supply funds to Metris and its 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. 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. -----END PRIVACY-ENHANCED MESSAGE-----