MODIFIED OPERATING AGREEMENT
Direct Merchants Credit Card Bank, N.A.;
Metris Companies Inc.;
and
the Office of the Comptroller of the Currency
WHEREAS, on or about December 11, 2003, Direct Merchants Credit Card
Bank, N.A., Phoenix, Arizona ("DMCCB" or "Bank"), Metris Companies Inc.
("Metris"), and the Office of the Comptroller of the Currency ("Comptroller,"
"OCC," or "agency") mutually agree to modify the Operating Agreement between the
parties dated March 18, 2003; and,
WHEREAS, the Bank, Metris, and the Comptroller seek to ensure that the
Bank will continue to operate safely and soundly and in accordance with this
Modified Agreement that has been approved by the OCC;
NOW, THEREFORE, the Bank, by and through its duly elected Board of
Directors ("Board"), Metris, by and through its duly elected Board of Directors,
and the Comptroller, by his authorized representative, agree as follows:
ARTICLE I
JURISDICTION
(1) This Modified Agreement shall be construed to be a "written
agreement entered into with the agency" within the meaning of 12 U.S.C. xx.xx.
1818(b)(1) and 1818(e) and replaces the Operating Agreement between the Bank,
Metris and the OCC dated March 18, 2003.
(2) This Modified Agreement shall be construed to be a "written
agreement between such depository institution and such agency" within the
meaning of 12 U.S.C. ss. 1818(i)(2) and becomes effective immediately upon its
execution by all parties ("Effective Date").
(3) All correspondence related to this Modified Agreement, and any
information, documentation, reports, plans and/or other written submissions
which the Bank or its Board have agreed to submit pursuant to this Modified
Agreement shall be forwarded, by overnight mail, to:
Director for Special Supervision
Office of the Comptroller of the Currency
000 X Xxxxxx, X.X., Xxxx Xxxx 0-0
Xxxxxxxxxx, XX 00000
with a copy sent by overnight mail to:
Assistant Deputy Comptroller for Credit Card Banks
Office of the Comptroller of the Currency
00 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000-0000
Examiner-in-Charge of Direct Merchants Credit Card Bank, N.A.
Office of the Comptroller of the Currency
0000 Xxxxx 00xx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000-0000
ARTICLE II
COMPLIANCE COMMITTEE
(1) Within five (5) business days after the Effective Date, the Board
of the Bank shall create or designate a committee composed of at least three
Bank officers which shall be responsible for ensuring, monitoring and
coordinating the Bank's compliance and implementation of the provisions of this
Modified Agreement ("Compliance Committee").
(2) The Compliance Committee shall meet at least monthly.
(3) Within twenty (20) days of the end of each month, the Compliance
Committee shall submit a written progress report to the Board of the Bank
setting forth in detail:
(a) actions taken to comply with each Article of this Modified Agreement;
and
(b) the results of those actions.
(4) Within thirty (30) days of the end of each month, the Board of the
Bank shall forward a copy of the Compliance Committee's report, with any
additional comments by the Board of the Bank, to the OCC.
ARTICLE III
CORPORATE STRUCTURE AND GOVERNANCE
(1) The Board of the Bank shall at all times ensure that its management
and officers have the knowledge and skills necessary to execute the Bank's
strategic plan and manage the Bank's risk, including, but not limited to,
control functions such as compliance, quality assurance, and internal audit.
(2) The Board of the Bank shall continue to maintain and ensure Bank
adherence to policies and procedures that preserve the Bank's separate corporate
identity, including without limitation, the maintenance of books and records
that are separate and apart from Metris, under the control of the Bank, and
readily available to OCC personnel upon request.
(3) The Bank shall, on an annual (fiscal year) basis, obtain an
independent external audit that is separate from the audit of Metris and that is
sufficient to render an opinion on the financial statements of the Bank. A copy
of the audit report shall be submitted to the OCC within five (5) days of
completion.
(4) The Board of the Bank shall continue to ensure that adequate
governance and control systems are in place, in accordance with the written
action plans or programs previously adopted the Board of the Bank. This shall
include the:
(a) Independent, Internal Audit Program;
(b) Compliance and Operational Risk Management Program;
(c) Credit Risk Management Action Plan;
(d) Account Management and ALLL Action Plan;
(e) Negative Amortization Action Plan;
(f) Forbearance Program Action Plan; and
(g) Debt Waiver Action Plan.
On at least an annual basis, management shall review with the Board of the Bank
the goals and objectives of the written action plans or programs, and the Bank
shall make changes, as warranted, to address any deficiencies noted during this
review. Any satisfaction or completion of individual Plan or Program
requirements shall be fully supported in the Compliance Committee reports
required in Article II, paragraph (3) and approved by the Board of the Bank.
(5) By December 15, 2003, the Board of the Bank shall approve and the
Bank shall submit to the OCC a written Contingency Funding Plan ("CFP") for
review and supervisory non-objection. After receiving supervisory non-objection,
the Board of the Bank shall ensure that the CFP is reviewed and approved by the
Board of the Bank quarterly and whenever a change occurs which has a material
impact on the Bank or Metris' liquidity funding position. The Bank shall provide
a copy of any changes to the CFP to the Comptroller for determination of
supervisory non-objection.
ARTICLE IV
ASSET AND LIABILITY STRUCTURE
(1) The Bank shall continue to sell on a daily basis all Credit Card
Receivables tied to accounts from which receivables are designated for sale to
Metris under the Second Amended and Restated Bank Receivables Purchase
Agreement, dated as of January 22, 2002, by and between Metris and the Bank
("Bank Receivables Purchase Agreement"), and any other bank receivables purchase
agreements.
(2) The Bank shall provide to the OCC a daily written confirmation that
all Credit Card Receivables required to be sold pursuant to the terms of
paragraph (1) of this Article and of the Bank Receivables Purchase Agreement, or
any other bank receivables purchase agreements, have been sold in accordance
with the terms thereof. Such confirmation shall include the dollar volume of
Credit Card Receivables sold each day, and shall be provided to the OCC by 5:00
P.M. PST (or PDT) of the next business day.
(3) In the event the daily sale of Credit Card Receivables required by
paragraph (1) of this Article does not occur on any day or transaction
receivables are not pre-funded as required by First Data Resources, the Bank
shall immediately notify the OCC and Metris. In the event Metris fails, after
the notice required by this paragraph has been given, to comply with the
liquidity provisions of the Capital Assurances and Liquidity Maintenance
Agreement ("CALMA") as required, the Bank shall, at the direction and sole
discretion of the OCC, cease (i) granting additional extensions of credit or
approval of any authorizations on credit cards issued by the Bank; and (ii)
issuing additional credit cards. The cure period provided by Article XI shall
not apply to this paragraph.
(4) Prior to entering into any new bank receivables purchase
agreements, the Bank shall certify to the OCC that the new bank receivables
purchase agreement complies with 12 U.S.C. xx.xx. 371c and 371c-1.
ARTICLE V
CAPITAL
(1) The Bank shall maintain capital at the dollar level as reported on
the September 30, 2003 call report. Provided that capital remains at the
aforementioned level, the Bank may pay dividends in accordance with applicable
statutory and regulatory requirements, including 12 U.S.C. xx.xx. 56 and 60(a).
Nothing in this Modified Agreement shall prevent the Bank from reducing its
capital should circumstances permit so long as the Bank first requests and
obtains the OCC's supervisory non-objection to such reduction.
(2) If the Bank's capital falls below the level of capital as of
September 30, 2003 pursuant to paragraph (1) of this Article and the OCC has not
provided supervisory non-objection to this lower level, the Bank shall
immediately notify the OCC and make written demand upon Metris for contribution
of capital, in accordance with the terms of the CALMA. If the capital deficiency
is not corrected within three (3) business days after the Bank provides notice
to the OCC and Metris as required by this paragraph, the Bank will be deemed to
be "undercapitalized" for purposes of the Prompt Corrective Action ("PCA")
statute and implementing regulations (12 U.S.C. ss. 1831o and 12 C.F.R. Part 6)
and the OCC may take whatever action it deems appropriate as if the Bank were
undercapitalized under the PCA statute. The cure period provided by Article XI
shall not apply to this paragraph.
(3) The Bank shall take all actions to enforce the terms of the CALMA.
The Bank shall not modify, amend or terminate, or agree or consent to modify,
amend or terminate the CALMA without the prior written determination of
supervisory non-objection of the OCC. Furthermore, the Bank shall not assign, or
agree or consent to assign the CALMA without the prior written determination of
supervisory non-objection of the OCC.
ARTICLE VI
LIQUIDITY
(1) The Bank shall at all times maintain sufficient Liquid Assets,
as defined in Article X, to meet the daily liquidity needs of the Bank. On a
daily basis, the Bank shall maintain, at a minimum, Liquid Assets of not
less than 100% of the average highest daily funding requirement for managed
receivables ("Liquid Asset Requirement"). The Liquid Asset Requirement, and
any subsequent changes to the Liquid Asset Requirement, must be submitted to the
OCC for prior supervisory non-objection.
(2) In no event will the Bank maintain Liquid Assets under Article VI,
paragraph (1) of less than $35 million.
(3) In addition to the Liquid Asset Requirement, the Bank shall continue
to comply with the Liquidity Reserve Deposit Agreement ("LRD Agreement") between
the Bank, an insured depository institution ("Depository Bank") and the OCC,
whereby the Bank maintains Liquid Assets, as defined in Article X, in an amount
and type acceptable to the Comptroller, in the Depository Bank ("LRD Account"),
to be used to support the Bank's Credit Card Receivables funding needs
(including settlement obligations owed to MasterCard(R)), and requirements in
the event Metris or its affiliates fail to purchase Credit Card Receivables in
accordance with the Bank Receivables Purchase Agreement as required by
Article IV. The terms of the LRD Agreement and the Depository Bank shall be
acceptable to the Comptroller. The amount of Liquid Assets required under this
paragraph, which may be used in calculating the Bank's capital level required by
this Agreement, shall be maintained, at a minimum, in an amount as described in
Exhibit A, which is incorporated by reference herein ("LRD Requirement"). The
Bank shall determine the amount of Liquid Assets on a prospective basis, and
make adjustments on or before the first (1st) day of the month to ensure that
sufficient Liquid Assets are maintained for that month. In the event the balance
of the LRD Account exceeds the LRD Requirement, the Bank may reduce the balance
in the LRD Account in accordance with paragraph (4) of this Article and the
terms of the LRD Agreement.
(4) On or before the fifteenth (15th) day of each month, the Bank shall
submit a written certification to the OCC which contains: (i) the LRD
Requirement for that month; (ii) the supporting documentation used in
calculating the LRD Requirement; (iii) the value of the Liquid Assets currently
in the LRD Account; and (iv) the necessary documentation for the Comptroller's
concurrence of any reduction to be made to the LRD Account, and signed by the
Bank's Chief Financial Officer and one director of the Bank. All changes to the
LRD Account shall be made pursuant to the terms of the LRD Agreement.
ARTICLE VII
BOOKS AND RECORDS
(1) The Bank shall provide the OCC with all information and reports as
requested by the OCC within the time specified by the OCC so that the OCC is
able to evaluate the Bank's and Metris' overall financial condition, significant
trends, and relations between affiliates that may influence the Bank's risk
profile, including documentation relating to the CALMA. (2) The Bank and Metris
shall provide all OCC personnel with prompt and unrestricted access to the
books, records and staff of the Bank and its affiliates, including Metris, and
shall provide full and complete details and purposes of the transactions by and
between the Bank and its affiliates, including Metris, to OCC personnel upon
inquiry.
ARTICLE VIII
STRATEGIC PLAN
(1) By December 31, 2003, the Board of the Bank shall approve and the
Bank shall submit to the OCC for determination of supervisory non-objection its
written strategic plan, consistent with the Metris strategic plan, and covering
at least a three (3) year period. Upon receipt of the supervisory non-objection,
the Board of the Bank shall implement and ensure adherence to the strategic
plan. At a minimum, the strategic plan shall establish objectives for the Bank's
overall risk profile, earnings performance, growth, balance sheet mix,
off-balance sheet activities, operational limitations, liability structure,
capital adequacy, product line development and marketing segments. The plan must
contain sufficient financial detail in the 12-18 month operating horizon, and
tie to the current internal forecasting process.
(2) The Board of the Bank shall update the strategic plan quarterly and
revise the strategic plan annually. The Bank shall submit all updates and
revisions to the OCC for review and determination of supervisory non-objection.
(3) Prior to making any changes that may have a material impact or
cause a significant deviation from the strategic plan adopted pursuant to this
Article, the Bank shall provide the OCC with fifteen (15) days advance written
notice of such changes and shall not implement such changes without first
receiving a determination of supervisory non-objection from the OCC.
ARTICLE IX
AFFILIATE TRANSACTIONS
(1) All transactions between the Bank and any affiliates shall be
pursuant to written agreements and contracts. The Bank shall ensure that all
contracts and agreements between the Bank and any affiliate, are in compliance
with 12 U.S.C. xx.xx. 371c and 371c-1, and 12 C.F.R. Part 223 ("Regulation W").
The Bank shall maintain records and documentation showing that all contracts and
agreements with affiliates are in compliance with 12 U.S.C. ss. ss. 371c and
371c-1, and OCC personnel shall have prompt and unrestricted access to these
records and documentation.
(2) The Bank shall not enter into any new contract or agreement, or
modify, revise or renew any existing contract or agreement, with any of its
affiliates unless the contract or agreement provides that the affiliate agrees
to comply with the terms of the contract or agreement, and to provide for
reasonable time for transition to a successor to the affiliate, if requested by
the Bank or any successor to the Bank's rights under the contract or agreement.
(3) The Bank shall submit to the OCC, for a determination of
supervisory non-objection, (i) any new contract or agreement with any of its
affiliates, and (ii) any modifications, revisions, renewals, of any existing
contract or agreement with any of its affiliates.
ARTICLE X
DEFINITIONS
(1) For purposes of this Modified Agreement, the following terms shall
have the below-described meanings:
(a) The term "Credit Card Receivables" will have the same meaning as
receivables required to be reported as loans on line 6-a of schedule
RC-C of the Consolidated Reports of Condition and Income. For purposes
of this Agreement, "Credit Card Receivables" will not be netted
against unearned income, any applicable allocated transfer risk
reserve, deposits accumulated for the payment of personal loans, or
credit balances.
(b) The term "Capital Assurances and Liquidity Maintenance Agreement"
shall mean that certain agreement entered into between Metris and the
Bank on March 18, 2003.
(c) The term "Liquidity Reserve Deposit Agreement" shall mean that certain
agreement entered into between the Comptroller, the Bank, and a
third-party insured depository institution on March 18, 2003.
(d) The term "Liquid Assets" shall include only: (i) cash deposits; (ii)
investment securities listed in 12 C.F.R. ss. 1.2 to which the OCC has
provided a prior determination of supervisory non-objection; (iii)
federal funds sold; (iv) and such other assets to which the OCC has
provided prior supervisory non-objection. The term Liquid Assets shall
not include encumbered or pledged assets by lien, right of set-off,
preference or otherwise; any credit card receivable due and owing to
the Bank; nor any other asset pledged as security in any financial
transaction with the Bank or any subsidiary, affiliate, related party,
or institution- affiliated party of the Bank.
(e) The term "affiliate" is defined as set forth in 12 U.S.C.
ss.371c(b)(1).
(f) The terms "significant deviation" and "material impact" shall mean a
material variance from the Bank's strategic plan submitted pursuant to
this Modified Agreement, as the term "significant deviation" is
further described in PPM 0000-0, Xxxxxxxx B.
(g) The term "Comptroller" shall include any duly authorized officer of
the OCC.
ARTICLE XI
FAILURE TO COMPLY WITH REQUIREMENTS
If the OCC determines that the Bank has materially failed to meet any
of the requirements identified in Articles II through X of this Modified
Agreement, then the OCC will provide the Bank with written notice of any such
failure to comply with the foregoing requirements and will allow the Bank thirty
(30) calendar days to cure the default. If the Bank fails to cure the default,
in the sole discretion of the OCC, the Bank shall, upon the direction of the
OCC, submit a voluntary liquidation plan that is consistent with 12 U.S.C. ss.
181 et seq. and the Comptroller's Corporate Manual, and shall provide for the
Bank's liquidation at no cost or loss to the Bank Insurance Fund of the FDIC.
ARTICLE XII
CONCLUDING PROVISIONS
(1) This Modified Agreement will remain in full force and effect until
the OCC, in its sole discretion, elects to terminate said Modified Agreement.
(2) This Modified Agreement shall not be assigned or transferred to any
successor of the Bank or Metris.
(3) It is expressly and clearly understood that if, at any time, the
Comptroller deems it appropriate in fulfilling the responsibilities placed upon
him by the several laws of the United States of America to undertake any action
affecting the Bank, nothing in this Modified Agreement shall in any way inhibit,
estop, bar, or otherwise prevent the Comptroller from so doing.
(4) Any time limitations imposed by this Modified Agreement shall
begin to run from the Effective Date. Such time requirements may be extended in
writing by the Comptroller or his duly authorized representative for good cause
upon written application by the Board of the Bank.
(5) The provisions of this Modified Agreement shall be effective upon
the Effective Date and its provisions shall continue in full force and effect
unless or until such provisions are Modified in writing by mutual consent of the
parties to the Modified Agreement or excepted, waived, or terminated in writing
by the Comptroller or his duly authorized representative.
(6) Nothing in this Modified Agreement shall prevent the Bank or Metris
from requesting, in writing, amendments to this Modified Agreement as warranted
by changing conditions and circumstances at the Bank or Metris. It shall be
entirely within the OCC's discretion to grant such amendments.
(7) To the extent that any of the provisions of this Modified
Agreement conflict with the terms found in any existing written agreement
between the Comptroller and the Bank, the provisions of this Modified Agreement
shall control.
(8) In each instance in this Modified Agreement in which the Board of
the Bank is required to ensure adherence to, and undertake to perform certain
obligations of the Bank, it is intended to mean that the Board shall: (i)
authorize and adopt such actions on behalf of the Bank as may be necessary for
the Bank to perform its obligations and undertakings under the terms of this
Modified Agreement; (ii) require the timely reporting by Bank management of such
actions directed by the Board to be taken under the terms of this Modified
Agreement; (iii) follow-up on any non-compliance with such actions in a timely
and appropriate manner; and (iv) require corrective action be taken in a timely
manner of any non-compliance with such actions.
(9) This Modified Agreement is intended, and shall be construed to be a
supervisory "written agreement entered into with the agency" as contemplated by
12 U.S.C. ss. 1818(b)(1), and expressly does not form, and may not be construed
to form, a contract binding on the OCC or the United States of America.
Notwithstanding the absence of mutuality of obligation, or of consideration, or
of a contract, the OCC may enforce any of the commitments or obligations herein
undertaken by the Bank under its supervisory powers, including 12 U.S.C. ss.
1818(b)(1), and not as a matter of contract law. The Bank expressly acknowledges
that neither the Bank nor the OCC has any intention to enter into a contract.
The Bank also expressly acknowledges that no OCC officer or employee has
statutory or other authority to bind the United States of America, the United
States Treasury Department, the OCC, or any other federal bank regulatory agency
or entity, or any officer or employee of any of those entities to a contract
affecting the OCC's exercise of its supervisory responsibilities. The terms of
this Modified Agreement, including this paragraph, are not subject to amendment
or modification by any extraneous expression, prior agreements or arrangements,
or negotiations between the parties, whether oral or written.
IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller,
has hereunto set his hand on behalf of the Comptroller.
/s/Xxxxx X. Xxxxxxx December 11, 2003
Xxxxx X. Xxxxxxx Date
Deputy Comptroller For Special Supervision
IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting
Board of Directors of the Bank, have hereunto set their hands on behalf of the
Bank.
/s/Xxxxx Xxxxx 12/4/03
Xxxxx Xxxxx, Director Date
/s/Xxxxxx X. Xxxxxxxx 12/4/03
Xxxxxx X. Xxxxxxxx, Director Date
/s/Xxxxxx X. Xxxxx 12/4/03
Xxxxxx X. Xxxxx, Director Date
/s/Xxxxxxx X. Xxxxx 12/4/03
Xxxxxxx X. Xxxxx, Director Date
/s/Xxx X. Xxxxxxxxx, Xx. 12/4/03
Xxx X. Xxxxxxxxx, Xx., Director Date
/s/Xxxxxxx X. Xxxxxx 12/4/03
Xxxxxxx X. Xxxxxx, Director Director
/s/Xxxxxx X. Xxxxx 12/4/03
Xxxxxx X. Xxxxx, Director Date
/s/ Xxxxx X. Xxxxxxxxx 12/4/03
Xxxxx X. Xxxxxxxxx, Director Date
IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting
Board of Directors of Metris, have hereunto set their hands on behalf of Metris.
/s/ Xxxxx X. Xxxxxxxxx December 9, 2003
Xxxxx X. Xxxxxxxxx, Director Date
/s/Xxx X. Xxxxxxxx, Xx. December 9, 2003
Xxx X. Xxxxxxxx, Xx., Director Date
/s/X. Xxxxxx Xxxx December 9, 2003
X. Xxxxxx Xxxx, Director Date
/s/Xxxx X. Xxxxxx December 9, 2003
Xxxx X. Xxxxxx, Director Date
/s/Xxxxxx X. Xxxxxxx December 9, 2003
Xxxxxx X. Xxxxxxx, Director Date
/s/Xxxxx X. Xxxxxxx December 9, 2003
Xxxxx X. Xxxxxxx, Director Date
/s/ Xxxxxx X. Xxxx December 9, 2003
Xxxxxx X. Xxxx, Director Date
/s/Xxxxxx X. Xxx December 9, 2003
Xxxxxx X. Xxx, Director Date
/s/Xxxxxx X. Xxxxx December 9, 2003
Xxxxxx X. Xxxxx, Director Date
/s/Xxxxx X. Xxxxxxxx, Director December 9, 2003
Xxxxx X. Xxxxxxxx, Director Date
