<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
----------------
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------
PROVIDIAN BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2933952
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
201 MISSION STREET 94105
SAN FRANCISCO, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 543-0404
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER NEW YORK STOCK EXCHANGE
SHARE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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- --------------------------------------------------------------------------------
<PAGE>
[LOGO] PROVIDIAN
INFORMATION STATEMENT
RELATING TO THE SPIN-OFF OF
PROVIDIAN BANCORP, INC.
THROUGH A COMMON STOCK DISTRIBUTION
We are sending you this information statement to describe the proposed spin-
off of Providian Bancorp, Inc. from its parent company, Providian Corporation.
In the spin-off, you will receive one Providian Bancorp share for each
Providian share that you hold on June 1, 1997. This document also describes the
business and financial condition of Providian Bancorp. You should read the
entire document carefully, and should pay particular attention to the section
called "Risk Factors," which begins on page 8.
The spin-off will separate Providian Bancorp's consumer lending operations
from Providian's insurance operations, so that Providian can merge its
insurance operations with the United States insurance operations of AEGON N.V.
We have sent you a separate proxy statement-prospectus describing the merger
transaction together with this information statement.
The spin-off of Providian Bancorp will occur only if the Providian
stockholders approve the merger and the other conditions described in this
document are met or waived by the parties. The other conditions include
obtaining regulatory approvals, antitrust clearance, and a ruling from the
Internal Revenue Service stating that the spin-off and the merger will be tax-
free for federal income tax purposes.
You will receive your Providian Bancorp shares automatically, without taking
any further action. Separately, AEGON will send you instructions for exchanging
your shares of Providian common stock for AEGON common shares as part of the
merger. You should wait for those instructions before sending in your shares of
Providian common stock.
We have applied to list the Providian Bancorp common stock on the New York
Stock Exchange under the symbol "PVN." Providian Bancorp plans to change its
name to Providian Financial Corporation shortly before the spin-off.
----------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE PROVIDIAN BANCORP COMMON STOCK TO BE ISSUED OR
DETERMINED IF THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
We first mailed this information statement to Providian stockholders on April
21, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 8
Introduction.............................................................. 15
The Distribution.......................................................... 16
Dividend Policy........................................................... 22
Capital Securities........................................................ 23
Capitalization............................................................ 24
Selected Financial Data................................................... 25
Pro Forma Condensed Financial Statements.................................. 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 46
Regulatory Matters........................................................ 60
Management................................................................ 66
Arrangements Between Providian and Providian Bancorp...................... 79
Description of Providian Bancorp Capital Stock............................ 85
Certain Antitakeover Effects.............................................. 86
Liability of Directors and Officers; Indemnification...................... 90
Where You Can Find More Information....................................... 91
Index of Defined Terms.................................................... 92
</TABLE>
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
spin-off and the merger better and for a more complete description of the legal
terms of these transactions, you should read this entire information statement
carefully. You should also read carefully the proxy statement-prospectus
relating to the merger, as well as the additional documents we refer to under
the heading "Where You Can Find More Information" (Page 91).
KEY QUESTIONS AND ANSWERS
Q: WHY IS PROVIDIAN SPINNING OFF THE SHARES OF PROVIDIAN BANCORP?
A:Providian does not want to sell, and AEGON does not want to buy, the
Providian Bancorp business. The spin-off is necessary to separate the Providian
Bancorp business so that AEGON can then acquire Providian's insurance
businesses.
Q:WHEN WILL THE SPIN-OFF OCCUR?
A:We are working to complete the spin-off during June 1997. However, it is
possible that delays in obtaining regulatory approvals or a ruling from the
Internal Revenue Service could require the spin-off to be postponed until a
later time.
Q:WHAT WILL I RECEIVE IN THE SPIN-OFF?
A:You will receive one share of Providian Bancorp common stock for each share
of Providian stock you own on June 1, 1997. You will also receive a stock
purchase right with each Providian Bancorp share similar to the rights you now
have with respect to your Providian shares. These stock purchase rights will
only become exercisable if triggered by an attempt to take over Providian
Bancorp. A description of the rights plan begins on page 88.
Q: DO I HAVE TO PAY TAXES ON THE PROVIDIAN BANCORP SHARES I RECEIVE IN THE
SPIN-OFF?
A:No, based on the ruling that we expect to obtain from the Internal Revenue
Service to the effect that the merger and the spin-off will be tax-free for
United States federal income tax purposes. However, you will pay tax on any
cash payments you receive in place of a fractional AEGON share.
We explain the material tax consequences of the spin-off and the merger
starting on page 18.
Q: WILL PROVIDIAN BANCORP PAY DIVIDENDS ON THE PROVIDIAN BANCORP SHARES?
A:Providian Bancorp expects to pay quarterly dividends on the Providian Bancorp
shares after the spin-off. Of course, the declaration and amounts of future
dividends will be up to the Providian Bancorp board of directors. We expect
that the declaration and amounts of dividends will depend on Providian
Bancorp's earnings after the spin-off and on any other factors that the
Providian Bancorp board believes are relevant.
Q: WHERE WILL I BE ABLE TO TRADE THE PROVIDIAN BANCORP SHARES?
A:We have applied to list the shares of Providian Bancorp common stock on the
New York Stock Exchange, under the symbol "PVN."
Q: WILL I BE ABLE TO SELL PROVIDIAN BANCORP SHARES BEFORE THE SPIN-OFF?
A:There may be a temporary, "when-issued" market for Providian Bancorp shares
shortly before the spin-off. If there is, you would be able to sell your right
to receive the Providian Bancorp shares separately from your Providian shares.
You would then have to deliver the Providian Bancorp shares to the buyer
promptly after the spin-off.
Also, if you sell your Providian shares after May 27, 1997 but before the
spin-off, you will generally have to include a "due bill" saying that you will
also deliver to the buyer the Providian Bancorp shares that you receive in the
spin-off on account of the Providian shares you have sold.
1
<PAGE>
However, there may be a "when-distributed" market for Providian shares during
this period, which would mean that you could sell your Providian shares but
keep your right to receive the Providian Bancorp shares.
You should consult your own broker or financial advisor before you attempt to
make any of these trades to make sure that both you and they understand which
type of trade you want to make.
PROVIDIAN BANCORP AND THE SPIN-OFF
THE SPIN-OFF (see page 16)
Providian stockholders will receive one share of Providian Bancorp common
stock for each share of Providian common stock held of record on June 1, 1997,
the record date for the spin-off. As of April 10, 1997, there were 94,599,880
shares of Providian common stock outstanding.
We will credit your account for shares of Providian Bancorp common stock
automatically after the spin-off, and you do not need to take any further
action to receive these shares. Assuming we satisfy the conditions to the
merger between AEGON and Providian's insurance operations, and the conditions
to the spin-off, we currently expect the spin-off to occur during June 1997.
If you have questions about the mailing or receipt of your account statement
for Providian Bancorp shares, please contact First Chicago Trust Company of New
York, the distribution agent, at:
Shareholder Relations Department
Post Office Box 2500
Jersey City, New Jersey 07303-2500
Telephone: (800) 317-4445
First Chicago Trust Company of New York will also be the transfer agent and
registrar for the Providian Bancorp shares after the spin-off.
THE PROVIDIAN BANCORP BUSINESS (see page 46)
Providian Bancorp is a consumer lending company. We offer a variety of loans
to consumers whose need for credit and ability to pay may qualify them for a
line of credit of as little as $300 or as much as $150,000. Some of our loans
are secured by the customer's home or a savings account; some are unsecured.
Depending on the type of loan, our customers can borrow money by using a credit
card, writing a check, transferring funds electronically, making an ATM
withdrawal, or cashing a check we send to them.
We also offer deposit products, such as certificates of deposit and money
market deposit accounts. Our customers are located throughout the United
States, and we communicate with them by mail and telephone rather than at
branch offices.
Providian Bancorp's most important loan products are Gold Visa and MasterCard
credit cards, lines of credit under which consumers can borrow money by writing
checks, home equity loans, and secured credit cards. We earn a profit on the
loans we make based on the difference between the interest rates we charge and
the cost to us of the funds we use for the loans. This is called "spread-based"
income. We also offer a number of products and services for fees. In this way,
we try to vary our sources of earnings growth. We believe that the consumer
lending business will continue to provide opportunities for growth in the
future.
Providian Bancorp is customer-focused, which means that we try to understand
our customers and design products and services that meet their needs. And we
are return-driven, which means that we try to attract customers whose needs we
can serve profitably, then manage the relationship so that it continues to be
profitable. We do this by constantly gathering information about our customers'
behavior and our own financial results. We use an engineering approach to
analyze the information and incorporate the results into the design of new
products and services that we think will appeal to customers while increasing
our revenues and decreasing our risks.
As of December 31, 1996, Providian Bancorp had more than 3.8 million
customers, with outstanding loans that we manage of approximately $9.3 billion.
We are the 13th largest issuer of Visa and MasterCard credit cards in the
United States, as reported in the January 1997 Nilson Report.
BUSINESS STRATEGY (see page 48)
Our marketing strategy is to attract customers initially with a general loan
offer that has a broad
2
<PAGE>
appeal. When a potential customer responds, we can then tailor the terms of the
loan to meet the individual customer's needs. Our goal is to meet all of our
customers' borrowing needs and to become their primary lender. We try to do
this by dealing with each customer individually and by encouraging them to use
our flexible and convenient service to consolidate their debt and simplify
their finances.
Once we have secured a customer relationship, we try to manage the
relationship to improve and develop it. We continuously review our customer
accounts, and we may decide to adjust their terms. For profitable customers who
continue to have good credit, we try to improve our primary lender position.
For those whose credit profile has worsened, we try to reduce the risk of non-
payment. The goal is to provide value to our customers while balancing our own
risks and rewards to achieve targeted profits.
Our operating strategy is to manage all important lending activities
internally, rather than through third parties. These include credit risk
management, database management, analytical models, product testing,
advertising and telemarketing. We believe that managers who have hands-on
experience with customers and lending problems are better able to gather
information, learn from it, and respond rapidly with improved products and
practices. We also believe that our operating strategy has enabled Providian
Bancorp to develop the skills that are necessary to carry out its primary
lender marketing strategy successfully.
ARRANGEMENTS BETWEEN PROVIDIAN AND PROVIDIAN BANCORP (see page 80)
In connection with the spin-off, Providian and Providian Bancorp have entered
into or will enter into a number of agreements. Among other things, these
agreements:
--provide for the spin-off;
--allocate liabilities (including general liabilities, as well as tax and
employee liabilities) between the two companies;
--provide that Providian Bancorp will not compete against Providian in
certain life insurance and investment businesses for a period of up to two
years;
--provide for administrative services from Providian to Providian Bancorp
for a short period of time after the spin-off; and
--transfer the "Providian" name and logo to Providian Bancorp, with limited
rights for Providian and its subsidiaries to continue to use the name for
a short period of time after the spin-off.
In addition, a number of business arrangements between Providian and
Providian Bancorp will remain in place after the spin-off.
RISK FACTORS (see page 8)
You should carefully review the risks relating to Providian Bancorp and the
spin-off that are discussed in this information statement under the heading
"Risk Factors."
3
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
INFORMATION IN THE TABLE
In the table below, we provide you with summary historical financial data of
Providian Bancorp. We have prepared this information using the consolidated
financial statements of Providian Bancorp for the five years ended December 31,
1996. These financial statements have been audited by Ernst & Young LLP,
independent auditors. During this time, Providian Bancorp has been a wholly
owned subsidiary of Providian. The historical financial information may not
reflect Providian Bancorp's future performance or the financial position and
results of operations of Providian Bancorp if it had been a separate, stand-
alone company during this time.
OTHER FINANCIAL INFORMATION
When you read this summary historical financial data, it is important that
you read along with it the historical financial statements and related notes
that we include at the end of this information statement, as well as the
section of this information statement titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." You should also
read the unaudited pro forma condensed financial information and related notes
that we have included in this information statement under "Pro Forma Condensed
Financial Statements." The pro forma information attempts to illustrate the
financial results that might have occurred if the spin-off, and a recent
financing transaction that we describe under the heading "Capital Securities,"
had occurred on January 1, 1996.
EFFECT OF SALES OF SECURITIES BACKED BY RECEIVABLES
Please be aware that Providian Bancorp periodically sells securities backed
by some of its credit card, revolving line and home equity loan receivables in
order to provide funds for operations, improve liquidity and effectively manage
capital. When this happens, we remove the loan receivables underlying these
securities from the statement of financial condition, and rather than receiving
interest income on these loan receivables, we receive loan servicing fees. In
addition, we reflect credit losses on these receivables as a reduction in loan
servicing fees rather than in the reserve for possible credit losses. As a
result, Providian Bancorp's provision for possible credit losses is smaller
than would be the case had we not sold securities backed by these receivables.
The managed loan portfolio data shown below includes the loans underlying these
securities and loans that are held to back similar securities that we may sell
in the future, as well as Providian Bancorp's on-balance-sheet loan portfolios.
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income....... $ 595,993 $ 479,554 $ 343,710 $ 332,849 $ 338,058
Interest expense...... 190,367 158,404 101,659 106,943 140,162
---------- ---------- ---------- ---------- ----------
Net interest income. 405,626 321,150 242,051 225,906 197,896
Provision for possible
credit losses........ 126,579 79,917 50,313 64,056 104,949
Other income.......... 412,008 335,764 269,289 228,227 182,800
Other expense......... 433,804 362,134 285,824 253,434 169,029
---------- ---------- ---------- ---------- ----------
Income before income
taxes.............. 257,251 214,863 175,203 136,643 106,718
Income tax expense.... 97,485 79,411 65,084 51,205 37,844
---------- ---------- ---------- ---------- ----------
Net income.......... $ 159,766 $ 135,452 $ 110,119 $ 85,438 $ 68,874
========== ========== ========== ========== ==========
STATEMENT OF FINANCIAL
CONDITION DATA:
Consumer loans held
for securitization or
sale................. $ 739,706 $ 123,330 -- -- --
Consumer loans(1)..... 2,939,436 3,058,486 $2,339,303 $1,933,155 $1,747,191
Other loans........... 10,492 12,798 13,598 14,742 21,617
Allowance for possible
credit losses........ (114,540) (93,429) (76,218) (75,061) (82,975)
Total assets.......... 4,326,744 3,611,066 2,662,777 2,253,764 2,125,598
Deposits.............. 3,390,112 2,157,765 1,680,450 1,553,385 1,385,115
Borrowings............ 258,500 942,680 532,800 282,626 358,733
Equity(6)............. 483,144 349,255 326,100 270,568 221,718
MANAGED LOAN DATA:
Consumer Loans........ $9,289,142 $6,667,659 $4,707,945 $3,937,563 $3,522,380
Other loans........... 10,492 12,798 13,598 14,742 21,617
---------- ---------- ---------- ---------- ----------
Total managed loans. 9,299,634 6,680,457 4,721,543 3,952,305 3,543,997
---------- ---------- ---------- ---------- ----------
Securitized consumer
loans................ 5,610,000 3,485,843 2,368,642 2,004,408 1,775,189
---------- ---------- ---------- ---------- ----------
Total on balance
sheet loans........ $3,689,634 $3,194,614 $2,352,901 $1,947,897 $1,768,808
========== ========== ========== ========== ==========
CONSUMER LOAN STATIS-
TICS:
Total volume(2)....... $9,683,575 $6,602,300 $4,430,572 $3,340,970 $2,566,600
Total accounts (000s)
at period end........ 3,849 2,815 2,239 2,060 1,583
Managed net interest
income(3)............ 10.78% 11.80% 12.79% 13.31% 12.83%
Managed delinquency
ratio(4)............. 4.37% 3.32% 3.03% 2.85% 2.47%
Managed loan credit
loss ratio(5)........ 4.82% 3.96% 4.21% 4.71% 5.19%
</TABLE>
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(1) Includes all consumer credit products, including unsecured and secured
credit cards, unsecured revolving lines of credit and secured home equity
revolving lines of credit.
(2) Includes all transactions, including balance transfers, credit card sales
and cash advances; excludes finance charge and fee income accrual.
(3) Reflects total interest accrued on managed consumer loans, less Providian
Bancorp's actual cost of funds, costs associated with securitizations
including investor interest, amortization of fees and accretion of
discounts, as a percentage of average managed consumer loans.
(4) Reflects delinquencies, i.e., consumer loans which are 31 days or more past
due, at period end, as a percentage of managed consumer loans at period
end.
(5) Represents principal amounts charged off, less recoveries, as a percentage
of average managed consumer loans during the period; fraud losses are not
included.
(6) On February 4, 1997, the Company issued $160,000,000 in liquidation amount
of Capital Securities which affect the capitalization of the Company. See
"Pro Forma Condensed Financial Statements."
5
<PAGE>
SUMMARY PRO FORMA CONDENSED FINANCIAL STATEMENTS
INFORMATION IN THE TABLES
In the tables below, we present a condensed statement of income for Providian
Bancorp for the year ended December 31, 1996, as if both the spin-off and a
recent financing transaction, which is described under the heading "Capital
Securities," had occurred on January 1, 1996. We also present a condensed
statement of financial condition for Providian Bancorp as of December 31, 1996,
as if these transactions were completed on that date. Please see "Pro Forma
Condensed Financial Statements" on page 28 for an explanation of the pro forma
adjustments on which these statements are based.
You should remember that this information is hypothetical, and does not
necessarily reflect the financial performance that would have actually resulted
if the spin-off and the financing transaction had been completed on the assumed
date. You should also remember that this information does not necessarily
reflect future financial performance after the spin-off.
OTHER FINANCIAL INFORMATION
When you read this pro forma financial information, please read the
historical financial statements and related notes that we include at the end of
this information statement, as well as the section of this information
statement titled "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
SUMMARY PRO FORMA CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Interest Income:
Consumer loans......................................... $574,335
Other.................................................. 21,658
--------
Total interest income................................ 595,993
Interest Expense:
Deposits............................................... 141,691
Borrowings............................................. 45,837
--------
Total interest expense................................. 187,528
--------
Net interest income.................................. 408,465
Provision for loan losses................................ 126,579
Other income............................................. 412,008
Other expense............................................ 432,338
--------
Income before income taxes........................... 261,556
Income tax expense....................................... 99,121
--------
Net income........................................... $162,435
========
</TABLE>
6
<PAGE>
SUMMARY PRO FORMA CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS:
Cash and cash equivalents.............................. $ 137,177
Federal funds sold..................................... 172,350
Consumer loans held for securitization................. 739,706
Consumer loans......................................... 2,939,436
Other loans............................................ 10,492
Less allowance for possible credit losses.............. (114,540)
----------
Net loans............................................ 3,575,094
Other assets........................................... 496,354
----------
TOTAL ASSETS......................................... $4,380,975
==========
LIABILITIES:
Deposits............................................... $3,390,112
Federal funds purchased................................ 51,000
Notes payable to banks................................. 165,000
Other liabilities...................................... 194,988
----------
TOTAL LIABILITIES.................................... 3,801,100
----------
Capital Securities..................................... 160,000
----------
Equity................................................. 419,875
----------
TOTAL LIABILITIES AND EQUITY......................... $4,380,975
==========
</TABLE>
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<PAGE>
RISK FACTORS
In addition to the other information about Providian Bancorp that we provide
in the rest of this information statement, in this section we highlight
specific risks with respect to Providian Bancorp and its business.
We also caution you that this information statement includes forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These statements are based on management's beliefs and assumptions, and
on information currently available to management. Forward-looking statements
include the information concerning possible or assumed future results of
operations of Providian Bancorp set forth under the headings "Dividend
Policy," "Pro Forma Condensed Financial Statements," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Forward-looking statements also include statements in which we use words such
as "expect," "anticipate," "intend," "plan," "believe," "estimate" or similar
expressions.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions, including the risks discussed
below. Providian Bancorp's future results and stockholder values may differ
materially from those expressed in these forward-looking statements. Many of
the factors that will determine these results and values are beyond our
ability to control or predict. We caution you not to put undue reliance on any
forward-looking statements. In addition, we do not have any intention or
obligation to update forward-looking statements after we distribute this
document, even if new information, future events or other circumstances have
made them incorrect or misleading. For these statements, Providian Bancorp
claims the protection of the safe harbor for forward-looking statements
contained in Section 21E of the Securities Exchange Act.
NO HISTORY AS A STAND-ALONE COMPANY
Providian Bancorp, which we also refer to as the Company, has not operated
as a separate, stand-alone company in the past. A number of changes are likely
as a result of the spin-off, including appointment of a new Providian Bancorp
Board of Directors. In addition, as a stand-alone company, Providian Bancorp
will be fully responsible for arranging its own funding, for managing all of
its own administrative and employee arrangements, and for supervising all of
its legal and financial affairs, including publicly reported financial
statements. The Company will adopt separate incentive compensation and stock
option plans for its employees, and will develop its own compliance and
administrative procedures as necessary for a publicly held company. The
Company plans to enter into a Transition Services Agreement, under which
Providian will provide administrative and other services to the Company for a
short period of time after the spin-off. When this transition period ends, the
Company will need to provide or obtain these services without Providian's
assistance. The Company is not certain that it will be able to obtain the same
level of services at a similar cost.
After the spin-off, parties that lend money to Providian Bancorp will no
longer take into account the Company's position as a subsidiary of Providian
when determining whether to lend money to the Company and on what terms. As a
result, the cost of the Company's borrowings from large institutions, such as
banks, may increase after the spin-off. However, the Company obtains a large
portion of its funding by selling securities backed by its consumer loan
receivables and by accepting deposits from members of the public. The Company
does not expect the cost or availability of funds from either of these sources
to change significantly because of the spin-off. The Company does not believe
that any increase in funding cost is likely to hurt its earnings in a material
way, but we cannot predict with certainty how the spin-off will affect the
overall cost and availability of the funds that the Company uses in its
business.
These are some of the reasons why the historical financial information in
this Information Statement may not reflect the financial position and results
of operations of the Company in the future, or the financial position and
results of operations that the Company would have experienced if it had been a
stand-alone company during the periods presented.
8
<PAGE>
INABILITY TO SUSTAIN GROWTH
In order to meet its business objectives, Providian Bancorp will need to
make more consumer loans each year. In 1995, the Company's managed loan
portfolio (that is, the amount of credit card and consumer loans that the
Company manages) grew from approximately $4.7 billion to $6.7 billion, or
41.6%. In 1996, the Company's managed loan portfolio grew from approximately
$6.7 billion to $9.3 billion, or 39.3%.
Future rates of growth will depend on many factors and may be less than
recent rates. The main factors that may affect the Company's ability to
increase the amount of loans in its portfolio include: (1) the Company's
ability to attract new customers; (2) the amount of money customers wish to
borrow; (3) the number of customers who repay their loans because they have
received offers from competing lenders; (4) the number of customers who fail
to repay their loans on time; (5) the Company's ability to obtain funds for
making loans; and (6) general economic and industry conditions beyond the
control of the Company. Because most existing customers eventually repay their
loans, a major reduction in new lending by the Company could reduce the size
of its loan portfolio and, therefore, its revenues and profits.
INTENSE COMPETITION
Providian Bancorp faces intense and increasing competition from other
consumer lenders. In particular, the Company's credit card business competes
with national, regional and local bank card issuers, and with other general
purpose credit card issuers, such as the issuers of the American Express and
Discover cards./1/ The Company also competes, to a lesser extent, with issuers
of single purpose cards, such as department stores and oil companies. Large
credit card issuers may compete with the Company for customers by offering
lower interest rates and fees. In addition, new issuers have entered the
market in recent years. Many of these competitors are substantially larger
than the Company and have greater financial resources. Customers choose credit
card issuers largely on the basis of price (mostly interest rates and fees),
credit limit, and other product features. For this reason, customer loyalty is
often limited. The Company may lose entire accounts, or may lose account
balances, to competing card issuers.
The Company's competitors are continually introducing new tactics to attract
customers and increase their market share. The most heavily used techniques
are advertising, target marketing, balance transfers, price competition,
incentive programs and co-branding (for example, using the name of a sports
team or a professional association on their credit cards). In response to
competition, issuers of credit cards have lowered interest rates and offered
incentives to retain existing customers and attract new ones. These
competitive practices, as well as competition that may develop in the future,
could hurt the Company's ability to obtain customers and maintain its
profitability.
The Company, like many of its competitors, offers credit card accounts with
introductory rates for purchases and balance transfers. These introductory
rates are set at low levels, as low as zero percent, during an initial period,
usually three months. After the initial period, the rates rise to higher
variable or fixed rates. Many of the accounts opened in the past year are with
customers who transferred balances from competing card issuers in response to
this type of offer. As of December 31, 1996, low introductory rate account
balances that had not yet increased to higher rates represented 9.13% of the
Company's managed loans. When these accounts increase to higher rates, there
is a significant risk that the cardholders, who were initially attracted to
the Company's low introductory rates, may switch accounts or transfer account
balances to lower priced products offered by competing card issuers. The
Company is testing ways to reduce this risk by, for example, charging a fee
for balances repaid shortly after expiration of the low introductory rate.
The Company also faces intense competition in the home equity area. More
competitors are now employing direct marketing programs to attract home equity
borrowers. These competing programs include some that are similar to the
programs and strategies that the Company has used to attract new home equity
accounts and encourage borrowings on these accounts.
- --------
(1) American Express and Discover are registered trademarks of American
Express Company and Dean Witter, Discover & Co., respectively.
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In addition to competition for customers, the Company faces competition when
it seeks to obtain funds to use in its business. This competition comes from
banks, savings institutions, money market funds, credit unions and a wide
variety of other entities that take deposits, sell debt securities or sell
securities backed by assets such as receivables. Competition from these other
borrowers could increase the Company's cost of obtaining funds.
RISKS ASSOCIATED WITH THE CONSUMER LENDING BUSINESS
There are many other risks associated with the credit card and consumer
lending industry besides intense competition. These include the risks that we
discuss below.
Increased Credit Losses
Providian Bancorp, like other consumer lenders, faces the risk that
accountholders will not repay their loans, resulting in accounts becoming
uncollectible. The rate at which the Company's consumer loans are charged off
as uncollectible, referred to as the "credit loss rate," has been increasing
since 1995 and increased to 6.04% annualized, based on current estimates, in
the first quarter of 1997 from 4.82% for the full year 1996. While the Company
cannot predict with certainty, the Company expects that credit losses will
continue to increase in the near term. We discuss the increasing credit loss
rate, and the Company's responses to it, in more detail under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset Quality."
Widespread increases in nonpayment are most likely to occur if the country
or a regional area encounters an economic downturn, such as a recession, but
they could also occur for other reasons. Some of the factors that could
influence the Company's future credit loss rates are discussed below.
Consumers who miss payments on their loans often fail to repay them, and
consumers who file for protection under the bankruptcy laws generally do not
repay their loans. Therefore, the rate of missed payments, or "delinquencies,"
on a lender's portfolio of loans, and the rate at which consumers may be
expected to file for bankruptcy, can be used to predict the future rate at
which loans will be written off as uncollectible and charged against the
lender's earnings. Both delinquencies and bankruptcies have been occurring at
increased rates in recent periods.
The delinquency rate on the Company's consumer loans has increased over the
last three years. At December 31, 1996, 4.08% of the Company's managed credit
card balances were 31 days or more delinquent, compared to 3.22% at December
31, 1995, and 2.97% at December 31, 1994. For the Company's entire managed
consumer loan portfolio at December 31, 1996, 4.37% of the balances were 31
days or more delinquent, compared to 3.32% at December 31, 1995, and 3.03% at
December 31, 1994. The American Bankers Association reports that in the
industry generally, credit card balances 30 days or more past due reached a
record high of 5.45% in the fourth quarter of 1996. Bankruptcy filings in the
United States are also increasing. According to the Administrative Office of
the U.S. Courts, a record number of approximately 1.18 million bankruptcy
filings were reported in the 12 months ended December 31, 1996.
The age and rate of growth of a consumer loan portfolio also affects the
rate of missed payments and loans charged off as uncollectible. Consumers are
less likely to miss their payments within the first 12 to 18 months of a loan.
When a lender makes fewer loans than it has in the past, the proportion of new
loans in its portfolio will decrease and the rate of missed payments and
charge-offs in the portfolio will increase. This would result in lower
earnings unless offset by other changes such as decreased operating expense or
lower acquisition costs. As of December 31, 1996, approximately 34% of the
Company's managed unsecured consumer loan receivables outstanding were no more
than 12 months old. Because the Company cannot fully predict the rate at which
it will make new loans in the future, there is a risk that this proportion may
decrease, resulting in increased rates of loss.
Although the Company believes that its current allowance for credit losses
is adequate, material increases in credit losses could significantly hurt the
Company's results of operations. For a discussion of how the Company decides
on its reserves for losses, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset Quality."
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Third Party Services
The Company's business depends on a number of services provided by third
parties, including nationwide credit bureaus, postal and telephone service
providers, bank card associations, and providers of transaction processing
services. The Company has contingency plans designed to minimize the impact of
a disruption in the services it obtains from these third parties. However, a
major disruption in one or more of these services could significantly hurt the
Company's operations.
Interest Rate Changes
Providian Bancorp, like other financial institutions, borrows money from
institutions and depositors in order to lend money to customers. The Company
earns interest on the consumer loans it makes, and pays interest on the
deposits and borrowings it uses to fund those loans. Some of the loans and
borrowings bear interest at rates that are fixed for a period of time; others
bear interest at rates that vary over time based on changes to a specified
index. In most cases, the Company's variable rate loans to consumers are
indexed to changes in the Prime Rate. The Company's variable rate borrowings
from institutions are usually indexed to changes in the London Interbank
Offered Rate (which is referred to as "LIBOR"). The Company also has the
ability to increase rates on its fixed and variable rate consumer loans, other
than home equity loans, after giving customers notice of the change.
The rate of interest the Company pays on its borrowings may increase if
interest rates rise. If the rate of interest the Company earns on its loans
does not increase by the same amount, the Company's earnings could fall. This
could occur because the Company has more fixed rate loans than borrowings, or
because the loan terms do not allow the Company to increase the interest rate
quickly in response to interest rate changes, or because the Prime Rate has
not increased as fast as LIBOR. The Company's earnings could also be hurt in a
period of falling interest rates if the rates on its consumer loans fall
faster than those on its borrowings.
The Company manages these risks by using the sophisticated financial
instruments and planning techniques that we describe under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Interest Rate Sensitivity." The goal is to maintain an interest
rate neutral or "matched" position, where interest rates on loans and
borrowings go up or down by the same amount and at the same time in response
to changes in interest rates. The Company, however, cannot always achieve this
position at a reasonable cost. As a result, there is a risk that changes in
interest rates, particularly large and rapid increases in interest rates,
could hurt the Company's earnings.
Cost and Availability of Funding
Providian Bancorp obtains the funds it uses to make loans from many sources.
The most important sources are depositors, who may be institutions or
individuals, commercial lenders such as banks, and "asset securitizations," in
which the Company sells securities backed by an interest in designated
consumer loan receivables. Changes in the lending or securitization markets
could make one or more of these funding sources more expensive or unavailable,
which would hurt the Company's earnings. These changes could result from new
government regulations, competition for the funds, events that disrupt world
capital markets, or other reasons beyond the Company's control. We describe
the Company's "asset securitization" transactions in more detail under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Funding and Liquidity."
Asset securitization is the Company's largest single type of funding, and
one that is especially useful because it is relatively inexpensive and capital
efficient. When the Company sells securities backed by consumer loan
receivables, those receivables are removed from its balance sheet and the
Company generally is not required to hold capital against them. Asset
securitizations currently receive favorable tax and accounting treatment. To
complete one, the Company works with a number of third parties, who provide
credit enhancement, rate the credit quality of the securities, and sell the
securities, among other things. The Company's ability to securitize could be
hurt in the future by new government regulations or other events that might
make these third parties
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unwilling to participate on favorable terms. If this happened, the Company
would be forced to rely on other funding sources, which could be more
expensive, and to maintain more capital than is currently the case. The
investor securities issued in existing securitizations might have to be repaid
early if the receivables that back the securities were to perform poorly,
particularly if there were a substantial increase in loans written off as
uncollectible. This would create an immediate need for funds to repay the
securities. As the receivables would be returning to the balance sheet, the
Company would also be required to maintain capital against them. The Company
carefully watches the performance of its securitized receivables and of the
securitization markets, in order to be prepared to minimize the impact of any
changes. However, there is a risk that events beyond the Company's control
could disrupt its funding programs and hurt its earnings.
Other Industry Risks
Other industry risks that the Company faces include the risk of fraud by
accountholders and third parties, and the risk that customers will repay their
loans more rapidly than they have in the past, reducing the amount of interest
paid to the Company. In addition, consumer advocates and the media have, in
the past, criticized the consumer lending and the credit card businesses. The
critics have focused on marketing practices that they claim encourage
consumers to borrow more money than they should, as well as on pricing
practices that they claim are confusing or too high. Increased criticism in
the future could hurt consumer acceptance of the Company's products. The
Company also faces the risk of litigation, particularly class action
litigation, challenging the interest rates and fees that the Company charges,
as well as the Company's disclosures and other terms relating to these rates
and fees, under state and federal consumer protection statutes and other laws.
See "--Regulation" below and "Regulatory Matters."
REGULATION
Federal and state laws and rules significantly limit the types of activities
in which Providian Bancorp's financial institution subsidiaries may engage. In
addition, federal and state consumer protection laws and rules limit the
manner in which the subsidiaries may offer and extend credit. The United
States Congress and the states may enact new laws and amendments to existing
laws that further restrict consumer lending. For example, new laws or rules
could limit the amount of interest or fees the Company can charge on consumer
loan accounts, or restrict its ability to collect on account balances. The
laws governing bankruptcy and debtor relief could be changed, creating
additional expense or making it more difficult for the Company to collect from
customers. Existing laws and rules are complex. If the Company fails to comply
with them it might not be able to collect its loans in full, or might be
required to pay damages or penalties to consumers. For these reasons, new or
existing laws or rules could hurt the Company's profits. In addition, the
United States Department of Justice (the "DOJ") has been investigating
competitive issues in connection with Visa and MasterCard/1/ rules that
prohibit their members from issuing cards through competitors. As a result of
the investigation, the DOJ could seek to force Visa and MasterCard to allow
their member banks to issue competing cards such as American Express and
Discover. Conversely, the DOJ could seek to overturn the system of "duality"
which allows banks to issue both Visa and MasterCard credit cards. The
competition among credit card issuers is already intense, and actions designed
to increase competition among credit card networks would increase competitive
opportunities for the Company as well as for other issuers. Therefore, the
Company does not expect that these actions would hurt its operations or
results in a material way. However, the investigation is at an early stage and
the Company cannot predict what impact, if any, it may have on the credit card
industry or on the Company in the future.
Providian Bancorp is not currently registered as a bank holding company,
even though it owns banks, because it is grandfathered under existing law. We
explain this law in the "Regulatory Matters" section below. Providian Bancorp
does not currently plan to register as a bank holding company. However, if the
Company chooses to or is required to register as a bank holding company in the
future, it will become subject to regulation by the Board of Governors of the
Federal Reserve System. Bank holding companies are subject to various
requirements and restrictions. These include: maintaining adequate capital;
limits on permitted business activities; and serving as a source of strength
to financial institution subsidiaries. See "Regulatory Matters--Nonbank Bank
Status."
- --------
(1) Visa and MasterCard are registered trademarks of Visa U.S.A., Inc. and
MasterCard International Incorporated, respectively.
12
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DEPENDENCE ON KEY MANAGEMENT
Providian Bancorp's management and operations depend on the skills and
experience of its senior management team, including its Chief Executive
Officer, Shailesh J. Mehta. The Company has entered into a term employment
agreement with Mr. Mehta, but does not currently have term employment
agreements with any other executive officer or key employee. The loss of Mr.
Mehta or a significant number of other senior officers could hurt the Company
materially. In addition, there are other employees who may be viewed as key
employees and whose departure could hurt the Company. We describe the terms of
Mr. Mehta's employment agreement under the heading "Management--Employment
Agreements."
HOLDING COMPANY STRUCTURE
Providian Bancorp conducts its consumer lending operations largely through
two national bank subsidiaries, First Deposit National Bank and Providian
National Bank, and through a Utah industrial loan corporation subsidiary,
Providian Credit Services, Inc. The Company's future performance will depend
largely on these financial institutions. The ability of these subsidiaries to
pay dividends to the Company depends on their financial position, their
operating performance, the money they have on hand, their need for funds, and
other similar factors. In addition, federal and state laws and rules require
these financial institution subsidiaries to maintain adequate capital and
restrict their ability to pay dividends or make loans to the Company. In some
circumstances, these laws and rules could require the Company to provide funds
to support these subsidiaries. We explain these rules under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Adequacy." If these subsidiaries cannot pay full dividends
to the Company or if the Company needs to provide financial support to these
subsidiaries, the Company's financial condition could be hurt.
NO PRIOR MARKET FOR PROVIDIAN BANCORP COMMON STOCK
There has been no public trading market for the Providian Bancorp common
stock in the past. Although the Company has applied to list the Providian
Bancorp common stock on the New York Stock Exchange, it cannot be sure that
the shares will be actively traded and it cannot predict what the market price
for the shares may be. Some of the Providian stockholders who receive shares
of Providian Bancorp common stock may decide that they do not want shares in a
consumer lending company, and this may delay development of an orderly trading
market in the shares for a period of time after the spin-off. Until an orderly
trading market develops, the market price for the shares may fluctuate
significantly. The market price for Providian Bancorp common stock will also
depend on factors such as: the Company's performance and prospects; what
investors think of the Company and of the consumer lending industry; the
amount of dividends that the Company pays; and general financial and economic
conditions.
POSSIBILITY OF SUBSTANTIAL SALES OF PROVIDIAN BANCORP COMMON STOCK
Based on the number of shares of Providian common stock outstanding on April
10, 1997, Providian will distribute to its stockholders a total of
approximately 94.6 million shares of Providian Bancorp common stock. Under the
securities laws, almost all of these shares may be resold immediately in the
public market. The Company cannot predict whether stockholders will resell
large numbers of these shares in the public market following the spin-off, or
how quickly they may resell these shares. If large numbers of shares are
resold, or if investors fear that they will be resold, this could hurt the
market price of the shares.
CERTAIN ANTITAKEOVER EFFECTS
Some of the terms of Providian Bancorp's certificate of incorporation and
bylaws could make a takeover of Providian Bancorp after the spin-off more
difficult. The stock purchase rights that Providian Bancorp will issue
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with its common stock, and some provisions of the Delaware corporation laws,
could also have this effect. In particular, the certificate of incorporation
and the bylaws:
(1) divide the Providian Bancorp Board into three groups, so that
stockholders elect only one-third of the Board each year;
(2) permit stockholders to remove directors only for cause, by a vote of
at least 80% of the Company's voting shares;
(3) permit only the Providian Bancorp Board or the Chairman of the
Providian Bancorp Board to call a special stockholders meeting;
(4) do not permit stockholders to take action by written consent without
a stockholders meeting;
(5) require stockholders to give the Company advance notice to nominate
candidates for election to the Providian Bancorp Board or to make
stockholder proposals at a stockholders meeting; and
(6) provide that the stockholders may amend or repeal any of these
provisions only with an 80% vote.
The Company also expects that the stock purchase rights it will issue would,
in effect, prevent a person or group from acquiring more than 15% of the
Company's shares without approval from the Providian Bancorp Board. In
addition, the Delaware corporation law generally restricts mergers and other
business combinations between the Company and any holder of 15% or more of the
Providian Bancorp common stock, unless the transaction or the 15% acquisition
is approved in advance by the Providian Bancorp Board. See "Description of
Providian Bancorp Capital Stock" and "Certain Antitakeover Effects."
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<PAGE>
INTRODUCTION
Providian Bancorp is sending this document (the "Information Statement") to
the stockholders of Providian Corporation ("Providian"), in connection with
Providian's proposed distribution (the "Distribution") to its stockholders of
all the common stock, par value $.01 per share (the "Providian Bancorp Common
Stock"), of its wholly owned subsidiary, Providian Bancorp, Inc. ("Providian
Bancorp" or the "Company"). The Distribution is designed to separate Providian
Bancorp from Providian. Under a Plan and Agreement of Merger and
Reorganization, dated as of December 28, 1996, among Providian, AEGON N.V.
("AEGON") and LT Merger Corp., as amended on April 2, 1997 (the "Merger
Agreement"), immediately after the Distribution, the remaining Providian
operations will be merged with LT Merger Corp., which is a wholly owned
subsidiary of AEGON (the "Merger"). As a result of the Merger, Providian will
become a wholly owned subsidiary of AEGON. Because the Merger requires the
approval of Providian stockholders, Providian and AEGON are sending to
Providian stockholders, together with this Information Statement, a Proxy
Statement-Prospectus with respect to the Merger (the "Proxy Statement-
Prospectus").
Under the Agreement and Plan of Distribution between Providian and Providian
Bancorp, dated as of December 28, 1996 (the "Distribution Agreement"), the
Distribution will occur immediately prior to completion of the Merger, which
is currently expected to be during June 1997. The date on which the
Distribution occurs is referred to in this document as the "Distribution
Date." In the Distribution, Providian stockholders will receive one share of
Providian Bancorp Common Stock, together with an associated preferred share
purchase right (a "Right"), for each share of common stock of Providian (the
"Providian Common Stock") held on June 1, 1997 (the "Distribution Record
Date"). (References in this Information Statement to Providian Bancorp Common
Stock include the associated Rights.) Providian stockholders do not need to
make any payment for the shares of Providian Bancorp Common Stock they will
receive in the Distribution, and will not be required to surrender or exchange
shares of Providian Common Stock in order to receive shares of Providian
Bancorp Common Stock. Separately, in connection with the Merger, Providian
stockholders will be required to surrender and exchange their shares of
Providian Common Stock after the Distribution in order to receive voting
common shares, par value of one Dutch Guilder per share, of AEGON (the "AEGON
Common Shares").
There is currently no public market for the Providian Bancorp Common Stock,
although a "when-issued" trading market may develop on or about the
Distribution Record Date. The Company has filed an application to list shares
of Providian Bancorp Common Stock on the New York Stock Exchange, Inc. (the
"NYSE"), under the symbol "PVN". Providian Bancorp plans to change its name to
Providian Financial Corporation shortly before the Distribution.
The Distribution is subject to the satisfaction of all the conditions to the
Merger Agreement, including stockholder approval, the receipt by Providian of
a private letter ruling (the "IRS Ruling") from the Internal Revenue Service
("IRS") to the effect that the Distribution and the Merger will not be taxable
transactions for United States federal income tax purposes, regulatory
approvals and antitrust clearance. See "The Distribution--Material Federal
Income Tax Consequences" and "--Conditions; Termination." The Distribution is
also subject to a number of other conditions described under "The
Distribution--Conditions; Termination."
Providian Bancorp's principal executive offices are located at 201 Mission
Street, San Francisco, California 94105; telephone (415) 543-0404. Providian
stockholders with inquiries relating to the Distribution should call
Providian's shareholder relations department at (502) 560-3508, or First
Chicago Trust Company of New York, the distribution agent for the Distribution
(the "Distribution Agent"), at (800) 317-4445. After the Distribution,
stockholders of Providian Bancorp with inquiries relating to their investment
in Providian Bancorp should contact the Distribution Agent at the above number
or Providian Bancorp Investor Relations, at 201 Mission Street, San Francisco,
California 94105; telephone (415) 543-0404.
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THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
Providian's management and the Board of Directors of Providian (the
"Providian Board") have regularly looked for ways in which to improve
Providian's operations and thereby provide value to stockholders. Beginning in
and around April 1996, as part of its regular review process, Providian's
management re-examined various strategies for enhancing Providian's value
through both internal operating initiatives and restructuring strategies,
including strategic alliances. In April 1996, Providian's management retained
Goldman, Sachs & Co. ("Goldman Sachs") to assist with this review. Providian's
management provided a summary of its strategic review to the Providian Board
in August 1996. At the meeting, the Providian Board determined that various
potential strategic alternatives involving the sale or spin-off of one or two,
but not all, of Providian's three insurance operations did not warrant further
review. This conclusion was based primarily on the difficulty of separating
the three insurance businesses from each other, given the intertwined
corporate structure of these operations, and the significant tax liability
that would likely be associated with any sales of the insurance operations as
separate businesses. Concurrently, the Providian Board authorized the
continuation of management's strategic review with the assistance of Goldman
Sachs.
On October 6, 1996, Goldman Sachs presented to the Providian Board various
alternatives for enhancing long-term growth opportunities of Providian Bancorp
and the Providian insurance and related businesses and thereby increasing
stockholder value. These consisted of: (i) continuing with Providian's
existing business plan; (ii) the tax-free spin-off of Providian Bancorp
through which Providian's insurance operations and Providian Bancorp's banking
operations would each become a public, free-standing business; (iii) an
initial public offering of up to 20% of the shares of Providian Bancorp
followed by a tax-free spin-off of the remaining Providian Bancorp shares; and
(iv) the tax-free spin-off of Providian Bancorp followed by a subsequent
merger of the insurance operations with a strategic partner (the "Merger/Spin-
Off Transaction").
The Providian Board determined, after review and discussions, that the
Merger/Spin-Off Transaction provided the best opportunity to expand and grow
its insurance business and enhance stockholder value. In particular, the
Providian Board believed that the Merger/Spin-Off Transaction would create a
"pure-play," stand-alone Providian Bancorp, and would generate a price for the
insurance operations that the Providian Board believed would represent a
private market valuation for the insurance operations, which would be in
excess of the historical public valuation of Providian, based upon price to
earnings ("P/E") ratios. The Providian Board concluded that Providian Bancorp
probably would receive a higher market valuation as a stand-alone entity than
it did as a subsidiary of Providian. This is because the Providian Board
believed that Providian Bancorp's earnings historically have been valued at a
lower P/E ratio as part of Providian than the P/E ratio at which it may be
expected to be valued were Providian Bancorp a stand-alone public company,
based primarily on the P/E ratios of credit card, home equity and consumer
finance companies comparable to Providian Bancorp relative to historical
Providian P/E ratios. See "Proposal 3: The Proposed Merger--Opinion of
Financial Advisor--Selected Credit Card and Finance Companies Analysis" in the
Proxy Statement-Prospectus. The Providian Board also concluded that the
potential strategic partners for the insurance operations would either not be
interested in acquiring Providian Bancorp or would not be able or willing to
recognize the full potential value of such operations. This conclusion was
based on the composition of the existing business operations of these
potential strategic partners, the Providian Board's belief that the long-term
prospects of Providian Bancorp under its existing management are strong, and
the Providian Board's belief that Providian Bancorp's stand-alone value still
might not be realized as part of a potential insurance acquiror. See "Proposal
3: The Proposed Merger--Opinion of Financial Advisor--Possible Aggregate Value
and Stock Price Analysis" in the Proxy Statement-Prospectus.
After further study, the Providian Board concluded that the Merger/Spin-Off
Transaction was feasible, and authorized management to look for partners with
whom Providian might desire to consummate a merger. With the help of Goldman
Sachs, Providian began to solicit preliminary indications of interest. On
October 7, 1996, Providian contacted AEGON and two other potential bidders.
These three potential bidders were selected as the
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<PAGE>
three parties most likely to have a strong strategic interest in Providian's
insurance operations. The selection was further based on an analysis of the
potential bidders' size, financial resources to complete an acquisition of
this magnitude, business fit (including participation in home service
insurance operations) and perceived appetite for acquisitions. Each of the
three potential bidders executed a confidentiality agreement with Providian
and was provided with confidential evaluation material, including an actuarial
valuation prepared by Milliman & Robertson, Inc. See "Proposal 3: The Proposed
Merger--Recommendation of the Providian Board of Directors" in the Proxy
Statement-Prospectus. Providian also provided the three parties with drafts of
proposed agreements relating to the transaction. Each of the three potential
bidders was requested to submit a preliminary indication of interest by
November 8, 1996. The Providian Board met on November 6, 1996, and was
informed by Goldman Sachs and Providian's legal counsel as to the status of
the evaluation/bidding process.
On November 8, 1996, AEGON and the two other parties submitted preliminary
indications of interest for the acquisition of Providian's insurance
operations. Based on the preliminary indications of interest, AEGON and one
other bidder were selected to continue in the process and were requested to
submit definitive bids on November 27, 1996. The third bidder's preliminary
indication of interest was at a price level substantially below the other two,
and that bidder was not invited to continue. Between November 8 and November
27, 1996, the two continuing bidders conducted due diligence with respect to
Providian's insurance operations, including meeting with Providian management
to discuss the insurance operations and reviewing documentation relating to
these operations. In addition, each of the two bidders submitted a preliminary
markup of Providian's proposed draft merger agreement, and legal
representatives of each bidder began discussions with Providian's legal
representatives with respect to these markups.
On November 27, 1996, AEGON submitted a definitive bid for Providian's
insurance operations. The bid also included a definitive markup of Providian's
proposed merger agreement showing AEGON's requested changes to the agreement,
and preliminary comments on Providian's drafts of the related agreements. The
other bidder in the process notified Providian that it would not be submitting
a definitive bid because it had decided it was not interested in acquiring all
of the Providian insurance operations.
AEGON's definitive bid was at a lower price than the low end of the range of
values indicated in its preliminary indication of interest, and
representatives of Providian informed representatives of AEGON that the bid
was unacceptable. During the first two weeks of December 1996, representatives
of Providian and AEGON had a number of discussions with respect to the
possibility of AEGON increasing its bid. The representatives participating in
these discussions included Providian's Chief Executive Officer and AEGON USA's
Chief Executive Officer, as well as representatives of each company's
financial advisors. In addition, Providian began discussions with three other
potential bidders who had contacted Goldman Sachs to express their interest in
Providian's insurance operations. After discussions with AEGON and these other
potential bidders and due diligence with certain of the other potential
bidders, AEGON agreed to increase its bid. Two of the three additional
potential bidders withdrew from discussions, and the third additional
potential bidder was unable to submit a bid or transaction structure that was
competitive with AEGON's increased bid.
Beginning on December 18, 1996, legal and business representatives of
Providian and AEGON met in New York to negotiate the proposed transaction
agreements between the two companies. Except for December 25, 1996, these
negotiations continued daily through December 27, 1996. The participants in
these negotiations included Providian's Vice President--Corporate Planning and
Development and AEGON USA's Executive Vice President. The negotiations focused
on the contract terms of the proposed transaction, including: the precise
terms of the formula for determining the ratio at which each share of
Providian Common Stock is converted into a right to receive a fraction of an
AEGON Common Share; the allocation of liabilities between Providian and
Providian Bancorp; the terms and conditions of the break-up fee payable to
AEGON under certain circumstances; the restrictions on the businesses of
Providian and of AEGON during the period between signing and completion of the
Merger; the non-competition obligations of Providian Bancorp following the
Merger; and the representations and warranties of the two companies. During
the week of December 16, 1996, legal and business representatives of Providian
and AEGON met at the executive offices of AEGON in The Hague, The Netherlands
to discuss the proposed transaction and to review AEGON's operations. The
participants in these discussions included the Chief Executive Officer of
Providian and the Chairman of AEGON.
17
<PAGE>
On December 23, 1996, the Supervisory Board of AEGON authorized certain
officers of AEGON to enter into definitive agreements for the acquisition of
Providian, within specified parameters. On December 28, 1996, the Providian
Board met to consider the Merger Agreement, the Distribution Agreement and the
transactions contemplated thereby. At this meeting, Goldman Sachs made a
presentation and delivered an oral opinion to the Providian Board, which was
subsequently confirmed in writing, that the distribution of shares of
Providian Bancorp Common Stock to holders of shares of Providian Common Stock
under the Distribution Agreement and the receipt by such holders of AEGON
Common Shares under the Merger Agreement, taken together, were fair to the
holders of Providian Common Stock. The full text of the written opinion of
Goldman Sachs, dated as of December 28, 1996, which sets forth the assumptions
made, procedures followed and matters considered in, and the limitations on,
the review undertaken in connection with such opinion, is attached as Appendix
C to the Proxy Statement-Prospectus. See "The Proposed Merger--Opinion of
Financial Advisor" in the accompanying Proxy Statement-Prospectus. Following
the presentations and discussion at the meeting, the Providian Board
unanimously approved the Merger Agreement, the Distribution Agreement and the
transactions contemplated thereby. Thereafter, on December 28, 1996, the
Merger Agreement and the Distribution Agreement were executed and delivered.
The Providian Board believes that the Merger with AEGON will provide a
strategic opportunity for Providian to expand and develop its insurance
businesses, and that the Distribution will allow Providian Bancorp to continue
to develop its business successfully as a stand-alone entity. The Distribution
is intended to facilitate this reorganization of Providian, and to make
possible the Merger, by separating Providian Bancorp from the businesses of
Providian that will be acquired in the Merger. For a more detailed description
of the reasons for and expected benefits of the Merger, see "Proposal 3: The
Proposed Merger--Background of and Reasons for the Transactions" in the Proxy
Statement-Prospectus.
MANNER OF EFFECTING THE DISTRIBUTION
It is expected that the Distribution Date will be in June 1997 and that the
Distribution will be effected by book-entry transfer. On the Distribution
Date, Providian will deliver share certificates for the Providian Bancorp
Common Stock to the Distribution Agent. Commencing on or about the
Distribution Date, the Distribution Agent will credit the shares of Providian
Bancorp Common Stock to the accounts of, and begin mailing account statements
to, holders of Providian Common Stock as of the close of business on the
Distribution Record Date on the basis of one share of Providian Bancorp Common
Stock for each share of Providian Common Stock held on the Distribution Record
Date. All such shares of Providian Bancorp Common Stock will be fully paid,
nonassessable and free of preemptive rights. See "Description of Providian
Bancorp Capital Stock." Shareholders who desire a certificate representing
their shares of Providian Bancorp Common Stock will be entitled to receive a
certificate on request. Based on the number of shares of Providian Common
Stock outstanding as of April 10, 1997, approximately 94.6 million shares of
Providian Bancorp Common Stock would be issued in the Distribution.
NO HOLDER OF PROVIDIAN COMMON STOCK WILL BE REQUIRED TO MAKE ANY PAYMENT FOR
THE SHARES OF PROVIDIAN BANCORP COMMON STOCK TO BE RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF PROVIDIAN COMMON STOCK, OR
TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE PROVIDIAN BANCORP COMMON STOCK.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
General. The following discussion describes the material United States
federal income tax consequences of the Distribution and the Merger. The
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), United States Treasury regulations promulgated thereunder, and
judicial and administrative interpretations thereof, all as in effect on the
date hereof, and is subject to any changes in these or other laws occurring
after such date. The discussion generally does not address the effects of any
state, local or foreign tax laws.
18
<PAGE>
The tax treatment of a stockholder may vary depending upon such
stockholder's particular situation, and certain stockholders (including
individuals who hold restricted stock of Providian, individuals who hold
options in respect of Providian Common Stock, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, persons who do not
hold the Providian Common Stock as capital assets and persons who are neither
citizens nor residents of the United States, who are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States, or
who own immediately after the Merger at least 5% of either the total voting
power or the total value of the outstanding AEGON Common Shares) may be
subject to special rules not discussed below.
EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE TRANSACTIONS
DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY UNITED STATES
STATE AND LOCAL, OR FOREIGN TAX LAWS, AND OF CHANGES IN ANY APPLICABLE TAX
LAWS.
Federal Income Tax Consequences of the Transactions. Consummation of the
Distribution and the Merger is conditioned upon the receipt of the IRS Ruling
substantially to the effect that (i) the Distribution will qualify as a tax-
free distribution under Section 355 of the Code, (ii) the Merger will qualify
as a "reorganization" under Section 368(a) of the Code, (iii) the exchange in
the Merger of Providian Common Stock for AEGON Common Shares will not result
in any gain or loss to the Providian stockholders (except to the extent of the
cash received), and (iv) neither Providian nor LT Merger Corp. will recognize
any gain or loss as a result of the Merger. The request for the IRS Ruling was
filed with the IRS on January 30, 1997 and was supplemented on March 3, 1997.
In addition, if the transactions so qualify, then:
(i) No gain or loss will be recognized by Providian or Providian Bancorp
as a result of the Distribution.
(ii) No gain or loss will be recognized by (and no amount will be
included in the income of) the Providian stockholders as a result of their
receipt of Providian Bancorp Common Stock in the Distribution.
(iii) The aggregate basis of Providian Bancorp Common Stock and Providian
Common Stock in the hands of Providian's stockholders immediately after the
Distribution will be the same as the aggregate basis of Providian Common
Stock held immediately before the Distribution, and such tax basis will be
allocated between the Providian Bancorp Common Stock and Providian Common
Stock based upon their relative fair market values at the time of the
Distribution.
(iv) The holding period of Providian Bancorp Common Stock received by a
Providian stockholder in the Distribution will include the period during
which such stockholder held Providian Common Stock, provided that the
Providian Common Stock was held as a capital asset.
(v) A Providian stockholder's tax basis for the AEGON Common Shares
received in the Merger, including any fractional share interest for which
cash is received, will equal such stockholder's basis in the Providian
Common Stock surrendered in the Merger (determined immediately following
the Distribution, adjusted in the manner described in paragraph (iii)
above).
(vi) A Providian stockholder's holding period for the AEGON Common Shares
received in the Merger, including any fractional share interest for which
cash is received, will include the period for which the shares of Providian
Common Stock surrendered in the Merger were held, provided that such shares
were held as capital assets.
(vii) Providian stockholders who receive cash in lieu of fractional AEGON
Common Shares will recognize gain or loss measured by the difference
between the basis of the fractional share interest and the cash received.
The gain or loss will be a capital gain or loss, provided that the
Providian Common Stock exchanged is a capital asset in the hands of the
Providian stockholder.
AEGON and Providian will not complete the Distribution and the Merger unless
they receive, or waive the receipt of, the IRS Ruling. Stockholders should be
aware, however, that the IRS Ruling will be based upon certain representations
as to factual matters made by, among others, Providian, Providian Bancorp and
AEGON which, if incorrect in certain material respects, would jeopardize the
validity of the IRS Ruling. Neither
19
<PAGE>
Providian, Providian Bancorp nor AEGON is currently aware of any facts and
circumstances which would cause any such representations to be untrue or
incorrect in any material respect. In addition, Providian, Providian Bancorp
and AEGON have made certain representations and agreed to certain covenants
restricting their respective future actions to provide further assurances that
the Merger and the Distribution will be tax free.
Providian and AEGON may, by mutual agreement, choose to waive the condition
that they receive the IRS Ruling and, instead, rely on opinions from their
respective tax counsel to the same effect. In the event Providian and AEGON
agree to waive the receipt of the IRS Ruling, Providian intends to resolicit
the vote of its stockholders as to whether it should proceed with the Merger.
If Providian and AEGON rely on opinions from tax counsel, there can be no
assurance that the IRS will not challenge the Merger/Spin-off Transaction as a
taxable transaction and, if challenged, whether the Distribution and the
Merger will remain tax free.
On February 6, 1997, the President's budget recommendations to Congress
called for new legislation, generally effective for distributions occurring on
or after the date of the first committee action, which, if enacted, would
require Providian to recognize taxable gain upon the consummation of the
Distribution and the Merger equal to the excess of the value of the Providian
Bancorp Common Stock distributed to the stockholders over Providian's basis in
such stock. Such legislation has not yet been introduced in Congress.
Netherlands Dividend Withholding Tax. Under the income tax treaty currently
in force between The Netherlands and the United States (the "Treaty"), any
dividend paid by AEGON to a resident of the United States (as defined in the
Treaty) will be subject to a Dutch withholding tax that, in most cases, will
equal 15% of the gross amount of the dividend. Subject to certain limitations,
an AEGON shareholder who is subject to such withholding tax should be allowed
a credit or deduction for such withholding tax against such stockholder's
United States income tax liability. For more information on the Dutch
withholding tax, see "Taxation" in AEGON's 1995 Annual Report on Form 20-F
(you can obtain this report by following the instructions provided in this
Information Statement under "Where You Can Find More Information").
United States Backup Withholding Tax. Under the backup withholding rules, a
holder of Providian Bancorp Common Stock and, under proposed United States
Treasury Regulations, AEGON Common Shares may be subject to backup withholding
at the rate of 31% with respect to dividends and proceeds of a redemption,
unless such stockholder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides
a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. Any amount withheld under these rules would be
credited against the stockholder's United States federal income tax liability.
Providian Bancorp or AEGON may require holders of Providian Bancorp Common
Stock or AEGON Common Shares to establish an exemption from backup withholding
or to make arrangements satisfactory to Providian Bancorp or AEGON with
respect to the payment of backup withholding. A stockholder who does not
provide Providian Bancorp or AEGON with such stockholder's current taxpayer
identification number may be subject to penalties imposed by the IRS.
APPRAISAL RIGHTS
Holders of shares of Providian Common Stock are not entitled to dissenters'
appraisal rights which would give them the right to obtain the payment of cash
in exchange for their Providian Common Stock as a result of the Distribution
or the Merger.
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder (the "HSR Act"), certain
transactions, including the Merger, may not be consummated unless certain
waiting period requirements have been satisfied. AEGON and Providian have
obtained clearance from the DOJ indicating compliance with this requirement.
However, at any time before or
20
<PAGE>
after the Merger becomes effective, the United States Federal Trade Commission
(the "FTC"), the DOJ or any other person could take action under the antitrust
laws, including seeking to enjoin the consummation of the Merger or seeking
the divestiture by AEGON of all or any part of Providian. Although AEGON and
Providian do not believe that there are substantive grounds for such
challenge, there can be no assurance that a challenge to the Merger on
antitrust grounds will not be made or that, if such a challenge is made, it
would not be successful.
Providian is engaged in writing life and accident and health insurance.
Generally, a person seeking to acquire voting securities, such as shares of
Providian Common Stock, in an amount that would result in such person
controlling, directly or indirectly, a United States insurer must, together
with any person ultimately controlling such person, file with the relevant
insurance commissioners an application seeking approval of the change of
control. Providian owns insurance companies domiciled in Kentucky, North
Carolina, Missouri, New York, Illinois, New Jersey and Texas. Accordingly, the
obligations of Providian and AEGON to consummate the Merger are conditioned,
among other things, upon the relevant commissioners of insurance approving the
change of control. The Kentucky, North Carolina, Missouri, New York, Illinois,
New Jersey and Texas insurance statutes require a determination by the
commissioner of insurance of each state as to certain factual matters with
respect to the proposed acquisition. Public hearings concerning the
transaction may be required in each state. AEGON and Providian have filed
applications for such approvals, but there can be no assurance as to when or
if the required approvals will be obtained.
In addition, Providian Bancorp has received a no-action letter from the
Federal Reserve to the effect that it may continue to operate as a
grandfathered institution under the Competitive Equality Banking Act of 1987
("CEBA").
The Merger Agreement provides that, subject to certain terms and conditions,
the parties to the Merger Agreement shall take, or cause to be taken, all
actions and do, or cause to be done, all things necessary, proper or
advisable, without the imposition of any conditions which would have a
material adverse effect on such party, to consummate and make effective as
promptly as practicable the transactions contemplated by the Merger Agreement,
including, but not limited to, (i) obtaining the written consent or approval
of each and every governmental authority and other regulatory body required in
order to permit the parties to consummate the transactions contemplated by the
Merger Agreement and the Distribution Agreement and (ii) effecting all
necessary filings and submissions of information requested by governmental
authorities. For further information concerning other approvals and conditions
to the Merger, stockholders are advised to read "Proposal 3: The Proposed
Merger--The Merger Agreement--Conditions" in the accompanying Proxy Statement-
Prospectus.
LISTING AND TRADING OF PROVIDIAN BANCORP COMMON STOCK
There is currently no public market for the Providian Bancorp Common Stock.
Although Providian Bancorp has applied to list the Providian Bancorp Common
Stock on the NYSE, there can be no assurance as to the prices at which trading
in the Providian Bancorp Common Stock will occur after the Distribution. Until
the Providian Bancorp Common Stock is fully distributed and an orderly trading
market develops, the prices at which trading in such stock occurs may
fluctuate significantly. There can be no assurance that an active trading
market in the Providian Bancorp Common Stock will develop or be sustained in
the future.
The prices at which Providian Bancorp Common Stock trades will be determined
by the marketplace, and may be influenced by many factors, including, among
others, Providian Bancorp's performance and prospects, the depth and liquidity
of the market for Providian Bancorp Common Stock, investor perception of
Providian Bancorp and of the financial services industry, Providian Bancorp's
dividend policies, general financial and other market conditions, and general
economic conditions.
21
<PAGE>
Providian Bancorp initially will have approximately 9,600 stockholders of
record, based on the number of record holders of Providian Common Stock on
December 31, 1996. The Transfer Agent and Registrar for the Providian Bancorp
Common Stock will be First Chicago Trust Company of New York. For certain
information regarding options and other equity-based employee benefit awards
involving Providian Bancorp Common Stock that may become outstanding after the
Distribution, see "Management" and "Arrangements Between Providian and
Providian Bancorp--Employee Benefits Agreement."
Shares of Providian Bancorp Common Stock distributed to Providian
stockholders in the Distribution will be freely transferable, except for
securities received by persons who may be deemed to be "affiliates" of
Providian Bancorp under the Securities Act of 1933, as amended (the
"Securities Act"). Persons who may be deemed to be affiliates of Providian
Bancorp after the Distribution generally include individuals or entities that
control, are controlled by, or are under common control with, Providian
Bancorp, and may include certain officers and directors of Providian Bancorp
as well as principal stockholders of Providian Bancorp, if any. Persons who
are affiliates of Providian Bancorp will be permitted to sell their shares of
Providian Bancorp Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemption afforded by Section
4(2) of the Securities Act or by Rule 144 under the Securities Act.
See "Risk Factors--No Prior Market for Providian Bancorp Common Stock" and
"--Possibility of Substantial Sales of Providian Bancorp Common Stock."
CONDITIONS; TERMINATION
The Distribution is conditioned upon, among other things, (i) the execution
and delivery of certain intercompany agreements by Providian and Providian
Bancorp; (ii) Providian's receipt of a favorable no-action letter from the
Securities and Exchange Commission (the "SEC") to the effect that the
Distribution does not require registration of the Providian Bancorp Common
Stock under the Securities Act; (iii) the receipt by Providian Bancorp of the
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") allowing it to continue, or receipt of a no-action letter to the
effect that it may continue, to operate as a grandfathered institution under
CEBA, or, alternatively, registration by Providian Bancorp as a bank holding
company; (iv) effectiveness of the Registration Statement on Form 10 (the
"Providian Bancorp Registration Statement") of which this Information
Statement forms a part; (v) the acceptance for listing of the Providian
Bancorp Common Stock by the NYSE or such other exchange or quotations system
as Providian Bancorp may determine; (vi) the absence of any order, injunction
or decree or other legal restraint or prohibition preventing the consummation
of the Distribution; and (vii) satisfaction or waiver of all conditions to the
Merger set forth in the Merger Agreement, including stockholder approval and
the receipt of the IRS Ruling to the effect that the Distribution and the
Merger will not be taxable transactions for United States federal income tax
purposes. In the event the Merger Agreement is terminated, the Distribution
may be abandoned at any time prior to the Distribution Date by and in the sole
discretion of the Providian Board.
DIVIDEND POLICY
Providian Bancorp expects to pay quarterly dividends on the shares of
Providian Bancorp Common Stock after the Distribution. The declaration and
amounts of such future dividends will be at the discretion of the Board of
Directors of Providian Bancorp (the "Providian Bancorp Board"). The Company
expects that the declaration and amounts of dividends will depend on the
Company's earnings after the Distribution and any other factors that the
Providian Bancorp Board believes are relevant.
22
<PAGE>
CAPITAL SECURITIES
On February 4, 1997, the Company completed a capital securities transaction
pursuant to which Providian Capital I, a subsidiary trust of Providian
Bancorp, issued $160 million in liquidation amount of mandatorily redeemable
preferred securities (the "Capital Securities") to qualified institutional
buyers, within the meaning of Rule 144A under the Securities Act, and to
institutional accredited investors. Providian Capital I was formed in January
1997 for the sole purpose of issuing the Capital Securities (and certain
common securities of Providian Capital I owned by Providian Bancorp) and
investing the proceeds in 9.525% Junior Subordinated Deferrable Interest
Debentures issued by Providian Bancorp (the "Debentures"). In addition to its
obligations under the Debentures, the Company has guaranteed payments on the
Capital Securities, but only to the extent of funds held by Providian Capital
I. The sole assets of Providian Capital I consist of the Debentures and the
related expense reimbursement agreement issued by the Company. The Company
used the proceeds of this transaction for the retirement of outstanding
indebtedness ($42.5 million as of December 31, 1996) and the redemption of
preferred stock ($63.3 million as of December 31, 1996) held by Providian, and
for general corporate purposes.
The Company has the right to cause the redemption of the Capital Securities
(i) on or after February 1, 2007, in whole at any time or in part from time to
time, or (ii) prior to February 1, 2007, in whole but not in part, if as a
result of any change in the laws or regulations of any governmental authority,
or any administrative or judicial interpretation thereof, there is more than
an insubstantial risk that (a) either Providian Capital I would be subject to
United States federal income tax with respect to income received or accrued on
the Debentures, interest payable on the Debentures would not be deductible by
the Company for United States federal income tax purposes or Providian Capital
I would be subject to more than a de minimis amount of other taxes, duties and
governmental charges, or (b) if the Company is then subject to the capital
adequacy guidelines of the Federal Reserve, the Company would not be entitled
to treat an amount equal to the liquidation amount of the Capital Securities
as Tier 1 Capital for purposes of such capital adequacy guidelines.
If the Capital Securities are redeemed on or after February 1, 2007, the
redemption price of the Capital Securities will be an amount equal to the sum
of (i) 100% of the liquidation amount of the Capital Securities, (ii) 4.7625%
of the liquidation amount of the Capital Securities for a redemption occurring
during the 12-month period beginning February 1, 2007, which percentage will
be reduced on each February 1 thereafter by approximately one-tenth of the
original amount of such percentage (such percentage being reduced to 0.00% for
redemptions occurring on or after February 1, 2017) and (iii) accumulated but
unpaid distributions on the Capital Securities to the date of redemption.
If the Capital Securities are redeemed before February 1, 2007 as a result
of a regulatory change, as described above, the redemption price of the
Capital Securities will be an amount equal to the sum of (i) the greater of
(a) 100% of the corresponding principal amount of the Debentures to be
redeemed, and (b) the present value of the principal and premium payable as
part of redemption price for an optional redemption of the Debentures on
February 1, 2007, together with scheduled interest payments on the Debentures
from the prepayment date to February 1, 2007, in each case discounted to the
prepayment date at a discount rate equal to 0.50% (or if the prepayment date
occurs before February 1, 1998, 2.34%) over the yield on United States
Treasury securities having a maturity comparable to the February 1, 2007
optional prepayment date and (ii) accumulated but unpaid distributions on the
Capital Securities to the date of redemption.
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<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
Providian Bancorp as of December 31, 1996 and on an adjusted basis to give
effect to the Distribution, and to the sale of the Capital Securities, as if
such transactions had occurred on December 31, 1996. The capitalization table
set forth below should be read in conjunction with the historical and pro
forma financial statements of Providian Bancorp set forth elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------
ACTUAL AS ADJUSTED
----------- -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrowings:
Notes Payable to Affiliates................... $ 42,500 --
----------- -----------
Total Debt.................................. 42,500 --
----------- -----------
Company Obligated Mandatorily
Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated De-
ferrable Interest Debentures of Providian
Bancorp....................................... -- $ 160,000(1)
----------- -----------
Shareholders' Equity
7.25% Cumulative Preferred Stock
Class A, nonparticipating.................... 63 --
Common Stock, par value $1.00
($.01 as adjusted)(2)......................... 5 938
Additional Paid-in-capital.................... 63,706 0
Retained Earnings............................. 419,370 418,937
----------- -----------
Total Shareholders' Equity.................. 483,144 419,875
----------- -----------
Total Capitalization of Providian Bancorp... $ 525,644 $ 579,875
=========== ===========
</TABLE>
- --------
(1) On February 4, 1997, Providian Capital I, a subsidiary trust of Providian
Bancorp, which is the holder of the Debentures issued by Providian
Bancorp, issued $160,000,000 in liquidation amount of Capital Securities.
See "Capital Securities."
(2) There were 5,000 shares of Providian Bancorp Common Stock issued and
outstanding at December 31, 1996. Prior to the Distribution, Providian
Bancorp will recapitalize so that the par value of the Providian Bancorp
Common Stock is $.01 per share and the total number of outstanding shares
of Providian Bancorp Common Stock equals the total number of outstanding
shares of Providian Common Stock on the Distribution Record Date. At
December 31, 1996, there were approximately 93,768,000 shares of Providian
Common Stock outstanding.
24
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected historical financial and other
operating data for Providian Bancorp. For all periods shown, Providian Bancorp
has been a wholly owned subsidiary of Providian. The income statement and
statement of financial condition data for each of the five years ended
December 31, 1996 have been derived from the audited financial statements of
Providian Bancorp.
Providian Bancorp's historical financial information may not be indicative
of Providian Bancorp's future performance, nor does it necessarily reflect
what the financial position and results of operations of Providian Bancorp
would have been had Providian Bancorp operated as a separate, stand-alone
entity during the periods covered. The information set forth below should be
read in conjunction with "Pro Forma Condensed Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Providian Bancorp's historical financial statements and notes
thereto, included elsewhere herein.
Providian Bancorp periodically securitizes certain credit card, revolving
line and home equity loan receivables to provide funds for operations, improve
liquidity and effectively manage capital. The effect of these transactions is
to remove the transferred loans from the statement of financial condition and
to convert net interest income on the securitized receivables to loan
servicing fees. Because credit losses on the securitized receivables are
reflected as a reduction in loan servicing fees rather than in the reserve for
possible credit losses, Providian Bancorp's provision for possible credit
losses is maintained at a lower level than would be the case had such
receivables not been securitized. The managed loan portfolio data shown below
includes the loans sold in loan securitizations, loans held for securitization
and Providian Bancorp's on-balance-sheet loan portfolios.
25
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest Income:
Consumer Loans........ $ 574,335 $ 457,818 $ 315,001 $ 315,886 $ 314,560
Other................. 21,658 21,736 28,709 16,963 23,498
---------- ---------- ---------- ---------- ----------
Total Interest
Income............. 595,993 479,554 343,710 332,849 338,058
Interest Expense:
Deposits.............. 141,691 105,442 61,920 54,025 64,472
Borrowings............ 48,676 52,962 39,739 52,918 75,690
---------- ---------- ---------- ---------- ----------
Total Interest
Expense............ 190,367 158,404 101,659 106,943 140,162
---------- ---------- ---------- ---------- ----------
Net Interest Income. 405,626 321,150 242,051 225,906 197,896
Provision For Possible
Credit Losses......... 126,579 79,917 50,313 64,056 104,949
Other Income:
Loan Servicing Income. 280,887 251,855 208,954 172,814 140,273
Credit Product Fee
Income............... 123,654 81,374 57,683 49,110 25,047
Other Income.......... 7,467 2,535 2,652 6,303 17,480
---------- ---------- ---------- ---------- ----------
412,008 335,764 269,289 228,227 182,800
Other Expense:
Salary and Employee
Benefits............. 153,849 113,412 89,470 62,292 48,413
General and
Administrative....... 238,613 234,161 142,176 108,293 84,837
Amortization of Loan
Acquisition Costs... 41,342 14,561 54,178 82,849 35,779
---------- ---------- ---------- ---------- ----------
433,804 362,134 285,824 253,434 169,029
Income before income
taxes.............. 257,251 214,863 175,203 136,643 106,718
Income tax expense...... 97,485 79,411 65,084 51,205 37,844
---------- ---------- ---------- ---------- ----------
Net Income.......... $ 159,766 $ 135,452 $ 110,119 $ 85,438 $ 68,874
========== ========== ========== ========== ==========
STATEMENT OF FINANCIAL
CONDITION DATA:
Consumer Loans held for
securitization or
sale.................. $ 739,706 $ 123,330 -- -- --
Consumer Loans......... 2,939,436 3,058,486 $2,339,303 $1,933,155 $1,747,191
Other Loans............ 10,492 12,798 13,598 14,742 21,617
Allowance for possible
credit losses......... (114,540) (93,429) (76,218) (75,061) (82,975)
Total Assets........... 4,326,744 3,611,066 2,662,777 2,253,764 2,125,598
Deposits............... 3,390,112 2,157,765 1,680,450 1,553,385 1,385,115
Borrowings............. 258,500 942,680 532,800 282,626 358,733
Equity(1).............. 483,144 349,255 326,100 270,568 221,718
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
MANAGED LOAN DATA:
Credit Card Loans(2)... $7,843,695 $5,712,200 $4,083,581 $3,514,550 $3,250,756
Home Equity Loans...... 944,543 715,692 465,126 312,579 217,492
Secured Credit Card
Loans................. 466,798 199,743 110,703 53,988 13,974
Other Consumer Loans... 34,106 40,024 48,535 56,446 40,158
---------- ---------- ---------- ---------- ----------
Consumer Loans......... 9,289,142 6,667,659 4,707,945 3,937,563 3,522,380
Other loans............ 10,492 12,798 13,598 14,742 21,617
---------- ---------- ---------- ---------- ----------
Total managed loans. 9,299,634 6,680,457 4,721,543 3,952,305 3,543,997
---------- ---------- ---------- ---------- ----------
Securitized consumer
loans................. 5,610,000 3,485,843 2,368,642 2,004,408 1,775,189
---------- ---------- ---------- ---------- ----------
Total on balance
sheet loans........ $3,689,634 $3,194,614 $2,352,901 $1,947,897 $1,768,808
========== ========== ========== ========== ==========
Managed Revenues(3).... $1,490,256 $1,117,630 $ 832,962 $ 746,156 $ 678,910
CONSUMER LOAN
STATISTICS:
Total volume(4)........ $9,683,575 $6,602,300 $4,430,572 $3,340,970 $2,566,600
Total accounts (000s)
at period end......... 3,849 2,815 2,239 2,060 1,583
Managed net interest
margin(5)............. 10.78% 11.80% 12.79% 13.31% 12.83%
Managed delinquency
ratio(6).............. 4.37% 3.32% 3.03% 2.85% 2.47%
Managed loan net credit
loss ratio(7)......... 4.82% 3.96% 4.21% 4.71% 5.19%
MANAGED CREDIT CARD
STATISTICS:(2)
Total volume(4)........ $8,269,931 $5,670,313 $3,768,921 $2,902,577 $2,407,100
Total accounts (000s)
at period end......... 3,027 2,370 1,910 1,830 1,526
Managed net interest
margin(5)............. 11.22% 12.43% 13.55% 14.05% 13.37%
Managed delinquency
ratio(6).............. 4.08% 3.22% 2.97% 2.90% 2.61%
Managed loan net credit
loss ratio(7)......... 5.46% 4.49% 4.71% 5.14% 5.50%
RATIOS:
Net income to average
managed assets(8)..... 1.91% 2.24% 2.28% 2.03% 1.75%
Net income to average
equity................ 38.43% 38.85% 35.10% 33.44% 34.21%
Average equity to
average managed
assets................ 4.98% 5.75% 6.49% 6.08% 5.13%
</TABLE>
- --------
(1) On February 4, 1997, the Company issued $160,000,000 in liquidation amount
of Capital Securities which affect the capitalization of the Company. See
"Pro Forma Condensed Financial Statements."
(2) Includes unsecured credit card and revolving line loans.
(3) Includes finance charges and fee income.
(4) Includes all transactions, including balance transfers, credit card sales
and cash advances; excludes finance charge and fee income accrual
activity.
(5) Reflects total interest accrued on managed consumer loans, less Providian
Bancorp's actual cost of funds, costs associated with securitizations
including investor interest, amortization of fees and accretion of
discounts, as a percentage of average managed consumer loans.
(6) Reflects delinquencies, i.e., consumer loans which are 31 days or more
past due at period end, as a percentage of managed consumer loans at
period end.
(7) Represents principal amounts charged off, less recoveries, as a percentage
of average managed consumer loans during the period; fraud losses are not
included.
(8) Averaged managed assets includes total managed assets of Providian
Bancorp, including all consumer loan portfolios.
27
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following tables present the unaudited pro forma condensed statement of
income for the year ended December 31, 1996 and the unaudited pro forma
condensed statement of financial condition as of December 31, 1996 for
Providian Bancorp, giving effect to the Distribution and to the issuance of
$160 million in liquidation amount of Capital Securities by Providian Capital
I, a subsidiary trust of Providian Bancorp that was formed in January 1997 for
the sole purpose of issuing the Capital Securities (and certain common
securities of Providian Capital I owned by Providian Bancorp) and investing
the proceeds in the Debentures. The Capital Securities are redeemable as
described under "Capital Securities." The pro forma condensed statements of
income were prepared assuming that the Distribution and the sale of the
Capital Securities had occurred on January 1, 1996, as noted in the Notes to
the Pro Forma Condensed Statement of Income. The pro forma statement of
financial condition was prepared assuming that the Distribution and the sale
of the Capital Securities had occurred on December 31, 1996, as noted in the
Notes to the Pro Forma Condensed Statement of Financial Condition.
The unaudited pro forma condensed financial statements presented below do
not purport to represent what the results of operations or financial position
would actually have been if the pro forma adjustments had occurred on the
dates referred to above or to be indicative of the future results of
operations or financial position of Providian Bancorp. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The pro forma condensed financial
statements should be read in conjunction with the historical financial
statements of Providian Bancorp and the related notes thereto contained
elsewhere herein.
28
<PAGE>
PRO FORMA CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------
COMPANY PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Consumer Loans............................ $574,335 $574,335
Other..................................... 21,658 21,658
-------- --------
Total interest income................... 595,993 595,993
Interest Expense:
Deposits.................................. 141,691 141,691
Borrowings................................ 48,676 (2,839)(1) 45,837
-------- ------- --------
Total Interest Expense.................. 190,367 (2,839) 187,528
-------- ------- --------
Net Interest Income......................... 405,626 408,465
Provision for loan losses................... 126,579 126,579
Other income................................ 412,008 412,008
Other expense(4)............................ (3,838)(2)
2,372 (3)
-------
433,804 (1,466) 432,338
-------- ------- --------
Income before income taxes.................. 257,251 4,305 261,556
-------- ------- --------
1,079 (1)
1,458 (2)
(901)(3)
-------
Income tax expense.......................... 97,485 1,636 99,121
-------- ------- --------
NET INCOME.................................. $159,766 $ 2,669 162,435
======== ======= --------
Dividends on Company Obligated Mandatorily
Redeemable Preferred Securities of the
Trust...................................... (9,921)
--------
Net Income Applicable to Common Stock....... $152,514
========
Weighted Average Number of Common Shares
Outstanding................................ 93,664
NET INCOME PER COMMON AND COMMON EQUIVALENT
SHARE(5)................................... $ 1.63
</TABLE>
- --------
NOTES TO PRO FORMA CONDENSED STATEMENT OF INCOME:
(1) The pro forma condensed statement of income reflects, for the period
presented, the repayment of borrowings by Providian Bancorp from
affiliates that will no longer be affiliates after the Distribution,
totaling $50.8 million, and the redemption of preferred stock issued by
Providian Bancorp that was held by Providian, totaling $63.3 million. The
adjustment assumes that such repayment was funded from the proceeds of the
issuance of the Capital Securities as of January 1, 1996. The assumed
repayment of affiliate borrowings bearing interest at 5.59% results in a
reduction of interest expense of $2,839,000. For the period presented, the
Pro Forma Condensed Statement of Income reflects the net tax effect, at
Providian Bancorp's estimated combined United States federal and state
income tax rate of 38%, of replacing borrowings from affiliate entities
and reducing funding provided by CDs.
The proceeds from the issuance of Capital Securities remaining after the
redemption of preferred stock and repayment of borrowings described above
were $45.9 million. These proceeds are expected to be used to reduce
alternative funding currently provided by certificates of deposit ("CDs").
If the excess proceeds had been used for this purpose as of January 1, 1996,
the Company's interest expense would have been reduced by a total of
$2,724,000 based on the average CD interest rate paid by the Company during
1996 of 5.93%,
29
<PAGE>
with a corresponding increase in net income of $1,689,000, after giving
effect to a combined United States federal and state income tax rate of 38%.
(2) The Pro Forma Condensed Statement of Income reflects, for the period
presented, the reimbursement by Providian of $3.838 million of certain
previously recognized employee costs incurred by Providian Bancorp on
behalf of Providian. This reimbursement is required by the terms of the
Employee Benefits Agreement in connection with the Distribution. For the
period presented, the Pro Forma Condensed Statement of Income reflects the
net tax effect, at Providian Bancorp's estimated combined United States
federal and state income tax rate of 38%, of such reduction in
compensation expense.
As part of the Distribution, Providian Bancorp intends to grant stock
options in lieu of vesting of equity units ("Equity Units") under the
Providian Bancorp Equity Unit Plan (the "Equity Unit Plan") which, in prior
periods, resulted in the recognition of compensation expense as the units
vested. See "Management--The Equity Unit Plan." During 1996, Providian
Bancorp recognized $11.2 million in compensation expense, which, after
giving effect to a combined United States federal and state income tax rate
of 38%, resulted in a $7.0 million impact on net income. This expense would
not have been incurred had Providian Bancorp been a stand-alone company
utilizing stock options for incentive compensation purposes, as it plans to
do in the future. However, since this change is not directly attributable to
the Distribution, no adjustment has been made to the Pro Forma Condensed
Statement of Income.
(3) The Pro Forma Condensed Statement of Income reflects, for the period
presented, the additional administrative expenses (executive salaries,
professional services, business taxes and other expenses) which are
estimated to be incurred by Providian Bancorp as a publicly held, stand-
alone entity and the net tax effect, at the estimated combined United
States federal and state income tax rate of 38%, of such additional
administrative expenses. Actual future expenses may be higher or lower
than those reflected in the Pro Forma Condensed Statement of Income.
(4) Certain employees of Providian Bancorp have rights to restricted stock
which provides for vesting of the restricted shares over specified periods
of time. As part of the Distribution, the restricted shares will vest
immediately and such stock will be distributed to the holders. See
"Arrangements Between Providian and Providian Bancorp--Employee Benefits
Agreement." The impact to pretax earnings of such distribution will
increase salary and benefit expenses $2.3 million, and, after giving
effect to a combined United States federal and state income tax rate of
38%, will result in a $1.4 million impact to net income.
(5) In the Distribution, each Providian shareholder will receive one share of
Providian Bancorp Common Stock for each share of Providian Common Stock
held on the Distribution Record Date. Pro forma per share information is
calculated using net income divided by the weighted average number of
shares of Providian Common Stock outstanding (93,664,000 shares) in 1996.
Fully diluted net income per common share is not presented, as it
approximates net income per common share.
30
<PAGE>
PRO FORMA CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
UNAUDITED
AS OF DECEMBER 31, 1996
--------------------------------------
AS REPORTED, PRO FORMA
PROVIDIAN PRO FORMA PROVIDIAN
BANCORP ADJUSTMENTS BANCORP
------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents............. $ 82,946 $ 54,231 (1) $ 137,177
Federal Funds Sold.................... 172,350 172,350
Consumer Loans held for
securitization or sale............. 739,706 739,706
Consumer Loans........................ 2,939,436 2,939,436
Other Loans........................... 10,492 10,492
Less allowance for possible credit
losses............................... (114,540) (114,540)
---------- -------- ----------
NET LOANS......................... 3,575,094 3,575,094
Other assets.......................... 496,354 496,354
---------- -------- ----------
TOTAL ASSETS...................... $4,326,744 $ 54,231 $4,380,975
========== ======== ==========
LIABILITIES:
Deposits.............................. $3,390,112 $3,390,112
Federal Funds purchased............... 51,000 51,000
Notes Payable to Banks................ 165,000 165,000
Notes Payable to Affiliates........... 42,500 $(42,500)(1) --
Other Liabilities..................... 194,988 194,988
---------- -------- ----------
TOTAL LIABILITIES................. 3,843,600 (42,500) 3,801,100
Company Obligated Mandatorily
Redeemable Capital Securities of
Subsidiary Trust Holding Solely
Junior Subordinated Deferrable
Interest Debentures of Providian
Bancorp(2)........................... 160,000 (1) 160,000
Equity................................ 483,144 (63,269)(1) 419,875
---------- -------- ----------
TOTAL LIABILITIES AND EQUITY...... $4,326,744 $ 54,231 $4,380,975
========== ======== ==========
</TABLE>
- --------
NOTES TO PRO FORMA CONDENSED STATEMENT OF FINANCIAL CONDITION:
(1) The Pro Forma Condensed Statement of Financial Condition reflects the
repayment of borrowings from Providian Bancorp's affiliates and the
redemption of preferred stock held by Providian. The adjustment assumes
that such repayment was funded from the proceeds of the issuance of the
Capital Securities.
(2) The sole assets of Providian Capital I, the Trust that issued the Capital
Securities (the common securities of which are wholly owned by the
Company), are (a) $164,949,000 aggregate principal amount of the Company's
9.525% Junior Subordinated Deferrable Interest Debentures due February 1,
2027 and (b) the right to reimbursement of expenses under a related
expense agreement with the Company. The Company has guaranteed payments
under the Capital Securities, but only to the extent of funds held by
Providian Capital I. See "Capital Securities."
PRO FORMA REGULATORY CAPITAL
Each of Providian Bancorp's banking entities is subject to risk-based
capital adequacy guidelines as defined by its primary federal regulator.
"Capital" is defined as either Tier 1 (core) which consists principally of
shareholder's equity less goodwill or Tier 2 (supplementary) which is
comprised of a portion of the reserve for possible credit losses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Adequacy." On a pro forma, regulatory accounting basis, as
of December 31, 1996, after giving effect to the consummation of the
Distribution and the sale of the Capital Securities, Providian Bancorp's
banking entities' capital to risk-based assets ratios would remain above "well
capitalized" levels.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion should be read in conjunction with Providian Bancorp's
historical financial statements included elsewhere herein and the data set
forth under "Selected Financial Data" and "Pro Forma Condensed Financial
Statements" and notes thereto. However, the historical financial statements of
the Company may not be indicative of the Company's future performance, nor do
they necessarily reflect what the financial position and results of operations
of the Company would have been had the Company operated as a separate, stand-
alone entity during the periods covered.
GENERAL
Providian Bancorp's consumer credit products include Gold Visa and
MasterCard unsecured and secured credit cards, check-access revolving lines of
credit and secured home equity revolving lines of credit. The primary factors
affecting the profitability of consumer credit products are customer account
and outstanding loan growth, interest spread on the loans, credit card usage,
credit quality (delinquencies and credit losses), level of solicitation and
marketing expenses, fraud losses, servicing, and other administrative
expenses. The Company's revenues consist primarily of interest income revenues
from finance charges assessed on outstanding loans, fees (including annual
membership, cash advance, over-limit, late and other fee income), interchange
income and loan servicing income. The Company's primary cash expenses are the
costs of funding its loan business, which costs include interest paid on
deposits and other short- and long-term notes payable as well as solicitation
and marketing costs, salary and benefits, credit losses, and fraud losses. The
Company has accrued income tax expense at an effective rate comparable to the
income tax rate it would pay as a stand-alone entity on its net pretax income.
A significant portion of Providian Bancorp's solicitation expenses
(printing, postage, credit bureau costs, etc.) are incurred and expensed in
advance of successful account additions while the revenue associated with the
accounts is earned over the life of the acquired account. In accordance with
generally accepted accounting principles ("GAAP"), only the direct,
nonsolicitation costs associated with successful account acquisition efforts
are capitalized, offset against up-front processing fees and amortized over
the life of the related account. As a result, the majority of acquisition
costs are expensed as incurred.
The Company is currently a wholly owned subsidiary of Providian. Prior to
the Distribution, certain contracts, licenses, agreements, joint marketing
test programs and other arrangements existed between Providian Bancorp and
other Providian affiliates. Services provided included management,
administration, legal, financial, insurance and technical support. The
contractual arrangements were made at fair value and the associated revenues
and expenses were not material to the results of operations of the Company.
See "Arrangements Between Providian and Providian Bancorp." Prior to the
Distribution, the Company has maintained a $200 million line of credit with
Providian for which it paid a market rate commitment fee. The line will be
terminated upon the Distribution. The Company had no balances due under the
line as of each of December 31, 1996, 1995 and 1994. The Company does not
expect liquidity to be adversely affected by the termination of this line due
to its access to liquidity from third-party sources. See "--Funding and
Liquidity."
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net income for the year ended December 31, 1996 was $159.8 million, an
increase of $24.4 million, or 18%, over net income of $135.4 million for the
same period in 1995. The increase in net income was attributable to growth in
managed consumer loans, which consist of the unsecured and secured credit card
loans, revolving lines of credit and home equity lines of credit managed by
the Company, including both on-balance-sheet and securitized loans. Managed
consumer loans increased by $2.6 billion, or 39%, in the 12-month period, with
81% of the growth coming from unsecured credit card loans, 10% from home loans
and 9% from secured credit cards.
32
<PAGE>
This loan growth was the primary cause of the Company's 33% growth in managed
revenues, which totaled $1.5 billion for the year ended December 31, 1996. The
net credit loss rate increased from 3.96% to 4.82% during the year ended
December 31, 1996. A significant portion of the increase in managed revenues
was reinvested in new account growth across all businesses. Lower yields on
unsecured credit card loans related to introductory rates on new accounts was
offset by reduced direct acquisition costs associated with the universal
credit card offer. In the home loan business, the Company wrote off
capitalized acquisition costs of $19.2 million related to securitization while
recognizing no gains upon sale. The majority of the secured credit card
earnings before origination expenses of $31.9 million was reinvested in
expanding the Company's account base.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net income for the year ended December 31, 1995 of $135.4 million
represented an increase of 23% over the $110.1 million in income for the year
ended December 31, 1994. The increase in net income was attributable to growth
in managed consumer loans which increased by $2.0 billion, or 42%, in the 12-
month period, with 83% of the growth coming from unsecured credit card loans,
13% from home loans and 4% from secured credit cards. This loan growth was the
primary cause of the Company's 34% growth in managed revenues, which totaled
$1.1 billion for the year ended December 31, 1995. The net credit loss rate
improved to 3.96% in 1995 from 4.21% in 1994 as a result of loan growth. A
portion of the increased managed revenue was reinvested in new account growth
across all businesses. The Unsecured Spread Business grew as a result of the
expansion of risk-based pricing. The home loan and secured card business asset
bases grew by 54% and 80%, respectively. In order to support the underlying
account growth, noninterest expense increased by 27% to $362.1 million.
MANAGED LOAN PORTFOLIO
It is Providian Bancorp's practice to analyze its financial performance on a
managed loan portfolio basis. In order to do so, the Company's income
statement and statement of financial condition are adjusted to add back the
effect of securitizing loans. Increases or decreases in the interest paid by
the Company on variable rate securitizations generally are offset by
corresponding increases or decreases in the amount of excess servicing income
received by the Company. The Company, therefore, manages interest rate
exposure on a managed portfolio basis.
Providian Bancorp's consumer loan credit products include unsecured and
secured credit cards, unsecured revolving lines of credit, and secured home
equity revolving lines of credit. Since 1989, the Company has securitized
unsecured credit cards and revolving lines of credit, and, beginning in 1996,
has securitized home equity lines of credit. Securitized assets are not
considered assets of the Company and, therefore, are not shown on the
statement of financial condition. The following table summarizes the Company's
managed loan portfolio:
MANAGED CONSUMER LOANS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
PERIOD END BALANCES:
On-balance-sheet consumer loans............... $3,679,142 $3,181,816 $2,339,303
Securitized consumer loans.................... 5,610,000 3,485,843 2,368,642
---------- ---------- ----------
Total....................................... $9,289,142 $6,667,659 $4,707,945
========== ========== ==========
AVERAGE BALANCES:
On-balance-sheet consumer loans............... $3,509,856 $2,750,306 $1,866,492
Securitized consumer loans.................... 4,381,720 2,881,483 2,256,380
---------- ---------- ----------
Total....................................... $7,891,576 $5,631,789 $4,122,872
========== ========== ==========
</TABLE>
33
<PAGE>
IMPACT OF CONSUMER LOAN SECURITIZATIONS
Since 1989, Providian Bancorp has actively participated in the sale of
certain credit card and revolving line of credit receivables through
securitization transactions. In addition, in 1996, the Company securitized a
portfolio of home equity lines of credit through a bank-sponsored conduit
facility.
Cash Flow Impact
Upon the execution of a loan securitization, the Company receives cash
proceeds from investors net of underwriting fees. These proceeds are generally
used by the Company to pay down on-balance-sheet liabilities such as
certificates of deposit or bank borrowings or may be invested in short-term
liquid investments. The investors' share of finance charge and fee collections
generated by the securitized loans is distributed each month (a) to investors
to pay the coupon interest on the securities, (b) to the Company to exchange
additional receivables for the net credit losses incurred for the month, (c)
to the Company as a fee for servicing the underlying loans, and (d) to credit
enhancers and trustees for various costs and fees. Any finance charge and fee
cash flow remaining after the above payments is retained by or remitted back
to the Company and is referred to as "excess servicing."
Principal cash collections generated by the securitized loans during the
revolving period are retained by the Company in exchange for the transfer of
additional receivables to the investors, which occurs automatically pursuant
to the trust documents in order to maintain their invested amount. During the
amortization or accumulation period, the investors' share of principal
collections (in certain cases, up to a specified amount each month) is either
distributed each month to the investors or held in a principal funding account
until it accumulates to the total invested amount, at which time it is
remitted to the investors in a lump sum. See "Business--Liability and Capital
Management--Off-Balance Sheet Asset Securitization and Sale."
Balance Sheet and Income Statement Impact
Securitization transactions are treated as sales under GAAP. As a result,
the securitized loans are removed from the balance sheet in exchange for cash
proceeds. The Company services the accounts underlying the securitized loans
and earns a stated monthly servicing fee which generally offsets the servicing
costs incurred by the Company. The finance charge and fee revenue generated by
the securitized loans in excess of interest paid to investors, related credit
losses, the stated servicing fee and other credit enhancement costs and
program or trust expenses is recognized as loan servicing income as it accrues
over the life of the transaction. This component of loan servicing income is
referred to as excess servicing income. The effect of this treatment is to
reduce net interest income and the provision for credit losses, and to
increase other income, on the Company's statement of income. For the years
ended December 31, 1996, 1995 and 1994, the net interest margin was reduced by
$530 million, $399 million and $338 million, respectively; the provision for
credit losses was reduced by $275 million, $160 million and $125 million,
respectively; and other income was increased by $254 million, $239 million and
$212 million, respectively. The balance sheet and income statement treatment
of securitizations will change as of January 1, 1997, because of new standards
adopted by the Financial Accounting Standards Board in June 1996. See "--
Recent Accounting Pronouncements." Because the new standards are prospective
in their application, they will have no effect on the Company's historical
financial results.
NET INTEREST INCOME
Net interest income is interest earned from Providian Bancorp's loan
portfolios less interest expense on deposits and borrowings used to fund the
loans. Managed net interest income for the year ended December 31, 1996 was
$935.3 million compared to $720.2 million for the same period in 1995, an
increase of $215.1 million. Managed net interest income for the year ended
December 31, 1996 increased primarily due to a $2.3 billion increase in
average managed loans over the prior year. The annualized net interest margin
on average managed loans decreased from 11.80% for the year ended December 31,
1995 to 10.78% for the year ended December 31, 1996, as introductory rate
offerings were implemented in late 1995 and have continued throughout 1996.
34
<PAGE>
The Company offers both variable rate and fixed rate consumer loan products
and maintains both fixed rate and variable rate funding sources. To the extent
the natural repricing characteristics do not result in a matched position, the
Company utilizes interest rate swap agreements to bring assets and liabilities
to a relatively matched position. See "--Interest Rate Sensitivity" for a
further discussion of the Company's interest rate risk management strategy.
STATEMENT OF AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
The following table provides an analysis of interest income, interest
expense, net interest spread and average balance sheet data for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1996 1995 1994
-------------------------- -------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- -------- ------ ---------- -------- ------ ---------- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans (including amounts
held for
securitization)........ $3,535,328 $577,519 16.34% $2,785,161 $461,340 16.56% $1,903,424 $316,364 16.62%
Cash and Cash
Equivalents............ 264,207 14,019 5.31% 269,163 16,190 6.01% 565,917 26,033 4.60%
Federal Funds Sold...... 90,013 4,455 4.95% 44,896 2,024 4.51% 35,608 1,313 3.69%
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest earning
assets................ 3,889,548 595,993 15.32% 3,099,220 $479,554 15.47% 2,504,949 $343,710 13.72%
======== ========
Allowance for possible
credit losses.......... 104,242 73,198 67,745
Other assets............ 183,640 143,651 137,801
---------- ---------- ----------
Total assets........... $3,968,946 3,169,673 $2,575,005
========== ========== ==========
LIABILITIES AND EQUITY:
Deposits................ $2,590,038 $141,691 5.47% $1,849,228 $105,442 5.70% $1,499,403 $ 61,920 4.13%
Borrowings.............. 685,895 48,676 7.10% 720,223 52,962 7.35% 535,318 39,739 7.42%
---------- -------- ----- ---------- -------- ----- ---------- -------- -----
Total interest-bearing
liabilities: 3,275,933 $190,367 5.81% 2,569,451 $158,404 6.16% 2,034,721 $101,659 5.00%
======== ======== ========
Other liabilities....... 277,302 251,550 226,514
---------- ---------- ----------
Total liabilities...... 3,553,235 2,821,001 2,261,235
Equity.................. 415,711 348,672 313,770
---------- ---------- ----------
Total liabilities and
equity................ $3,968,946 $3,169,673 $2,575,005
========== ========== ==========
NET INTEREST SPREAD:
Interest income to
average interest-
earning assets......... 15.32% 15.47% 13.72%
Interest expense to
average interest-
earning assets......... 4.89% 5.11% 4.06%
----- ----- -----
Net interest margin..... 10.43% 10.36% 9.66%
===== ===== =====
</TABLE>
35
<PAGE>
INTEREST VOLUME AND RATE VARIANCE ANALYSIS
Net interest income is affected by changes in the average interest rate
earned on interest-earning assets and the average interest rate paid on
interest-bearing liabilities. In addition, net interest income is affected by
changes in the volume of interest-earning assets and interest-bearing
liabilities. The following table sets forth the dollar amount of the increase
(decrease) in interest income and interest expense resulting from changes in
the volume, rates and yields:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 VS. 1995 1995 VS. 1994 1994 VS. 1993
------------------------------ ----------------------------- -----------------------------
INCREASE INCREASE INCREASE
(DECREASE) VOLUME RATE/YIELD (DECREASE) VOLUME RATE/YIELD (DECREASE) VOLUME RATE/YIELD
---------- -------- ---------- ---------- ------- ---------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on
loans.................. $116,439 $121,145 (4,706) $135,844 $88,310 $47,534 $10,861 $26,316 $(15,455)
Interest expense........ 31,963 41,486 (9,523) 56,745 30,023 26,722 (5,284) 7,485 (12,769)
-------- -------- ------ -------- ------- ------- ------- ------- --------
NET INTEREST INCOME..... $ 84,476 $ 79,659 $4,817 $ 79,099 $58,287 $20,812 $16,145 $18,831 $ (2,686)
======== ======== ====== ======== ======= ======= ======= ======= ========
</TABLE>
OTHER INCOME
Other income, consisting primarily of loan servicing income and credit
product fee income, represented approximately 41% of on-balance-sheet revenues
for the year ended December 31, 1996.
Loan Servicing Income
Loan servicing income relates directly to securitized receivables and
consists of a stated servicing fee, which essentially offsets the Company's
cost of servicing the securitized receivables, plus excess servicing income
which represents the excess of (a) total interest and fees on the securitized
receivables, over (b) credit losses generated by the receivables, the stated
servicing fee, the coupon interest rate paid to the securitization investors
and credit enhancement and trust administration costs.
The Company has issued over $8 billion in public and private asset-backed
securities in 18 transactions since 1989 and has increased the use of
securitization as a funding source as the amount of total managed loans has
increased. As of December 31, 1996, securitizations outstanding provided
approximately $5.6 billion in funding, representing 60% of total managed
funding, compared with 52% in 1995 and 51% in 1994. A more detailed discussion
of the Company's securitization activities, including a table summarizing the
Company's securitization series outstanding as of December 31, 1996, is set
forth under "Business--Liability and Capital Management--Off-Balance-Sheet
Asset Securitization and Sale."
Because excess servicing income on securitized loans has the same
characteristics as the net interest income, less provision for loan losses and
servicing expense, of on-balance-sheet loans, excess servicing income will
vary based upon the same factors. Thus, variability can result from changes in
credit losses (see "--Asset Quality--Net Credit Losses") and changes in
interest rates (see "--Interest Rate Sensitivity") to the extent that the
receivables and investor coupons are based upon floating rate indices.
For the years ended December 31, 1994 through 1996, loan servicing income
was $209.0 million, $251.9 million and $280.1 million, respectively. The
increase relates primarily to the increase in average securitized receivables,
partially offset by an increase in credit losses and lower yields on unsecured
credit card loans.
Credit Product Fee Income
Credit product fee income includes late and overlimit charges, revenues from
fee-based products, membership fees and interchange income. For the years
ended December 31, 1994 through 1996, credit product fee income was $57.7
million, $81.4 million and $123.7 million, respectively, reflecting increased
volume in fee-based revenue associated with asset growth and product
diversification.
36
<PAGE>
Late and overlimit fees are assessed monthly to late-paying or overlimit
customers and totaled $12.9 million, $23.9 million and $39.1 million for the
years ended December 31, 1994 through 1996. Providian Bancorp markets a number
of fee-based products to its customers, including Providian Health
Advantage/1/ (offering prescription and other health related referrals and
discounts), Credit Protection (offering deferral of loan payments in the event
of unemployment, disability and hospitalization) and Drive Pro/2/ (which
offers emergency towing service, auto maintenance discounts and other auto and
travel-related benefits). For the years ended December 31, 1994 through 1996,
fee-based product revenue totaled $21.2 million, $24.6 million and $37.6
million, respectively. Other sources of fee revenue include annual fees and
interchange income, which have also increased over the three year period ended
December 31, 1996 as a result of customer volume growth.
OTHER EXPENSE
Other expenses include loan acquisition costs, including printing, postage,
telemarketing, list processing and credit bureau costs paid to third parties
to implement direct mail and telemarketing account solicitation efforts.
Beginning in 1993, in accordance with GAAP, Providian Bancorp has capitalized
the costs associated with successful non-solicitation account acquisition
efforts after offset against up-front processing fees. Capitalized acquisition
costs are amortized over the "privilege period" (currently one year) for
credit card loans or the estimated life of the loans for revolving lines of
credit unless the loans are securitized, in which case the costs are taken as
an expense prior to the loan sale. As a result, the majority of acquisition
costs are now expensed as incurred. In the year ended December 31, 1996, the
Company amortized $19.2 million of acquisition costs associated with the
securitization of certain home equity line of credit loans.
Salary and benefit expenses include staffing costs associated with
marketing, customer servicing, collections and administration of the customer
base.
General and administrative costs include uncapitalized loan acquisition
costs, third-party data processing, occupancy and other operational expenses.
For the 12 months ended December 31, 1996 and 1995, total general and
administrative expenses were $238.6 million and $234.2 million, respectively,
reflecting declining direct mail acquisition costs and other decreases in
operational expenses.
The following table presents other expenses for the years ended December 31,
1994 through 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER EXPENSE:
Salary and benefits............................ $153,849 $113,412 $ 89,470
Amortization of loan acquisition costs......... 41,342 14,561 54,178
General and administrative..................... 238,613 234,161 142,176
-------- -------- --------
Total........................................ $433,804 $362,134 $285,824
======== ======== ========
</TABLE>
INCOME TAXES
Providian Bancorp's provision for income taxes includes both United States
federal and state income taxes, calculated at rates comparable to the rates
Providian Bancorp would pay as a stand-alone entity. Applicable income tax
expense was $97.5 million, $79.4 million and $65.1 million for the 12 months
ended December 31, 1996, 1995 and 1994, respectively. See the notes to
Providian Bancorp's audited historical financial statements, included
elsewhere herein, for further explanations of the income tax expense and a
reconciliation of reported income taxes to the amount computed by applying the
United States federal statutory rate to income before taxes.
ASSET QUALITY
Providian Bancorp's delinquencies and net credit losses at any time reflect,
among other factors, the quality of loans, the average age of the Company's
accounts (generally referred to as "seasoning"), the success of the
- --------
(1) Providian Health Advantage is a service mark of Providian Bancorp for
which federal registration is pending.
(2) Drive Pro is a registered service mark of Providian Bancorp.
37
<PAGE>
Company's collection efforts and general economic conditions. For the year
ended December 31, 1996, the Company's net credit losses as a percentage of
managed loans was 4.82%. The quality of loans is subject to the list selection
and underwriting criteria used, account management initiatives, seasoning,
demographic factors and other factors which are characterized by delinquency
statistics.
The level of credit losses at any given time directly impacts earnings
through the establishment of new provisions for possible credit losses, which
are generally dependent on historical levels of credit losses and current
trends. As new portfolios of accounts are originated, management uses
historical credit loss and delinquency analyses to establish reserves for
possible future credit losses which are based on the aggregation of loss
behavior of similar, more seasoned loan portfolios. As future net credit
losses are experienced, the previously established provision will be used to
absorb the credit losses. See "Risk Factors--Risks Associated with the
Consumer Lending Business--Increased Credit Losses."
It is Providian Bancorp's policy to recognize principal credit losses on all
credit card, revolving line and secured card loans which become 180 days
delinquent, with the exception of bankrupt accounts, which are charged-off
upon determination of post-bankruptcy collectibility (generally upon
appropriate verification), and deceased accountholders, which are also charged
off upon determination of collectibility (generally upon verification of no
estate). Home loans are reviewed upon becoming 60 days delinquent and credit
losses recognized for the amount by which the book value of the loan exceeds
the net realizable value of the underlying security interest. Upon charge-off,
accrued but unpaid finance charge and fee income is reversed against current
earnings but will be maintained on the customer's record in the event of a
future recovery. Once a loan is charged-off, it is the Company's policy to
continue to pursue collection of principal and interest, to the extent legally
permissible. Any subsequent collections on previously charged-off loans will
be recognized as recoveries.
Delinquencies
The following table presents the delinquency trends of Providian Bancorp's
managed consumer loan portfolio for the years ending December 31, 1996, 1995
and 1994. An account is contractually delinquent if the minimum payment is not
received by the next billing date.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
LOANS %(1) LOANS %(1) LOANS %(1)
---------- ---- ---------- ---- ---------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MANAGED CONSUMER LOAN
PORTFOLIO..................... $9,289,142 $6,667,659 $4,707,945
========== ========== ==========
Loans delinquent:
31 to 60 days................ 160,074 1.73 $ 99,318 1.49 60,764 1.29
61 to 90 days................ 88,439 0.95 51,709 .77 35,929 .76
more than 90 days............ 157,013 1.69 70,510 1.06 45,744 .97
---------- ---- ---------- ---- ---------- ----
TOTAL (31 DAYS PLUS)....... $ 405,526 4.37 $ 221,537 3.32 $ 142,437 3.03
========== ==== ========== ==== ========== ====
</TABLE>
- --------
(1) Calculated as a percentage of total managed consumer loans at period end.
Net Credit Losses
Net credit losses for consumer loans include the principal amount of losses
from customers unwilling or unable to pay their existing loan balance as well
as bankrupt and deceased customer accounts, less current period recoveries.
Net credit losses are recognized in accordance with Providian Bancorp's policy
described above and exclude accrued finance charge and fee income which is
charged against the related income at the time of credit loss recognition.
Losses for cardholder accounts related to fraudulent activity are also
excluded from net credit losses and are included in other operating expenses.
38
<PAGE>
The managed credit loss rate stood at an annualized rate of 4.82% for the
consumer loan portfolio as of December 31, 1996 as compared to 3.96% and 4.21%
for the years ended December 31, 1995 and 1994, respectively. Consistent with
the consumer loan industry, the Company has experienced an increase in credit
losses during 1996 related, in part, to an increase in bankruptcy filings. The
increase continued during the first three months of 1997. The managed credit
loss rate for the first quarter of 1997 was 6.04% annualized, based on current
estimates, with the increase resulting in substantial part from continuing
increases in bankruptcy filings. As part of its efforts to address the
increasing credit loss rates, the Company continues to refine its underwriting
criteria for new accounts and has reorganized collection activities to include
a centralized asset recovery effort designed to enhance its recoveries for all
portfolios.
The following table presents the Company's net credit losses for consumer
loans for the periods indicated and is presented both on a financial statement
reporting basis and a managed portfolio basis:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ON BALANCE SHEET LOAN PORTFOLIO:
Average Loans Outstanding(1)............ $3,509,856 $2,750,306 $1,866,492
Net Credit Losses....................... 105,468 62,706 49,156
Credit Loss Rate(2)..................... 3.00% 2.28% 2.63%
MANAGED LOAN PORTFOLIO:
Average Loans Outstanding............... $7,891,576 $5,631,789 $4,122,872
Net Credit Losses....................... 380,585 222,951 173,757
Credit Loss Rate(2)..................... 4.82% 3.96% 4.21%
</TABLE>
- --------
(1) Includes loans held for securitization.
(2) Credit Loss Rate is calculated by dividing annualized credit loss amounts
by the average outstanding balances in the loan portfolio. Credit loss
rates for on-balance-sheet loan portfolios are typically lower than
managed loan credit loss rates, because the on-balance-sheet portfolios
represent new loan outstandings and because loss rates on loan portfolios
increase over time. Loans in the Company's on-balance-sheet portfolio are
generally aged six months or less, while loans in the Company's managed
credit card and revolving line portfolio have an average age of 31 months.
Allowance and Provision for Possible Credit Losses
The allowance for possible credit losses is maintained for on-balance sheet
loans. Providian Bancorp maintains the allowance at a level believed to be
adequate to absorb possible future losses, net of recoveries, inherent in the
existing on-balance sheet portfolio. In evaluating the adequacy of the
allowance for possible credit losses, the Company takes into consideration
several factors, including general economic conditions, asset quality,
seasoning, security, and trends in credit losses and delinquencies. The
following table sets forth the activity in the allowance for possible credit
losses for the periods and portfolios indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period.......... $ 93,429 $ 76,218 $ 75,061
Provision for possible credit losses.. 126,579 79,917 50,313
Credit Losses......................... (116,930) (73,004) (56,235)
Recoveries............................ 11,462 10,298 7,079
---------- ---------- ----------
Balance at end of period................ $ 114,540 $ 93,429 $ 76,218
========== ========== ==========
Ending Loans Outstanding(1)............. $2,949,928 $3,071,284 $2,352,901
Allowance as a percentage of ending
loans outstanding...................... 3.88% 3.04% 3.24%
</TABLE>
- --------
(1) Excludes loans held for securitization.
39
<PAGE>
FUNDING AND LIQUIDITY
Providian Bancorp's approach to funding its assets is to achieve a
diversified funding mix and investor base by offering a variety of funding
products that will appeal to a broad range of investors. It is the goal of the
Company to generate funding at the lowest cost possible consistent with
ensuring prudent liquidity and interest rate risk management.
Providian Bancorp's funding is diversified, and includes direct and brokered
retail and institutional deposits, term Federal funds, public and private
asset securitizations and a committed revolving credit facility. In addition,
within product categories, funding is further diversified in terms of the
types of products offered, and the types, industries and geographical
locations of investors.
The Company offers a wide range of maturity terms for its funding products
(from one week to seven years). Actual maturity distributions are dependent
upon several factors, including expected asset duration, investor demand,
relative costs, shape of the yield curve, and anticipated issuance in the
securitization and capital markets. Maturities are managed by the types of
funding sources employed and by the rates offered on different products. The
goal is to achieve a balanced distribution of maturities, avoiding undue
concentration in any one period. The Company monitors existing funding
maturities to ensure that prudent amounts of backup liquidity are available to
support the maturities, if necessary.
The following table summarizes the contractual maturity of deposits at the
Company as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------- ------------------------------
DIRECT OTHER TOTAL DIRECT OTHER TOTAL
DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS
---------- ---------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Three months or less.... $ 341,214 $ 737,423 $1,078,637 $ 326,380 $251,316 $ 577,696
Over three months
through
12 months.............. 643,866 378,922 1,022,788 476,398 215,886 692,284
Over one year through
five years............. 274,888 223,149 498,037 227,691 139,395 367,086
Over five years......... -- -- -- -- -- --
Deposits without
contractual
maturity(1)............ 730,524 60,126 790,650 520,699 -- 520,699
---------- ---------- ---------- ---------- -------- ----------
Total Deposits.......... $1,990,492 $1,399,620 $3,390,112 $1,551,168 $606,597 $2,157,765
========== ========== ========== ========== ======== ==========
</TABLE>
- --------
(1) Includes Money Market Deposit Accounts ("MMDAs"), secured card savings
accounts, and other deposits without contractual maturities.
The Company has refinanced the $1.1 billion of deposits due to mature within
the first three months of 1997 with approximately $1.0 billion of proceeds
from asset securitizations and approximately $100 million of new retail and
institutional deposits. The $1.5 billion of deposits that will mature during
subsequent periods are expected to be replaced as they mature with funding
derived from a variety of sources, including retail and institutional
deposits, term federal funds, and asset securitizations, in accordance with
the Company's regular liability management programs.
As discussed in "Business--Liability and Capital Management--Off-Balance
Sheet Asset Securitization and Sale," the Company acquires a significant
portion of its funding through the securitization of its receivables. The
primary objectives of securitization are to diversify funding sources and to
obtain efficient all-in cost of funds, including the cost of capital. The
securitized receivables have been sold as securities to public or private
investors using legal structures that generally provide for an interest only
(revolving) period and a principal repayment (amortization or accumulation)
period. Under the terms of the securitizations, once the amortization
40
<PAGE>
or accumulation period commences, payments from the customers on the
securitized receivables are distributed or accumulated for repayment to the
securitization investors and are no longer reinvested in new receivables. At
that time the Company's on-balance sheet assets and funding requirements will
increase accordingly.
For diversification and flexibility, the Company uses commercial paper-based
conduit facilities to securitize unsecured credit card and home equity line of
credit receivables. The conduit facilities are renewed annually. Balances
securitized under these facilities totaled $2,185 million as of December 31,
1996.
The Company is participating in term securitizations which are expected to
amortize over the periods indicated below based on currently outstanding
securitized receivables:
<TABLE>
<CAPTION>
AMOUNT
YEAR AMORTIZING
---- ---------------------
(DOLLARS IN MILLIONS)
<S> <C>
1996.................................. $ 0
1997.................................. 775
1998.................................. 750
1999.................................. 408
2000.................................. 542
2001.................................. 51
2002.................................. 611
2003.................................. 288
</TABLE>
The Company believes that it can attract deposits, borrow funds from other
sources and issue additional asset-backed securities to fund the amortization
schedule summarized above, although no assurances can be given to that effect.
The Company believes that it has sufficient liquidity to meet its capital
requirements in the foreseeable future.
Providian Bancorp has access to a number of backup liquidity sources. Cash
reserves are maintained to ensure adequate short-term liquidity. The Company's
primary source of backup liquidity is a $1.2 billion unsecured committed
revolving credit facility (the "Credit Facility") from a syndicate of 27
domestic and international banks scheduled to expire in May 1999. Pursuant to
the Credit Facility, four Providian Bancorp subsidiaries, First Deposit
National Bank ("FDNB"), Providian National Bank ("PNB"), Providian Credit
Services, Inc. ("PCSI"), and Providian Credit Corporation ("PCC")
(collectively, the "Borrowers"), have access to revolving loans, which bear
interest determined by a competitive bid process or based on either the
federal funds rate, LIBOR or the prime rate, plus a spread, depending on the
timing and term of the borrowing. The Company guarantees the prompt and
complete payment, when due, of the Borrowers' obligations under the Credit
Facility. During 1996, the average borrowings under the Credit Facility were
$429 million. The Credit Facility contains certain covenants, including,
without limitation, (i) reporting and other affirmative covenants and (ii)
restrictions on each of the Company and each of the Borrowers with respect to
(a) mergers, consolidation, liquidation or the disposition of all or
substantially all of its assets; (b) the making of material changes in the
character of its present business; (c) certain asset sales or dispositions;
(d) liens; and (e) transactions with affiliates, in each case, with certain
exceptions. In addition, the Company and the Borrowers are required to meet
certain financial covenants under the Credit Facility, including, with respect
to the Company, meeting consolidated asset return and capital requirements and
an asset delinquency test, and, with respect to the Borrowers, maintaining
certain financial ratios.
The primary goal of liquidity management at the Company is to ensure that
funding will be available to support prudently all Company operations in
varying business environments. The Company employs three primary strategies to
maintain a strong liquidity position: diversity of funding sources; dispersion
of maturities; and maintenance of backup liquidity sources. The Company
manages its short-term liquidity position by projecting cash requirements,
maintaining cash balances, limiting liability maturity concentrations and pre-
funding large liability maturities. The longer-term liquidity position is
managed by maintaining the unsecured
41
<PAGE>
committed revolving credit facility at the appropriate size, dispersing
liability maturities, and striving to develop new funding products, markets
and investors.
CAPITAL ADEQUACY
Each of Providian Bancorp's banking entities is subject to risk-based
capital adequacy guidelines as defined by its primary federal regulator.
Capital is defined as either Tier 1 (core), which consists principally of
shareholder's equity less goodwill, or Tier 2 (supplementary), which also
includes a portion of the reserve for possible credit losses. Based on those
definitions of capital, the regulations further define three capital adequacy
ratios which are used to measure whether a financial institution meets "well
capitalized" or "adequately capitalized" status:
<TABLE>
<CAPTION>
"WELL "ADEQUATELY
CAPITALIZED" CAPITALIZED"
CAPITAL RATIO CALCULATION RATIOS RATIOS
------------- ----------- ------------ ------------
<C> <S> <C> <C>
Total Risk-Based. (Tier 1 + Tier 2)/Total
Risk-Based Assets => 10% => 8% less than 10%
Tier 1........... Tier 1/Total Risk-Based
Assets => 6% => 4% less than 6%
Leverage......... Tier 1/Average Total
Assets--intangibles => 5% => 4% less than 5%
</TABLE>
At December 31, 1996, the Company's banking entities maintained a "well
capitalized" status in all risk-based capital ratio categories, as set forth
below:
<TABLE>
<CAPTION>
REQUIREMENTS
FOR ADEQUATELY FIRST DEPOSIT PROVIDIAN
CAPITAL RATIO CAPITALIZED NATIONAL BANK NATIONAL BANK
------------- -------------- ------------- -------------
<S> <C> <C> <C>
Total Risk-Based................ 8.00% 11.18% 13.44%
Tier 1.......................... 4.00% 9.91% 12.17%
Leverage........................ 4.00% 10.81% 10.78%
</TABLE>
Beginning on January 1, 1997, the basis for reporting accounting
transactions in the quarterly Consolidated Reports of Condition ("Call
Reports") changed to conform with GAAP. New Call Report instructions
reflecting such changes have been adopted by the Office of the Comptroller of
the Currency (the "Comptroller"), the Federal Reserve and the Federal Deposit
Insurance Corporation ("FDIC"), and are effective for Call Reports beginning
with the March 31, 1997 report date. Also beginning January 1, 1997,
accounting for securitizations is required to be performed in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125. Prior to the
March 31, 1997 Call Report, amounts deposited into spread accounts from excess
servicing were not recognized as regulatory income nor booked as an asset on
the Call Report balance sheet. In accordance with the new Call Report
instructions, asset transfers that use excess servicing fees receivable as
credit enhancement (for example, by depositing certain amounts into spread
accounts) are to be reported as off-balance-sheet sales with recourse and the
transferor is required to hold risk-based capital against the full amount of
assets sold or a lesser amount if the transaction qualifies for "low-level
recourse" capital treatment. Under the low-level recourse rules, the amount of
capital required is the amount of excess servicing fees receivable (which will
be reported as an interest-only strip receivable under SFAS No. 125) net of
any noncapital GAAP recourse liability account associated with the asset
transfer, and, based on the new Call Report instructions, net of tax
liabilities incurred in connection with the transfer of assets. The Company
believes that the application of the new Call Report instructions will not
result in any significant change in its capital position.
In March 1997, Providian Bancorp securitized $1.3 billion in credit card and
revolving line of credit receivables and at the same time reduced a previously
issued variable amount securitization by $325 million, for a net increase in
securitized balances of $975 million. As a result of the sale, in accordance
with SFAS No. 125, the receivables were derecognized and a gain was recorded,
resulting in the recognition of an interest-only strip receivable, which
required the application of the low-level recourse rules. The Company
maintained the "well capitalized" status of its banking subsidiaries both
before and after the recognition of this transaction.
42
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the change in earnings that results from
changes in the level of interest rates. To the extent that interest income and
interest expense do not respond equally to changes in interest rates, or that
all rates do not change uniformly, earnings may be affected. Providian Bancorp
manages interest rate risk individually for each regulated banking institution
and comprehensively as a consolidated banking entity, and includes both on-
and off-balance-sheet assets and liabilities in its analyses and management.
The Company's goal in managing interest rate risk is to cost-effectively
reduce the effect of changes in interest rates on profitability.
The Company's receivables generally yield either a variable Annual
Percentage Rate ("APR"), indexed to prime rate, or a fixed APR, set
independently of market interest rates. The interest rates on the Company's
liabilities are generally indexed to LIBOR or are fixed rate with prices based
on United States Treasury Bond rates. These balance sheet characteristics
expose the Company to two types of interest rate risk: (i) interest rate level
risk, which could impact net interest income if liabilities reprice more often
than assets; and (ii) basis risk, which could impact the net interest income
of variable APR receivables if the spread between the prime rate and LIBOR
compresses. Interest rate sensitivity at a point in time can be analyzed using
a static gap analysis, which measures the gap, or mismatch, between earning
assets and interest bearing liabilities subject to repricing in a given time
period. The following table presents this static gap analysis as of December
31, 1996.
<TABLE>
<CAPTION>
1 YEAR & UNDER OVER 1 YEAR TOTAL
-------------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
EARNING ASSETS
Federal Funds Sold...................... $ 172,350 -- $ 172,350
Loans(1)................................ 2,477,208 $1,212,426 3,689,634
---------- ---------- ----------
Total Earning Assets.................. $2,649,558 $1,212,426 $3,861,984
INTEREST BEARING LIABILITIES
Deposits(2)............................. $2,704,063 $ 686,049 $3,390,112
Fed Funds Purchased..................... 51,000 -- 51,000
Notes Payable(2)........................ 163,000 44,500 207,500
---------- ---------- ----------
Total Interest Bearing Liabilities.... $2,918,063 $ 730,549 $3,648,612
Earning assets less interest bearing
liabilities ("gap").................... (268,505) 481,877 213,372
Gap as a percent of total assets........ (6.21)% 11.14% 4.93%
Total assets............................ $4,326,744
</TABLE>
- --------
(1) The Company's fixed rate credit card receivables are repriceable upon
providing required notice to the customer which is generally within 30
days. The Company also has the right to increase rates upon the customer's
failure to comply with the terms of the account agreement. This approach,
referred to as performance-based pricing, is executed quarterly and was
first introduced in the fourth quarter of 1996. In addition, the Company
occasionally reprices the receivables to achieve business objectives.
These objectives include profitability management, responding to customer
requests, and balancing the risk/reward equation. Historically,
management's use of repricing has been limited and has not impacted more
than 10% of the fixed rate receivables portfolio annually. However, this
is expected to increase in future periods as a result of the introduction
of performance-based pricing. Because the fixed-rate receivables have no
stated maturity or repricing period, the Company has used its best
estimate of the effects of performance-based pricing and historical
attrition patterns to estimate their repricing characteristics.
(2) Includes the effect of interest rate swap agreements that modify the
repricing characteristics of these liabilities. At December 31, 1996, the
Company had outstanding interest rate swap agreements with a notional
amount of $345.5 million modifying the repricing characteristics of debt
and deposits. Of this amount, $305.5 million was allocated to deposits and
$40 million was allocated to debt. In addition, $200 million of the
interest rate swap agreements are basis swaps assigned to deposits and do
not affect the timing
43
<PAGE>
of the deposit's repricing. The remainder of the swaps convert fixed rate
deposits or debt into variable rate liabilities and have the effect of
moving liabilities from the over one-year time period into the under one-
year time period.
The primary tool the Company uses to monitor interest rate risk for its
operations is net interest income simulation analysis. Net interest income
simulation is used to measure the banking operations' future earnings under
multiple interest rate scenarios against plan earnings under a baseline
interest rate scenario. The measurement of net income dispersion is performed
under the assumption that management does not react to the changed interest
rate environment with any action designed to counter its effects. The multiple
interest rate scenarios include changes in the shape of the yield curve, as
well as changes, ranging from 50 to 400 basis points, in the general level of
interest rates and in the relationship between the prime rate and LIBOR. The
largest simulated reductions in net interest income generally occur in rapidly
rising interest rate scenarios. The most extreme scenario reduced net interest
income for the subsequent twelve months by approximately 10%, compared to a
flat interest rate scenario. The results of these net interest income
simulations are compared to levels deemed appropriate by management, and are
referred to management for appropriate responses.
The Company strives to manage acceptable risk levels by seeking to maintain
a relatively interest-rate neutral position on the managed balance sheet by
generally matching the repricing characteristics of the assets and
liabilities. The first tool used to achieve the matched position is the
natural repricing structure of the on- and off-balance-sheet assets and
liabilities. Fixed rate liabilities generally fund fixed APR assets, while
variable rate liabilities generally fund variable APR assets.
When the natural repricing characteristics of the assets and liabilities do
not result in a relatively interest rate neutral position, the Company's
subsidiaries will engage in derivative transactions to change the repricing
structure of underlying assets or liabilities. The objective for the use of
these hedges is to reduce interest rate risk by more closely aligning the
repricing characteristics of the assets and liabilities. One hedging strategy
employed by the Company is to swap LIBOR-indexed variable rate liabilities
into fixed rate funding to support fixed rate assets. In this case, the
Company's subsidiary banking entity agrees with a counterparty to exchange
interest payments on a notional amount for a fixed period, with the bank
making payments to the counterparty based on a fixed interest rate and the
counterparty making variable payments to its subsidiary bank based on LIBOR.
The Company has also utilized basis swaps, in which its subsidiary bank swaps
LIBOR-indexed variable rate liabilities to Prime-indexed variable rate
liabilities, to fund Prime-indexed variable rate assets. Both of these
examples result in assets and liabilities that have matching repricing terms.
The Company also employs interest rate caps, where, for an up-front fee, a
counterparty agrees to pay the Company's subsidiary bank the difference
between a negotiated rate and LIBOR, if positive, on a notional amount for a
fixed period. These transactions result in funding for fixed rate assets that
is capped at a given rate to minimize net interest margin compression in a
rising interest rate environment.
All of the Company's hedging transactions settle either monthly or
quarterly, with either the counterparty or the Company remitting to the other
the net payment, if any, for that period. The cash requirements of the
Company, if any, resulting from these payments are met with general operating
cash balances. All transactions are over-the-counter swap and cap transactions
executed with highly rated United States and international banks under
standard form Master Agreements of the International Swaps and Derivatives
Association, Inc. ("ISDA"), and hedge identified interest rate risks for both
accounting and tax purposes. The Company does not trade in derivatives or use
derivatives to speculate on interest rates or as an investment vehicle. The
following table presents the notional amounts of interest rate swap agreements
and caps purchased/floors sold for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest rate swap agreements.............. $1,300,000 $1,400,000 $600,000
Interest rate caps purchased and floors
sold...................................... $1,500,000 $1,000,000 $300,000
</TABLE>
44
<PAGE>
The Company manages credit risk arising from derivatives transactions
through a rigorous ongoing credit review, approval and monitoring process.
"Credit risk" is defined as the risk that a loss will occur as the result of a
derivative counterparty defaulting on a contract when the contract is in a
favorable economic position to the Company. Master netting agreements are
entered into with swap counterparties to reduce the exposure to credit risk
with the individual counterparty. Credit limits are established for each
counterparty and are analyzed based on total net credit exposure. In the event
that an individual derivative counterparty credit risk exceeds the pre-
established credit limit as determined by the Company, action is taken to
limit the exposure with the counterparty. The Company also monitors exposure
to counterparty credit risk through the performance of sensitivity testing.
Probabilistic worst-case scenarios are considered to determine the credit risk
exposure on derivatives associated with the individual counterparty. This
exposure is then aggregated with other non-derivative credit risks associated
with the individual counterparty to determine compliance with the total
individual counterparty credit limit established by the Company during the
credit review process.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
which provides new accounting and reporting standards for sales,
securitization and servicing of receivables and other financial assets and
extinguishments of liabilities. The statement provides for application of the
financial-components approach which focuses on control over the assets being
transferred or retained. Under the financial components approach, upon
transfer of financial assets that are to be recorded as a sale, an entity must
(a) recognize all financial and servicing assets (or portions thereof) that it
still controls, as well as all liabilities that it has incurred, and (b)
derecognize all financial assets (or portions thereof) that it no longer
controls, as well as all liabilities that have been extinguished. The
statement also requires that a gain or loss be recognized for the difference
between the proceeds of the sale and the cost of the assets sold.
Since only prospective application of the pronouncement is allowed,
Providian Bancorp will adopt SFAS No. 125 for transactions occurring after
December 31, 1996. Although SFAS No. 125 is prospective in its application, it
will have an impact on securitization transactions entered into prior to
January 1, 1997, because it requires reclassification of certain related
assets and because its provisions apply to ongoing sales of receivables during
the reinvestment period for these securitization transactions. Accordingly,
the related reserve account receivable balances will be subsequently measured
like investments in debt securities classified as available-for-sale under
SFAS No. 115 with the fair value expected to approximate book value. Servicing
assets have not been recognized on these transactions and, therefore, will not
be recorded in future periods. The sellers' interest in the securitized
receivables will continue to be classified as loans receivable at par less
associated allowance for possible credit losses. Additional monthly sales of
receivables during the reinvestment period will be treated as new
securitization transactions with gains recognized each month during the
reinvestment period and the offsetting asset classified as an interest only
strip receivable available for sale.
The application of SFAS No. 125 to monthly sales of receivables with respect
to securitization transactions originated prior to January 1, 1997 is
estimated to increase net income by approximately $24 million for the year
ended December 31, 1997, as a result of recognizing gains upon the dates of
transfer as opposed to recognizing excess servicing income as it is received
monthly. This impact is non-recurring because for the first six to eight
months of 1997, the Company will recognize both excess servicing income
generated by balances existing as of December 31, 1996, and gains on
additional monthly sales into these existing transactions during 1997. The
amount and timing of any increase in income resulting from the application of
SFAS No. 125 to transactions originated prior to January 1, 1997 are, however,
dependent on the performance of the underlying receivables. In addition, the
impact from the application of SFAS No. 125 to transactions originated
subsequent to January 1, 1997 is dependent on the amount and timing of future
securitizations.
45
<PAGE>
BUSINESS
GENERAL
Providian Bancorp is a diversified consumer lender, operating in a broad
borrowers' market. The Company offers a range of lending products, including
Gold Visa and MasterCard credit cards, check-access revolving lines of credit,
home equity loans, secured credit cards, insurance premium finance, and a
variety of fee-based products and services. Through these products and
services, the Company seeks to achieve diversified earnings sources, with both
spread-based and fee-based income from loans and related products and
services. The Company believes that the consumer lending sector will continue
to provide opportunities for growth in the future.
Providian Bancorp develops its customer relationships through direct mail
and telephone. The Company strives to deliver flexibility, convenience,
customized value and excellent service in order to build and sustain a
continuing primary lender relationship with its customers. Providian Bancorp's
goal is to profitably meet the borrowing needs of consumers to whom borrowing
is important. In pursuit of this goal, the Company uses a customer-focused
market-driven business approach that emphasizes market selection, customer
targeting, customer acquisition and profitability management. This approach,
which the Company refers to as an "engineering approach," is technology and
information intensive, and analyzes the extensive data collected from Company
operations and test programs to identify and respond to consumer needs based
on actual behavior in the marketplace. Utilizing this engineering approach,
the Company has evolved from a one-market, one-product company in 1985 to a
multi-market, multi-product provider of consumer financial services.
Providian Bancorp's strategy is to solicit consumer responses with a broadly
appealing or "universal" offer for loan products which can be customized to
meet individual needs at the time of sale. Once a portfolio of accounts has
been originated, the Company employs a relationship-centered customer
management strategy wherein portfolio risk and profitability are continuously
reevaluated, and account terms adjusted as circumstances change, in an effort
to provide long-term value to customers while balancing risk and reward so as
to achieve targeted returns. The Company believes that its capabilities in the
areas of risk control, direct marketing efficiency, customer management,
development and testing are central to the successful implementation of its
strategy, and that the engineering approach is the key to its disciplined
execution.
As of December 31, 1996, Providian Bancorp had more than 3.8 million
consumer loan accounts, with managed loans outstanding of approximately $9.3
billion.
The Company is the 13th largest issuer of Visa and MasterCard credit cards
in the United States, as reported in the January 1997 Nilson Report. Following
is a summary of the managed loans outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
RECEIVABLES
OUTSTANDING PERCENT NUMBER PERCENT
PORTFOLIO: (IN THOUSANDS) OF TOTAL OF ACCOUNTS OF TOTAL
---------- -------------- -------- ----------- --------
<S> <C> <C> <C> <C>
Credit Card Loans(1).......... $7,843,695 84.43% 3,027,437 78.67%
Home Equity Loans............. 944,543 10.17 31,556 0.82
Secured Credit Card Loans..... 466,798 5.03 732,530 19.03
Other Consumer Loans.......... 34,106 0.37 57,130 1.48
---------- ------ --------- ------
Total Managed Loans......... $9,289,142 100.00% 3,848,653 100.00%
========== ====== ========= ======
</TABLE>
- --------
(1) Credit Card loans include unsecured revolving lines of credit.
46
<PAGE>
The relative contribution to managed revenues from the above portfolios in
1996 was 85% from credit card loans, 8% from secured credit card loans and 7%
from home equity loans. Accounts in each portfolio generate both spread-based
and fee-based revenue. The 1996 mix of spread-based and fee-based revenue by
product portfolio and total portfolio is as follows:
<TABLE>
<CAPTION>
PORTFOLIO: SPREAD-BASED FEE-BASED
---------- ------------ ---------
<S> <C> <C>
Credit Card Loans(1)................................ 90% 10%
Home Equity Loans................................... 99 1
Secured Credit Card Loans........................... 46 54
--- ---
Total Portfolio................................... 87% 13%
=== ===
</TABLE>
- --------
(1) Credit Card loans include unsecured revolving lines of credit.
Providian Bancorp was founded in 1981. Its principal operating subsidiary,
FDNB, was acquired by the Company in the same year. In 1985, after extensive
research and testing, the Company introduced its first product, an unsecured
Visa credit card with no annual fee, low minimum payments and an immediate
cash advance. By applying its technology and information intensive engineering
approach to systematically test and develop new products, the Company has
evolved into a nationwide consumer lender, with a significant presence in
secured and unsecured credit cards and home equity lending. Many of the
Company's product innovations, including the no-annual fee credit card and low
minimum payments, have been widely copied in the industry.
Providian Bancorp has various wholly owned financial institutions and other
wholly owned subsidiaries through which the Company conducts its business.
Each of these entities performs a particular role in support of the business,
depending, in part, on the powers it is granted from its chartering regulator
or its state incorporator. To the extent legally permissible, however, the
Company's various business areas are operated in a consolidated manner among
the different legal entities. The Company's lending activities are currently
conducted through three entities in addition to FDNB: PNB, PCSI and PCC. FDIC-
insured deposits are accepted by FDNB, PNB and PCSI. A variety of servicing
activities are performed in support of FDNB, PNB, PCSI and PCC by Providian
National Bancorp ("PNBC"), another wholly owned subsidiary of the Company.
Providian Bancorp plans to change its name to Providian Financial
Corporation shortly before the Distribution.
INDUSTRY OVERVIEW
Credit Cards
In recent years, a growing portion of consumer expenditures have been made
through credit cards. According to a January 1996 Bernstein report on the
credit card industry, personal consumption expenditures occurring through
credit cards grew to approximately 17% of the total of such expenditures in
1995, compared to approximately 11% in the early 1980s. Of the major payment
mechanisms in the United States, including cash, checks and credit cards,
credit cards have grown the fastest since 1990, at a rate three times as fast
as cash and checks, according to the January 1996 Bernstein report. In
addition, Bear Stearns & Co. Inc., in September 1996, reported that revolving
credit (mainly credit card debt) has doubled its share of total consumer
credit since 1980, rising from less than 20% to almost 40%.
Credit cards can be broadly divided into the private label and general
purpose categories. "Private label cards" are issued by or on behalf of, and
are typically only accepted by, a particular merchant, e.g., gas or department
store credit cards. Providian Bancorp does not participate in the private
label card segment of the industry. There are two principal types of "general
purpose cards:" (i) charge cards, also known as travel and entertainment cards
(e.g., American Express and Diner's Club/1/), which allow consumers to make
purchases but
- --------
(1) Diner's Club is a registered trademark of Citicorp Diners Club Inc.
47
<PAGE>
require that they pay off their accumulated charges in full at the end of each
billing period; and (ii) revolving credit cards (e.g., Visa, MasterCard,
Discover and Optima/1/), which give consumers similar purchasing privileges
and also extend them credit, either through cash advances, balance transfers
or the "revolving" of purchase balances.
General purpose cards, unlike charge cards, are used by consumers for two
distinct purposes: as a transaction vehicle, affording access to a convenient
payment system, and as a vehicle for borrowing money. The Company participates
primarily in the borrowing segment of the market.
General purpose cards may be further distinguished by whether they are
proprietary (Optima, Discover) or association-based bank cards distributed by
banks that are members of one or both of the bank card associations, Visa and
MasterCard. The Company is a significant participant in the bank card market.
The bank card segment, which makes up approximately 89% of general purpose
card receivables according to the December 1996 Bankcard Barometer, is
comprised of over 13,000 U.S. issuers, the majority being regional as opposed
to nationwide issuers. However, the industry is increasingly dominated by the
top 20 nationwide issuers. According to a February 27, 1996 Bear Stearns
report, at the end of 1995, the top 20 bank card issuers were responsible for
approximately 64% of all card receivables outstanding, compared to 52.5% at
the end of 1991.
Secured Credit Cards
A rapidly emerging type of credit card is the "secured card," which requires
the customer to deposit funds into an interest-bearing account as collateral
for all or part of the line of credit. Secured cards are primarily targeted to
United States households with limited or damaged credit histories. MasterCard
International Incorporated sources estimate that the potential secured card
market includes approximately 17 million United States consumers and that the
number of secured card accounts has grown from approximately 0.7 million in
1992 to between 2.5 million and 3.5 million in 1995.
Home Equity Lending
The home equity market is growing and highly competitive. The amount of
available equity in United States homes is estimated to be approximately $3.7
trillion. Current market penetration is estimated at between $350 billion and
$400 billion in total amounts outstanding, leaving a substantial amount of
market growth available. Competition in the home equity loan market remains
fragmented. The total number of lenders in the industry continues to increase
substantially, and lenders are beginning to compete more aggressively on rates
and terms. Although there are many lenders, few lenders have a significant
market share. The Company believes that the environment is favorable for home
equity lenders given the high level of consumer debt outstanding that might be
consolidated, the low delinquency and charge-off levels associated with home
equity lending as compared to consumer lending in general, and the favorable
tax treatment accorded home equity loans. See "Risk Factors--Intense
Competition" and "Regulatory Matters--Legislative Developments."
BUSINESS STRATEGY
Providian Bancorp's strategy is centered on the development of "universal"
product offers that are designed to appeal to a broad range of consumers
within its target markets, utilizing specific terms that can be customized at
the time of sale to meet individual borrowing needs. Drawing upon its
proprietary databases and analytical techniques, the Company has developed its
own targeting and credit models which are used to identify qualified
consumers. When a consumer responds to an offer, the Company uses internally
developed technology to customize credit lines, rates and terms in a manner
designed to meet the consumer's needs. The goal is to meet as many of these
needs as possible, within the Company's risk parameters, in order to become
the consumer's "primary lender." Following account origination, the Company
monitors account performance on an individual and portfolio basis and utilizes
a variety of customer management tools in an effort to build long-term
relationships with customers while controlling portfolio risk and achieving
targeted returns.
- --------
(1) Optima is a registered trademark of American Express Company.
48
<PAGE>
To execute its strategy, the Company relies on its information and
technology intensive engineering approach to market selection, customer
targeting, customer acquisition and profitability management. The engineering
approach focuses on the customer relationship, particularly on the number of
relationships and the profitability of each relationship. Credit lines and
terms are customized to meet individual needs. The Company believes that this
engineering approach has been a key to its financial success.
Providian Bancorp has invested significant resources in the development of
four key capabilities that are central to the engineering approach: (i) market
selection (segmenting consumer markets to identify as potential customers
those individuals whose needs are underserved and meet the Company's risk and
profitability goals); (ii) customer targeting (attracting customers through
focused marketing and sales strategies and distribution systems tailored to
their needs); (iii) customer acquisition (efficiently providing customized
products and services that respond to consumer needs so as to foster long-
term, profitable customer relationships); and (iv) profitability management
(balancing of risk and return in order to achieve targeted profits, with
investment focused in the areas that management views as having the highest
value, including the continuous improvement of operations). The Company
believes that these capabilities have more lasting value and are more
difficult to duplicate than product designs and marketing strategies. In
particular, the Company believes that its market-driven customer focus, its
integrated pricing, credit and collections strategy, its targeting and
database management capabilities, and its disciplined execution are all part
of the engineering approach that has contributed to the Company's results.
Providian Bancorp seeks to utilize its targeting and database management
capabilities to generate business and customer leads. The Company then
combines pricing, credit and collections into one integrated strategy as a
means of controlling risk and seeking high margins and returns. Pricing
decisions are based on an analysis of risk, as well as on competitive factors
and customer price sensitivity. Credit decisions are based on the Company's
credit philosophy and its experience in managing credit risk. Collections
efforts focus on the action or inaction of the customer ("event-driven"),
rather than on the passage of time ("time-driven"). A separate asset recovery
group focuses on closed accounts where recovery of amounts due is the only
objective. The results of each business division's experience in the pricing,
credit and collections areas are shared in an effort to strengthen the Company
as a whole.
Providian Bancorp seeks to apply a disciplined approach in the execution of
its strategy. Proposed changes to loan terms, pricing, product features,
solicitation package design, account origination criteria, customer management
programs and other practices are tested against existing practices prior to
implementation. Only those changes that the Company believes improve upon the
existing or "control" package or practice are implemented on a broader scale.
All tests and rollouts are subject to risk control procedures designed to
ensure that consideration of credit, legal, compliance, marketing and
operational risks is incorporated into the decision-making process. In
addition, the Company engages in a continuous process of data gathering and
evaluation in an effort to ensure that feedback from past and current
programs, including customer response and performance characteristics, are
included in the development of future business plans. The Company seeks to use
these "feedback loops" to challenge and improve upon all of its products and
practices. For this reason, the product features and other aspects of the
Company's business, as described below, are continually evolving in response
to the market and the Company's evaluation of past experience.
UNSECURED SPREAD BUSINESS
General
Providian Bancorp's unsecured spread business division (the "Unsecured
Spread Business") originates, maintains and services unsecured consumer loans
generated through two distinct product lines: Credit Card and Revolving Line.
In its "Credit Card" portfolio, the Company offers Gold Visa and MasterCard
credit cards to consumers who are expected to qualify for unsecured credit.
The Company (through its financial institution subsidiaries on a combined
basis) ranks as the 13th largest issuer of bank credit cards in the United
States, as reported in the January 1997 Nilson Report. Although the Company's
financial institution subsidiaries are
49
<PAGE>
members of both Visa U.S.A., Inc. and MasterCard International Incorporated,
they have historically originated primarily Gold Visa accounts. Outstanding
managed balances in the Company's credit card portfolio totaled $6,497,269,000
as of December 31, 1996, an increase of 47% over the $4,421,226,000
outstanding as of December 31, 1995. In its "Revolving Line" portfolio, the
Company offers an open-end, revolving line of credit that is accessed through
checks provided to the customer. This product, called "Capital Cash,"/1/ is
targeted to creditworthy customers who tend to revolve balances but who prefer
to use checks rather than credit cards. At December 31, 1996 outstanding
managed balances in the Revolving Line portfolio totaled $1,346,426,000, an
increase of 4.3% from the $1,290,974,000 outstanding at December 31, 1995. At
December 31, 1996, the average balance for Credit Card and Revolving Line
accounts was $2,591; the average balance for open accounts with balances
greater than $1 was $4,180; and the percentage of accounts delinquent for 31
days or more was 4.08%.
Both Credit Card and Revolving Line products are marketed to consumers
nationwide, primarily through the direct mail and telemarketing channels. The
Company uses proprietary technology and credit models to target creditworthy
consumers who are believed to be responsible borrowers and who are likely to
respond to the credit offer and revolve their balances.
Providian Bancorp's strategy for its Credit Card and Revolving Line
businesses is to solicit consumer responses with a "universal" offer designed
to appeal to a broad market, utilizing flexible product features that can be
tailored to match an individual customer's credit needs and credit profile at
the time of sale. By striving to deliver value tailored to customer-perceived
needs, the Company seeks to establish a primary lender relationship with the
customer. At account origination, pricing and credit limits are established on
an individualized basis, based on the customer's risk profile and the
customer's loan feature preferences and price sensitivity. In this manner, the
Company seeks to configure a set of terms that meets the customer's needs as
well as the risk/return parameters established by the Company. The Company
continually monitors the payment performance and risk profiles of its
accountholders, and may adjust the benefits and pricing on the accounts as the
relationship evolves. Under the Company's primary lender strategy,
creditworthy customers are currently offered credit lines of up to $20,000
where necessary to meet their borrowing needs and considered prudent in light
of their credit attributes. The Company also offers savings to new customers
with introductory rates (which may be as low as 0%) for an initial courtesy
period.
Providian Bancorp offers unsecured loan products having both fixed and
variable rates. The Company reserves the right to modify the rates on the
accounts in the future. Rates may be adjusted to reflect changes in the
customer's credit profile after the account is opened, and most accounts
include performance-based pricing terms pursuant to which the rates will
increase automatically in the event the customer fails to comply with certain
terms of the account agreement. The Company typically charges late payment
fees, returned check fees and overlimit fees, and may charge other fees it
considers appropriate. Any of these fees may be waived or modified at any
time. The Company generally does not charge an annual fee on Credit Card or
Revolving Line accounts, although a small portfolio of accounts is charged a
credit line fee based on the unutilized portion of the line. The Company also
offers a credit protection service to customers for a fee. This service
permits the customer to temporarily suspend such customer's payment
obligations under the account agreement in limited circumstances involving
unemployment, disability and hospitalization. Other add-on fee products are
also offered to Credit Card and Revolving Line customers. See "--Fee-Based
Products" below.
Each of the Company's financial institution subsidiaries uses account
origination, underwriting and servicing procedures which are substantially
similar for both Credit Card and Revolving Line products.
- --------
(1) Capital Cash is a registered service mark of Providian Bancorp.
50
<PAGE>
Underwriting Procedures
Providian Bancorp's credit screening process begins with a "prescreening"
review which identifies creditworthy consumers who are likely to be eligible
for a loan. These consumers generally receive direct mail solicitations or
solicitations by telephone. Responses from applicants are subject to a "back-
end verification process" in which an applicant's credit information is
reviewed a second time, updated and verified against criteria established by
each institution's loan committee.
In the "prescreening" process, the Company provides a set of credit criteria
directly, or indirectly through a third party, to credit bureaus. The bureaus
screen their databases and generate a list of names with the desired
attributes. The list is further refined by applying an additional set of
targeting criteria which have been derived by the Company from a statistical
modeling of attributes from previous mailings, behavioral usage and credit
risk. This final list is then statistically verified by the institutions to
ensure that the list complies with the criteria supplied.
Targeted individuals who receive the solicitations must respond in writing
or by telephone to initiate the back-end verification process. Once the
response is received and verified, the Company provides each person who
responds within the time period specified an opportunity to accept a line of
credit generally ranging from $300 to $20,000, based on the customer's credit
profile and other relevant criteria.
Each accountholder is subject to an agreement governing the terms and
conditions of the account. Pursuant to such lending agreement, the institution
that owns the account reserves the right to change or terminate any terms,
conditions, services or features of the account (including increasing or
decreasing monthly periodic charges, other charges or minimum payments). By
their terms, the lending agreements are governed by New Hampshire law (or Utah
law, in the case of PCSI). Credit limits are adjusted periodically based upon
the Company's continuing evaluation of an accountholder's credit behavior.
In 1991, PNB acquired a portfolio of MasterCard accounts, the outstanding
balances of which aggregated $72.5 million as of December 31, 1996. Those
accounts were originally opened using criteria established by the institution
from which the accounts were purchased and were selected by PNB based on a
credit scoring formula acceptable to PNB. Other portfolios of consumer
revolving credit accounts may be purchased by the Company's subsidiaries from
other institutions from time to time, using credit screening procedures and
criteria acceptable to the acquiring subsidiary. However, except for the
acquisition noted above, the Unsecured Spread Business has relied on direct
customer acquisition strategies, rather than on portfolio acquisitions, to
fuel its growth.
The Company tracks and tests the results of account solicitations made to
potential customers. The Company's management information systems are designed
to enable management continuously to monitor the effectiveness of its
prescreening and underwriting criteria. Criteria are periodically modified
based on the results obtained from this process.
Collections
In an effort to minimize credit losses on existing accounts, Providian
Bancorp's financial institution subsidiaries periodically update the credit
profiles of their customers. This update allows the institutions to reassess
the probability of default and more actively manage higher risk accounts.
Current collection practices are characterized by quick intervention upon any
missed payments, automated calling systems designed to improve efficiency in
contacting customers, and close monitoring of delinquencies and charge-offs.
Collections practices are revised from time to time in accordance with the
Company's experience.
Current collection policy consists primarily of the following: (i)
statements are sent monthly and accountholders have approximately 30 days
after the statement date to remit payments before an account is considered
past due; (ii) risk assessment and segmentation models are used to determine
when to contact accountholders by telephone after an account balance becomes
past due, with an emphasis on early intervention for those accounts with the
highest risk; (iii) arrangements may be made with accountholders to extend or
change
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<PAGE>
payment schedules; (iv) collection efforts are event-driven and, thus,
accounts are escalated to more experienced collectors, suspended, closed,
and/or referred to the legal collections unit, based on customer behavior
rather than on the passage of time; and (v) legally permissible collections
activities continue after an account is charged off.
The Company's policy is to charge off the principal balance of delinquent
accounts no more than 180 days after the delinquency occurs (210 days after
the date of the billing statement), unless the accountholder cures the default
by making a partial payment which qualifies under the Company's standards.
Related interest and late fee charges are written off as a reversal of
interest income. Account balances for deceased account obligors are written
off upon determination of collectibility (generally, upon verification of no
estate). Account balances for bankrupt accountholders are written off upon
determination of post-bankruptcy collectibility (generally, upon appropriate
verification). Because accountholders for whom the Company receives notice of
bankruptcy filing are sometimes current in their payments up to the time of
notification, these accounts may be charged off without having been
delinquent.
Geographic Diversification
Providian Bancorp's Unsecured Spread Business portfolio is well-diversified
geographically, since the distribution of outstanding balances among the
states generally reflects their relative shares of the United States
population. As of December 31, 1996, the states in which outstanding balances
are most heavily concentrated are California (13.59%), Texas (7.34%), New York
(6.67%), Florida (5.16%), Pennsylvania (4.29%), Illinois (3.99%), Ohio
(3.98%), Michigan (3.23%) and North Carolina (3.19%).
PROVIDIAN HOME LOANS
Providian Bancorp's Providian Home Loans division ("PHL") is its second
largest business (after the Unsecured Spread Business) in terms of asset size.
The Company originates and services home equity lines of credit to targeted
individuals through direct mail and telemarketing, serving consumers in
approximately 120 Metropolitan Statistical Areas ("MSAs") in 26 different
states, which states represent approximately 70% of the United States
population. According to The American Banker on June 17, 1996, FDNB ranked
among the top 30 revolving home equity loan originating banks. From December
31, 1995 to December 31, 1996, PHL's outstanding managed balances increased
from $716 million to $945 million, an increase of 32%.
Providian Bancorp's strategy for PHL is to target homeowners with
significant debt, and to offer them a home equity line of credit for debt
consolidation and savings (provided by a lower interest rate and tax
advantages). By taking a security interest up to the value of the home, the
Company can offer an attractive opportunity to customers who might otherwise
be unable to achieve debt consolidation, while managing the Company's risk in
a manner the Company considers prudent. Many of the skills employed at PHL to
execute this strategy were originally developed in the Unsecured Spread
Business. These skills, including database marketing, targeting and risk
management, have been adapted and refined by PHL specifically for the home
equity lending business. As with all of the Company's businesses, product
testing is an integral part of PHL's business strategy.
PHL's business strategy, derived from the Company's engineering approach,
focuses on the following principles: (i) evaluating the borrower's credit
history in addition to the value of the real estate which secures the loan;
(ii) marketing through the direct mail channel, which allows both customer and
regional selectivity and the ability to react quickly to local economic and
real estate market changes; (iii) utilizing a two-step process of lead
generation and lead conversion with a universal offer and customization at the
back end; and (iv) establishing primary lender relationships by successfully
targeting borrowers.
The Company's home equity line of credit is currently structured as a 15-
year loan, with a 10-year revolving term followed by a five-year amortization
period. Opening the account requires a cash advance and additional draws up to
the credit limit are accessed by checks. Interest rates are variable, based on
the prime rate. Credit lines, loan-to-value ("LTV") ratios and interest rates
(the spread above prime), within limits preestablished for each customer, are
determined by collateral and credit quality levels.
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As part of its market identification process, the Company has developed a
regional economic database which contains key economic statistics on an MSA
and state level. This database is used in conjunction with consumer data to
identify potential customers. The decision to enter or exit a particular
geographic market is based on a thorough analysis of the information in this
database, including the concentration of homeowners within a given MSA and
state, the health of the regional economy, the condition of the single family
housing market and the incidence of foreclosure or delinquency within the
market.
As in the Unsecured Spread Business, the Company uses proprietary models to
prescreen and target individuals whom the Company considers to be creditworthy
and to have an appetite for debt consolidation. Using proprietary underwriting
criteria, the Company segments responding individuals based on credit risk,
collateral values and market risk. In this process, the Company seeks to
determine the prospective customer's probability of default before deciding on
LTV limits. The segmentation process is designed to enable the business to
match loan collateral requirements to customer/loan risk levels. Higher LTV
ratios, of up to 100%, can be offered in situations where the Company
considers it warranted due to the customer's historical credit performance and
other factors. The Company estimates that approximately 25% of outstanding
balances in its PHL portfolio were exposed over the 85% LTV level as of
December 31, 1996 (using the estimated value of collateral properties as of
December 31, 1996, based on the appraisal or evaluation obtained at account
opening and on market value trends in the subject property's MSA). PHL also
employs a risk-based pricing strategy that is a function of borrower risk and
collateral risk in an effort to ensure that the Company is appropriately
compensated for the risks incurred.
By using a direct marketing channel rather than a branch-based distribution
system, the Company seeks to avoid high overhead costs and maintain the
flexibility to enter and exit geographic markets easily. This flexibility is
another key tool in the overall risk management strategy of the business.
Credit bureau prescreens are the primary source for lead generation. Leads
have also been obtained on a selected basis from other channels, such as
telemarketing, mortgage brokers, existing Unsecured Spread Business customers,
and through the purchase of vertical lists of new homeowners.
Using guidelines provided by PHL's proprietary transaction profitability
models, telemarketers customize account features directly with interested
consumers, thereby allowing a customer's loan to be tailored to such
consumer's individual needs. Each loan parameter, including line size, cash
advance level and pricing, is analyzed in the profitability models in an
effort to ensure that the account will meet business profitability and risk
guidelines. As an additional tool to manage risk, the Company generally will
not grant a large unutilized credit line in excess of the amount borrowed at
closing. Once terms have been finalized with the customer, account
documentation for the line of credit is individually printed in the Company's
operations centers so that it reflects the specific terms applicable to each
customer's account. For certain customers, the Company has also offered fixed
rate, amortizing first mortgage loans in conjunction with the Company's home
equity line of credit product, primarily as a customer retention strategy. The
Company does not expect the first mortgage share of the home loan portfolio to
exceed 10%.
PHL's collections efforts are internally managed, from the initial contacts
with the borrower and all correspondence up to the time that an account is
referred to outside counsel for foreclosure.
The PHL portfolio is geographically well-diversified among the MSAs in which
the Company does business. As of December 31, 1996, San Francisco-Oakland-San
Jose is PHL's largest MSA and comprises 11.52% of total portfolio balances.
Chicago is the next largest MSA comprising 8.32% of total portfolio balances,
followed by Detroit with 8.11%. The states in which outstanding balances are
most highly concentrated are California (15.6%), Michigan (10.57%), New York
(10%), Illinois (9.03%), Ohio (6.89%), Washington (5.84%), and Florida
(4.41%).
UNBANKED BUSINESS
Providian Bancorp's Unbanked Business division ("Unbanked Business") was
established in 1991 to serve a segment of the United States population that
the Company believes had been, and continues to be, largely
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underserved by traditional financial institutions. To date, the most
successful entry product for this market segment has been a credit card
secured by a savings deposit. Under this program, the customer opens an
interest-bearing, FDIC-insured savings account, and makes an initial deposit,
which is normally at least $200 and may be up to $5,000. The customer grants
the Company a security interest in the savings account in order to protect the
Company against losses on the customer's credit card account. Interest paid on
the savings account varies with the amount deposited.
Through its Unbanked Business, the Company serves individuals who typically
have limited access to credit and are unable to use the credit card payment
system due primarily to a lack of credit history or past credit problems. The
business offers these consumers access to the payment system and an
opportunity to establish or reestablish their credit standing.
The Unbanked Business' primary product currently is a secured Visa Classic
credit card account with an application fee and an annual membership fee.
MasterCard credit cards have also been offered on a selected basis. The credit
card account APR is 19.8%, and the savings account yield is tiered based on
the balance of the deposit.
Providian Bancorp is estimated to be the largest issuer of secured credit
cards in the United States, based on institutions participating in published
surveys. As of December 31, 1996, the Company had approximately 732,500
secured credit card accounts, with approximately $467 million in outstanding
balances.
The Company's strategy in the Unbanked Business is based, in part, on its
attitude towards, and treatment of, customers in this market. The Company
believes that customers in this market have traditionally been treated by
others as undesirable or have been offered secured credit solely as a
counteroffer when the applicant fails to qualify for unsecured credit. In
contrast, the Company proactively seeks to build a relationship with customers
in this segment and targets them with solicitations for its products and
services. The Company's proprietary targeting and credit risk models are
designed to allow the business to segment the customer population effectively,
allowing the Company to offer a prudent mix of secured and unsecured (over and
above the deposit security) credit, and other product features designed to
meet the customer's needs consistent with the profitability and risk
guidelines of the Unbanked Business. Account performance is monitored, and
product features (including the ratio of credit line to deposit security) may
be adjusted after account opening in order to strengthen the customer
relationship and increase account profitability over time.
The Company believes that its risk management capabilities have allowed it
to identify segments of this market that have significantly lower default
rates than the average of the unbanked population. Based on this, the Company
has designed different lead generation offers for different market segments,
which have increased the response and acceptance rates for its secured card
offers.
In the collections area, activity is focused on those accounts where the
balance exceeds the Company's security interest. Accounts which represent
little or no principal loss risk to the Company are still collected, but with
less labor intensive and more cost effective methods. This approach is
consistent with the Company's strategy of focusing on those segments that the
Company believes will yield the greatest financial impact.
In addition to secured credit cards, the Unbanked Business also finances
insurance premiums, primarily on non-standard auto loans for California
borrowers. Repayment of the insurance premium finance loans is collateralized
by the unearned premiums held by the insurance company.
FEE-BASED PRODUCTS
Providian Bancorp has developed a number of fee-based products which are
marketed primarily to its consumer loan customers. The current product
portfolio is focused on broad themes: home, health, credit and auto.
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Applying the engineering approach, the Company assembles various services
sourced internally or through third-party vendors, and distributes the bundled
products to customers. Currently, marketed fee-based products include the
following: (i) Providian Health Advantage, which offers prescription and other
health-related discounts or referrals; (ii) DrivePro, which offers emergency
towing service, auto maintenance discounts and other auto- and travel-related
benefits; (iii) Credit Protection, which offers deferral of loan payments in
the case of unemployment, disability or hospitalization; (iv) PricePro/1/,
which offers shopping-related discounts; and (v) Home Protection/2/, which
offers a standby line of credit to assist with rent or mortgage payments in
the case of unemployment, disability or hospitalization. The fee-based
products often have a choice of benefit levels and are priced according to the
chosen benefit level.
A portion of fee-based product sales has been to customers of Providian's
other non-Company business units. The Company expects that these sales will
continue pursuant to licensing agreements with Providian after the
Distribution. See "Arrangements Between Providian and Providian Bancorp."
LIABILITY AND CAPITAL MANAGEMENT
General
Providian Bancorp's liability and cash management activities are
administered centrally by the Company's finance department. The Company relies
on a variety of uncommitted and committed funding sources, ranging from FDIC-
insured retail deposits to publicly-issued asset-backed securities. The
Company's philosophy is to offer a variety of funding products appealing to
distinct groups of investors. This results in a diversified funding mix from
both a product and investor standpoint. In funding the assets of the Company
and its affiliates, the Company seeks to generate funding at the lowest
possible cost consistent with ensuring prudent liquidity and interest rate
risk management. The Company also seeks to diversify its funding mix by adding
new funding products and investors where appropriate. As of December 31, 1996,
on-balance-sheet funding sources provided approximately $3.7 billion in
funding, representing 40% of the Company's total managed funding, while off-
balance-sheet funding sources provided almost $5.6 billion in funding, or 60%
of the Company's total managed funding. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
Providian Bancorp's liquidity and interest rate risk management policies.
On-Balance Sheet Funding
Providian Bancorp offers FDIC-insured deposit products directly to its
nationally diversified retail customer base through both of its bank
subsidiaries and PCSI. FDNB offers MMDAs, Mini CDs (less than $95,000) and
Jumbo CDs (greater than $95,000) ("Jumbo CDs"). Due to charter restrictions,
PNB offers its retail customers the Jumbo CD product exclusively, in amounts
of $100,000 or greater. The CDs range in term from three months to five years.
The Company maintains its own retail deposits, customer service and operations
group in Concord, New Hampshire for FDNB, PNB and PCSI in an effort to ensure
consistent, high quality customer service.
Historically, the Company's secured card portfolio has been largely self
funding because the credit line is partially or fully secured with a deposit
from the accountholder. The Company believes that these deposits, which are
FDIC-insured, provide stable, low-cost funding for this product. As of
December 31, 1996, the percentage of secured card receivables to deposits was
approximately 1.3 to 1.
The Company markets retail deposits to the public by submitting its offered
rates to Bank Rate Monitor and Banxquote for inclusion in their national rate
surveys. Both organizations compile the highest yielding deposit offerings in
the country for inclusion in their own publications, Hundred Highest Yields,
Jumbo Flash Report and Banxquote, and in local and national media such as The
New York Times, The Wall Street Journal, Money
- --------
(1) PricePro is a service mark of Providian Bancorp for which federal
registration is pending.
(2) Home Protection is a registered service mark of Providian Bancorp.
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<PAGE>
and Worth. FDNB, PNB and PCSI provide toll-free "800" numbers from which they
quote rates to potential and existing customers. Since 1993, the retail
deposit franchise of FDNB and PNB (the "Banks") has shown consistent growth,
and the Company believes that it has been successful in raising stable, low-
cost funding.
FDNB also maintains relationships with national broker-dealer networks which
offer FDNB retail CDs to their customers under a master CD structure. The
dealers act as agents for their customers and consolidate smaller retail
deposits into master certificates of deposit which are placed with FDNB. These
programs provide additional diversity to the deposit base by allowing FDNB to
access a segment of the retail depositor market which manages its money
through brokers.
Both FDNB and PNB offer wholesale CDs to institutional money managers who
value FDIC insurance, but are still yield sensitive. These investors include
banks, savings and loan institutions, credit unions, pension and trust funds,
and other small- to medium-size institutional investors. At FDNB, the minimum
size of a wholesale CD is $95,000 and at PNB, due to charter restrictions, the
minimum size of a wholesale CD is $100,000. The CDs range in term from one
month to five years. The Banks accept both directly-placed and broker-placed
wholesale CDs, and the Company directly manages customer relationships through
its wholesale CD customer service and operations center. The Banks offer, both
directly and through dealers, large block negotiable CDs ("NCDs") to
institutional investors active in the money market. These CDs have a $1
million minimum size and generally range in term from one week to one year.
PCSI's utilization of institutional funding sources in the future is
expected to be similar to FDNB's. Additional funding sources for the Company's
financial institutions include term Federal funds, primarily from banks in the
Federal Home Loan Bank system, uncommitted lines of credit for overnight
Federal funds and the Credit Facility of $1.2 billion from a group of 27
domestic and international banks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Funding and Liquidity."
Off-Balance-Sheet Asset Securitization and Sale
Like most significant credit card issuers, Providian Bancorp is active in
the asset securitization market, which provides off-balance-sheet funding. The
primary objectives of securitization at the Company are to diversify funding
sources and obtain an efficient cost of funds, including the cost of capital.
The Company has issued over $8 billion in public and private asset-backed
securities in 18 transactions, beginning in 1989 with the issuance of a $600
million private placement of such securities. As of December 31, 1996,
securitizations outstanding provided approximately $5.6 billion in funding,
representing 60% of total managed funding. The Company believes that access to
the securitization markets provides significant amounts of funding at a
competitive cost. The following table provides a summary of the securitization
series outstanding as of December 31, 1996:
<TABLE>
<CAPTION>
SERIES ISSUED FROM THE PROVIDIAN MASTER TRUST CONDUITS
--------------------------------------------------------------- ---------------------
CREDIT HOME
CARD EQUITY
SERIES/FACILITY 1993-2 1993-3 1994-1 1995-1 1995-2 1996-1 CONDUIT CONDUIT
- --------------- --------- ---------- ------------ --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance date(1)........ June 1993 Dec 1995 May 1994 June 1995 June 1995 June 1996 Oct 1995 May 1996
Securitized balance..... $500 MM $750 MM $475 MM $950 MM $550 MM $950 MM $1,000 MM $435 MM
Term.................... 5 years n/a 3 years 5 years 3 years 7 years n/a n/a
Amortization Method..... Bullet Amortizing Bullet Bullet Bullet Bullet Amortizing Amortizing
Revolving/Accumulation.. Revolving Revolving Accumulation Revolving Revolving Revolving Revolving Revolving
Scheduled end of
Revolving Period(2).... June 1996 March 1998 June 1995 June 1998 June 1996 June 2001 May 1997 May 1997
Base rate(3)............ 7.5% 7.61% 8.65% 7.84% 8.04% 7.87% 7.87% 6.56%
3 month average net
spread(4).............. 5.23% 4.89% 5.26% 5.20% 5.02% 7.84% 3.80% 6.46%
</TABLE>
- --------
(1) Original closing date for the conduits.
(2) Subject to change if the commencement of the Accumulation Period is or has
been delayed for the Providian Master Trust series or if the Revolving
Period is extended with the consent of the banks for the conduit
facilities.
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(3) The base rate generally represents the sum of the interest paid to
investors, plus other expenses of the program including credit enhancement
fees and the servicing fee paid to the Company, divided by the securitized
balance. The rate shown is for the month of December 1996.
(4) The net spread generally represents the excess of "portfolio yield" (which
is the excess of finance charge and fee income over credit losses, divided
by the securitized balance) over the base rate. If the average net spread
for any three-month period were to fall below zero, an early amortization
event would occur, causing the revolving period to end prematurely. The
rate shown is the average for the three-month period ended December 31,
1996.
In March 1997, Providian Bancorp securitized $1.3 billion in credit card and
revolving line of credit receivables through the issuance of two new series,
Series 1997-1 and Series 1997-2, from the Providian Master Trust. The Series
1997-1 issuance totaled $600 million with a five-year term and a revolving
period scheduled to end February 28, 2000, and Series 1997-2 totaled $700
million with a seven-year term and a revolving period scheduled to end
February 28, 2002. Both series have bullet amortization structures. At the
same time that Series 1997-1 and Series 1997-2 were issued, the Company
reduced Series 1993-3 by $325 million, for a net increase in securitized
balances of $975 million.
A securitization involves the transfer by the Company of the receivables
generated by a pool of accounts to a single-purpose trust or other special
purpose entity created for the securitization. Certificates issued by the
trust or other special purpose entity represent undivided ownership interests
in those receivables transferred to the trust or other special purpose entity.
The securitization results in the removal of the receivables from the
Company's books for financial and regulatory accounting purposes. For tax
purposes, the investor certificates are characterized as a collateralized debt
financing of the Company.
In 1993, Providian Bancorp created the First Deposit Master Trust, since
renamed the Providian Master Trust ("PMT"), as a vehicle for the issuance of
these certificates, or asset-backed securities. The PMT is structured for
multiple issuances from a single trust and a single pool of assets. The trust
was formed pursuant to a pooling and servicing agreement between the Company,
as seller and servicer, and a bank trustee. The agreement provides for the
transfer by the Company to the trust of eligible receivables arising under
accounts selected from the Company's total portfolio of accounts. Such
selection is designed to obtain a representative sampling of the Company's
eligible unsecuritized accounts at the time of the securitization.
The Company has the right, subject to certain limitations and conditions, to
designate additional accounts and to transfer to the trust the receivables
relating to the accounts then existing or thereafter created. The Company is
required to designate additional accounts to the extent they are available,
and transfer the present and future receivables relating to such additional
accounts to the trust if the amount of the receivables in the trust declines
below a minimum dollar amount. The pooling and servicing agreement permits the
Company to remove accounts from the pool and have the related receivables
reassigned to it if the Company's interest in the trust exceeds a specified
level and certain other conditions are met.
Certificates representing participation interests in the pool are generally
sold to the public through an underwritten offering. The Company receives the
proceeds of the offering. The amount of receivables in the trust exceeds the
initial principal amount of the certificates issued by the trust to investors;
the excess comprises the "sellers' interest," which is retained by the
Company. At any particular time, the amount of this retained sellers' interest
is equal to the total principal amount of the receivables in the trust, less
the principal amount of the outstanding investor certificates. The Company's
interest in the trust will vary because the amount of receivables in the trust
fluctuates due to accountholder principal payments and new charges and cash
advances on the selected accounts.
The life of most certificates, which for Providian Bancorp ranges from three
to seven years, is divided into two periods, the revolving period and the
amortization period. During the revolving period, investors receive interest
only payments based upon the certificate's coupon rate. To maintain the
investor's interest in the pool, principal payments made by the accountholders
are reinvested in new receivables generated by new purchase and cash advance
activity on the designated accounts.
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After the revolving period, the certificates begin to pay (or accumulate)
principal to the investors in addition to interest payments. Principal is paid
to the investors through either amortization payments or a bullet payment. In
a controlled amortization transaction, an amortization period follows the
revolving period. During the amortization period, principal, in addition to
interest, is paid to the investors according to a set schedule, such as over
the course of one year in twelve equal monthly payments. In a bullet payment
transaction, investors are paid interest until the final scheduled interest
payment date, at which time all principal is repaid to the investor in one
lump sum. In this type of transaction, an accumulation period follows the
revolving period. During the accumulation period, principal payments made by
the accountholders and allocated to the accumulating series of certificates
are accumulated in a principal funding account ("PFA") and invested in short
term highly rated instruments. On the bullet payment date, the PFA is released
to the investors to repay their principal.
During the life of the certificates, interest and fee collections on the
investors' share of the receivables are segregated and forwarded to the
trustee. On a monthly basis they are released to pay the coupon interest to
the investors, servicing fees, expenses related to net credit losses of the
receivables and other trust expenses including fees for credit enhancement and
trust administration. The sellers are entitled to all interest and fee
collections from the sellers' share of the receivables, as well as all
residual interest and fee collections from the investors' share of the
receivables after payment of the expenses outlined above. Such residual is
referred to as excess servicing income. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Other Income--Loan
Servicing Income."
Since these certificates represent an interest in receivables sold to
investors, various structures are used to reduce credit risk and give the
certificates a high credit rating. Two principal mechanisms are employed: (1)
early amortization events, and (2) credit enhancement.
An early amortization event triggers an end to the revolving period followed
by a rapid amortization period during which principal payments are made to
investors before the expected payment date. During the rapid amortization
period, all principal payments received on the investor's share of the
designated receivables are used to pay back the investor's principal as
rapidly as possible. Early amortization events indicate that there is a
problem with the securities or the receivables pool and may include: a decline
in excess servicing income to a level below the minimum specified in the trust
documents (normally caused by increasing net credit losses, a decrease in
interest collections on the receivables or an increase in coupon interest on
variable rate investor certificates); and a reduction in the seller's interest
to a level below the minimum specified in the trust documents. Excess
servicing on Providian Bancorp's securitized receivables, as a percent of
average securitized receivables, averaged 5.7% in 1996. Although excess
servicing has declined from historical levels due to the yield and credit loss
trends noted under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Net Interest Income and Asset
Quality," the "net spread" for each of the Company's outstanding
securitzations continues to provide a substantial cushion against early
amortization, as shown in the table above.
Credit enhancement also reduces the credit risk taken by investors and can
take several forms including subordinated interests in the receivables pool,
cash collateral accounts or a combination of the two. These enhancements,
normally provided by third parties, are designed to absorb losses and protect
the investors.
The Banks have established commercial paper conduit facilities to fund off-
balance sheet credit card, revolving line and home equity line of credit
receivables. These vehicles provide additional funding flexibility as well as
securitization planning flexibility since they can generally be accessed more
rapidly and may accept more types of assets than the PMT. The cash and revenue
and expense flows of securitizations executed through these facilities,
however, are similar to those of the PMT described in detail above.
FDNB is the master servicer for the Company's outstanding asset-backed
securities. All securitization activity is reviewed by internal audit on a
when-issued basis as well as annually. Additionally, all public and most
private securitizations require an annual audit letter from an outside
auditor.
Capital Management
Providian Bancorp's goal in capital management is to optimize capital usage
by maintaining prudent capital ratios at its financial institutions while
providing for an appropriate return to its stockholders through prudent
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and efficient use of consolidated capital. Historically, the Company's
regulated financial institutions have been operated as "well capitalized"
institutions under Comptroller and FDIC guidelines, with risk-based regulatory
capital ratios in excess of 10%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ORGANIZATIONAL STRUCTURE
Providian Bancorp operates principally through five wholly owned
subsidiaries, each of which is described below.
First Deposit National Bank. FDNB, headquartered in Tilton, New Hampshire,
is a national banking association organized under the laws of the United
States. FDNB, originally organized as a state bank in 1853, converted to a
national charter in 1865. FDNB is a grandfathered "nonbank" bank under the
Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"),
and is subject to the restrictions of CEBA. See "Regulatory Matters." At
December 31, 1996, FDNB had total owned assets of $2.4 billion and securitized
assets of $4.3 billion, for total managed assets of $6.7 billion, and deposits
of $2.0 billion.
FDNB is engaged in secured and unsecured consumer lending nationwide,
primarily through direct mail and telemarketing. FDNB's portfolio of consumer
receivables consists primarily of unsecured consumer revolving loans for which
the credit extension is made by credit card or check. FDNB also offers home
loans, secured credit card loans, insurance premium financing loans, and
certain fee-based products and services, as enhancements to its credit
products. FDNB's home loan portfolio consists primarily of home equity line of
credit loans. It also maintains a small portfolio of commercial and other
loans originated locally in the Tilton, New Hampshire region.
Providian National Bank. PNB, headquartered in Concord, New Hampshire, is a
national banking association organized under the laws of the United States in
1990. Under the Bank Holding Company Act, PNB, which is chartered as a credit
card bank, is authorized to engage only in credit card operations and may not
accept deposits with balances of less than $100,000. At December 31, 1996, PNB
had total owned assets of $1.6 billion and securitized assets of $1.4 billion,
for total managed assets of $3.0 billion, and deposits of $1.4 billion. PNB is
engaged in credit card operations nationwide, primarily through direct mail
and telemarketing. As an enhancement to its credit card products, PNB offers
its customers certain related fee-based products and services.
Providian Credit Services, Inc. PCSI, headquartered in Salt Lake City, Utah,
is an industrial loan corporation organized under the laws of Utah. PCSI is
not a "bank" under the Bank Holding Company Act definition. PCSI became a
member of the FDIC in February, 1996, and has the authority to take federally
insured deposits. PCSI commenced accepting retail CDs in September 1996 and
began booking secured credit card accounts in October 1996. At December 31,
1996, PCSI had total assets of $23 million.
Providian Credit Corporation. PCC, headquartered in San Francisco,
California, was established in 1994. PCC is a finance company which has
purchased and currently holds a portfolio of consumer loan receivables
originated by FDNB. In addition, PCC originates home loan products in Florida.
Providian National Bancorp. PNBC, headquartered in San Francisco,
California, provides legal and human resources support, accounting and finance
services, data processing, loan and deposit processing, credit card account
opening, customer service, collections, and related services for FDNB, PNB,
PCC and PCSI on a straight cost reimbursement basis. Such support includes
reviewing applications for conformance to bank credit policies, processing new
accounts, providing telephone customer service, conducting telephone
marketing, handling collection activities, data processing and account record-
keeping. Other data processing functions are performed for the Company by a
third-party credit card processing company. Customer service is currently
available to most customers 24 hours a day, seven days a week (excluding
certain holidays). The Company has made a substantial investment in technology
and systems to support its underwriting, marketing, customer service and
collections strategies, and to seek to reduce long-term operating costs.
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EMPLOYEES
As of December 31, 1996, Providian Bancorp (consolidated with its
subsidiaries) had 2,965 employees and a total workforce (including temporaries
and contractors) of 3,445. The Company seeks to attract and maintain a highly
capable staff. The Company views current employee relations to be
satisfactory. None of the Company's employees is covered under collective
bargaining agreements.
LEGAL PROCEEDINGS
Providian Bancorp has been named as a defendant in various legal actions
arising from the conduct of its normal business activities. In the opinion of
the Company, any liability that is likely to arise with respect to these
actions will not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
PROPERTIES
Providian Bancorp leases its principal executive offices at 201 Mission
Street, San Francisco, California, currently consisting of approximately
93,044 square feet. The initial lease term expires July 31, 2001. The Company
owns its processing center at 4900, 4920, 4940 and 5020 Johnson Drive,
Pleasanton, California, consisting of 227,400 square feet. The Company's
financial institution subsidiary offices are located at 295 Main Street,
Tilton, New Hampshire, which is owned, and at 44 Main Street, Belmont, New
Hampshire, 53 Regional Drive, Concord, New Hampshire, and 4001 South 700 East,
Salt Lake City, Utah, which are leased.
Significant support activities occur at the following leased premises: 150
Spear Street, San Francisco, California (115,513 square feet), 160 Spear
Street, San Francisco, California (60,713 square feet), 201 Spear Street, San
Francisco, California (15,511 square feet), and 2700 Gateway Oaks Drive,
Sacramento, California (59,398 square feet). Additional support premises are
leased at 53 Regional Drive, Concord, New Hampshire, 11973 Westline Industrial
Drive, Maryland Heights, Missouri, 400 West Market Street, Louisville,
Kentucky, and 2301 Camino Ramon, San Ramon, California. Warehouse space is
also leased in Pleasanton, California.
REGULATORY MATTERS
GENERAL
As national banks, the Banks are primarily regulated by the Comptroller. The
deposits of the Banks are insured by the FDIC's Bank Insurance Fund (the
"BIF") to the extent allowed by law, and, accordingly, the Banks pay deposit
insurance premiums to, and are subject to certain regulations of, the FDIC. As
members of the Federal Reserve, the Banks are also subject to regulation by
the Federal Reserve.
As a Utah industrial loan corporation that is not a member of the Federal
Reserve, PCSI is primarily regulated by the Utah Department of Financial
Institutions and the FDIC. As with the Banks, the deposits of PCSI are insured
by the BIF to the extent allowed by law.
NONBANK BANK STATUS
Prior to the passage of CEBA, even though FDNB was a national banking
association, it was not a "bank" under the Bank Holding Company Act definition
because it did not accept demand deposits. For this reason, the Company was
not required to register as a bank holding company. The definition of "bank"
under the Bank Holding Company Act was revised by the passage of CEBA to
include generally all FDIC-insured institutions, including FDNB. However, the
Company is not treated as a bank holding company for purposes of the Bank
Holding Company Act because of provisions of CEBA that exempt certain owners
of "nonbank banks" that existed on March 5, 1987. Were it not for these
grandfather rights, the Company would be required to register as a bank
holding company and would be subject to the restrictions set forth in the Bank
Holding Company Act, which, among other things, would limit the Company's
activities to those of owning and managing banks and certain other activities
deemed by the Federal Reserve to be closely related to banking and a proper
incident thereto.
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CEBA does impose restrictions on the activities of such "nonbank banks." The
restrictions include prohibitions on new activities, and on affiliate
overdrafts and limitations on such banks' ability to cross-market their
products and services with products and services of their affiliates. The
Company could be required to register as a bank holding company under the Bank
Holding Company Act (and become subject to its limitations) if FDNB violates
the CEBA restrictions or if it or any of its affiliates acquires an additional
insured depository institution (excluding exempt institutions such as credit
card banks, certain industrial loan companies and certain insolvent
institutions).
PNB is not a "bank" as defined in the Bank Holding Company Act because it
(i) engages only in credit card operations, (ii) does not accept demand
deposits or deposits that the depositor may withdraw by check or similar means
for payment to third parties or others, (iii) does not accept savings or time
deposits of less than $100,000, (iv) maintains only one office that accepts
deposits, and (v) does not engage in the business of making commercial loans.
Accordingly, the Company is not required to register as a bank holding company
under the Bank Holding Company Act as a result of its ownership of PNB.
PCSI is not a "bank" as defined in the Bank Holding Company Act because it
qualifies for another exemption in CEBA, i.e., it is an industrial loan
corporation organized under the laws of Utah, a state which, as of March 5,
1987, had in effect or had under consideration in its legislature a statute
requiring the institution to obtain insurance under the Federal Deposit
Insurance Act of 1950, as amended, and it was acquired by the Company on or
before August 10, 1987. Accordingly, the Company is also not required to
register as a bank holding company under the Bank Holding Company Act as a
result of its ownership of PCSI.
While the Bank Holding Company Act and CEBA have influenced the manner in
which the Banks conduct their businesses, Providian Bancorp has been able to
achieve consistent growth in assets under management and revenue within the
limitations imposed by the regulatory environment.
DEPOSIT INSURANCE ASSESSMENTS
Under the FDIC's risk-based insurance assessment system, the FDIC places
each insured institution in one of nine risk categories based on its level of
capital and other relevant information (such as supervisory evaluations). See
"--Capital Requirements." Each insured institution's insurance assessment rate
is then determined by the risk category in which it has been classified by the
FDIC. Effective January 1996, the FDIC adopted an annual assessment rate
schedule which provides for a range of 0% (subject to a $2,000 minimum) to
.27%. The minimum assessment of $2,000 has since been eliminated by the FDIC.
FDNB, PNB and PCSI are currently assessed at the 0% rate, in accordance with
their risk classification. The assessment rate schedule is subject to change
by the FDIC, and, accordingly, assessment rates could increase in the future.
As members of BIF, the institutions are also charged .01296% of their deposit
base as a contribution to Finance Corporation ("FICO") bond payments in
connection with the thrift bailout. The FICO charge is expected to increase
commencing in the year 2000 as BIF-insured institutions become subject to
assessment on an equal basis with institutions insured by the Savings
Association Insurance Fund (a division of the FDIC).
CAPITAL REQUIREMENTS
The Comptroller has adopted risk-based capital guidelines to which the Banks
are subject. The FDIC has adopted similar guidelines which apply to PCSI. The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations. Risk-based capital ratios are determined by allocating
assets and specified off-balance-sheet commitments to four weighted
categories, with higher levels of capital being required for the categories
perceived as representing greater risk.
Under these guidelines, an institution's capital is divided into two tiers.
"Tier 1" includes common equity, non-cumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and certain other intangible assets.
Supplementary "Tier 2" capital
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includes, among other items, cumulative and limited-life preferred stock,
mandatory convertible securities, subordinated debt and the allowance for loan
and lease losses, subject to certain limitations, less required deductions.
Under current guidelines, institutions are required to maintain a minimum
total risk-based capital ratio (total Tier 1 and Tier 2 capital to risk-
weighted assets) of 8%, of which 4% must be Tier 1 risk-based capital. The
Comptroller or the FDIC may, however, set higher capital requirements when an
institution's particular circumstances warrant. As of December 31, 1996,
FDNB's and PNB's total risk-based capital ratios were 11.18% and 13.44%,
respectively. PCSI, which, since it was a start-up institution, did not book
significant loan accounts as of December 31, 1996, had a total risk-based
capital ratio of 218.43%. The Tier 1 risk-based ratios (Tier 1 capital to
risk-weighted assets) of FDNB, PNB and PCSI were 9.91%, 12.17%, and 217.14%,
respectively, as calculated under the guidelines now in effect.
In addition, each of the Comptroller and the FDIC has established guidelines
prescribing a minimum "leverage ratio" (Tier 1 capital to adjusted total
assets as specified in the guidelines). These guidelines provide for a minimum
leverage ratio of 3% for institutions that meet certain specified criteria,
including the requirement that they have the highest regulatory rating. All
other institutions will be required to maintain a leverage ratio of 3% plus an
additional cushion of at least 100 to 200 basis points. As of December 31,
1996, the leverage ratios of FDNB, PNB and PCSI were 10.81%, 10.78%, and
80.68%, respectively, as calculated under the guidelines now in effect.
Institutions experiencing or anticipating significant growth are expected to
maintain capital ratios well above the minimum.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required each federal banking agency to revise its capital standards to ensure
that those standards take adequate account of interest rate risk,
concentration of credit risk and the risk of non-traditional activities. In
December 1994, the Comptroller, the FDIC and the other United States federal
banking agencies revised their risk-based capital rules, identifying
concentration of credit risk and certain risks arising from non-traditional
activities, as well as an institution's ability to manage those risks, as
important factors in assessing an institution's overall capital adequacy. The
revised capital rules do not attempt to quantify such risks for use in a
formula-based capital calculation. In August 1995, the Comptroller and the
FDIC amended their risk-based capital rules to take account of interest rate
risk. During 1996, the Comptroller and the FDIC rejected a previously proposed
standardized model for measuring and monitoring the level of interest rate
risk of financial institutions. The Company does not believe that the
consideration of interest rate risk, concentration of credit risk and the risk
of nontraditional activities will have a material adverse effect on the Banks'
or PCSI's ability to satisfy minimum risk-based capital requirements.
In August 1996, the Comptroller, the FDIC and other United States federal
regulators adopted an interagency final rule adding a market risk measure to
their risk-based capital guidelines. The rule, compliance with which is
mandatory beginning January 1, 1998, requires financial institutions with 10%
of total assets in trading activity, or $1 billion in trading, to use internal
risk measurement models to calculate their capital exposure and then to hold
capital in support of that exposure. The rule requires financial institutions
to measure four categories of risk: interest rates, equity prices, foreign
exchange rates and commodity prices, including related options in each
category. Financial institutions will also be required to test the accuracy of
their internal risk assessment models by comparing the results of those models
to the actual performance of trading activities. Institutions that fail to
accurately predict the results of their foreign exchange, commodity, debt and
equity trading activities will be subject to an additional capital charge. The
new rule is not expected to have a material impact on the Company.
In May 1994, the Comptroller, the FDIC and the other United States federal
banking regulators proposed for comment regulations establishing new risk-
based capital requirements for recourse arrangements and direct credit
substitutes. A portion of this proposal was adopted in 1995, when the
Comptroller, the FDIC and other United States federal regulators adopted a
"low-level recourse" regulation, amending the risk-based capital standards
pertaining to assets transferred with recourse. The amended rule applies to
recourse transactions in
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which an institution contractually limits its recourse exposure to less than
the full effective risk-based capital requirement of the assets transferred,
in which case the required amount of risk-based capital will not exceed the
maximum contractual liability of the institution under the recourse agreement.
This change is not expected to affect the Company adversely unless certain
accounting changes discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Adequacy" occur.
No further action has been taken on the rest of the May 1994 proposal. If
adopted, the effect of this proposal may be to increase the cost of credit
enhancement provided by institutions in connection with the securitization of
credit card and other consumer receivables. The proposals may also reduce the
overall cost of securitizations by reducing the risk-based capital weighting
of senior securities issued in such transactions. The Company is unable to
assess at this time the impact these proposals would have on its business.
FEDERAL DEPOSIT INSURANCE COMPANY IMPROVEMENT ACT OF 1991
Among other things, FDICIA requires United States federal bank regulatory
authorities to take "prompt corrective action" with respect to banks that do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
The Comptroller and the FDIC have adopted regulations to implement the
prompt corrective action provisions of FDICIA. Among other things, the
regulations define the relevant capital measures for the five capital
categories. An institution is considered to be "well capitalized" if it has a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 6% or greater and a leverage ratio of 5% or greater and is not
subject to a regulatory order, agreement or directive to meet and maintain a
specific capital level for any capital measure. An institution is considered
to be "adequately capitalized" if it has a total risk-based capital ratio of
8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and,
generally, a leverage ratio of 4% or greater and the institution does not meet
the definition of a "well capitalized" institution. An institution is
considered to be "undercapitalized" if it does not meet one or more of the
"adequately capitalized" tests. If the institution has a total risk-based
capital that is less than 3%, it is deemed to be "significantly
undercapitalized." Finally, an institution is considered to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%. As of December
31, 1996, each of the Banks and PCSI met the requirements to be considered a
"well capitalized" institution.
Under FDICIA, when a financial institution's capital ratios fall below the
"well capitalized" level, it becomes subject to a series of increasingly
restrictive constraints on operations, management and capital distributions,
depending on the category in which the institution is classified. For example,
no institution that is "undercapitalized" may pay a dividend or pay management
fees to its controlling owner, and an undercapitalized institution must submit
a capital restoration plan to its regulator within 45 days of becoming
undercapitalized. This capital restoration plan must contain a parent company
guarantee. Undercapitalized institutions are also subject to growth
limitations. "Significantly undercapitalized" institutions may be subject to a
number of additional requirements and restrictions. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
their subordinated debt (subject to certain exceptions). "Critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator.
If the Banks (or PCSI, while it has Credit Facility loans outstanding)
dropped below the "well capitalized" level, they would violate a covenant in
the Credit Facility, causing a default under the agreement. A default, if not
waived, would prevent the applicable borrower from borrowing under the Credit
Facility and cause the acceleration of its outstanding borrowings. This result
may have a material adverse effect on the Company's ability to maintain
liquidity and fund its growth. A drop to less than "well capitalized" status
could also adversely affect the availability or cost of alternative funding
sources. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Funding and Liquidity."
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If the Banks or PCSI fell from the "well capitalized" level, it would
increase the amount paid by the Company for FDIC deposit insurance
assessments. At the "adequately capitalized" level, for example, each of the
Company's financial institution subsidiaries would currently be subject to an
FDIC assessment of between 3 and 24 basis points on its deposit base. See "--
Deposit Insurance Assessments." The Company does not believe that this
increase in deposit insurance assessments would have a material adverse effect
on the Company.
FDICIA requires the FDIC to regulate the acceptance of brokered deposits by
insured depository institutions. The FDIC has adopted regulations under FDICIA
pursuant to which an insured depository institution cannot accept brokered
deposits (which includes deposits purchased through a third-party broker)
unless (i) it is "well capitalized" or (ii) it is "adequately capitalized" and
receives a waiver from the FDIC, in which case the insured depository
institution may not pay an interest rate on any deposit in excess of 75 basis
points over the prevailing rate in its market. The Banks and PCSI do not
expect the FDIC brokered deposit regulations to adversely affect their ability
to accept brokered deposits. Under the regulatory definition of brokered
deposits, as of December 31, 1996, FDNB and PNB had brokered deposits of $483
million and $857 million, respectively.
CONSUMER PROTECTION LAWS
The relationship of Providian Bancorp's lending subsidiaries and their
customers is extensively regulated by United States federal and state consumer
protection laws. The most significant laws include the Truth-in-Lending Act of
1968, as amended, Equal Credit Opportunity Act of 1974, as amended, Fair
Credit Reporting Act of 1970, as amended, Fair Debt Collection Practices Act
of 1977, as amended, Home Mortgage Disclosure Act of 1975, as amended, Truth-
in-Savings Act of 1991, as amended, Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, and Electronic Funds Transfer Act of 1978, as amended.
These statutes, among other things, impose disclosure requirements when a
consumer credit loan is advertised, when it is extended and when monthly
billing statements are sent. In addition, these statutes limit the liability
of credit card holders for unauthorized use, prohibit certain discriminatory
practices in extending credit, and impose certain limitations on the types of
charges that may be assessed and the use of consumer credit reports.
The National Bank Act of 1864, as amended (the "National Bank Act"), which
governs the activities of national banks, authorizes national banks to use
various alternative interest rates when they make loans, including the
interest rate allowed by the laws of the state in which the national bank is
located. The ability to "export" rates, as provided for in the National Bank
Act, is relied upon by the Banks to charge customers the interest rates
permitted by the laws of their home state regardless of an inconsistent law of
the state in which the customer is located, thereby facilitating the Banks'
nationwide credit card and other consumer loan activities. A similar right to
export rates is granted to state institutions such as PCSI in the Depository
Institutions Deregulation and Monetary Control Act of 1980 ("DIDMCA"). Since
1991, a number of lawsuits and administrative actions have been filed against
out-of-state banks (both state-chartered banks and national banks) which
issued credit cards in several states. These actions challenged various fees
and charges assessed against residents of the states in which the suits were
filed, based on restrictions or prohibitions under such states' laws alleged
to be applicable to the out-of-state credit card issuers. In June 1996, the
United States Supreme Court in Smiley v. Citibank (South Dakota), N.A. upheld
a California Supreme Court decision that late payment fees were "interest" for
purposes of the National Bank Act, deferring to the Comptroller's
interpretation that "interest" includes late payment fees, not sufficient
funds fees, overlimit fees and certain other fees and charges associated with
credit card accounts, in addition to periodic finance charges. The Smiley
decision resolves in favor of national banks the issue of whether United
States federal law, which authorizes national banks to charge out-of-state
customers interest at the rate allowed by the state in which the bank is
located, preempts state law limitations on fees and charges that constitute
"interest" under the Comptroller's interpretation.
The ability of a state institution, such as PCSI, to export charges other
than the numerical interest rate, such as late fees, annual fees, cash advance
fees, overlimit fees and returned check fees, has not been settled by the
United States Supreme Court. Although there have been several court decisions
in recent years upholding the ability of institutions to export certain types
of fees under the laws of various states, a number of other lawsuits have been
filed in various jurisdictions against credit card issuers alleging that the
laws of certain other states
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prohibit the imposition of late fees. If other courts do not follow existing
precedents, PCSI's ability to impose certain fees on its accounts held by
residents of states that do not permit such fees could be adversely affected,
which, in turn, could adversely affect the Company's operating results.
LEGISLATIVE DEVELOPMENTS
Various legislative proposals have been introduced in Congress in recent
years, including, among others, proposals relating to imposing a statutory cap
on credit card interest rates, permitting affiliations between banks and
commercial, insurance or securities firms, and other regulatory restructuring
proposals. It is impossible to determine whether any of these proposals will
become law, and, if so, what impact they will have on the Company.
Several states have passed legislation that attempts to tax the income from
interstate financial activities, including credit cards, derived from accounts
held by local state residents. The Company believes that this development will
not materially affect the Company.
Members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal
income tax purposes, either entirely or in part, based on borrower income,
type of loan or principal amount. Because many of the Company's home equity
loans are made to borrowers for the purpose of consolidating consumer debt or
financing other consumer needs, the competitive advantages of tax deductible
interest, when compared with alternative sources of financing, could be
eliminated or seriously impaired by such government action. Accordingly, the
reduction or elimination of these tax benefits could have a material adverse
effect on the demand for the Company's home equity loan products.
DIVIDENDS AND TRANSFERS OF FUNDS
There are various United States federal law limitations on the extent to
which FDNB, PNB or PCSI can finance or otherwise supply funds to Providian
Bancorp and its affiliates through dividends, loans or otherwise. These
limitations may include minimum regulatory capital requirements, specific
requirements concerning the payment of dividends, Sections 23A and 23B of the
Federal Reserve Act of 1913, as amended, governing transactions between a
financial institution and its affiliates, and general United States federal
regulatory oversight to prevent unsafe or unsound practices. In general,
United States federal banking laws prohibit an insured depository institution
from making dividend contributions if such distributions are not paid out of
available earnings or would cause the institution to fail to meet applicable
capital adequacy standards. See "--Capital Requirements." PCSI is also subject
to similar Utah laws governing industrial loan corporations and the general
supervision of the Utah Department of Financial Institutions.
INVESTMENT IN PROVIDIAN BANCORP AND ITS SUBSIDIARY FINANCIAL INSTITUTIONS
Certain acquisitions of capital stock may be subject to regulatory approval
or notice under United States federal or Utah law. Investors are responsible
for ensuring that they do not, directly or indirectly, acquire shares of
capital stock of Providian Bancorp in excess of the amount which can be
acquired without United States federal regulatory approval. Each of FDNB, PNB
and PCSI is an "insured depository institution" within the meaning of the
Change in Bank Control Act of 1978. Consequently, United States federal law
and regulations will prohibit any individual or entity from acquiring control
of the Company without, in most cases, prior written approval of the
applicable primary United States federal regulator. Control is conclusively
presumed if, among other things, an individual or entity acquires more than
25% of any class of voting stock of the Company. A rebuttable presumption of
control arises if an individual or entity acquires more than 10% of any class
of voting stock and is subject to any of a number of specified "control
factors" as set forth in the applicable regulations. Under the Utah code,
approval from the Utah Commissioner of Financial Institutions would be
required for a change in the control of PCSI.
Since FDNB is a "bank" under the Bank Holding Company Act, no individual or
entity can acquire "control" of Providian Bancorp, and no bank holding company
can directly or indirectly acquire ownership or
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control of more than 5% of the voting shares of the Company, without the prior
written approval of the Federal Reserve. Control is conclusively presumed if,
among other things, an individual or entity acquires more than 25% of any
class of voting stock of the Company. For holdings of less than 25%, the
Federal Reserve might still find that a control relationship exists for
purposes of the Bank Holding Company Act. There is a presumption that there is
no control when an individual or entity has the power to vote less than 5% of
any class of voting securities of the Company.
Because Providian Bancorp's CEBA grandfather rights are non-transferrable,
if any individual or entity acquired control of the Company for purposes of
the Bank Holding Company Act, or if a bank holding company acquired ownership
or control of more than 5% of the voting shares of the Company, the Company
would be required to limit its and its non-banking subsidiaries' activities to
those activities permitted of bank holding companies by the Federal Reserve.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information concerning the current and expected future
directors and executive officers of Providian Bancorp. Because Providian
Bancorp is currently a wholly owned subsidiary of Providian, the current
directors of Providian Bancorp are employees of Providian and its
subsidiaries. At or immediately prior to the Distribution, the composition of
the Providian Bancorp Board will be changed to reflect the status of Providian
Bancorp as an independent publicly held company, and the Providian Bancorp
Board will be classified into three classes, with one-third of the Providian
Bancorp Board elected at each annual meeting of stockholders. See "Certain
Antitakeover Effects--Board of Directors." Each of the persons indicated below
as a director effective upon the Distribution has consented to serve in that
capacity. Some management restructuring may also be effected in connection
with the Distribution; however, the Company does not anticipate any material
changes to its senior management team.
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Shailesh J. Mehta....... 47 Chief Executive Officer and Director
Irving W. Bailey II..... 55 Director
John M. Cranor III...... 50 Director (effective upon Distribution)
James V. Elliott........ 52 Director
Lyle Everingham......... 70 Director (effective upon Distribution)
J. David Grissom........ 58 Director (effective upon Distribution)
F. Warren McFarlan,
Ph.D................... 59 Director (effective upon Distribution)
Larry D. Thompson....... 51 Director (effective upon Distribution)
John L. Weinberg........ 72 Director Emeritus (effective upon Distribution)
Seth A. Barad........... 41 Executive Vice President
A. Sami Siddiqui........ 43 Executive Vice President
David B. Smith.......... 45 Executive Vice President
David J. Petrini........ 36 Senior Vice President and Chief Financial Officer
</TABLE>
SHAILESH J. MEHTA (47) has been Chief Executive Officer of Providian Bancorp
since 1988 and has served as President and Chief Operating Officer of
Providian since 1994. He served as Executive Vice President and Chief
Operating Officer of Providian Bancorp from March 1986 until his election as
Chief Executive Officer. He also served as Executive Vice President of
Providian, and Chairman and Chief Executive Officer of Providian Direct
Insurance, a division of Providian ("Providian Direct Insurance"), from 1993
to 1994. In addition, Mr. Mehta serves as a director of MasterCard
International Incorporated.
IRVING W. BAILEY II (55) has been Chairman of the Board of Directors and
Chief Executive Officer of Providian since 1989. He also served as President
of Providian from September 1987 to December 1994, and
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Chief Operating Officer of Providian from September 1987 to April 1988. Mr.
Bailey also serves as a member of the board of directors of Computer Sciences
Corporation.
JOHN M. CRANOR III (50) has been a member of the Providian Board since 1991.
He has been President and Chief Executive Officer of Long John Silver's
Restaurants, Inc. since 1996. Mr. Cranor was President and Chief Executive
Officer of KFC Corporation from 1989 to 1994.
JAMES V. ELLIOTT (52) has been Senior Vice President and General Counsel of
Providian since 1994. He served as General Counsel of Providian Bancorp from
1989 to 1994, and as Senior Vice President from 1993 to 1994. He was also
responsible for Providian Bancorp's emerging business operations during 1994.
LYLE EVERINGHAM (70) has been a member of the Providian Board since 1980. He
is the retired Chairman and Chief Executive Officer of Kroger Co., and has
been an officer of Kroger Co. or of one of its divisions since 1963, and was
Chairman of its Executive Committee through May 1991. Mr. Everingham is also a
member of the board of directors of Federated Department Stores, Inc.
J. DAVID GRISSOM (58) has been a member of the Providian Board since 1978.
Mr. Grissom has also been the Chairman of Mayfair Capital since 1989. He is
also a member of the board of directors of Churchill Downs, Incorporated,
Louisville Gas & Electric Company and Regal Cinemas, Inc.
F. WARREN MCFARLAN, PH.D. (59) has been a member of the Providian Board
since 1986. He has also been Senior Associate Dean and Professor of Business
Administration at Harvard Business School since 1973, the Director of External
Affairs at Harvard Business School since 1995, and a member of the Harvard
University faculty since 1964. Dr. McFarlan is also a member of the board of
directors of Pioneer Hi-Bred International, Inc. and Computer Sciences
Corporation.
LARRY D. THOMPSON (51) has been a member of the Providian Board since 1994.
He has been a partner of the law firm of King & Spalding since 1986./1/
JOHN L. WEINBERG (72) was a member of the Providian Board from 1979 to 1994.
He has been Senior Chairman of Goldman Sachs since July 1991. Mr. Weinberg has
been Senior Chairman of The Goldman Sachs Group, L.P. since November 1990, and
was Senior Partner and Chairman of the Management Committee from 1984 to 1990.
Mr. Weinberg is also a member of the board of directors of B.F. Goodrich
Company, E.I. du Pont de Nemours & Co., Knight Ridder, Inc., Seagram Company
Ltd. and Champion International Corp. Mr. Weinberg will serve in an advisory
capacity to the Providian Bancorp Board and will not be a voting director. Mr.
Weinberg will receive the same compensation and other benefits as voting
directors.
SETH A. BARAD (41) has been Executive Vice President of Providian Bancorp
since January 1997, with responsibility for the management of marketing and
operations of the Unbanked Business. He joined Providian Bancorp as Senior
Vice President in October 1994, with responsibility for the management of the
Unbanked Business. Prior to working at Providian Bancorp, Mr. Barad spent one
year at GE Capital, where he was responsible for managing corporate card and
purchasing card products. Mr. Barad worked for American Express Company for
eight years prior to his employment at GE Capital.
A. SAMI SIDDIQUI (43) has been Executive Vice President of Providian Bancorp
since 1995, with responsibilities in the Unsecured Spread Business. He was
Senior Vice President of Providian Bancorp, in the Unsecured Spread Business,
from 1990 to 1992. During his absence from Providian Bancorp from 1992 to
1995, he worked as a consultant in the banking industry.
DAVID B. SMITH (45) has been Executive Vice President of Providian Bancorp
since January 1997, with responsibilities in the Unsecured Spread Business and
the Company's PHL operations. He was a Senior Vice President of Providian
Bancorp from July 1996 to January 1997. He was Chief Technology Officer of
Providian from 1995 to July 1996 and he was responsible for life insurance
marketing, systems and operations for
- --------
(1) Providian retained King & Spalding during 1996 to perform certain legal
services.
67
<PAGE>
Providian Direct Insurance in 1994. Mr. Smith was Senior Vice President of
Providian Bancorp from 1990 to 1994, with responsibilities in various aspects
of operations, systems, and marketing for the Unsecured Spread Business. He
joined Providian Bancorp as Vice President of Systems and Operations in 1986.
DAVID J. PETRINI (36) has been Senior Vice President and Chief Financial
Officer of Providian Bancorp since January 1997. He was Senior Vice President
and Senior Financial Officer of Providian Bancorp from December 1994 to
January 1997. He served as Vice President of Providian Bancorp from 1990 to
December 1994, and, additionally, he had responsibility for the Company's San
Francisco administrative and systems services in 1994. Mr. Petrini joined
Providian Bancorp as Audit Manager in 1986 and was later named Assistant Vice
President. He was promoted to Controller in 1988.
COMMITTEES OF THE PROVIDIAN BANCORP BOARD
The bylaws of Providian Bancorp to be in effect following the Distribution
(the "Bylaws") provide that the Providian Bancorp Board may establish
committees which may exercise the powers delegated to such committees by the
Providian Bancorp Board. After the Distribution, the Providian Bancorp Board
is expected to establish an Audit Committee (the "Audit Committee"), a Human
Resources Committee (the "Human Resources Committee") and an Investment, Asset
and Liability Committee (the "Investment, Asset and Liability Committee"), and
may establish other committees.
The Audit Committee will be composed entirely of outside directors who are
independent of the management of Providian Bancorp and are free from any
relationship that, in the opinion of the Providian Bancorp Board, would
interfere with their exercise of independent judgment. The Audit Committee
will supervise and review Providian Bancorp's accounting and financial
services, make recommendations to the Providian Bancorp Board as to nomination
of independent auditors, confer with the independent auditors and internal
auditors regarding the scope of their proposed audits and the audit findings,
reports and recommendations, review Providian Bancorp's financial controls,
procedures and practices, approve all nonaudit services by the independent
auditors, and review transactions between Providian Bancorp and its
affiliates.
The Human Resources Committee will recommend to the Providian Bancorp Board
the election and re-election of officers, consider certain changes in
compensation, and review matters related to management succession. The Human
Resources Committee will also administer certain employee benefit plans, as
discussed below.
The Investment, Asset and Liability Committee will review Providian
Bancorp's capital adequacy, funding, investment, securitization, liquidity and
interest rate risk management strategies and policies, will periodically
monitor management's activities and key measurements in these areas, and will
make recommendations to the Providian Bancorp Board concerning proposed
activities and programs.
COMPENSATION OF DIRECTORS
Directors who are also officers of Providian Bancorp will not receive
additional compensation for serving on the Providian Bancorp Board. All other
directors will be paid an annual retainer, initially $54,000, and may elect to
receive all or a portion of this amount in shares of Providian Bancorp Common
Stock. Directors who elect to receive all or a portion of their retainer in
Providian Bancorp Common Stock will receive an additional award equal to 25%
of their total retainer in shares of restricted stock under the Company's
Stock Ownership Plan. Such restricted stock vests one-half after three years,
and the balance after six years, if the director does not dispose of the
related shares of unrestricted Common Stock during such vesting periods. It is
expected that, shortly after the Distribution Date, directors other than Mr.
Mehta and Mr. Bailey will each be granted options to purchase 10,000 shares of
Providian Bancorp Common Stock. Committee chairs will receive an additional
annual retainer, initially $2,000. In addition, directors will be reimbursed
for necessary and reasonable expenses incurred in the performance of their
duties as directors.
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<PAGE>
STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS, AND OF CERTAIN BENEFICIAL
OWNERS
No present or future executive officer or director currently owns any shares
of Providian Bancorp Common Stock, all of which shares are currently owned by
Providian. Such executive officers and directors will receive shares of
Providian Bancorp Common Stock in the Distribution in respect of shares of
Providian Common Stock held by them on the Distribution Record Date. In
addition, existing equity-based awards under Providian Bancorp and Providian
benefit plans will be converted into comparable awards based on Providian
Bancorp Common Stock, as described below. See "--Stock Incentive Plan" and
"Arrangements Between Providian and Providian Bancorp--Employee Benefits
Agreement." In addition to other stock ownership described herein, Mr.
Siddiqui, Mr. Barad and Mr. Smith are each expected to receive 20,000
restricted shares of Providian Bancorp Common Stock shortly after the
Distribution.
The following table sets forth the number of shares of Providian Common
Stock beneficially owned on March 1, 1997 by each of Providian Bancorp's
directors, the executive officers named in the Summary Compensation Table
below and all directors and executive officers of Providian Bancorp as a
group. Except as otherwise noted, the individual director or executive officer
or their family members had sole voting and investment power with respect to
such securities.
<TABLE>
<CAPTION>
PROVIDIAN CORPORATION
COMMON STOCK
-----------------------------------
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENT OF CLASS
---- ------------------ ----------------
<S> <C> <C>
Shailesh J. Mehta....................... 245,419(1) *
Irving W. Bailey II..................... 676,149(2) *
John M. Cranor III...................... 7,271 *
James V. Elliott........................ 24,568(3) *
Lyle Everingham......................... 10,103 *
J. David Grissom........................ 23,409 *
F. Warren McFarlan...................... 2,028 *
Larry D. Thompson....................... 3,955 *
John L. Weinberg........................ 25,257 *
Seth Barad.............................. 21,457(4) *
A. Sami Siddiqui........................ 20,152(5) *
David Smith............................. 19,274(6) *
Julie Montanari......................... 41,502(7) *
All directors and executive officers as
a group (14 persons)................... 1,127,901 1.2%
</TABLE>
- --------
* Less than 1%
(1) Includes 45,516 shares held directly by Mr. Mehta; 611 shares held in Mr.
Mehta's account under the Providian Bancorp's 401(k) Plan over which Mr.
Mehta holds limited investment power, 666 shares held in Mr. Mehta's
account under Providian's Thrift Savings Plan over which Mr. Mehta holds
limited investment power; 19,242 shares held in Mr. Mehta's account under
Providian's Stock Ownership Plan subject to vesting requirements set forth
in footnote 2 to the Summary Compensation Table; and 179,384 shares which
Mr. Mehta has the right to acquire pursuant to stock options exercisable
within 60 days of April 10, 1997, the record date to receive notice of and
to vote at the annual meeting of Providian stockholders to be held for the
purposes described in the Proxy Statement-Prospectus (the "Annual Meeting
Record Date").
(2) Includes 135,806 shares held directly by Mr. Bailey; 7,216 shares held in
Mr. Bailey's account under Providian's Thrift Savings Plan over which Mr.
Bailey holds limited investment power; 28,027 shares held in Mr. Bailey's
account under Providian's Stock Ownership Plan subject to the vesting
requirements set forth in footnote 2 to the Summary Compensation Table;
and 505,100 shares which Mr. Bailey has the right to acquire pursuant to
stock options exercisable within 60 days of the Annual Meeting Record
Date.
(3) Includes 6,959 shares held directly by Mr. Elliott; 749 shares held in Mr.
Elliott's account under Providian Bancorp's 401(k) Plan over which Mr.
Elliott holds limited investment power; 143 shares held in Mr. Elliott's
account under Providian's Thrift Savings Plan over which Mr. Elliott holds
limited investment
69
<PAGE>
power; 5,583 shares held in Mr. Elliott's account under Providian's Stock
Ownership Plan, subject to vesting requirements set forth in footnote 2 to
the Summary Compensation Table; and 11,134 shares which Mr. Elliott has the
right to acquire pursuant to stock options exercisable within 60 days of
the Annual Meeting Record Date.
(4) Includes 2,453 shares held directly by Mr. Barad; 317 shares held in Mr.
Barad's account under Providian Bancorp's 401(k) Plan over which Mr. Barad
holds limited investment power; 2,453 shares held in Mr. Barad's account
under Providian's Stock Ownership Plan, subject to vesting requirements
set forth in footnote 2 to the Summary Compensation Table; and 16,234
shares which Mr. Barad has the right to acquire pursuant to stock options
exercisable within 60 days of the Annual Meeting Record Date.
(5) Includes 1,734 shares held directly by Mr. Siddiqui; 250 shares held in
Mr. Siddiqui's account under Providian Bancorp's 401(k) Plan over which
Mr. Siddiqui holds limited investment power; 3,234 shares held in Mr.
Siddiqui's account under Providian's Stock Ownership Plan, subject to
vesting requirements set forth in footnote 2 to the Summary Compensation
Table; and 14,934 shares which Mr. Siddiqui has the right to acquire
pursuant to stock options exercisable within 60 days of the Annual Meeting
Record Date.
(6) Includes 12,084 shares held directly by Mr. Smith; 718 shares held in Mr.
Smith's account under Providian Bancorp's 401(k) Plan over which Mr. Smith
holds limited investment power; 269 shares held in Mr. Smith's account
under Providian's Thrift Savings Plan over which Mr. Smith holds limited
investment power; and 6,203 shares held in Mr. Smith's account under
Providian's Stock Ownership Plan, subject to vesting requirements set
forth in footnote 2 to the Summary Compensation Table.
(7) As noted in Note 6 to the Summary Compensation Table, Ms. Montanari
resigned as President of Providian Bancorp effective January 31, 1997;
includes 11,770 held directly by Ms. Montanari; 932 shares held in Ms.
Montanari's account under the Providian Bancorp's 401(k) Plan over which
Ms. Montanari holds limited investment power; and 28,800 shares which Ms.
Montanari has the right to acquire pursuant to stock options exercisable
within 60 days of the Annual Meeting Record Date.
J.P. Morgan & Co. Incorporated ("J.P. Morgan") has filed a Schedule 13G with
the SEC stating that it owned, as of December 31, 1996, 9.8% (9,232,799
shares) of the outstanding Providian Common Stock. J.P. Morgan indicated that
it had sole power to vote or direct the voting of 6,013,939 of such shares and
shared power to vote with respect to 90,605 of such shares. In addition,
Providian believes that, as of February 28, 1997, Fidelity Investments, Inc.
owned 5.9% (5,492,000 shares) of the outstanding Providian Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
---------------- ------------------ ----------------
<S> <C> <C>
J.P. Morgan & Co. Incorporated........... 9,232,799 9.8%
60 Wall Street
New York, New York 10260
Fidelity Investments, Inc................ 5,492,000 5.9%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the information for the last three fiscal
years with regard to compensation for services rendered in all capacities to
Providian Bancorp by the Chief Executive Officer and the other four most
highly compensated executive officers of Providian Bancorp (collectively, the
"Named Executive Officers"). Information set forth in the table reflects
compensation earned by such individuals for services with Providian Bancorp,
Providian or their respective subsidiaries.
70
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ---------------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2)(3) SARS (#)(4) ($)(5) ($)(6)
- --------------------------- ---- ------- ------- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shailesh J. Mehta....... 1996 629,327 844,900 28,953 256,647 52,000 181,968 25,763
Chairman, CEO and 1995 528,755 362,900 26,184 156,851 45,000 264,603 16,808
President 1994 430,993 363,670 19,289 213,428 156,725(7) 406,635 17,301
Julie Montanari(8)...... 1996 310,666 200,000 32,614 15,000 130,157 10,252
1995 274,214 180,584(9) 73,213(9) 19,600 125,728 9,014
1994 225,919 165,000 90,196 71,800(7) 149,413 7,425
A. Sami Siddiqui........ 1996 260,000 200,000 49,947 13,000 0 8,580
Executive Vice President 1995 231,618 146,416(9) 101,605(9)(10) 11,800 0 7,643
1994 0 0 0 11,000 0 --
Seth A. Barad........... 1996 245,000 200,000 49,947 10,000 0 8,085
Executive Vice President 1995 234,580 130,000 32,490 9,400 0 7,741
1994 68,852 115,000 28,740 14,100 0 1,898
David B. Smith.......... 1996 229,112 200,000 71,037 13,000 84,382 7,561
Executive Vice President 1995 226,219 125,000 60,555 11,800 117,418 6,822
1994 218,877 115,000 36,220 77,694 65,500(7) 149,412 92,531(11)
</TABLE>
- --------
(1) Represents amounts reimbursed during the fiscal year for payment of
taxes.
(2) Represents the dollar value of restricted stock awarded under Providian's
Stock Ownership Plan ("SOP"). Nonrestricted stock awards under the SOP
are matched with like number of shares of restricted stock and are
intended to replace a portion of cash amounts previously paid under the
Company's other incentive plans. One half of such restricted stock will
vest if all nonrestricted shares are held for three years or in the event
of death, disability, or retirement during such three year period. The
other half will vest if such nonrestricted stock is held for six years or
in the event of death, disability or retirement during the final three
year vesting period, except in the event of a change in control of the
Company, in which case such shares vest immediately.
(3) Dividends are paid on restricted stock awards under the SOP at the same
rate as paid to all stockholders. On December 31, 1996, with a stock
closing price of $51.375, Mr. Mehta held 16,687 restricted shares having
a then market value of $857,295, Ms. Montanari held 6,809 restricted
shares having a then market value of $349,812, Mr. Siddiqui held 2,331
restricted shares having a then market value of $119,755, Mr. Barad held
1,550 restricted shares having a then market value of $79,631, and Mr.
Smith held 5,732 restricted shares having a then market value of
$294,482.
(4) All amounts represent option grants under option plans of Providian.
These options will be converted into an equivalent value of options with
respect to Providian Bancorp Common Stock at the time of the
Distribution. See "Arrangements Between Providian and Providian Bancorp--
Employee Benefits Agreement."
(5) The Long-Term Incentive Plan ("LTIP") is a Providian plan which paid
awards based on the long-term performance of the company. This plan will
not be continued at Providian Bancorp.
(6) Represents Company contributions or liabilities under Providian's Thrift
Plan or the Company's defined contribution plan, which include a
qualified and a nonqualified plan. Under the qualified plan, the
following contributions were made: Mr. Mehta received $4,500, Ms.
Montanari received $4,950, Mr. Siddiqui received $4,950, Mr. Smith
received $4,950 and Mr. Barad received $4,950. Under the nonqualified
plan, the increases for the Company's liabilities were as follows:
$21,263 for Mr. Mehta, $5,302 for Ms. Montanari, $3,630 for Mr. Siddiqui,
$2,611 for Mr. Smith and $3,135 for Mr. Barad.
(7) Represents options granted under Providian's 1989 Stock Option Plan and
1995 Stock Option Plan, and Equity Units granted under the Providian
Bancorp Equity Unit Plan.
(8) Ms. Montanari served as President of the Company until January 1997, when
she resigned to become an executive consultant to the Company.
71
<PAGE>
(9) Ms. Montanari's and Mr. Siddiqui's 1995 Management Incentive Plan
restricted stock awards were revalued six months after they were granted
in compliance with the requirements of Section 83(b) of the Code.
(10) Includes the market value of 1,500 restricted shares awarded to Mr.
Siddiqui under the SOP subject to time-based restrictions.
(11) This amount includes various payments associated with relocation from
Providian Bancorp to Providian Direct Insurance totaling $86,127.
OPTION AND SAR GRANTS OF PROVIDIAN COMMON STOCK TO EXECUTIVE OFFICERS
The following table contains information concerning the grant of stock
options and stock appreciation rights ("SARs") in 1996 under the Company's
1995 Stock Option Plan to the Named Executive Officers of the Company.
Included is information on potential realizable value(s) to the Named
Executive Officers, all optionees as a group, and all of the Company's
stockholders, assuming growth of Providian Common Stock at the stated rates of
appreciation.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------------- -------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING SARS EXERCISE
OPTIONS/ GRANTED TO OR BASE
SARS EMPLOYEES PRICE EXPIRATION
NAME GRANTED(#)(2) IN FISCAL YEAR ($/SH)(3) DATE 0%($) 5%($) 10%($)
- ---- ------------- -------------- --------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shailesh J. Mehta....... 52,000 18.60% $40.3125 08/07/2006 0 1,318,320 3,340,883
Seth A. Barad........... 10,000 3.58% $40.3125 08/07/2006 0 253,523 642,477
A. Sami Siddiqui........ 13,000 4.65% $40.3125 08/07/2006 0 329,580 835,221
David B. Smith.......... 13,000 4.65% $40.3125 08/07/2006 0 329,580 835,221
Julie A. Montanari(4)... 15,000 5.36% $40.3125 08/07/2006 0 380,285 963,716
All Optionees
(Includes above
individuals)(5)........ 279,600 100.00% $40.3125 08/07/2006 0 7,088,507 17,963,669
All Stockholders........ N/A N/A N/A N/A 0(6)
</TABLE>
- --------
(1) The amounts shown represent certain assumed rates of appreciation only.
Actual gains on stock option exercises, if any, are dependent on the
future performance of the Providian Common Stock and overall condition of
the stock market, as well as the optionholder's continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
(2) Denotes options granted under the 1995 Providian Stock Option Plan.
(3) The exercise price of options granted under the 1995 Stock Option Plan is
equal to the average of the high and low price of Providian Common Stock
on the date of grant. With respect to the options granted, options vest
one-third per year and are fully vested after three years and vest
immediately upon the event of death or disability of the optionee or
change in control of Providian. Options will expire 10 years from the date
of grant.
(4) Ms. Montanari served as President of the Company until January 1997, when
she resigned to become an executive consultant to the Company.
(5) Optionees will realize benefit only upon an increase in the price of the
Providian Common Stock, which will benefit all stockholders
commensurately. A zero percentage gain in the stock price will result in
zero dollars for the optionee.
(6) Although all other stockholders would not realize any increase in the
value of their stock without stock price appreciation, the zero amount
does not reflect the value of dividends that stockholders may receive over
the 10-year option term. Optionees will not receive dividends until such
time as they exercise the options.
72
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1996, and
unexercised options and SARs held as of the end of 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS
12-31-96(#) AT 12-31-96($)(1)
------------------------- -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shailesh J. Mehta....... 179,384 94,141 $ 2,226,958 $1,285,767
Equity Units(2)........ 116,727 1,100 $15,333,446 $ 94,501
Seth A. Barad........... 16,234 17,266 $ 204,371 227,323
A. Sami Siddiqui........ 14,934 20,866 $ 177,802 $ 266,698
David B. Smith.......... 9,166 $125,325 61,033 32,867 $ 686,043 $ 495,214
Equity Units(2)........ 37,331 -- $ 4,928,601 $ 0
Julie Montanari(3)...... 80,601 30,399 $ 945,708 $ 415,629
Equity Units(2)........ 4,000 $474,480 30,667 333 $ 3,906,585 $ 28,637
</TABLE>
- --------
(1) Based on the average of the high and low price of the Common Stock on
December 31, 1996 of $51.5625 per share.
(2) Represents estimated fair market value of $153.35 per Equity Unit
outstanding under the Providian Bancorp Equity Unit Plan as of December
31, 1996.
(3) Ms. Montanari served as President of the Company until January 1997, when
she resigned to become an executive consultant to the Company.
EMPLOYEE BENEFITS AGREEMENT
In connection with the Distribution, Providian and Providian Bancorp will
enter into the Employee Benefits Agreement (as defined herein), providing for
the allocation of various employee benefit obligations between Providian and
Providian Bancorp. Among other things, the Employee Benefits Agreement
provides for the substitution of Providian Bancorp employee stock options (the
"Substitute Options") for persons who currently hold Providian employee stock
options but who will be employees of Providian Bancorp after the Distribution.
The terms of this substitution and the other terms of the Employee Benefits
Agreement are described under "Arrangements Between Providian and Providian
Bancorp--Employee Benefits Agreement."
EMPLOYMENT AGREEMENTS
The Company has entered into a separate employment agreement with Shailesh
J. Mehta (the "Employment Agreement"), pursuant to which Mr. Mehta will be
employed as the Chief Executive Officer and President, and upon the
Distribution, as the Chairman of the Board of the Company. Mr. Mehta's term of
employment under the Employment Agreement will commence on the effective date
of the Distribution and initially end on the third anniversary of the
Distribution. On each anniversary of the Distribution, however, the term of
employment will automatically be extended by one year, so that the remaining
term of employment is once again three years, unless either party gives the
other at least one year's notice that the term of employment will not be
extended. Mr. Mehta's base salary will be at least $800,000 per annum and he
will be entitled to incentive bonus payments pursuant to the terms of the
Company's Management Incentive Plan. The Employment Agreement provides that,
in the first year, Mr. Mehta's minimum bonus opportunity, subject to meeting
performance goals established by the Providian Bancorp Board, will be $1
million. The Employment Agreement also provides that, upon the
73
<PAGE>
Distribution, Mr. Mehta will receive qualified and non-qualified stock options
to purchase 500,000 shares of Providian Bancorp Common Stock, vesting over
three years, and 75,000 shares of restricted Providian Bancorp Common Stock,
vesting over five years. In addition, Mr. Mehta will be entitled to
participate in and receive benefits under all other bonus plans, short or long
term incentive plans, savings and retirement plans, and welfare benefit plans,
practices, policies and programs maintained or provided by the Company for the
benefit of senior executives. In the event the Company terminates Mr. Mehta's
employment without Cause, or Mr. Mehta terminates his employment for Good
Reason (as such terms are defined in the Employment Agreement), Mr. Mehta will
receive severance benefits. If termination is prior to a change in control of
the Company (as defined below), the benefits will include continuation of
salary, bonus and other benefits, and continued vesting of options and
restricted stock, for three years following termination. If termination is
within three years after a change in control, the benefits will include a lump
sum payment equal to three times Mr. Mehta's annual salary and bonus,
immediate vesting of all options and restricted stock, and continuation of
other benefits for three years following termination. Additionally, if any
payment or distribution to Mr. Mehta would be subject to any "golden parachute
payment" excise tax or similar tax, then Mr. Mehta will be entitled to receive
gross-up payments in an amount such that, after payment of such excise tax or
similar tax, and all taxes attributable to such gross-up payments, Mr. Mehta
retains an amount equal to the amount he would have retained if such excise
tax or similar tax had not applied.
In addition to the Employment Agreement with Mr. Mehta described above,
Providian Bancorp expects to enter into change in control employment
agreements with certain other officers, including the executive officers,
effective on the Distribution Date. The specific terms of these agreements
have not yet been determined, but the following description sets forth their
expected terms. A "change in control" will be defined as the acquisition of
20% or more of the Providian Bancorp Common Stock or voting securities by a
person or group (subject to specified exceptions), certain changes in the
majority of the Providian Bancorp Board, certain mergers involving Providian
Bancorp, or the liquidation, dissolution or sale of all or substantially all
of the assets of Providian Bancorp. If within three years of a change in
control the officer's employment is terminated by the Company, other than for
disability or cause, or if the officer terminates his or her employment for
good reason (as defined in the change in control employment agreements) or
within a 30-day period beginning one year after the change in control, the
executive officer will be entitled to the following benefits, among other
things: base salary and a pro rata bonus through the date of termination, a
severance payment equal to three times the officer's base salary and annual
bonus, any deferred compensation not yet paid by Providian Bancorp, and a
special retirement benefit equal to the most recent retirement contribution
percentage multiplied by three times the base salary and annual bonus.
Additionally, if any payment or distribution by Providian Bancorp or any
subsidiary or affiliate to the officer would be subject to any "golden
parachute payment" excise tax or similar tax, then the officer will be
entitled to receive gross-up payments in an amount such that, after payment of
such excise tax or similar tax, and all taxes attributable to such gross-up
payments, the officer retains an amount equal to the amount the officer would
have retained if such excise tax or similar tax had not applied.
THE EQUITY UNIT PLAN
The Equity Unit Plan, established in 1989, is a specialized compensation
plan designed to align the interests of certain key employees with the
Company's long-term goals and performance. The Equity Unit Plan allows for the
grant of units to participating employees at a specific Equity Unit grant
price. The participants are then entitled to the appreciation of the Equity
Unit price (based on the estimated market value of the Company) above the
grant price. Prior to the Distribution Date, Providian Bancorp plans to
terminate the participation of Providian employees in the Equity Unit Plan and
to give participating Providian Bancorp employees a choice between (1)
continuing in an altered version of the Equity Unit Plan (pursuant to which
the valuation of Equity Units would be revised in order to tie their value to
the appreciation of Providian Bancorp Common Stock) and (2) receiving a
payment (either on a cash or deferred basis, at the participant's election)
representing past appreciation in their Equity Units plus Providian Bancorp
stock options to replace the future appreciation potential of the terminated
Equity Units. The Company expects that all 23 employees with Equity Units will
elect the second alternative, resulting in the formal termination of the
Equity Unit Plan. Amounts owing to Providian employees on account
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of their Equity Units will be assumed or reimbursed by Providian. See
"Arrangements Between Providian and Providian Bancorp--Employee Benefits
Agreement."
STOCK OPTION PLAN
In connection with the Distribution, Providian Bancorp expects to adopt
Providian's existing 1995 Stock Option Plan, which was approved by the
shareholders of Providian at the 1995 Annual Meeting (the "Stock Option
Plan"). In connection with this adoption, the Stock Option Plan will be
amended as necessary to reflect that the stock with respect to which options
may be granted after the Distribution will be Providian Bancorp Common Stock
and to provide for the granting of options to non-employee Directors. On April
2, 1997, Providian approved this adoption as sole shareholder of Providian
Bancorp.
Shares Subject to the Plan. The Stock Option Plan, as adopted by Providian
Bancorp, will authorize the grant of stock options for up to 10 million shares
of Providian Bancorp Common Stock, plus the number of shares subject to
options rolled over from Providian options at the time of the Distribution.
The underlying shares may be authorized and unissued shares, or issued shares
reacquired by Providian Bancorp or a combination thereof.
Under the Stock Option Plan as in effect before the Distribution, the number
of shares of common stock of Providian with respect to which options were
permitted to be granted to any participant during any calendar year was
limited to 500,000; as of the Distribution, this number will be adjusted to
constitute the number of shares of Providian Bancorp Common Stock as has the
same value as 500,000 shares of Providian Common Stock, using the methodology
set forth in the Employee Benefits Agreement for adjusting existing options.
The Stock Option Plan also authorizes the award of SARs in tandem with
options. Shares of stock that are attributable to options that expire or are
otherwise terminated, canceled or surrendered without being exercised or are
forfeited will be available for issuance in connection with future grants
under the Stock Option Plan. The Stock Option Plan provides for adjustments to
reflect any future stock dividends, stock splits or other relevant
capitalization changes.
Term of the Stock Option Plan; Conversions. No options may be granted under
the Stock Option Plan after April 2, 2007. It is expected that shortly after
the Distribution, options to purchase shares of Providian Bancorp Common Stock
will be granted to employees of Providian Bancorp, and to Irving W. Bailey II,
a non-employee director, as a result of the conversion of their existing
Providian stock options and Equity Units. See "--The Equity Unit Plan" and
"Arrangements Between Providian and Providian Bancorp--Employee Benefits
Agreement." The total number of options to be granted will be determined
shortly after the Distribution Date and will depend on the number of options
and Equity Units that then remain outstanding and the conversion ratios, which
will, in turn, depend on the trading price of Providian Common Stock and
Providian Bancorp Common Stock, and on the number of shares of Providian
Common Stock outstanding, at the time of the Distribution. It is currently
estimated that options to purchase approximately 4.4 million shares of
Providian Bancorp Common Stock will be granted as a result of the conversion
of Providian stock options and Equity Units, including the following options
to each of the executive officers named in the Summary Compensation Table and
to all executive officers as a group:
SUBSTITUTE OPTIONS AND EQUITY UNIT REPLACEMENT OPTIONS EXPECTED TO BE GRANTED
UPON THE DISTRIBUTION
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES(1)
---- -------------------
<S> <C>
Shailesh J. Mehta................................... 1,356,705
A. Sami Siddiqui.................................... 84,796
Seth A. Barad....................................... 79,348
David B. Smith...................................... 279,926
All executive officers and directors as a group (14
persons)........................................... 2,571,222
</TABLE>
- --------
(1) Based on the number of options and Equity Units outstanding on March 1,
1997, and on conversion ratios of: (a) approximately 2.37 to 1 for
options, based on the trading price of Providian Common Stock during
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the ten days preceding March 31, 1997 and an implied trading price of
Providian Bancorp Common Stock derived from the price of Providian Common
Stock and the terms of the Merger, and (b) approximately 6.02 to 1 for
Equity Units, which represents the number of shares of Providian Common
Stock outstanding on March 31, 1997 divided by 15,725,068 (the total
authorized number of Equity Units, of which 303,900 were outstanding on
March 1, 1997). No change to the authorized number of Equity Units, and no
increase in the number of outstanding Equity Units, has occurred or is
expected to occur before the Distribution Date.
In addition to the options described in this table, the Company expects to
grant additional stock options to management after the Distribution, including
options to purchase a total of 720,000 shares of Providian Bancorp Common
Stock expected to be granted to executive officers and directors. Mr. Mehta
will receive options to purchase 500,000 shares, in accordance with the terms
of his Employment Agreement with the Company. See "--Employment Agreements."
Mr. Siddiqui, Mr. Barad and Mr. Smith are each expected to receive options to
purchase 50,000 shares, and each director other than Mr. Mehta and Mr. Bailey
is expected to receive options to purchase 10,000 shares.
Eligibility and Administration. All key salaried employees who are
responsible for or contribute to the management, growth or profitability of
the business of Providian Bancorp or its subsidiaries will be eligible to
participate in the Stock Option Plan. The Human Resources Committee will have
full authority to administer the Stock Option Plan after the Distribution,
including, without limitation, the sole discretionary authority to determine
which participants will receive options, the number of shares to be subject to
each option and the terms and conditions of grant and exercise.
Stock Options. The stock options to be granted under the Stock Option Plan
may be either incentive stock options or nonqualified stock options. The terms
of any nonqualified stock option, including without limitation the exercise
price and period of exercise, will be determined by the Human Resources
Committee in its sole discretion at the time of grant. However, no stock
option can be granted with an exercise price less than 100% of fair market
value of the Providian Bancorp Common Stock on the date of the grant, and the
term of an option may not exceed ten years from the date of grant. The
exercise price of an option may be paid in cash, in shares of Providian
Bancorp Common Stock (valued at fair market value on the date of payment), or
a combination thereof. Any withholding tax required by law to be remitted by a
participant to Providian Bancorp upon the exercise of an option may be paid in
cash, by the withholding of shares otherwise issuable upon exercise, or a
combination thereof, as determined by the Human Resources Committee at or
after the time of grant.
If the employment of a participant is terminated for cause, all then-
outstanding options held by such participant, whether or not exercisable, will
be forfeited immediately. If the employment of a participant is terminated for
any reason other than for cause, death, disability or retirement, any then-
outstanding options held by such participant that are exercisable will remain
exercisable until the earlier of the end of their term or the ninetieth day
after the date of termination. If a participant retires, any then-outstanding
options held by such participant that are exercisable will remain exercisable
until the earlier of the end of their term or the fifth anniversary of
retirement. If a participant dies or becomes disabled while employed by
Providian Bancorp or a subsidiary, all then-outstanding options held by such
participant will become immediately exercisable, and will remain exercisable
until the earlier of the end of their term or the fifth anniversary of the
date of death or disability.
Stock Appreciation Rights. The Stock Option Plan also authorizes the Human
Resources Committee to grant SARs in tandem with any stock option granted to a
participant. The Human Resources Committee may not, however, issue SARs in
tandem with stock options with respect to more than 50%, in the aggregate, of
the shares underlying options granted to any one participant. SARs are subject
to the same terms and conditions as the related option and are exercisable
only to the extent that such option is exercisable. Upon exercise of an SAR,
the participant must surrender, unexercised, the corresponding portion of the
related option, and will be entitled to receive an aggregate value equal to
the product of (a) the excess of the fair market value of one share of
Providian Bancorp Common Stock on the date of exercise over the option
exercise price multiplied by (b) the
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number of shares with respect to which the SAR is being exercised. The Human
Resources Committee will have the right to determine whether such aggregate
value will be paid in the form of shares of Providian Bancorp Common Stock,
cash or a combination thereof.
Change in Control. In the event of a Change in Control of Providian Bancorp
(as defined in the Stock Option Plan), all then-outstanding options and any
related SARs will become immediately exercisable.
Certain Tax Consequences. Section 162(m) of the Code provides that a public
company may not deduct in any one taxable year compensation in excess of $1
million paid to its chief executive officer or any of its other four most
highly compensated officers. However, an exemption is provided for
compensation that qualifies as "performance-based." The Stock Option Plan is
designed so that all options and SARs granted thereunder should qualify for
this exemption.
Termination and Amendment. The Board of Directors may amend, modify or
terminate the Stock Option Plan at any time. The Human Resources Committee may
amend the terms of any option at any time, but no such action may impair the
rights of the option holder without such holder's consent.
MANAGEMENT INCENTIVE PLAN
In connection with the Distribution, Providian Bancorp expects to adopt
Providian's existing Management Incentive Plan (the "Incentive Plan"), which
was approved by the shareholders of Providian at the 1995 Annual Meeting.
Eligibility and Administration. All key salaried employees of Providian
Bancorp and its subsidiaries will be eligible to receive awards under the
Incentive Plan. The Incentive Plan will be administered by the Human Resources
Committee, which will have full authority to select those employees to whom
awards under the Plan will be made and, subject to the provisions of the Plan,
to determine the amount and frequency of awards and the terms and conditions
of awards.
Incentive Awards. Each year, not later than 90 days after the beginning of
the year, the Human Resources Committee will determine the participants who
will be eligible for awards under the Incentive Plan that year, the potential
amounts (expressed as a percentage of salary) of each award, and the
performance objectives that must be achieved and in order to earn the awards.
In no event, however, may any award under the Incentive Plan exceed $1.3
million.
The performance objectives will be based upon earnings, earnings per share,
revenue, expenses, margin and/or return on equity of Providian Bancorp and/or
an operating unit of Providian Bancorp. The Human Resources Committee will be
required to certify in writing before an award is paid that the relevant
performance objectives have been satisfied. The Human Resources Committee may
decide in its discretion to reduce an award that has been earned based on the
performance objectives. Awards will be paid or credited as soon as practicable
following the end of the annual performance period.
Certain Tax Consequences. The Incentive Plan is designed to enable awards
granted thereunder to qualify as "performance-based" compensation that is
exempt from the limitations on deductibility imposed by Section 162(m) of the
Code, as described above.
Termination and Amendment. Unless sooner terminated by the Board of
Directors, the Incentive Plan will terminate on, and no awards will be granted
after, the tenth anniversary of the Distribution Date. The Board of Directors
may amend or modify the Incentive Plan at any time. However, to the extent
required under Section 162(m) of the Code, for qualified performance-based
compensation, no such amendment or modification may be made without approval
by the stockholders of Providian Bancorp. The Human Resources Committee may
amend
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the terms of any award at any time, but no such amendment may impair the
rights of the affected participant without the participant's consent, waive
the achievement of performance goals, or increase the amount of such award.
STOCK OWNERSHIP PLAN
In connection with the Distribution, Providian Bancorp expects to adopt
Providian's existing Stock Ownership Plan (the "Stock Ownership Plan"), which
was approved by the shareholders of Providian at the 1992 Annual Meeting, and
amendments to which were approved by the shareholders of Providian at the 1995
Annual Meeting. In connection with this adoption, the Stock Ownership Plan
will be amended as necessary to reflect the fact that the stock which may be
awarded after the Distribution will be Providian Bancorp Common Stock.
Shares Subject to the Plan. After the Distribution, the Stock Ownership Plan
will allow the award of four million shares of Providian Bancorp Common Stock
to key salaried employees of Providian Bancorp and its subsidiaries and non-
employee directors of Providian Bancorp. Shares that are issued in the form of
Restricted Stock that is subsequently forfeited will become available for
reissuance.
Awards under the Plan. The Stock Ownership Plan provides for three forms of
awards: nonrestricted stock ("Nonrestricted Stock"), and two types of
Restricted Stock: matching Restricted Stock ("Matching Restricted Stock") and
discretionary Restricted Stock ("Discretionary Restricted Stock"). "Restricted
Stock" is stock that is subject to forfeiture during a restricted period.
Matching Restricted Stock is granted in conjunction with Nonrestricted Stock.
Nonrestricted Stock is not subject to forfeiture, but must be left on deposit
with Providian Bancorp during the restricted period for the corresponding
Matching Restricted Stock, or the Matching Restricted Stock will be forfeited.
The Human Resources Committee will determine, in its discretion, when and
whether, and in what quantities, to grant to non-employee director and
employee participants Nonrestricted Stock and matching Restricted Stock (which
may be a number of shares less than or equal to the number of shares of
corresponding Nonrestricted Stock). The Human Resources Committee will make
such grants taking into account, among other factors, the salary and other
performance-related compensation being received by the employee from Providian
Bancorp, including amounts awarded under other incentive plans of Providian
Bancorp. However, the aggregate value of Nonrestricted Stock which may be
granted to a participant in any year under the Plan is limited to 25% of the
total incentive award earned by the participant for such year under Providian
Bancorp's Management Incentive Plan.
The Human Resources Committee may also make awards of Discretionary
Restricted Stock, for hiring bonuses, extraordinary performance rendered or as
an incentive to the achievement of future performance targets. Discretionary
Restricted Stock has no Nonrestricted Stock associated with it, and is to be
earned based upon the achievement of performance objectives established by the
Human Resources Committee. These performance objectives will be based on the
same kinds of performance measures which the Human Resources Committee may use
in making awards under the Management Incentive Plan, as described above. No
participant may, in any year, receive a grant of more shares of Discretionary
Restricted Stock than the number of shares of Providian Bancorp Common Stock
as has the same value as 100,000 shares of Providian Common Stock, using the
same methodology as will be used to adjust existing options.
Certain Tax Consequences. The Stock Ownership Plan is designed to enable
Discretionary Restricted Stock granted thereunder to qualify as "performance-
based" compensation that is exempt from the limitations on deductibility
imposed by Section 162(m) of the Code, as described above. However, neither
Nonrestricted nor Matching Restricted Stock will qualify for this exemption,
so Providian Bancorp may not be able to take full income tax deductions with
respect to such awards earned by its Chief Executive Officer and its other
four most highly compensated executives.
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EMPLOYEE STOCK PURCHASE PLAN
In connection with the Distribution, Providian Bancorp intends to adopt an
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Subject to meeting
United States federal and state securities law requirements, the Stock
Purchase Plan will become effective upon the consummation of the Distribution.
The purpose of the Stock Purchase Plan is to further the long-term stability
and financial success of Providian Bancorp by providing a method for employees
to increase their ownership of Providian Bancorp Common Stock.
EMPLOYEE SAVINGS PLAN
Providian Bancorp maintains a defined contribution plan (the "Employee
Savings Plan") covering salaried employees of Providian Bancorp who work 20 or
more hours per week. The Employee Savings Plan is intended to meet the
requirements of Section 401(a) of the Code and includes a qualified cash or
deferred arrangement under Section 401(k) of the Code and Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The purpose
of the Employee Savings Plan is to encourage regular savings on the part of
the employees of Providian Bancorp and to give them a proprietary interest in
Providian Bancorp, and, therefore, an additional incentive to remain in its
employ and to promote its success. The Employee Savings Plan includes an
employer matching contribution and an employer retirement contribution.
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
Providian Bancorp maintains a supplemental defined contribution plan (the
"Supplemental Plan"), which is available to certain executive employees
(including the Named Executive Officers) and permits the continuation of
matching contributions to employees whose contributions to the Employee
Savings Plan are restricted because they have exceeded the limitations imposed
by Sections 401, 402 and 415 of the Code. Participants will be eligible to
receive a supplemental matching contribution on the amount by which their
annual eligible salary exceeds these limitations. The Supplemental Plan also
provides for an additional retirement contribution to participants whose
benefits under the Company's 401(k) plan are restricted because of the
limitations imposed by Sections 401, 402 and 415 of the Code. Payments under
the Supplemental Plan are made on the same basis as those under the Employee
Savings Plan.
DEFERRED COMPENSATION PLAN
The Company's deferred compensation plan (the "Deferred Compensation Plan")
permits certain executive employees (including the Named Executive Officers)
to defer base salary and annual and long-term cash incentives. Directors may
also be eligible to elect to defer compensation pursuant to the terms of the
Deferred Compensation Plan. Participants are fully vested at all times with
respect to their deferred amounts. Eligible participants may elect to defer up
to such percentage of their compensation as the Human Resources Committee may
specify.
ARRANGEMENTS BETWEEN PROVIDIAN AND PROVIDIAN BANCORP
For the purpose of effecting the Distribution and governing certain of the
relationships between Providian and Providian Bancorp following the
Distribution, Providian and Providian Bancorp have entered into the
Distribution Agreement and will enter into the other agreements described
below (which, together with the Distribution Agreement, are referred to herein
as the "Ancillary Agreements"). The Distribution Agreement and the other
Ancillary Agreements have been filed as exhibits to the Providian Bancorp
Registration Statement and the Distribution Agreement is attached to the Proxy
Statement-Prospectus as Appendix B. The descriptions contained herein do not
purport to be complete and are qualified in their entirety by reference to
such agreements.
THE DISTRIBUTION AGREEMENT
General Description of the Distribution. Pursuant to the terms of the
Distribution Agreement, Providian will distribute the shares of Providian
Bancorp Common Stock to its stockholders in the Distribution. The
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Distribution will be made pro rata to the stockholders of Providian, as
described under "--Method of Effecting the Distribution." Immediately after
the Distribution, AEGON will acquire Providian pursuant to the Merger
Agreement.
Intercompany Accounts. The Distribution Agreement provides that on or before
the Distribution Date, Providian and Providian Bancorp will pay, or otherwise
settle, intercompany loans, payables, receivables and accounts between
Providian and Providian Bancorp.
Representations and Warranties of Providian Bancorp. In the Distribution
Agreement, Providian Bancorp makes certain representations and warranties to
Providian with respect to: (i) its due organization, good standing and
corporate power; (ii) its power and authority to execute the Distribution
Agreement and the other Ancillary Agreements to which it is or will be party
and to consummate the transactions contemplated thereby; (iii) the
enforceability of the Distribution Agreement and the other Ancillary
Agreements to which it is or will be party; (iv) the noncontravention of laws
and agreements and the absence of the need for governmental or third-party
consents in connection with the execution, delivery and performance by it of
the Distribution Agreement and the other Ancillary Agreements to which it is
or will be party; and (v) the absence of undisclosed claims by Providian
Bancorp against Providian arising out of events, circumstances or actions
taken prior to the Distribution Date.
Method of Effecting the Distribution. The Distribution Agreement provides
that, immediately prior to the Effective Time (as defined in the Distribution
Agreement), Providian will distribute all outstanding shares of Providian
Bancorp Common Stock to each holder of record of Providian Common Stock on the
Distribution Record Date on the basis of one share of Providian Bancorp Common
Stock for each share of Providian Common Stock outstanding on the Distribution
Record Date.
Indemnification. Pursuant to the Distribution Agreement, Providian and
Providian Bancorp have agreed to indemnify each other for losses, damages,
claims or liabilities (including reasonable attorneys' fees and disbursements)
arising from certain matters (collectively, "Losses"). The indemnification
provided by the Distribution Agreement will also apply to the indemnified
parties' respective affiliates, successors and assigns and the officers,
directors, partners, employees, agents and representatives of any of them.
Specifically, Providian Bancorp has agreed to indemnify Providian against
Losses arising from the following:
(i) the operation of the businesses of, or relating to, Providian Bancorp
or any other member of the Providian Bancorp group (the "Providian Bancorp
Group") (including those Losses arising due to the failure of Providian
Bancorp or any other member of the Providian Bancorp Group to pay, perform
or otherwise discharge its obligations under the Distribution Agreement or
arising out of or connected with the Providian Bancorp business);
(ii) any breach of or inaccuracy in any representation or warranty
(subject to materiality qualifications in certain cases) made by Providian
Bancorp in the Distribution Agreement;
(iii) subject to the limitations described below, any material breach of
any covenant made in the Distribution Agreement or any other Ancillary
Agreement by Providian; and
(iv) any disclosure contained in or omitted from the Providian Bancorp
Registration Statement (of which this Information Statement forms a part),
the AEGON Registration Statement on Form F-4, of which the Proxy Statement-
Prospectus forms a part, the Proxy Statement-Prospectus or any other
document filed with the SEC in connection with the transactions
contemplated in the Distribution Agreement or any preliminary or final form
thereof or any amendment or supplement thereto (collectively, the "SEC
Documents") to the extent such disclosures or omissions relate to any
member of the Providian Bancorp Group or the Providian Bancorp business.
Providian has agreed to indemnify Providian Bancorp against Losses arising
from the following:
(i) the operation of the businesses of, or relating to, Providian or any
other member of the Providian group (the "Providian Group," and, each of
the Providian Group and the Providian Bancorp Group, a
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"Group") (including those Losses arising due to the failure of Providian or
any other member of the Providian Group to pay, perform or otherwise
discharge its obligations under the Distribution Agreement or arising out
of or connected with the Providian business);
(ii) any breach of or inaccuracy in any representation or warranty
(subject to materiality qualifications in certain cases) made by Providian
in the Distribution Agreement;
(iii) subject to the limitations described below, any material breach of
any covenant made in the Distribution Agreement or any other Ancillary
Agreement by Providian; and
(iv) any disclosure contained in or omitted from any SEC Documents to the
extent such disclosures or omissions do not relate to any member of the
Providian Bancorp Group or the Providian Bancorp business.
The indemnification obligations described above will be subject to the
following limitations:
(i) the indemnification obligations will not include any Losses (a)
relating to any Tax (as defined in the Tax Disaffiliation Agreement (as
defined herein)), which shall be covered exclusively by the Tax
Disaffiliation Agreement, (b) relating to matters for which indemnification
is provided in any of the other Ancillary Agreements or (c) relating to
matters governed by any of the surviving intercompany agreements, which, in
each case, will be covered exclusively by the applicable provisions of such
agreements; and
(ii) the indemnification obligations will not be deemed to create any
obligation, or expand the scope of any existing obligation, on the part of
any party to the Distribution Agreement to indemnify or hold harmless such
party's own officers, directors, partners, employees, agents or
representatives.
If any indemnification described above is unavailable for any reason, the
parties have agreed to contribute in respect of the applicable Losses on an
equitable basis.
Non-Competition. Pursuant to the Distribution Agreement, Providian Bancorp
has agreed that, for a period of two years after December 28, 1996, neither it
nor any of its affiliates will, anywhere in the United States, directly or
indirectly, (i) sell or offer life insurance and related products through the
home service channel; (ii) offer, sell or otherwise provide to the non-
individual market (a) guaranteed investment contracts or (b) other funding
agreements directly competitive with products offered as of December 28, 1996
by Providian Capital Management, a division of Providian Corporation; or (iii)
sell or offer life insurance products directly competitive with products
offered as of December 28, 1996 by Providian Direct Insurance except, in the
case of this clause (iii), for offers or sales of accidental death and
dismemberment insurance and offers or sales to current or future Providian
Bancorp customers of life insurance products that are incremental to a product
that is currently being offered by Providian Bancorp. Providian Bancorp
further agrees that, for a period of 18 months after December 28, 1996,
neither it nor any of its affiliates will, anywhere in the United States,
directly or indirectly, use, with respect to any life insurance product or the
offer or sale of any such product, the name "Providian," or any derivative
thereof, in conjunction with the term "insurance," "assurance" or any similar
insurance related term, as the name of an entity, joint venture or similar
marketing arrangement.
Guaranty. The Merger Agreement provides that at closing, AEGON will cause
AEGON USA, Inc. to enter into a guaranty agreement with Providian and
Providian Bancorp (the "Guaranty Agreement"), pursuant to which AEGON USA,
Inc. will guarantee the obligations of Providian in the Merger Agreement
regarding employee benefits and the indemnification of officers and directors,
as well as all of the obligations of Providian in the Distribution Agreement
and the other Ancillary Agreements. The aggregate amount required to be paid
by AEGON USA, Inc. under the Guaranty Agreement will not exceed an amount in
United States dollars equal to the stockholders' equity of Providian,
determined in accordance with GAAP, as of the latest quarter ended prior to
completion of the Merger, adjusted to give effect to the Distribution.
TAX DISAFFILIATION AGREEMENT
The Tax Disaffiliation Agreement between Providian and Providian Bancorp,
which will be entered into prior to the Distribution Date (the "Tax
Disaffiliation Agreement"), generally provides for the allocation
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between Providian and Providian Bancorp of the tax liability for certain
periods and events and for the parties' responsibilities for filing tax
returns, handling audits, retaining records, etc.
The Tax Disaffiliation Agreement provides that Providian is obligated to
file all tax returns with respect to the Providian Bancorp Group (i) that are
filed on a consolidated, combined or unitary basis, (ii) that include
Providian Bancorp or any of its subsidiaries and Providian or any of its
subsidiaries and (iii) that are required to be filed for any period beginning
before the Distribution.
Under the Tax Disaffiliation Agreement, Providian Bancorp is liable for, and
will hold Providian harmless against, any taxes attributable to the Providian
Bancorp Group (which includes Providian Bancorp and its subsidiaries) for any
period before or after the Distribution. Conversely, Providian is liable for,
and will hold Providian Bancorp harmless against, any tax liability
attributable to Providian or any of its subsidiaries (excluding Providian
Bancorp and its subsidiaries) for any period before or after the Distribution.
The Tax Disaffiliation Agreement also contains a number of representations
that Providian and Providian Bancorp will make relating to events that could
disqualify the Distribution under Section 355 of the Code. If Providian or
Providian Bancorp violates one or more of these representations and the
nonrecognition treatment of the Distribution under Section 355 of the Code is
disallowed as a result thereof, the party breaching the representation will
bear 100% of the tax liability resulting from the breach. If the tax-free
treatment of the Distribution is disallowed for a reason other than the breach
of one of these representations, Providian will bear the liability for any
taxes relating to the disqualification.
The Tax Disaffiliation Agreement further provides that no member of the
Providian Bancorp Group will be entitled to carry back a net operating loss or
other tax attribute (unless the carryback is required by law) from a period
after the Distribution to a period before the Distribution without the consent
of Providian.
Finally, each of Providian and Providian Bancorp will have sole
responsibility for audits of the tax returns it is required to file unless a
proposed adjustment in the audit could result in liability for the other party
as an indemnitor under the Tax Disaffiliation Agreement. In that case, the
indemnitor will have the sole right to contest the proposed adjustment;
provided that, if the proposed adjustment cannot be separated from the
consolidated, combined, or similar return of the other party, the indemnitor
may not settle the proposed adjustment without the consent of the other party,
which consent may not be unreasonably withheld.
EMPLOYEE BENEFITS AGREEMENT
The Employee Benefits Agreement will be entered into on or prior to the
Distribution Date by and between Providian and Providian Bancorp for the
purposes of allocating employee benefit assets and obligations between
Providian and Providian Bancorp (the "Employee Benefits Agreement"). Except as
otherwise expressly provided in the Employee Benefits Agreement, each party
will assume or retain, as the case may be, and be solely responsible for, all
Liabilities (as defined in the Employee Benefits Agreement) arising under its
own employee benefit plans and for all liabilities relating to its own
employees. Employees transferring to Providian Bancorp from Providian in
connection with the Distribution will not be deemed to have experienced a
severance or termination for purposes of employment and benefits policies and
plans, and such employees' service with Providian will be recognized as
service with Providian Bancorp for purposes of these policies and plans.
Each Providian stock option held by Providian Bancorp employees, former
employees and their respective beneficiaries and dependents (the "Providian
Bancorp Participants") will be rolled over as of the Distribution Date into a
Substitute Option with respect to a number of shares of Providian Bancorp
Common Stock equal to the number of shares of Providian Common Stock subject
to such Providian stock option immediately before such replacement, multiplied
by the Ratio and with a per-share exercise price equal to the per-share
exercise price of such Providian stock option, divided by the Ratio. For
purposes of the foregoing, the "Ratio" is equal to the average of the daily
high and low trading prices on the NYSE of Providian Common Stock on each of
the 10 trading days prior to the ex-dividend date for the Distribution divided
by the average of the daily high and
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low trading prices on the NYSE for the Providian Bancorp Common Stock on each
of the 10 trading days beginning with the ex-dividend date for the
Distribution. Such Providian Bancorp stock option will otherwise have the same
terms and conditions as the corresponding Providian stock option. Providian
stock options, relating to an aggregate of up to 285,000 shares of Providian
Common Stock, held by Irving W. Bailey II may also be converted into Providian
Bancorp stock options to the extent Providian, Providian Bancorp and Mr.
Bailey so agree, in which event Providian will reimburse Providian Bancorp for
the spread on these options.
Providian will assume or reimburse Providian Bancorp for liabilities arising
under the Equity Unit Plan on account of amounts due to Providian employees
who were formerly employed by Providian Bancorp and who received grants of
Equity Units while they were employed by Providian Bancorp. See "Management--
The Equity Unit Plan."
In addition, Providian restricted stock held by Providian Bancorp
Participants, which would otherwise vest only over specified periods of time,
will vest immediately before the Distribution and such stock will be
distributed at that time to the holders. The impact to earnings of such
distribution will be $2.3 million, which will be recognized upon the
Distribution. Providian Bancorp will assume and be solely responsible for all
liabilities of Providian to or relating to Providian Bancorp Participants
under the Providian deferred compensation plans (under which certain amounts
of compensation may be deferred and paid at a later time). Assets held in
Providian's master trust for Providian Bancorp's 401(k) plan will be
transferred to a Providian Bancorp trust. Assets held in Providian's rabbi
trust will be transferred to Providian Bancorp, or to a trust or other entity
designated by Providian Bancorp, on a pro rata basis, in the same proportion
as the contributions to such rabbi trust charged to Providian Bancorp as of
the Distribution Date bear to the total contributions made to such rabbi
trust. Providian will also make a cash payment to Providian Bancorp of $6.55
million immediately prior to the Distribution in recognition of the
reallocation of employee costs effected by the Employee Benefits Agreement.
TRANSITION SERVICES AGREEMENT
The Transition Services Agreement between Providian and Providian Bancorp
will be entered into on or prior to the Distribution Date (the "Transition
Services Agreement"). Pursuant to the Transition Services Agreement, for a
period of 180 days beginning on the Distribution Date (the "Transition
Period"), Providian will make certain administrative services available to
Providian Bancorp, including, but not limited to, services relating to
financial, tax, accounting, legal, human resources and other administrative
services (the "Transition Services"). In consideration for the Transition
Services, Providian Bancorp will pay to Providian an amount equal to the
allocable overhead and any reasonable out-of-pocket expenses incurred by
Providian in providing the Transition Services.
The Transition Services Agreement provides that Providian will have no
liability to Providian Bancorp with respect to its furnishing any of the
Transition Services other than for its gross negligence or willful misconduct.
Moreover, Providian will make no warranties, express or implied, with respect
to the Transition Services to be provided under the Transition Services
Agreement.
GENERAL INTELLECTUAL PROPERTY ASSIGNMENT AND RENUNCIATION
The General Intellectual Property Assignment and Renunciation between
Providian and Providian Bancorp will be entered into on or prior to the
Distribution Date (the "General Intellectual Property Assignment and
Renunciation"). Pursuant to this agreement, Providian will assign, transfer
and convey to Providian Bancorp, its successors, legal representatives and
assigns, any and all worldwide rights, title and interest of Providian in the
"Providian" name and logo, and certain other Proprietary Rights (as defined in
the General Intellectual Property Assignment and Renunciation). Such
Proprietary Rights include certain marks, trade names and trade dress that
include any form of the word "Providian" or the prefix "Pro", as well as
works, confidential information, inventions and other rights and privileges
relating to the Providian Bancorp business and the business or services
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conducted under the trademark, service mark or trade name that includes the
word "Providian," or the "Pro" prefix or other forms of the word "Providian."
Providian will also cooperate as reasonably necessary with Providian Bancorp
in connection with perfecting Providian Bancorp's ownership of the Proprietary
Rights and in connection with perfecting the transfer of all rights to and the
vesting of full and complete title and ownership in Providian Bancorp to the
Proprietary Rights.
TRADEMARK LICENSE AGREEMENT
The Trademark License Agreement will be entered into on or prior to the
Distribution Date by and between Providian and Providian Bancorp (the
"Trademark License Agreement"). The Trademark License Agreement will
effectuate the license by Providian Bancorp to Providian of certain service
marks, trademarks, trade names and/or trade dress, and the registrations and
applications for registrations relating thereto (collectively, the "Service
Marks") in order to give Providian and Providian's insurance subsidiaries time
to obtain the necessary regulatory approvals for a name change. These Service
Marks will have previously been assigned to Providian Bancorp by Providian
pursuant to the General Intellectual Property Assignment and Renunciation. The
license will be royalty free and will not require the payment of any material
consideration by Providian.
Licenses. Effective on or prior to the Distribution Date, Providian Bancorp
will grant to Providian and its insurance subsidiaries a non-exclusive,
royalty-free right to use the Service Marks throughout the United States in
connection with the Company Business (as defined in the Distribution
Agreement) until the earlier of (i) the receipt by Providian and its insurance
subsidiaries of all necessary regulatory approvals to effect a name change and
transition to usage of a new name or (ii)(a) six months from the date the
Trademark License Agreement is executed with respect to Providian and (b) 18
months from the date the Trademark License Agreement is executed with respect
to Providian's insurance subsidiaries. Providian and its insurance
subsidiaries will agree to effect the name change as promptly as reasonably
practicable after the Trademark License Agreement is executed. The license
term relating to the use of the Service Marks by Providian's insurance
subsidiaries may be extended with the consent of Providian Bancorp, which
consent will not be unreasonably withheld.
Indemnity. The Trademark License Agreement provides that Providian and its
insurance subsidiaries will indemnify Providian Bancorp against Losses
incurred pursuant to claims of third parties arising out of the use of the
Service Marks in connection with the Company Business or the provision of
services by Providian or its insurance subsidiaries under the Service Marks,
provided that such indemnity will not extend to Losses incurred by claims of
third parties related to the validity of Providian Bancorp's rights in the
Service Marks. In addition, such Losses incurred by Providian Bancorp shall be
subject, but not in addition, to the indemnification provisions set forth in
the Distribution Agreement.
OTHER BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Distribution Agreement, all contracts, licenses, agreements,
joint marketing test programs and other arrangements, formal or informal,
between the Providian Group, on the one hand, and the Providian Bancorp Group,
on the other, in existence as of the Distribution Date, pursuant to which
either Group provides to any member of the other Group services (including
management, administration, legal, financial, accounting, data processing,
insurance or technical support), or the use of any asset of any member of the
other Group or any employee, or pursuant to which any rights, privileges or
benefits are afforded to members of either Group as an affiliate of the other
Group, shall terminate as of the close of business on the day prior to the
Distribution Date, except that certain contracts shall survive the
Distribution, including: (i) an intercompany services agreement relating to
remittance processing services performed for Providian Bancorp by a member of
the Providian Group, (ii) a lease relating to Providian Bancorp's
telemarketing facility space leased from a member of the Providian Group in
St. Louis, Missouri, (iii) a telemarketing service agreement relating to
certain support and infrastructure services provided to Providian Bancorp in
connection with its St. Louis, Missouri telemarketing facility, (iv) licensing
agreements permitting members of the Providian Group to offer customers
Providian Bancorp's FHA products, (v) a loan servicing agreement relating to
the servicing of FDNB's fixed rate mortgage portfolio by a member of the
Providian Group, and (vi) a loan servicing agreement for the servicing of
PCC's fixed rate mortgage loans by a member of the Providian Group.
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DESCRIPTION OF PROVIDIAN BANCORP CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Prior to the Distribution, Providian Bancorp will recapitalize to change the
par value of the Providian Bancorp Common Stock to $.01 per share and to cause
the number of outstanding shares of Providian Bancorp Common Stock to equal
the number of shares of Providian Common Stock outstanding on the Distribution
Record Date. Immediately after the Distribution, Providian Bancorp's
authorized capital stock will consist of 50 million shares of preferred stock,
par value $.01 per share (the "Preferred Stock"), and 400 million shares of
Providian Bancorp Common Stock. Immediately following the Distribution,
approximately 94.6 million shares of Providian Bancorp Common Stock are
expected to be outstanding, based on the number of shares of Providian Common
Stock outstanding on April 10, 1997. All of the shares of Providian Bancorp
Common Stock that will be outstanding immediately following the Distribution
will be validly issued, fully paid and nonassessable, and free of preemptive
rights.
COMMON STOCK
The holders of Providian Bancorp Common Stock will be entitled to one vote
for each share on all matters voted on by stockholders, including elections of
directors, and, except as otherwise required by law or provided in any
resolution adopted by the Providian Bancorp Board with respect to any series
of Preferred Stock, the holders of such shares will possess all voting power.
The certificate of incorporation of Providian Bancorp to be in effect
following the Distribution (the "Charter") does not provide for cumulative
voting in the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock created by the Providian Bancorp Board
from time to time, the holders of Providian Bancorp Common Stock will be
entitled to such dividends as may be declared from time to time by the
Providian Bancorp Board from funds available therefor, and, upon liquidation,
will be entitled to receive pro rata all assets of Providian Bancorp available
for distribution to such holders. See "Dividend Policy."
PREFERRED STOCK
The Charter authorizes the Providian Bancorp Board to establish one or more
series of Preferred Stock, and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series. Providian Bancorp
believes that the ability of the Providian Bancorp Board to issue one or more
series of Preferred Stock will provide Providian Bancorp with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock,
as well as shares of Providian Bancorp Common Stock, will be available for
issuance without further action by Providian Bancorp's stockholders, unless
such action is required by applicable law or the rules of any stock exchange
or automated quotation system on which Providian Bancorp's securities may be
listed or traded. The NYSE currently requires stockholder approval as a
prerequisite to listing shares in several instances, including where the
present or potential issuance of shares could result in an increase in the
number of shares of common stock, or in the amount of voting securities,
outstanding of at least 20%. If the approval of Providian Bancorp's
stockholders is not required for the issuance of shares of Preferred Stock or
Providian Bancorp Common Stock, the Providian Bancorp Board may determine not
to seek stockholder approval.
Although the Providian Bancorp Board has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Providian Bancorp Board will make any
determination to issue such shares based on its judgment as to the best
interests of Providian Bancorp and its stockholders. The Providian Bancorp
Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt through which an acquiror may be able to
change the composition of the Providian Bancorp Board, including a tender
offer or other transaction that some, or a majority, of Providian Bancorp's
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
As of the Distribution Date, 1,000,000 Junior Preferred Shares (as defined
herein) will be reserved for issuance upon exercise of the Rights. See
"Certain Antitakeover Effects--Rights Plan" for a description of the Rights
and the Junior Preferred Shares.
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CERTAIN ANTITAKEOVER EFFECTS
BOARD OF DIRECTORS
The Charter provides that except as otherwise fixed by or pursuant to the
provisions of a certificate of designations setting forth the rights of the
holders of any class or series of Preferred Stock, the number of the directors
of Providian Bancorp will be fixed from time to time exclusively pursuant to a
resolution adopted by a majority of the total number of authorized directors
which Providian Bancorp would have if there were no vacancies on the Providian
Bancorp board of directors (the "Whole Board"), but will not be fewer than
three. The directors, other than those who may be elected by the holders of
Preferred Stock, will be divided into three classes, as nearly equal in number
as possible, with one class to be elected for a term expiring at the Annual
Meeting of Stockholders to be held in 1998, another class to be elected for a
term expiring at the Annual Meeting of Stockholders to be held in 1999, and
another class to be elected for a term expiring at the Annual Meeting of
Stockholders to be held in 2000. Commencing with the 1998 Annual Meeting of
Stockholders, directors elected to succeed directors whose terms then expire
will be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election.
The Charter provides that, except as otherwise provided for or fixed by or
pursuant to a certificate of designations setting forth the rights of the
holders of any class or series of Preferred Stock, newly created directorships
resulting from any increase in the authorized number of directors and any
vacancies on the Providian Bancorp Board resulting from death, resignation,
disqualification, removal or other cause will be filled by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the Providian Bancorp Board. Any director elected in
accordance with the provisions described in the preceding sentence will hold
office for the remainder of the full term of the class of directors in which
the new directorship was created or the vacancy occurred. No decrease in the
number of directors constituting the Providian Bancorp Board will shorten the
term of any incumbent director. Subject to the rights of holders of Preferred
Stock, any director may be removed from office only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all
voting stock then outstanding, voting together as a single class.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of the Providian Bancorp Board by
filling the vacancies created by removal with its own nominees. Under the
classified board provisions described above, it would take at least two
elections of directors for any individual or group to gain control of the
Providian Bancorp Board. Accordingly, these provisions could discourage a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to gain control of Providian Bancorp.
NO STOCKHOLDER ACTION BY UNANIMOUS WRITTEN CONSENT; LIMITATIONS ON CALL OF
SPECIAL MEETINGS
The Charter provides that any action required or permitted to be taken by
the stockholders of Providian Bancorp must be effected at a duly called annual
or special meeting of stockholders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to
the rights of the holders of any Preferred Stock, special meetings of
stockholders of Providian Bancorp for any purpose or purposes may be called
only by the Providian Bancorp Board pursuant to a resolution stating the
purpose or purposes thereof approved by a majority of the Whole Board, or by
the Chairman of the Board of Directors of Providian Bancorp, and any power of
the stockholders to call a special meeting is specifically denied. The Bylaws
provide that no business other than that stated in the notice shall be
transacted at any special meeting. These provisions may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the Providian Bancorp Board or the
Chairman of the Board of Directors of Providian Bancorp.
ADVANCE NOTICE PROCEDURES
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of stockholders of Providian Bancorp
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(the "Stockholder Notice Procedure"). The Stockholder Notice Procedure
provides that only individuals who are nominated by, or at the direction of,
the Providian Bancorp Board, or by a stockholder who has given timely written
notice to the Secretary of Providian Bancorp prior to a meeting at which
directors are to be elected, will be eligible for election as directors of
Providian Bancorp. The Stockholder Notice Procedure also provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by, or at the direction of, the Providian Bancorp Board, or by a
stockholder who has given timely written notice to the Secretary of Providian
Bancorp of such stockholder's intention to bring such business before such
meeting. Under the Stockholder Notice Procedure, for notice to be timely, such
notice must be received by Providian Bancorp not later than the close of
business on the 90th calendar day nor earlier than the close of business on
the 120th calendar day prior to the first anniversary of the preceding year's
annual meeting (except that, in the event that the date of the annual meeting
is more than 30 calendar days before or more than 60 calendar days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 120th calendar day prior to such
annual meeting and not later than the close of business on the later of the
90th calendar day prior to such annual meeting or the 10th calendar day
following the day on which public announcement of a meeting date is first made
by Providian Bancorp).
Notwithstanding the foregoing, in the event that the number of directors to
be elected to the Providian Bancorp Board is increased and there is no public
announcement by Providian Bancorp naming all of the nominees for director or
specifying the size of the increased Providian Bancorp Board at least 100
calendar days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice also will be considered timely, but only with
respect to nominees for any new positions created by such increase, if it is
delivered not later than the close of business on the 10th calendar day
following the day on which such public announcement is first made by Providian
Bancorp.
The Stockholder Notice Procedure provides that only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to Providian Bancorp's notice of meeting.
Nominations of persons for election to the Providian Bancorp Board may be made
at a special meeting of stockholders at which directors are to be elected
pursuant to the Providian Bancorp's notice of meeting (a) by or at the
direction of the Providian Bancorp Board or (b) provided that the Providian
Bancorp Board has determined that directors shall be elected at such meeting,
by any stockholder of Providian Bancorp who is a stockholder of record at the
time of giving of notice provided for in the Stockholder Notice Procedure, who
shall be entitled to vote at the meeting and who complies with the notice
procedures set forth in the Stockholder Notice Procedure. Under the
Stockholder Notice Procedure, for notice of a stockholder nomination to be
made at a special meeting at which directors are to be elected to be timely,
such notice must be received by Providian Bancorp not earlier than the close
of business on the 120th calendar day prior to such special meeting and not
later than the close of business on the later of the 90th calendar day prior
to such special meeting or the 10th calendar day following the day on which
public announcement is first made of the date of the special meeting and of
the nominees proposed by the Providian Bancorp Board to be elected at such
meeting.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to Providian Bancorp proposing to nominate an individual for election as a
director or relating to the conduct of business other than the nomination of
directors must contain certain specified information. If the chairman of a
meeting determines that an individual was not nominated, or other business was
not brought before the meeting, in accordance with the Stockholder Notice
Procedure, such individual will not be eligible for election as a director or
such business will not be conducted at such meeting, as the case may be.
Although the Stockholder Notice Procedure does not give the Providian
Bancorp Board any power to approve or disapprove stockholder nominations for
the election of directors or proposals for action, it may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to Providian Bancorp and its stockholders.
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AMENDMENT
The Charter provides that the affirmative vote of the holders of at least
80% of the voting stock, voting together as a single class, is required to
amend provisions of the Charter relating to stockholder action without a
meeting; the calling of special meetings; the number, election and term of
Providian Bancorp's directors; the filling of vacancies; and the removal of
directors. The Charter further provides that the related Bylaws described
above (including the Stockholder Notice Procedure) may be amended only by the
Providian Bancorp Board or by the affirmative vote of the holders of at least
80% of the voting power of the outstanding shares of voting stock, voting
together as a single class. Other amendments to the Charter require the
affirmative vote of the holders of at least a majority of the voting stock,
voting together as a single class. In all cases, amendments to the Charter
require that the Providian Bancorp Board determine that the proposed amendment
is advisable.
RIGHTS PLAN
The Providian Bancorp Board currently expects to adopt a Share Purchase
Rights Plan (the "Rights Plan") on or prior to the Distribution Date. Pursuant
to the Rights Plan, the Providian Bancorp Board will cause to be issued one
Right for each outstanding share of Providian Bancorp Common Stock. The Rights
have certain antitakeover effects. The Rights will cause substantial dilution
to a person or group of persons that attempts to acquire Providian Bancorp on
terms not approved by the Providian Bancorp Board. The Rights should not
interfere with any merger or other business combination approved by the
Providian Bancorp Board prior to the time that a person or group has acquired
beneficial ownership of 15% or more of the Providian Bancorp Common Stock
since the Rights may be redeemed by Providian Bancorp until such time.
Each Right will entitle the registered holder to purchase from Providian
Bancorp one one-hundredth of a share of a new series of Providian Bancorp
Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Junior Preferred Shares"), at a price of $150 per share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights will
be set forth in a Rights Agreement (the "Rights Agreement"), between Providian
Bancorp and the designated Rights Agent (the "Rights Agent"). The description
set forth below is intended as a summary only and is qualified in its entirety
by reference to the form of the Rights Agreement, which will be filed as an
exhibit to the Providian Bancorp Registration Statement. See "Where You Can
Find More Information."
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 15% or more of the outstanding
shares of Providian Bancorp Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Providian Bancorp Board prior
to such time as any person becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of such outstanding shares of
Providian Bancorp Common Stock (the earlier of such dates being called the
"Rights Distribution Date"), the Rights will be evidenced by the certificates
representing the Providian Bancorp Common Stock.
The Rights Agreement will provide that, until the Rights Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Providian Bancorp Common Stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
the Providian Bancorp Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the
Rights (the "Right Certificates") will be mailed to holders of record of the
Providian Bancorp Common Stock as of the close of business on the Rights
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on the 10th anniversary of the Distribution Date (the
"Final Expiration Date"), unless the Final Expiration Date is extended or
unless the Rights are earlier redeemed or exchanged by Providian Bancorp, in
each case, as summarized below.
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In the event that any person or group of affiliated or associated persons
become an Acquiring Person, proper provision will be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person
(which will thereafter be void), will thereafter have the right to receive
upon exercise that number of shares of Providian Bancorp Common Stock having a
market value of two times the exercise price of the Right. In the event that
Providian Bancorp is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold after a person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the
then-current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have
a market value of two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the then-
outstanding Providian Bancorp Common Stock and prior to the acquisition by
such person or group of 50% or more of the outstanding Providian Bancorp
Common Stock, the Providian Bancorp Board may exchange the Rights (other than
Rights owned by such person or group which have become void), in whole or in
part, at an exchange ratio of one share of Providian Bancorp Common Stock, or
one one-hundredth of a Junior Preferred Share, per Right (subject to
adjustment).
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the then-
outstanding Providian Bancorp Common Stock, the Providian Bancorp Board may
redeem the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at
such time on such basis and with such conditions as the Providian Bancorp
Board, in its sole discretion, may establish. Immediately upon any redemption
of the Rights, the right to exercise the rights will terminate and the only
right of the holders of the Rights will be eligible to receive the Redemption
Price.
The terms of the Rights may be amended by the Providian Bancorp Board
without the consent of the holders of the Rights; provided, however, that,
from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person, no such amendment may adversely affect
the interests of the holders of the Rights. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of Providian
Bancorp, including, without limitation, the right to vote or to receive
dividends.
The number of outstanding Rights and the number of one one-hundredths of a
Junior Preferred Share issuable upon exercise of each Right will be subject to
adjustment in the event of a stock split of the Providian Bancorp Common Stock
or a stock dividend on the Providian Bancorp Common Stock payable in Providian
Bancorp Common Stock or subdivisions, consolidations or combinations of the
Providian Bancorp Common Stock occurring, in any such case, prior to the
Rights Distribution Date. The Purchase Price payable, and the number of Junior
Preferred Shares or other securities or property issuable, upon exercise of
the Rights will be subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Junior Preferred Shares, (ii) upon the grant to
holders of the Junior Preferred Shares of certain rights or warrants to
subscribe for or purchase Junior Preferred Shares at a price, or securities
convertible into Junior Preferred Shares with a conversion price, less than
the then-current market price of the Junior Preferred Shares or (iii) upon the
distribution to holders of the Junior Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Junior Preferred Shares)
or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Junior Preferred Shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
Junior Preferred Share, which may, at the election of Providian Bancorp, be
evidenced by depositary receipts), and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Junior Preferred Shares on the
last trading day prior to the date of exercise.
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Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Providian Bancorp Common Stock. In the event of liquidation, the holders of
the Junior Preferred Shares will be entitled to a minimum preferential
liquidation payment of $100 per share but will be entitled to an aggregate
payment of 100 times the payment made per share of Providian Bancorp Common
Stock. Each Junior Preferred Share will have 100 votes, voting together with
the Providian Bancorp Common Stock. In the event of any merger, consolidation
or other transaction in which shares of Providian Bancorp Common Stock are
exchanged, each Junior Preferred Share will be entitled to receive 100 times
the amount received per share of Providian Bancorp Common Stock. These rights
are protected by customary antidilution provisions.
Due to the nature of the Junior Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Junior
Preferred Share purchasable upon exercise of each Right should approximate the
value of one share of Providian Bancorp Common Stock.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 ("Section 203") of the Delaware General Corporation Law (the
"DGCL") provides that, subject to certain exceptions specified therein, an
interested stockholder (as defined herein) of a Delaware corporation may not
engage in any business combination, including mergers, consolidations, or
acquisitions of additional shares of the corporation, with the corporation for
a three-year period following the date that such stockholder becomes an
interested stockholder, unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding certain shares), or (iii) on or subsequent to
such date, the business combination is approved by the board of directors of
the corporation and authorized at an annual or special meeting of stockholders
by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. Except as otherwise
specified in Section 203, an "interested stockholder" is defined to include
(i) any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within three years immediately prior to the date of
determination, and (ii) affiliates and associates of any such person.
The provisions of Section 203 will apply to Providian Bancorp. Under certain
circumstances, Section 203 makes it more difficult for a person who would be
an interested stockholder to effect various business combinations with a
corporation for a three-year period. The provisions of Section 203 may
encourage persons interested in acquiring Providian Bancorp to negotiate in
advance with the Providian Bancorp Board because the stockholder approval
requirement would be avoided if a majority of the directors then in office
approves either the business combination or the transaction which results in
any such person becoming an interested stockholder. Such provisions may also
have the effect of preventing changes in the management of Providian Bancorp.
It is possible that such provisions could make it more difficult to accomplish
transactions which Providian Bancorp's stockholders may otherwise deem to be
in their best interests.
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
The Charter provides that a director of Providian Bancorp will not be
personally liable to Providian Bancorp or its stockholders for monetary
damages for breach of fiduciary duty as a director, except, to the extent such
exemption from liability or limitation thereof is not permitted by the DGCL,
as amended from time to time. Neither the repeal nor modification of such
provision will adversely affect any right or protection of a director of
Providian Bancorp existing thereunder with respect to any act, omission or
occurrence or matter arising prior to such repeal or modification.
90
<PAGE>
The Charter provides that Providian Bancorp will indemnify (i) its directors
and officers and certain other persons serving at the request of Providian
Bancorp as a director, officer, employee or agent of certain other entities,
to the fullest extent authorized by the DGCL as now or hereafter in force (to
the extent such amendment permits broader indemnification rights), including
for the advancement of expenses under the procedures and to the fullest extent
permitted by law and (ii) other employees and agents to such extent as shall
be authorized by the Providian Bancorp Board and as shall be permitted by law.
The foregoing rights of indemnification are not exclusive of any other rights
to which those seeking indemnification may be entitled. The Providian Bancorp
Board may take such action as is necessary to carry out such indemnification
provisions and may adopt, approve and amend from time to time such Bylaws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No modification of
the Charter or repeal of any of its provisions will limit or eliminate the
right to indemnification provided thereunder with respect to acts, omissions
or occurrences or matters arising prior to such modification or repeal. The
Bylaws contain provisions implementing the foregoing. Providian Bancorp also
expects to purchase insurance for the benefit of its directors and officers in
order to protect them against liability, including with respect to the matters
covered by the foregoing indemnities.
WHERE YOU CAN FIND MORE INFORMATION
Providian files (and, following the Distribution, Providian Bancorp will
file) annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information that Providian or Providian Bancorp files at the SEC's
public reference rooms in Washington, D.C., Los Angeles, California, New York,
New York and Chicago, Illinois. Providian's and Providian Bancorp's SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC (http://www.sec.gov).
Providian Bancorp has filed the Providian Bancorp Registration Statement
with the SEC under the Exchange Act relating to the shares of Providian
Bancorp Common Stock to be issued in the Distribution. This Information
Statement, which forms a part of the Providian Bancorp Registration Statement,
does not contain all of the information in the Providian Bancorp Registration
Statement and the related exhibits. Statements in this Information Statement
as to the contents of any contract, agreement or other document are summaries
only and are not necessarily complete. For complete information as to these
matters, refer to the applicable exhibit or schedule to the Providian Bancorp
Registration Statement. The Providian Bancorp Registration Statement and the
related exhibits filed by Providian Bancorp may be inspected at the public
reference facilities of or the SEC listed above.
The principal office of Providian Bancorp is located at 201 Mission Street,
San Francisco, California 94105; telephone: (415) 543-0404.
Questions concerning Providian, Providian Bancorp, the Distribution or the
Merger should be directed to Jim Rowe, Senior Vice President, Providian
Bancorp Investor Relations, 201 Mission Street, San Francisco, California;
telephone: (415) 543-0404.
----------------
NO PERSON IS AUTHORIZED BY PROVIDIAN OR PROVIDIAN BANCORP TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
INFORMATION STATEMENT AND, IF GIVEN OR MADE, YOU SHOULD NOT RELY ON SUCH
INFORMATION OR REPRESENTATIONS AS AUTHORIZED.
91
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acquiring Person........................................................... 88
adequately capitalized..................................................... 63
AEGON...................................................................... 15
AEGON Common Shares........................................................ 15
Ancillary Agreements....................................................... 79
Annual Meeting Record Date................................................. 69
APR........................................................................ 43
Audit Committee............................................................ 68
back-end verification process.............................................. 51
Bank Holding Company Act................................................... 59
Banks...................................................................... 56
BIF........................................................................ 60
Borrowers.................................................................. 41
Bylaws..................................................................... 68
Call Reports............................................................... 42
capital.................................................................... 31
Capital Securities......................................................... 23
CDs........................................................................ 29
CEBA....................................................................... 21
change in control.......................................................... 74
Charter.................................................................... 85
Code....................................................................... 18
Company.................................................................... 15
Comptroller................................................................ 42
Credit Card................................................................ 49
Credit Facility............................................................ 41
credit risk................................................................ 45
critically undercapitalized................................................ 63
DGCL....................................................................... 90
DIDMCA..................................................................... 64
Debentures................................................................. 23
Deferred Compensation Plan................................................. 79
Discretionary Restricted Stock............................................. 78
Distribution............................................................... 15
Distribution Agent......................................................... 15
Distribution Agreement..................................................... 15
Distribution Date.......................................................... 15
Distribution Record Date................................................... 15
DOJ........................................................................ 12
Employee Benefits Agreement................................................ 82
Employee Savings Plan...................................................... 79
Employment Agreement....................................................... 73
Equity Unit Plan........................................................... 30
Equity Units............................................................... 30
engineering approach....................................................... 46
event driven............................................................... 49
Exchange Act............................................................... 79
FDIC....................................................................... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FDICIA..................................................................... 62
FDNB....................................................................... 41
Federal Reserve............................................................ 22
FICO....................................................................... 61
Final Expiration Date...................................................... 88
FTC........................................................................ 21
GAAP....................................................................... 32
General Intellectual Property Assignment and Renunciation.................. 83
general purpose cards...................................................... 47
Goldman Sachs.............................................................. 16
Group...................................................................... 81
Guaranty Agreement......................................................... 81
HSR Act.................................................................... 20
Human Resources Committee.................................................. 68
Incentive Plan............................................................. 77
Information Statement...................................................... 15
interested stockholder..................................................... 90
Investment, Asset and Liability Committee.................................. 68
IRS........................................................................ 15
IRS Ruling................................................................. 15
ISDA....................................................................... 44
J.P. Morgan................................................................ 70
Jumbo CDs.................................................................. 55
Junior Preferred Shares.................................................... 88
leverage ratio............................................................. 62
LIBOR...................................................................... 11
Losses..................................................................... 80
LTIP....................................................................... 71
LTV........................................................................ 52
Matching Restricted Stock.................................................. 78
Merger..................................................................... 15
Merger Agreement........................................................... 15
Merger/Spin-Off Transaction................................................ 16
MMDAs...................................................................... 40
MSAs....................................................................... 52
Named Executive Officers................................................... 70
National Bank Act.......................................................... 64
NCDs....................................................................... 56
Nonrestricted Stock........................................................ 78
NYSE....................................................................... 15
PCC........................................................................ 41
PCSI....................................................................... 41
P/E........................................................................ 16
PFA........................................................................ 58
PHL........................................................................ 52
PMT........................................................................ 57
PNB........................................................................ 41
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PNBC....................................................................... 47
Preferred Stock............................................................ 85
prescreening............................................................... 51
private label cards........................................................ 47
Providian.................................................................. 15
Providian Bancorp.......................................................... 15
Providian Bancorp Board.................................................... 22
Providian Bancorp Common Stock............................................. 15
Providian Bancorp Group.................................................... 80
Providian Bancorp Participants............................................. 82
Providian Bancorp Registration Statement................................... 22
Providian Board............................................................ 16
Providian Common Stock..................................................... 15
Providian Direct Insurance................................................. 66
Providian Group............................................................ 80
Proxy Statement-Prospectus................................................. 15
Purchase Price............................................................. 88
Ratio...................................................................... 82
Redemption Price........................................................... 89
Restricted Stock........................................................... 78
Revolving Line............................................................. 50
Right...................................................................... 15
Right Certificates......................................................... 88
Rights Agent............................................................... 88
Rights Agreement........................................................... 88
Rights Distribution Date................................................... 88
Rights Plan................................................................ 88
SARs....................................................................... 72
seasoning.................................................................. 37
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SEC........................................................................ 22
SEC Documents.............................................................. 80
Section 203................................................................ 90
secured card............................................................... 48
Securities Act............................................................. 22
sellers' interest.......................................................... 57
Service Marks.............................................................. 84
SFAS....................................................................... 42
significantly undercapitalized............................................. 63
SOP........................................................................ 71
Stock Option Plan.......................................................... 75
Stock Ownership Plan....................................................... 78
Stock Purchase Plan........................................................ 79
Stockholder Notice Procedure............................................... 87
Substitute Options......................................................... 73
Supplemental Plan.......................................................... 79
Tax Disaffiliation Agreement............................................... 81
Tier 1..................................................................... 61
Tier 2..................................................................... 61
time-driven................................................................ 49
Trademark License Agreement................................................ 84
Transition Period.......................................................... 83
Transition Services........................................................ 83
Transition Services Agreement.............................................. 83
Treaty..................................................................... 20
Unsecured Spread Business.................................................. 49
Unbanked Business.......................................................... 53
undercapitalized........................................................... 63
Whole Board................................................................ 86
well capitalized........................................................... 63
</TABLE>
93
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
Audited Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Statements of Financial Condition.............................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Changes in Shareholder's Equity.................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Providian Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of financial
condition of Providian Bancorp, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, shareholder's
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Providian
Bancorp, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
San Francisco, CA
January 29, 1997,
except for Note P, as to which the date is
February 4, 1997
F-2
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
---------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 82,946 $ 104,083
Federal funds sold................................. 172,350 71,300
Investment securities at cost (which approximates
market value)...................................... 7,173 4,927
Reserve account receivable......................... 252,899 123,687
Loans held for securitization or sale.............. 739,706 123,330
Loans receivable, less allowance for possible
credit losses of $114,540 in 1996 and $93,429 in
1995.............................................. 2,841,779 3,003,115
Interest receivable................................ 56,864 44,734
Premises and equipment, less accumulated
depreciation and amortization...................... 49,870 28,032
Deferred income taxes.............................. 71,492 59,895
Other assets....................................... 51,665 47,963
---------- ----------
$4,326,744 $3,611,066
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Deposits:
Noninterest bearing.............................. $ 28,299 $ 38,639
Interest bearing, $100 thousand and over......... 2,065,930 1,113,188
Interest bearing, other.......................... 1,295,883 1,005,938
---------- ----------
3,390,112 2,157,765
Federal funds purchased............................ 51,000 336,000
Notes payable to banks............................. 115,000 321,000
Notes payable to affiliates........................ 42,500 95,800
Bank notes......................................... -- 189,880
Long term notes payable............................ 50,000 --
Accrued expenses and other liabilities............. 194,988 161,366
---------- ----------
$3,843,600 $3,261,811
========== ==========
SHAREHOLDER'S EQUITY
Special Preferred Stock, noncumulative, nonpartici-
pating, nonvoting, par value $1.00 per share--au-
thorized 5,000,000 shares, issued and outstanding
1,290,107 shares in 1995.......................... -- 1,290
7.25% Cumulative Preferred Stock, nonparticipating,
nonvoting, par value $1.00 per share--authorized
63,269 shares, issued and outstanding 63,269
shares............................................ 63 63
Common Stock, par value $1.00 per share--authorized
5,000 shares, issued and outstanding 5,000 shares
(following the Distribution, 93,768,000 shares is-
sued and outstanding)............................. 5 5
Additional paid-in capital......................... 63,706 63,706
Retained earnings.................................. 419,370 284,191
---------- ----------
483,144 349,255
---------- ----------
$4,326,744 $3,611,066
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans............................................. $574,335 $457,818 $315,001
Investment securities............................. 21,658 21,736 28,709
-------- -------- --------
Total Interest Income........................... 595,993 479,554 343,710
Interest expense:
Deposits.......................................... 141,691 105,442 61,920
Borrowings........................................ 48,676 52,962 39,739
-------- -------- --------
Total Interest Expense.......................... 190,367 158,404 101,659
-------- -------- --------
Net Interest Income............................. 405,626 321,150 242,051
Provision for possible credit losses................ 126,579 79,917 50,313
-------- -------- --------
Net Interest Income After Provision for Possible
Credit Losses.................................... 279,047 241,233 191,738
Other income:
Loan servicing income............................. 280,887 251,855 208,954
Credit product fee income......................... 123,654 81,374 57,683
Other............................................. 7,467 2,535 2,652
-------- -------- --------
412,008 335,764 269,289
Other expenses:
Salaries and employee benefits.................... 153,849 113,412 89,470
Amortization of loan acquisition costs............ 41,342 14,561 54,178
General and administrative expenses............... 238,613 234,161 142,176
-------- -------- --------
433,804 362,134 285,824
-------- -------- --------
Income Before Income Taxes...................... 257,251 214,863 175,203
Income tax expense.................................. 97,485 79,411 65,084
-------- -------- --------
Net Income...................................... $159,766 $135,452 $110,119
======== ======== ========
Pro forma earnings per share........................ $ 1.71 1.41 1.11
======== ======== ========
Pro forma shares (in thousands)..................... 93,664 95,861 99,319
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
7.25%
SPECIAL CUMULATIVE ADDITIONAL
PREFERRED PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994................... $1,290 $63 $ 5 $63,706 $205,505 $270,569
Net income for the year
ended December 31,
1994................... 110,119 110,119
Dividends paid to
shareholder............ (54,588) (54,588)
------ --- --- ------- -------- --------
Balance at December 31,
1994................... 1,290 63 5 63,706 261,036 326,100
Net income for the year
ended December 31,
1995................... 135,452 135,452
Dividends paid to
shareholder............ (112,297) (112,297)
------ --- --- ------- -------- --------
Balance at December 31,
1995................... 1,290 63 5 63,706 284,191 349,255
Net income for the year
ended December 31,
1996................... 159,766 159,766
Dividends paid to
shareholder............ (24,587) (24,587)
Redemption of special
preferred stock........ (1,290) (1,290)
------ --- --- ------- -------- --------
Balance at December 31,
1996................... -- $63 $5 $63,706 $419,370 $483,144
====== === === ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1995 1994
----------- ----------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income.............................. $ 159,766 $ 135,452 $ 110,119
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for possible credit losses.. 126,579 79,917 50,313
Depreciation and leasehold
amortization......................... 10,566 7,522 7,718
Amortization of net loan acquisition
costs................................ 13,380 3,002 46,422
Amortization of discount on sale of
credit card and line of credit
receivables.......................... 715 875 908
Deferred income tax benefit........... (11,597) (13,099) (2,313)
Increase in interest receivable....... (12,130) (13,690) (5,302)
(Increase) decrease in other assets... (3,702) (5,530) 11,248
Increase (decrease) in accrued
expenses and other liabilities....... 33,622 37,939 (23,758)
----------- ----------- ---------
Net Cash Provided by Operating
Activities......................... 317,199 232,388 195,355
----------- ----------- ---------
INVESTING ACTIVITIES
Net issuance and repayment of credit
card and line of credit receivables.... (2,847,643) (2,244,585) (834,995)
Net proceeds from the sales of credit
card and line of credit receivables.... 2,035,893 1,583,239 525,340
Net increase in other loans............. (224,452) (243,947) (145,415)
Net proceeds from sale of PHL loans..... 435,000 -- --
(Increase) decrease in reserve account
receivable............................. (129,212) (31,812) 75
Deferred net loan acquisition costs..... 5,488 (12,584) (33,898)
Purchases of investment securities...... (2,386) (1,530) (357)
Proceeds from sales/maturities of
investment securities.................. 140 294 54,879
Net increase in federal funds sold...... (101,050) (56,300) (6,200)
Purchase of premises and equipment...... (32,404) (12,343) (19,095)
----------- ----------- ---------
Net Cash Used in Investing
Activities......................... (860,626) (1,019,568) (459,666)
----------- ----------- ---------
FINANCING ACTIVITIES
Net increase in deposits................ 1,232,347 477,315 127,065
Net (decrease) increase in borrowings
under line of credit agreements........ (206,000) 86,000 60,000
Net (decrease) increase in note payable
to affiliates.......................... (53,300) (4,000) 45,000
Net (decrease) increase in other short-
term borrowings........................ (474,880) 327,880 145,174
Increase in long term notes payable..... 50,000 -- --
Redemption of special preferred stock... (1,290) -- --
Dividends paid to shareholder........... (24,587) (112,297) (54,588)
----------- ----------- ---------
Net Cash Provided by Financing
Activities......................... 522,290 774,898 322,651
----------- ----------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents................... (21,137) (12,282) 58,340
Cash and cash equivalents at beginning of
year..................................... 104,083 116,365 58,025
----------- ----------- ---------
Cash and Cash Equivalents at End of
Year............................... $ 82,946 $ 104,083 $ 116,365
=========== =========== =========
Income taxes paid......................... $ 91,516 $ 77,873 $ 80,415
=========== =========== =========
Interest paid on deposits and borrowings.. $ 187,284 $ 151,761 $ 93,760
=========== =========== =========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Providian Bancorp, Inc. (the "Company" or "PBI"), a Delaware
corporation, is a wholly owned subsidiary of Providian Corporation
("Providian").
Principals of Consolidation: The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, First Deposit
National Bank (FDNB), Providian National Bank (PNB), Providian Credit
Services, Inc. (PCSI), First Deposit Service Corporation (FDSC), Providian
National Bancorp (PNBC), and Providian Credit Corporation (PCC). The activity
of one subsidiary (First Deposit Life Insurance Company) is recorded under the
equity method due to immateriality and is included in other assets. All
material intercompany transactions and accounts have been eliminated in
consolidation.
Use of Estimates in the Preparation of Financial Statements: The preparation
of the Company's consolidated financial statements in accordance with
Generally Accepted Accounting Principles ("GAAP") requires management to make
estimates and assumptions that affect reported amounts. These estimates are
based on information available as of the date of the financial statements.
Therefore, actual results could differ from those estimates.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and short-term investments convertible
into cash upon demand. The Company is required to maintain reserves with the
Federal Reserve Bank based on a percentage of deposit liabilities.
Investment Securities: The investment securities as of December 31, 1996 and
1995 consist primarily of Federal Reserve stock which is classified as an
investment because it will be held for the foreseeable future in accordance
with banking regulations.
Reserve Account Receivable: Amounts held in interest-bearing accounts with
other banks for the account of various trusts associated with the sale of
receivables (see Note E). Amount is not considered a cash or cash equivalent
in the consolidated statements of cash flows.
Asset Securitizations: FDNB and PNB (the Banks) securitize credit card loans
and record such securitizations as sales in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 77, "Reporting by Transferors for
Transfers of Receivables with Recourse." Due to the relatively short average
life of credit card loans securitized (approximately 10 to 12 months), no
gains are recorded at the time of sale. Rather, excess servicing fees related
to the securitizations are recorded over the life of each sale transaction.
The excess servicing fee is based upon the difference between finance charges
received from the cardholders less the yield paid to investors, credit losses
and a normal servicing fee, which is also retained by the Banks. Reserve
accounts receivable from securitization principally represents excess
servicing fees earned and due to the Banks. Transaction expenses are deferred
and amortized over the life of the transaction as a reduction of loan
servicing fees. The related deferred acquisition costs and allowance for
possible credit losses are removed from the Consolidated Statement of
Financial Condition. The monthly pattern of recording loan servicing fees is
similar to the revenue recognition that the Banks would experience if the
loans had not been securitized. These agreements require the Banks to maintain
2.0 to 5.5 percent minimum interests (Sellers Certificates) in the securitized
receivables.
Loans Held for Securitization or Sale: Loans held for securitization
represent the lesser of loans eligible for securitization or loans management
intends to securitize within six months which are currently on the balance
sheet. These assets are reported at the lower of cost or fair market value.
F-7
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Credit Card and Line of Credit Loans: Credit card loans include cash
advances, purchases, interest and fees charged to customer accounts. Interest
is recognized based on balances outstanding according to the terms of the
related customer agreements until the accounts are paid or recognized as a
credit loss after becoming 180 days past due. Customers are required to make
minimum monthly payments, and the total balance is governed by an established
credit limit.
Line of credit loans include cash advances, customer draws, interest and
fees charged to customer accounts. Minimum monthly payments are required, but
there are no prepayment penalties and the line is reusable.
The direct costs of acquiring consumer loans are netted against related
credit card and line of credit fees, if any, and deferred and amortized on a
straight line basis, generally over one year for credit card products and five
years for line of credit receivables. Amortization of loan acquisition costs
includes the accelerated amortization of loan acquisition cost resulting from
loan securitizations.
Home Equity Lines of Credit: Equity line loans include cash advances and
interest charged to customer accounts secured by second deeds of trust on
primarily single-family homes. Interest is recognized based on balances
outstanding according to the terms of the related customer agreement. Minimum
monthly payments are required, but there are no prepayment penalties and the
line is reusable. Loans are evaluated for impairment as they become overdue
and are placed in nonaccrual status upon foreclosure or charge-off. The
Company amortizes direct origination costs over the contractual life of the
related loans adjusted for prepayments.
Installment Loans: Installment loans consist primarily of loans which are
used to finance automobile insurance premiums and have an average life of
approximately 7 months.
Mortgage, Commercial and Other Loans and Loan Fees: The Company's real
estate loan portfolio consists primarily of long-term conventional loans
secured by first trust deeds on single-family residences, other residential
property and commercial property. In addition, the Company grants commercial
loans and other consumer loans.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan's
yield. The Company amortizes these amounts over the contractual life of the
related loans adjusted for prepayments.
Allowance for Possible Credit Losses: The allowance for possible credit
losses is maintained at a level that, in management's judgment, is adequate to
provide for estimated probable credit losses from known and inherent risks in
the loan portfolios.
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight line method over the estimated useful life of the
related assets as follows: premises--30 years for building and term of the
lease or useful life of the assets, whichever is shorter for leasehold
improvements; furniture and equipment--three to ten years; automobiles--three
years.
Interest Rate Risk Management Instruments: The Company enters into interest
rate swap ("swaps") and cap ("caps") agreements for purposes of managing its
interest rate sensitivity. The Company designates swaps to on-balance sheet
instruments to alter the interest rate characteristics of such instruments and
to modify interest rate sensitivity. The Company also designates swaps to off-
balance sheet items to reduce the interest rate sensitivity associated with
off-balance sheet cash flows (i.e., securitizations). Interest rate caps are
used to minimize net interest margin compression in a rising interest rate
environment.
F-8
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Swaps involve the periodic exchange of payments over the life of the
agreements. Caps involve the payment of an up-front fee in which the
counterparty agrees to pay the difference between a negotiated rate and a
standard quoted index rate, if positive, for a fixed term. Amounts received or
paid on swaps and caps that are used to manage interest rate sensitivity and
alter the interest rate characteristics of on-balance sheet instruments or
reduce interest rate sensitivity associated with off-balance sheet items are
recorded on an accrual basis as a component of interest expense or loan
servicing income.
Repurchase Agreements: The Company entered into various agreements to
purchase and resell U.S. Treasury securities which were under the control of
the counterparty. There were no amounts outstanding at any month-end during
1996. The average daily balance of outstanding agreements during 1996 was
$53.2 million. The interest incurred on the repurchase agreements is recorded
as a component of interest expense.
Federal Funds Purchased: Federal funds purchased represent short-term
unsecured borrowings from various banks. The interest incurred on such
borrowings is recorded as a component of interest expense.
Bank Notes: Bank notes represent short-term unsecured borrowings which are
issued to various institutions. The interest incurred on such borrowings
during the three years ended.
Income Taxes: The Company is included in the consolidated tax return of
Providian. The Company's tax expense is calculated as if it files a separate
tax return and the appropriate payments, if any, are made to or received from
Providian. The current expense for income taxes is based on an estimate of
taxable income. Deferred income taxes are provided for the temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities.
Pro Forma Earnings per Share: Pro forma earnings per share is determined
based on the weighted average number of common shares of Providian Corporation
outstanding during the three years ended December 31, 1996 pursuant to the
Distribution Agreement as described in Note C--"Plan and Agreement of Merger
and Reorganization," in which one share of common stock of the Company will be
issued for each share of common stock of Providian Corporation. Fully diluted
net income per common share is not presented as it approximates net income per
share.
Reclassifications: Certain prior years' amounts have been reclassified to
conform with the 1996 presentation.
NOTE B--NATURE OF OPERATIONS
PBI, through its banking and other subsidiaries, provides banking and other
financial services to consumers throughout the United States. The Company
markets consumer loans, deposit products and other banking services using
mail, telephone and other direct response channels. Consumer loans include
unsecured credit cards, unsecured revolving lines, revolving home equity
loans, installment loans for insurance premium financing and credit cards
secured by interest-bearing savings accounts. The Company provides money
market deposit accounts to retail customers and certificates of deposit to
both retail and institutional customers.
NOTE C--PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization with AEGON N.V. ("AEGON"), and LT Merger Corp., a wholly owned
subsidiary of AEGON ("Merger Sub"), pursuant to which, among other things, (a)
Merger Sub will merge with and into Providian, (b) Providian will be
F-9
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the surviving corporation in the merger and become a wholly owned subsidiary
of AEGON, and (c) each shareholder of Providian will be entitled to receive
shares of AEGON common stock in exchange for shares of Providian's common
stock. The number of AEGON shares received for each Providian share is subject
to an exchange ratio calculation which includes collars on the prices of AEGON
and Providian stock during the 20 trading days preceding the merger.
Immediately prior to the merger, Providian will spin-off the Company to the
shareholders of Providian (the "Distribution") which is currently expected to
occur soon after June 1, 1997. In the Distribution, Providian shareholders
will receive one share of Providian Bancorp Inc. Common Stock, together with
an associated Preferred Share Purchase Right for each share of common stock of
Providian held as of the date of the Distribution.
The Board of Directors of Providian has unanimously approved the merger and
Distribution. The merger is subject to approval by various regulatory
authorities, approval by Providian's shareholders and satisfaction of certain
other conditions. The Distribution will occur only if all the conditions
necessary for the merger are satisfied.
Because the consummation of the merger and Distribution is subject to the
above conditions, no representations can be made as to whether, or when, the
merger and Distribution will be complete or as to the possible impact of the
merger and Distribution on the financial condition and results of operations
of the Company should the merger and Distribution occur.
NOTE D--LOANS RECEIVABLE AND ALLOWANCE FOR POSSIBLE CREDIT LOSSES
The following is a summary of loans receivable (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Credit card and line of credit loans.......... $2,493,827 $2,302,770
Home equity lines of credit................... 338,920 659,137
Net loan acquisition costs, net of accumulated
amortization of $48,860 in 1996 and $15,378
in 1995...................................... 6,391 25,260
---------- ----------
Total investment in credit card and line of
credit loans and home equity lines of
credit....................................... 2,839,138 2,987,167
Installment................................... 21,380 26,213
Mortgage...................................... 79,423 63,741
Commercial.................................... 15,749 18,959
Other......................................... 629 464
---------- ----------
2,956,319 3,096,544
Allowance for possible credit losses.......... (114,540) (93,429)
---------- ----------
$2,841,779 $3,003,115
========== ==========
</TABLE>
Certain qualified customers who accept credit card and line of credit loans
also accept an immediate cash advance. Included in loans receivable and non-
interest bearing deposits are $12.3 million and $22.3 million in cash advance
checks issued to customers which remain outstanding at December 31, 1996 and
1995, respectively.
F-10
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The activity in the allowance for possible credit losses for the years ended
December 31, 1996, 1995, and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year............... $ 93,429 $ 76,218 $ 75,061
Provision for possible credit losses....... 126,579 79,917 50,313
Credit losses.............................. (116,930) (73,004) (56,235)
Recoveries of loans previously recognized
as credit losses.......................... 11,462 10,298 7,079
--------- -------- --------
Balance at end of year..................... $ 114,540 $ 93,429 $ 76,218
========= ======== ========
</TABLE>
The following is a summary of loans held for securitization or sale (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1996 1995
-------- --------
<S> <C> <C>
Credit card and line of credit loans.................... $641,666 $123,330
Home equity lines of credit............................. 51,667 --
First mortgage home loans............................... 46,373 --
-------- --------
$739,706 $123,330
======== ========
</TABLE>
NOTE E--SALE OF RECEIVABLES
During 1996, 1995 and 1994, the Banks sold $2.5 billion, $1.6 billion and
$526 million, respectively, of their credit card, revolving line of credit,
and home equity line of credit receivables through securitization
transactions. The total amount of securitized receivables serviced by the
Banks were $5.6 billion and $3.5 billion as of December 31, 1996 and 1995,
respectively.
During the initial period of a securitization transaction (reinvestment
period), all principal payments on the credit card and line of credit
receivables are retained by the Banks in exchange for additional receivable
balances added to the trust. In the final 6-to-12 month period of a
securitization transaction, principal payments are then allocated to pay off
the investor certificates. This period is referred to as the amortization or
accumulation period. FDNB currently has one transaction which is in the
accumulation period and the remaining transactions will begin their
amortization or accumulation periods at various times between 1997 and 2001.
PNB currently has one transaction which is in the accumulation period and the
remaining transactions will begin their amortization or accumulation periods
at various times between 1997 and 2001.
The reserve account receivable, which is funded solely by the net cash flows
of the related credit card and line of credit receivables, represents cash
held by a trustee used to absorb the receivables' losses should they exceed
the net cash flows of the receivables in the future. The cash reserve reverts
back to the Banks at the completion of the amortization or accumulation
period. None of the reserve was required to be used in the three year period
ended December 31, 1996.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125), which provides new accounting and reporting standards for sales,
securitization,
F-11
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and servicing of receivables and other financial assets and extinguishments of
liabilities for transactions occurring after December 31, 1996. SFAS No. 125
requires that a transfer of financial assets in which the transferor
surrenders certain conditions of control over those assets be accounted for as
a sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. The statement also requires that
servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets sold,
if any, and retained interest, if any, based on their relative fair values at
the date of the transfer. Any gain on sale would be recognized at that date
and the offsetting asset will be classified as an interest only strip
receivable and held as available for sale under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115).
Although SFAS No. 125 is prospective in its application, it will have an
impact on securitization transactions entered into prior to January 1, 1997,
because it requires reclassification of certain related assets and because its
provisions apply to ongoing sales of receivables during the reinvestment
period for these securitization transactions. Accordingly, the related reserve
account receivable balances will be subsequently measured like investments in
debt securities classified as available-for-sale under SFAS No. 115 with the
fair value expected to approximate book value. Servicing assets have not been
recognized on these transactions and, therefore, will not be recorded in
future periods. The sellers' interest in the securitized receivables will
continue to be classified as loans receivable at par less associated allowance
for possible credit losses. Additional monthly sales of receivables during the
reinvestment period will be treated as new securitization transactions with
gains recognized each month during the reinvestment period and the offsetting
asset classified as an interest only strip receivable available for sale.
The application of SFAS No. 125 to monthly sales of receivables with respect
to securitization transactions originated prior to January 1, 1997 is
estimated to increase net income by approximately $24 million for the year
ended December 31, 1997, as a result of recognizing gains upon the dates of
transfer as opposed to recognizing excess servicing income as it is received
monthly. This impact is non-recurring because for the first six to eight
months of 1997, the Company will recognize both excess servicing income
generated by balances existing as of December 31, 1996, and gains on
additional monthly sales into these existing transactions during 1997. The
amount and timing of any increase in income resulting from the application of
SFAS No. 125 to transactions originated prior to January 1, 1997 are, however,
dependent on the performance of the underlying receivables. In addition, the
impact from the application of SFAS No. 125 to transactions originated
subsequent to January 1, 1997 is dependent on the amount and timing of future
securitizations.
Under SFAS No. 125, interest rate risk management instruments used to hedge
the excess servicing received from loan securitizations will be designated to
the interest only strips receivable and marked to market. Changes in the
market value of these instruments are expected to offset changes in the market
value of the designated interest only strips receivable.
NOTE F--DEPOSITS
The Company accepts time deposits with terms in excess of one year. The
aggregate amount of maturities for time deposits in each of the years
subsequent to December 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................... $ 171,616
1999........................... 136,290
2000........................... 58,770
2001........................... 131,361
---------
$ 498,037
=========
</TABLE>
F-12
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following is a summary of average rate paid and average deposit amount by
deposit category as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 AVERAGE 1995 AVERAGE
-------------- --------------
BALANCE RATE BALANCE RATE
--------- ---- --------- ----
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits.......... 34,414 0.00% 38,057 0.00%
Interest bearing demand deposits............. 5,974 1.94 5,905 2.27
Savings deposits............................. 588,638 4.48 410,597 4.57
Time deposits................................ 1,961,012 5.87 1,394,669 6.21
</TABLE>
As discussed in Note K--Interest Rate Risk Management Instruments, the
Company enters into interest rate swap and cap transactions to manage interest
rate risk. As a result of interest rate risk management transactions, time
deposit interest expense decreased $1.3 million and $0.7 million in the years
ended December 31, 1996 and 1995, respectively. The effective interest rates
on the time deposits including the impact of the interest rate swap and cap
transactions in the years ended December 31, 1996 and 1995 was 5.81% and
6.16%, respectively.
NOTE G--NOTES PAYABLE
In May 1996, the Company amended the previous unsecured revolving credit
agreement with various banks and increased the line from $800 million to $1.2
billion. The Company pays facility fees based on the total commitment and
utilization fees based on the average outstanding loan balances which exceed
50% of the average total commitment. Interest on outstanding balances is based
upon the federal funds rate, prime rate, Eurodollar interest rate or
certificate of deposit rate of certain New York banks. The agreement expires
on May 14, 1999, with a one-year extension option. A total of $115 million and
$321 million was drawn on the line at December 31, 1996 and 1995,
respectively.
In March 1996, the Company entered into a $50 million Senior Subordinated
note agreement with various investors. Interest on outstanding balances is
fixed at 5.74% and the note is due March 15, 1999.
Throughout 1996, the Company maintained revolving credit agreements with
Providian. Total draws on the lines may not exceed $200 million. At December
31, 1996, there were no outstanding draws on the lines by the Company. The
Company paid facility fees of $0.3 million and interest of $2.8 million in
1996. Interest on the outstanding balance is based on the greater of
Providian's internal fund rate or the applicable Federal rate. Concurrently,
the Company entered into a three-year interest rate swap agreement wherein the
Company pays a variable rate based on one month LIBOR, and receives a fixed
rate on a notional amount of $40 million. The impact to interest expense on
this borrowing as a result of the interest rate swap was to increase interest
expense by $0.1 million in 1996. The following table summarizes all
outstanding short-term borrowings and the weighted average interest rate on
those borrowings as of December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
DECEMBER 31 BALANCE RATE BALANCE RATE
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal funds purchased..................... $ 51,000 5.55% $336,000 5.73%
Notes payable to banks...................... 115,000 5.78% 321,000 6.03%
Bank notes.................................. -- -- 189,880 5.82%
</TABLE>
F-13
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--INCOME TAXES
The components of the income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ 95,512 $80,317 $59,329
State............................................. 13,570 12,193 8,068
-------- ------- -------
109,082 92,510 67,397
Deferred:
Federal........................................... (12,082) (9,580) (2,121)
State............................................. 485 (3,519) (192)
-------- ------- -------
(11,597) (13,099) (2,313)
-------- ------- -------
$ 97,485 $79,411 $65,084
======== ======= =======
</TABLE>
The following is a reconciliation of the federal statutory income tax rate to
the Company's actual effective income tax rate:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal Rate......................... 35% 35% 35%
State income taxes............................. 3 2 2
-------- -------- --------
Effective Tax Rate............................. 38% 37% 37%
======== ======== ========
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs................................ $10,260 $12,169
Other..................................................... 1,566 1,327
------- -------
11,826 13,496
Deferred tax assets:
Provision for possible credit losses...................... 43,325 36,153
Deferred income........................................... 9,324 5,252
Long-term incentive accruals.............................. 16,192 13,945
Other..................................................... 14,477 18,041
------- -------
83,318 73,391
------- -------
Net deferred tax assets..................................... $71,492 $59,895
======= =======
</TABLE>
F-14
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE I--RELATED PARTY TRANSACTIONS
The Company had investments with Providian during 1996, 1995 and 1994. The
amount of interest earned on these investments was $1.1 million, $2.4 million
and $4.0 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The outstanding balance of such investments which are included
in cash equivalents was $14.3 million, $22.3 million and $66.6 million as of
December 31, 1996, 1995 and 1994, respectively.
Interest expense associated with notes to affiliates totaled $3.5 million,
$6.2 million and $4.7 million for the years ended December 31, 1996, 1995 and
1994, respectively. The Company maintains several long term notes with
Providian and, in prior years, with a number of Providian subsidiaries as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Providian:
Subordinated 5.10% note due 1996.................. -- $ 8,300 $ 8,300
Subordinated 5.51% note due 1997.................. $ 8,000 8,000 8,000
Subordinated 5.91% note due 1998.................. 7,500 7,500 7,500
Subordinated 6.19% note due 1999.................. 7,000 7,000 7,000
Subordinated 6.43% note due 2000.................. 20,000 20,000 20,000
------- ------- -------
Total Providian................................. 42,500 50,800 50,800
Providian Subsidiaries:
Subordinated 5.91% note due 1998.................. -- -- 4,000
Senior 6.75% notes due 1996....................... -- 45,000 45,000
------- ------- -------
$42,500 $95,800 $99,800
======= ======= =======
</TABLE>
On August 27, 1995, at the request of the Company's affiliate, Worldwide
Insurance Company, the Company paid the $4 million subordinated 5.91% note,
which was due in 1998. On March 15, 1996, the Company paid notes outstanding
with Commonwealth Life Insurance Company and Peoples Security Life Insurance
Company for $25 million and $20 million, respectively.
The Company maintains contractual agreements with Providian to provide
certain limited administrative services, which are consistent with similar
arrangements and transactions with unrelated parties.
NOTE J--PREMISES, EQUIPMENT AND LEASE COMMITMENTS
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Premises.................................................. $20,271 $ 8,922
Equipment and furniture................................... 49,403 30,354
Leasehold improvements.................................... 4,333 2,327
Land...................................................... 2,723 2,723
------- -------
Less accumulated depreciation and amortization............ 26,860 16,294
------- -------
$49,870 $28,032
======= =======
</TABLE>
The Company leases office space and equipment under long-term operating
leases. The office lease agreements have expiration dates ranging from
February 14, 1997, through February 28, 2002, with five-year
F-15
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
renewal options. Some of these lease agreements contain rent escalation
clauses. Rent includes the pass through of operating expenses and property
taxes and totaled $8.9 million, $6.9 million and $6.8 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
The Company's approximate future minimum rental payments under noncancelable
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
YEAR AMOUNT
---- -------
1997............................. $ 9,535
1998............................. 8,801
1999............................. 8,095
2000............................. 5,679
2001............................. 2,835
Thereafter....................... 7
-------
$34,952
=======
</TABLE>
NOTE K--INTEREST RATE RISK MANAGEMENT INSTRUMENTS
The Company's principal objective in entering into off-balance sheet
interest rate risk management instruments is to manage interest rate risk
related to loans, deposits, and other borrowings. The operations of the
Company are subject to the risk of interest rate fluctuations to the extent
that there is a difference in the repricing characteristics of interest
earning assets and interest bearing deposits and other liabilities. The goal
is to maintain levels of net interest income while reducing interest-rate risk
and facilitating the funding needs of the Company. To achieve that objective,
the Company uses a combination of interest rate risk management instruments
including interest rate swaps and caps which will mature from 1997 to 2003.
The Company's policy is to enter into hedging transactions and hold them to
maturity unless the underlying hedged item is sold, in which case, the
instrument is terminated and the related gain or loss recorded in conjunction
with the hedged item.
The Company also enters into off-balance-sheet interest rate risk management
instruments to manage interest rate risk related to excess servicing income.
The Company receives excess servicing income from securitized receivables
which represents the excess of (a) total interest and fees on the securitized
receivables, over (b) credit losses generated by the receivables, the stated
servicing fee, the coupon interest paid to the securitization investors and
credit enhancement and trust administration costs. Two components of the
excess servicing stream are tied to interest rates, the yield on the
receivables and the coupon payments to the investors, and each may be either a
fixed interest rate or be indexed to market interest rates. If the receivables
and the coupons do not have matching repricing terms, the excess servicing
income stream will be interest rate sensitive.
To the extent the excess servicing income stream is interest rate sensitive,
the Company enters into interest rate swap and cap agreements as a hedge
specifically against changes in interest rates. Notional amounts for the
instruments are determined based on the interest rate repricing exposure, if
any, between the securitized receivables and the investor interest rates.
Terms of the instruments are generally matched to the terms of the series
being hedged and vary from three to seven years.
As of December 31, 1996 and 1995 the Company had $1.3 billion and $1.4
billion notional amount of interest rate swaps outstanding, respectively. Of
these amounts, $305 million and $323 million were designated to hedge deposits
as of December 31, 1996 and 1995, respectively, $40 million and $0.0 million
were designated to hedge long-term notes payable as of December 31, 1996 and
1995, respectively, and $945 million and $1,100
F-16
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
million were designated to hedge excess servicing from loan securitizations as
of December 31, 1996 and 1995, respectively.
When interest rate risk management instruments are used to hedge
liabilities, the net receipts or payments are recognized as an adjustment to
interest expense. The average effective interest rate on the Company's
interest bearing liabilities after giving effect to the swaps was 5.81% and
6.16% for the years ended December 31, 1996 and 1995, respectively. For the
years ended December 31, 1996 and 1995, the impact to interest expense as a
result of the interest rate swap agreements was a decrease of $1.2 million and
$0.7 million, respectively.
When interest rate risk management instruments are used to hedge the excess
servicing received from loan securitizations, the net receipts or
disbursements are recognized as an adjustment to loan servicing income. Net
amounts received in connection with these agreements during 1996 were $1.4
million and net amounts paid in connection with these agreements during 1995
were $0.5 million.
The following table summarizes the expected or contractual maturities and
weighted average interest rates associated with amounts to be received or paid
on interest rate swaps used to manage asset and liability interest rate
exposure (dollars in thousands):
<TABLE>
<CAPTION>
BALANCE AT BALANCES MATURING IN:
DECEMBER 31, ------------------------------------------
1996 1997 1998 1999 2000 2001
------------ -------- -------- -------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Pay Fixed/Receive Vari-
able:
Notional Value........ $ 120,000 -- $120,000 -- -- --
Weighted Average Pay
Rate................. 6.24% -- 6.24% -- -- --
Weighted Average Re-
ceive Rate*.......... 5.53% -- 6.19% -- -- --
Receive Fixed/Pay Vari-
able:
Notional Value........ $ 970,500 $125,000 $700,000 $125,500 -- $20,000
Weighted Average Pay
Rate*................ 5.57% 5.70% 6.14% 6.56% -- 6.82%
Weighted Average Re-
ceive Rate........... 6.31% 6.66% 6.15% 7.45% -- 6.62%
Receive Variable/Pay
Variable:
Notional Value........ $ 200,000 $200,000 -- -- -- --
Weighted Average Pay
Rate................. 6.27% 6.27% -- -- -- --
Weighted Average Re-
ceive Rate........... 5.54% 5.54% -- -- -- --
Total Notional Value:... $1,290,500 $325,000 $820,000 $125,500 -- $20,000
Weighted Average Pay
Rate*................ 5.74% 5.93% 6.15% 6.56% -- 6.82%
Weighted Average Re-
ceive Rate*.......... 6.12% 6.21% 6.16% 7.45% -- 6.62%
</TABLE>
- --------
* Variable rates for future periods are based on the implied forward rates on
the yield curve as of December 31, 1996.
In addition, the Company has entered into interest rate cap agreements, the
result of which establishes maximum interest rates on a portion of its managed
funding sources. To the extent the Company has funded fixed rate receivables
with variable rate deposits or debt, the interest rate caps are designed to
protect net interest margin. To the extent the Company has securitized fixed
rate receivables via variable rate instruments, the interest rate caps are
designed to protect loan servicing income. As of December 31, 1996 and 1995,
the Company had $1.5 billion and $1.0 billion notional amount of interest rate
caps outstanding, respectively which was designated to excess servicing.
During 1996 and 1995, no cap interest payments were received and amortization
of cap fees totaled $0.9 million and $1.2 million, respectively.
F-17
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following is a summary of interest rate cap agreement maturity distributions
as of December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
NOTIONAL WEIGHTED
AMOUNT AVERAGE
YEAR MATURING STRIKE RATE
---- -------- -----------
<S> <C> <C>
1997.................................. $208,000 9.00%
1998.................................. 533,700 10.26%
1999.................................. 775,000 12.00%
2000.................................. -- --
2001.................................. -- --
2002.................................. -- --
2003.................................. 5,750 8.75%
</TABLE>
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract. This
credit risk is measured as the gross unrealized gain on the financial
instruments. The Company had gross unrealized gains on interest rate swap
agreements of $7.5 million and $17.4 million at December 31, 1996 and 1995,
respectively. The related net accrued interest receivable was $474,000 and
$1,637,000 at December 31, 1996 and 1995, respectively. The Company has
reduced credit risk in these instruments by entering into interest risk
management agreements with only nationally recognized financial institutions
and dealers which carry at least investment grade ratings. Also, the Company's
policy is to diversify its exposure across a number of counterparties. The
Company determines, on an individual counterparty basis, the need for
collateral or other security to support financial instruments with credit
risk. The Company does not anticipate default by any counterparties.
NOTE L--LOAN COMMITMENTS
Credit card and line of credit loan commitments are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. In addition, these commitments can be withdrawn by the Company at
any time after 30 days notice, or without notice if permitted by law. Credit
card and line of credit loan commitments reported below are the maximum
available line for all customers as of December 31, 1996. It is anticipated
that the commitment amounts will only be partially drawn upon based on overall
customer usage patterns and, therefore, do not necessarily represent future
cash requirements.
Other commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some commitments may expire or be
withdrawn by the Company without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
Total unfunded commitments are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1996 1995
----------- ----------
Credit card and line of credit loans............... $11,928,517 $9,121,456
Home equity lines of credit........................ 137,692 111,603
Construction and commercial loans.................. 385 418
----------- ----------
$12,066,594 $9,233,477
=========== ==========
</TABLE>
F-18
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has credit risk on the credit card and line of credit loans to
the extent that borrowers default on funded portions and such amounts are not
recovered through collection procedures.
Home equity lines of credit may be originated up to 100% loan to value based
upon property and borrower characteristics.
The construction and commercial loans and commitments are secured by
residential and commercial real estate projects. Disbursements are made based
on the substantiated support of progress made on the underlying projects.
The Company has credit risk on commercial loans, construction loans and
equity lines to the extent that the borrower defaults and the current funded
amount as well as commitments outstanding exceed the collateral value. In
these events, losses would occur up to the amount that is funded that exceeds
the net realizable balance of the collateral held upon foreclosure sale.
The Company has no significant regional concentrations of credit risk.
NOTE M--SHAREHOLDER'S EQUITY AND CAPITAL REQUIREMENTS
During 1996, the Company redeemed all outstanding shares of special
preferred stock. Subsequently, the Company adopted a restated articles of
incorporation which effected certain changes in the capital structure
including the elimination of the special preferred stock and the Class B
common stock as well as a reduction in the authorized shares of common stock
and preferred stock to 5,000 and 63,269 shares, respectively.
The Company's banking subsidiaries are subject to various regulatory capital
requirements administered by the Federal banking agencies. Under these
guidelines, an institution is required to maintain a minimum total risk-based
ratio (total capital to risk-weighted assets) of 8%, of which 4% must be Tier
1 risk-based capital. In addition, the agencies have established guidelines
prescribing a minimum leverage ratio (Tier 1 Capital to adjusted total assets
as specified in the guidelines) of 3% for institutions that meet certain
criteria, including the requirement that they have the highest regulatory
rating. Capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors. Failure to meet minimum capital requirements can result in mandatory
and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's financial
statements. Since December 31, 1996, there have been no conditions or events
that have changed the institutions' risk-based classifications.
F-19
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1996 and 1995, all of the Company's depository
institution subsidiaries met the well capitalized requirements as set forth in
the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------------------- --------------------------------------------
TOTAL TIER 1 TIER 1 TOTAL TIER 1 TIER 1
RISK BASED RISK BASED LEVERAGE RISK BASED RISK-BASED LEVERAGE
CAPITAL CAPITAL RATIO* CAPITAL CAPITAL RATIO*
--------------- --------------- -------------- -------------- -------------- --------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------- ------- ------- ------- ------ ------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIRST DEPOSIT NATIONAL
BANK:
Actual.................. 250,873 11.18% 222,281 9.91% 222,281 10.81% 231,795 10.89% 204,767 9.62% 204,767 9.56%
Minimum capital
adequacy............... 179,446 8.00% 89,723 4.00% 61,671 4.00% 170,294 8.00% 85,147 4.00% 64,248 4.00%
Minimum well-
capitalized............ 224,308 10.00% 134,585 6.00% 102,785 5.00% 212,868 10.00% 127,721 6.00% 107,080 5.00%
PROVIDIAN NATIONAL
BANK:
Actual.................. 210,055 13.44% 190,300 12.17% 190,300 10.78% 126,728 12.27% 113,622 11.00% 113,622 11.45%
Minimum capital
adequacy............... 125,046 8.00% 62,523 4.00% 70,624 4.00% 82,627 8.00% 41,313 4.00% 39,645 4.00%
Minimum well-
capitalized............ 156,307 10.00% 93,784 6.00% 88,280 5.00% 103,284 10.00% 61,970 6.00% 49,556 5.00%
PROVIDIAN CREDIT
SERVICES INC.
Actual.................. 16,343 218.43% 16,247 217.14% 16,247 80.68% N/A N/A N/A N/A N/A N/A
Minimum capital
adequacy............... 599 8.00% 299 4.00% 805 4.00% N/A N/A N/A N/A N/A N/A
Minimum well-
capitalized............ 748 10.00% 449 6.00% 1,007 5.00% N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
* Minimum capital adequacy ratio is 3.0% for the highest rated institutions
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires
all federal banking agencies to incorporate interest rate risk into their
risk-based capital framework. During 1996, the agencies rejected a previously
proposed standardized model for measuring and monitoring the level of interest
rate risk. The Company does not believe that the consideration of interest
rate risk will have a material adverse effect on FDNB, PNB or PCSI's ability
to satisfy minimum risk-based capital requirements.
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), the
estimated fair value of the Company's financial instruments are disclosed
below. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. In addition, these values do not consider the potential income
taxes or other expenses that would be incurred upon an actual sale of an asset
or settlement of a liability. SFAS No.107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not necessarily
represent or affect the underlying value of the Company.
F-20
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used by the Company in estimating
its fair value disclosure for financial instruments:
Cash and cash equivalents: Cash and cash equivalents are carried at an
amount that approximates fair value.
Federal funds sold: Federal funds sold are carried at an amount that
approximates fair value.
Investment securities: Fair value is based on quoted market prices, where
available or quoted market prices of comparable instruments. If not material,
the carrying value of investment securities approximates fair value.
Reserve accounts receivable and Interest receivable: The carrying amounts
reported in the Statements of Financial Condition approximate fair value.
Deposits: The fair values disclosed for demand deposits (money market
accounts, and certain savings accounts) are equal to the amount payable on
demand at the reporting date (carrying amount). The carrying amount for
variable-rate certificates of deposits approximates fair value. Fair value for
fixed-rate certificate of deposits and other fixed-rate deposits is estimated
using a discounted cash flow calculation that applies interest rates currently
offered on deposits of similar remaining maturities.
Borrowings: The carrying amounts of federal funds purchased, notes payable
to banks, and bank notes approximate fair value.
Notes payable to affiliates: The fair value of the Company's notes payable
to affiliates is estimated using discounted cash flow analysis, based on the
Company's current borrowing rates for similar types of borrowing arrangements.
Loans receivable and Loans held for securitization and sale: For variable
rate loans that reprice monthly with no applicable floor and no significant
change in credit risk, fair values are based on carrying value. Fair value of
credit card loans and lines of credit loans are estimated by discounting the
estimated future cash flows adjusted for differences in loan characteristics
at rates for securities backed by similar loans. Variable rate home equity
lines of credit with interest rate floors approximate carrying value plus a
floor premium calculated using external market valuations. For fixed-rate
mortgage loans, fair values were calculated using the discounted cash flow
method. Other mortgage and commercial loans are indexed to the prime rate and
their carrying value approximates fair value. Fair value for installment loans
approximates their carrying value.
Off-Balance-Sheet Instruments: Fair value for the Company's off-balance
sheet instruments (interest rate swaps, interest rate caps and lending
commitments) is based on valuation models, if material, using discounted cash
flows (swaps); an assessment of current replacement cost (caps); and valuation
models as previously described for loans receivable (lending commitments).
Credit card and line of credit lending commitments were determined to have no
fair value. If not material, no fair value is shown.
F-21
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 82,946 $ 82,946 $ 104,083 $ 104,083
Federal funds sold............... 172,350 172,350 71,300 71,300
Investment securities............ 7,173 7,173 4,927 4,927
Reserve account receivable....... 252,899 252,899 123,687 123,687
Loans held for securitization and
sale............................. 739,706 805,921 123,330 140,301
Loans receivable................. 2,841,779 3,209,290 3,003,115 3,406,331
Interest receivable.............. 56,864 56,864 44,734 44,734
LIABILITIES
Deposits......................... 3,390,112 3,396,377 2,157,765 2,171,801
Federal funds purchased.......... 51,000 51,000 336,000 336,000
Notes payable to banks........... 115,000 115,000 321,000 321,000
Notes payable to affiliates...... 42,500 42,530 95,800 95,993
Bank notes....................... 189,880 189,880
Long term notes payable.......... 50,000 49,985
OFF BALANCE-SHEET INSTRUMENTS
Interest rate swaps.............. 6,579 4,819
Interest rate caps............... 56 108
Lending commitments:
Home equity lines of credit...... 443 711
</TABLE>
NOTE O--DEFINED CONTRIBUTION 401(K) AND RETIREMENT PLAN
The Company sponsors a defined contribution 401(k) pension plan covering
substantially all of its employees. The Company has a policy of matching
contributions equal to 55% of the first 6% of compensation deferred by
employees. Total expenses for the years ended December 31, 1996, 1995 and 1994
amounted to $1.9 million, $1.3 million and $1.3 million, respectively. In
addition, the Company contributes additional amounts to the 401(k) pension
plan for those employees with at least one year of employment regardless of
any participation in the 401(k) plan. The Company recorded contributions of
$3.9 million, $3.0 million and $2.6 million as of December 31, 1996, 1995 and
1994, respectively. The retirement contributions vest at 20% upon completing
the third year of employment increasing 20% each completed year of employment
thereafter until fully vested.
NOTE P--SUBSEQUENT EVENT
Subsequent to December 31, 1996, the Company, through its subsidiary
Providian Capital I, issued $160 million in mandatorily redeemable capital
securities which accrue dividends at 9.525% per year. The sole assets of
Providian Capital I, the trust that issued the capital securities (the common
securities of which are wholly owned by the Company), are $164,949,000
aggregate principal amount of the Company's 9.525% Junior Subordinated
Deferrable Interest Debentures due February 1, 2027 and the right to
reimbursement of expenses under a related expense agreement with the Company.
The Company has the right to cause the redemption of the capital securities.
The redemption price is dependent on several factors including the date of the
redemption, the present value of the principal and premium payable, and the
accumulated but unpaid distributions on the
F-22
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
capital securities. The proceeds from the issuance of the securities will be
used for retirement of the outstanding long term notes payable ($42.5 million
as of December 31, 1996) and the redemption of outstanding preferred stock
($63.3 million as of December 31, 1996) held by Providian and for general
corporate purposes.
NOTE Q--STATEMENTS OF FINANCIAL CONDITION (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $ 15,757 $ 23,749
Investment in securities................................... 2,175 --
Loans receivable........................................... 4,102 3,984
Investment in subsidiaries................................. 566,865 421,492
Deferred income taxes receivable........................... 71,492 59,895
Prepaid expenses and other assets.......................... 6,178 4,700
-------- --------
$666,569 $513,820
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY:
LIABILITIES
Due to affiliates.......................................... 24,713 22,931
Notes payable to affiliates................................ 42,500 50,800
Income taxes payable to shareholder........................ 39,491 21,925
Accrued expenses and other liabilities..................... 76,720 68,909
-------- --------
183,424 164,565
SHAREHOLDER'S EQUITY
Special Preferred Stock, noncumulative, nonparticipating,
nonvoting, par value $1.00 per share--authorized 5,000,000
shares, issued and outstanding
1,290,107 shares in 1995.................................. -- 1,290
7.25% Cumulative Preferred Stock, nonparticipating, nonvot-
ing, par value $1.00 per share--authorized 63,269 shares,
issued and outstanding 63,269 shares...................... 63 63
Common Stock, par value $1.00 per share--authorized 5,000
shares, issued and outstanding 5,000 shares............... 5 5
Additional paid-in capital................................. 63,706 63,706
Retained earnings.......................................... 419,371 284,191
-------- --------
483,145 349,255
-------- --------
$666,569 $513,820
======== ========
</TABLE>
F-23
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q--STATEMENTS OF INCOME (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Dividends from subsidiaries.................... $ 70,000 $ 82,500 $110,000
Income on investments.......................... 1,071 2,234 4,115
Interest on loans.............................. 476 1,038 465
Other income................................... 6,249 4,350 5,839
-------- -------- --------
77,796 90,122 120,419
Expenses:
Salaries and employee benefits................. 9,728 9,827 11,702
Provision for possible credit losses........... (82) -- (8,800)
Interest expense............................... 2,839 3,185 3,289
General and administrative..................... (2,919) 6,011 (16,401)
-------- -------- --------
9,566 19,023 (10,210)
-------- -------- --------
Income Before Income Taxes and Equity in
Earnings of Subsidiaries.................... 68,230 71,099 130,629
Income tax (credit)/expense...................... (1,664) (6,928) 3,014
Equity in undistributed earnings of 89,872 57,425 (16,145)
subsidiaries:................................... -------- -------- --------
Net Income................................... $159,766 $135,452 $111,470
======== ======== ========
</TABLE>
F-24
<PAGE>
PROVIDIAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE Q--STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income..................................... $159,766 $135,452 $111,470
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses......... (82) -- (8,800)
Equity in undistributed earnings of
subsidiary.................................. (89,872) (57,425) 16,145
Increase in other assets..................... (1,478) (878) (669)
Increase (decrease) in accrued expenses and
other liabilities........................... 7,811 12,587 (11,094)
Increase in deferred income taxes
receivable.................................. (11,597) (13,099) (13,003)
Increase (decrease) in taxes payable to
shareholder................................. 17,566 14,636 (2,313)
Due from (due to) affiliates................. 1,746 66,605 (16,941)
-------- -------- --------
Net Cash Provided by Operating Activities.. 83,860 157,878 74,795
-------- -------- --------
INVESTING ACTIVITIES
Purchases of investment securities............. (2,175) -- --
Proceeds from sales/maturities of investment
securities.................................... -- -- 8,463
Net increase in investment in subsidiaries..... (55,500) (65,995) (14,492)
-------- -------- --------
Net Cash Used in Investing Activities...... (57,675) (65,995) (6,029)
-------- -------- --------
FINANCING ACTIVITIES
Net (decrease) increase in note payable to
affiliates.................................... (8,300) (4,000) --
Net decrease in other short term borrowings.... -- -- (7,977)
Redemption of special preferred stock.......... (1,290) -- --
Dividends paid to shareholder.................. (24,587) (112,297) (54,588)
-------- -------- --------
Net Cash Used by Financing Activities...... (34,177) (116,297) (62,565)
-------- -------- --------
Net (Decrease) Increase in Cash and Cash
Equivalents............................... (7,992) (24,414) 6,201
Cash and cash equivalents at beginning of year... 23,749 48,163 41,962
-------- -------- --------
Cash and Cash Equivalents at End of Year....... $ 15,757 $ 23,749 $ 48,163
======== ======== ========
</TABLE>
F-25
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Providian Bancorp, Inc.
By /s/ David J. Petrini
----------------------------------
Name: David J. Petrini
Title: Senior Vice President and
Chief Financial Officer
April 17, 1997
<PAGE>
EXHIBIT INDEX
Exhibits required by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Distribution, dated as of December 28, 1996,
between Providian Corporation ("Providian") and Providian Bancorp,
Inc. ("Providian Bancorp").
2.2 Amended and Restated Plan and Agreement of Merger and Reorganization,
dated as of December 28, 1996, by and among AEGON N.V., LT Merger
Corp. and Providian.
Form of Trademark License Agreement between Providian and Providian
2.3 Bancorp.
2.4 Form of General Intellectual Property Assignment and Renunciation
between Providian and Providian Bancorp.
2.5 Form of Short-Form Assignment between Providian and Providian Bancorp.
Form of Transition Services Agreement between Providian and Providian
2.6 Bancorp.
Form of Tax Disaffiliation Agreement between Providian and Providian
2.7 Bancorp.
Form of Guarantee Agreement between AEGON USA, INC., Providian and
2.8 Providian Bancorp.
Form of Employee Benefits Agreement between Providian and Providian
2.9 Bancorp.
3.1 Form of Restated Certificate of Incorporation of Providian Bancorp.
3.2 Form of Bylaws of Providian Bancorp.
4.1 Form of Rights Agreement of Providian Bancorp.
10.1 Employment Agreement, dated as of March 27, 1997, between Providian
Bancorp and Shailesh J. Mehta.
10.2 Form of Providian Bancorp 1997 Stock Option Plan.
10.3 Form of Providian Bancorp Management Incentive Plan.
10.4 Form of Providian Bancorp Stock Ownership Plan.
10.5 Amended and Restated Credit Agreement.
21.1 Subsidiaries of Providian Bancorp.
</TABLE>
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF DISTRIBUTION
BETWEEN
PROVIDIAN CORPORATION
AND
PROVIDIAN BANCORP, INC.
- --------------------------------------------------------------------------------
-----------------------
December 28, 1996
-----------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Article/Section Page
- --------------- ----
ARTICLE I
DEFINITIONS
1.01. Definitions......................................................... 1
ARTICLE II
RECAPITALIZATION OF SPINCO;
MECHANICS AND TIMING OF THE DISTRIBUTION
2.01. Recapitalization of Spinco.......................................... 5
2.02. Timing of the Distribution.......................................... 5
2.03. Mechanics of the Distribution....................................... 5
2.04. Changes; Amendments to Various Agreements........................... 5
ARTICLE III
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION
3.01. Certificate of Incorporation; By-laws; Rights Plan.................. 5
3.02. Other Agreements.................................................... 5
3.03. Registration and Listing............................................ 6
3.04. Spinco Board........................................................ 6
3.05. Intercompany Accounts............................................... 6
3.06. Certain Transactions................................................ 7
3.07. External Financing of Spinco........................................ 7
3.08. Certain Company Agreements.......................................... 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SPINCO
4.01. Spinco Representations.............................................. 8
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.01. Company Representations............................................. 9
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01. Survival of Agreements and Representations and Warranties........... 10
<PAGE>
TABLE OF CONTENTS
-----------------
Article/Section Page
- --------------- ----
6.02. Indemnification..................................................... 10
6.03. Procedure for Indemnification for Third Party Claims................ 12
6.04. Remedies Cumulative................................................. 13
ARTICLE VII
CERTAIN ADDITIONAL COVENANTS
7.01. Notices to Third Parties............................................ 14
7.02. Intercompany Agreements............................................. 14
7.03. Further Assurances.................................................. 14
7.04. Mutual Release, Etc................................................. 14
ARTICLE VIII
ACCESS TO INFORMATION
8.01. Provision of Corporate Records...................................... 15
8.02. Access to Information............................................... 15
8.03. Retention of Records................................................ 15
8.04. Reimbursement; Other Matters........................................ 16
8.05. Production of Witnesses............................................. 16
8.06. Confidentiality..................................................... 16
8.07. Ownership of Information............................................ 17
8.08. Non-Competition..................................................... 17
ARTICLE IX
INSURANCE
9.01. Policies and Rights Included Within Transferred Assets.............. 18
9.02. Post-Distribution Date Claims....................................... 18
9.03. Administration; Other Matters....................................... 18
9.04. Agreement for Waiver of Conflict and Shared Defense................. 20
9.05. Cooperation......................................................... 20
ARTICLE X
MISCELLANEOUS
10.01. Conditions to Obligations........................................... 20
10.02. Complete Agreement.................................................. 21
10.03. Expenses............................................................ 21
10.04. Governing Law....................................................... 21
10.05. Notices............................................................. 21
<PAGE>
TABLE OF CONTENTS
-----------------
Article/Section Page
- --------------- ----
10.06. Specific Performance............................................... 23
10.07. Amendment and Modification......................................... 23
10.08. Successors and Assigns; Third-Party Beneficiaries.................. 23
10.09. Counterparts....................................................... 24
10.10. Interpretation..................................................... 24
10.11. Severability....................................................... 24
10.12. References; Construction........................................... 24
10.13. Termination........................................................ 24
SCHEDULES
- ---------
Schedule 1.01 - List of Spinco Subsidiaries
Schedule 3.05 - Intercompany Payments
Schedule 3.06(a) - Transferred Assets
Schedule 3.07 - External Financing Agreements
Schedule 3.08 - Certain Company Agreements
Schedule 4.01(c) - Spinco Conflicts
Schedule 4.01(d) - Required Approvals for Spinco
Schedule 4.01(e) - Spinco Insurance Policies
Schedule 5.01(c) - Company Conflicts
Schedule 5.01(d) - Required Approvals for the Company
Schedule 7.02 - Surviving Intercompany Agreements
Schedule 8.03(d) - Policies-Deductibles
EXHIBITS
- --------
Exhibit A - Tax Disaffiliation Agreement
Exhibit B - Employee Benefits Agreement
Exhibit C - Transition Services Agreement
Exhibit D - Trademark License Agreement
Exhibit E - General Intellectual Property Assignment and Renunciation Agreement
Exhibit F - Short-Form Assignment Agreement
Exhibit G - Form of SEC No-Action Letter
<PAGE>
AGREEMENT AND PLAN OF DISTRIBUTION, dated as of December 28, 1996 (this
"Agreement"), by and between Providian Corporation, a Delaware corporation (the
"Company"), and Providian Bancorp, Inc., a Delaware corporation and a wholly
owned subsidiary of the Company ("Spinco").
RECITALS
A. The Merger Transaction. The Company, AEGON N.V., a company organized
under the laws of The Netherlands ("Merger Partner"), and LT Merger Corp., a
Delaware corporation and a wholly owned subsidiary of Merger Partner ("Sub"),
have entered into a Plan and Agreement of Merger and Reorganization, dated as of
December 28, 1996 (the "Merger Agreement"), providing for the Merger (as defined
in the Merger Agreement) of Sub with and into the Company, with the Company as
the surviving corporation.
B. The Distribution. Immediately prior to the Effective Time (as defined
in the Merger Agreement), the Company intends to distribute (the "Distribution")
as a dividend to the holders of the Company's common stock, par value $1.00 per
share ("Company Common Stock"), on a pro rata basis, all of the then outstanding
shares of common stock, par value $1.00 per share ("Spinco Common Stock"), of
Spinco.
C. Purpose. The purpose of the Distribution is to facilitate the
reorganization of the Company, wherein the stockholders of the Company will
continue to own and operate Spinco, and to make possible the Merger by divesting
the Company of the businesses and operations conducted by Spinco in a tax-free
distribution to the Company's stockholders. This Agreement sets forth or
provides for certain agreements between the Company and Spinco in consideration
of the separation of their ownership.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings (capitalized terms used but not defined
herein shall have the respective meanings ascribed thereto in the Merger
Agreement):
"Claims Administration" shall mean the processing of claims made under
the Shared Policies, including the reporting of claims to the insurance
carriers, management and defense of claims and providing for appropriate
releases upon settlement of claims.
"Company" shall have the meaning specified in the preamble to this
Agreement and shall mean any successors by way of merger or otherwise.
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"Company Business" shall have the meaning specified in Section 6.02.
"Company Common Stock" shall have the meaning specified in the recitals to
this Agreement.
"Company Group" shall mean the Company and all of the Company Subsidiaries
(which shall not include Spinco and the members of the Spinco Group).
"Distribution" shall have the meaning specified in the recitals to this
Agreement.
"Distribution Date" shall mean the date as of which the Distribution is
effective.
"Employee Benefits Agreement" shall have the meaning specified in Section
3.02.
"Form F-4" shall mean the Registration Statement on Form F-4 filed by
Merger Partner pursuant to the Merger Agreement.
"Group" shall mean either the Spinco Group or the Company Group, as the
case may be.
"Indemnified Party" shall have the meaning specified in Section 6.03.
"Indemnifying Party" shall have the meaning specified in Section 6.03.
"Information" shall have the meaning specified in Section 8.02.
"Information Statement" shall mean the information statement included in
the Registration Statement and sent to the holders of shares of Company Common
Stock in connection with the Distribution, including any amendment or supplement
thereto.
"Insurance Administration" shall mean, with respect to each Shared Policy,
the accounting for (i) premiums, (ii) defense costs, (iii) indemnity payments,
(iv) deductibles and (v) retentions, as appropriate, under the terms and
conditions of each of the Shared Policies; and the reporting to excess insurance
carriers of any losses or claims which may cause the per-occurrence, per claim
or aggregate limits of any Shared Policy to be exceeded, and the distribution of
Insurance Proceeds as contemplated by this Agreement.
"Insurance Proceeds" shall mean those monies (i) received by an insured
from an insurance carrier or (ii) paid by an insurance carrier on behalf of an
insured, in either case net of any applicable premium adjustment, deductible,
retention, or cost of reserve paid or held by or for the benefit of such
insured.
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"Insured Claims" shall mean those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Shared
Policies, whether or not subject to deductibles, co-insurance, uncollectibility
or retrospectively-rated premium adjustments.
"Liabilities" shall mean all debts, liabilities and obligations, whether
absolute or contingent, matured or unmatured, liquidated or unliquidated,
accrued or unaccrued, known or unknown, whenever arising, and whether or not the
same would properly be reflected on a balance sheet.
"Losses" shall have the meaning specified in Section 6.02.
"Merger Partner" shall have the meaning specified in the recitals to this
Agreement.
"Other Agreements" shall have the meaning specified in Section 3.02.
"person" shall mean any natural person, corporation, business trust, joint
venture, association, company, limited liability company, partnership or
government, or any agency or political subdivision thereof.
"Policies" shall mean insurance policies and insurance contracts of any
kind (other than life and benefits policies or contracts), including primary,
excess and umbrella policies, comprehensive commercial general liability
policies, director and officer liability, fiduciary liability, automobile,
aircraft, property and casualty, workers' compensation and employee dishonesty
insurance policies, bonds and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
"Proxy Statement" shall mean the proxy statement of the Company provided
for in the Merger Agreement.
"Record Date" shall have the meaning specified in Section 2.03.
"Registration Statement" shall have the meaning specified in Section 3.03.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Documents" shall have the meaning specified in Section 6.02.
"Shared Policies" shall mean all Policies, current, past or future to the
extent such Policies are entered into between the date hereof and the
Distribution Date, that are owned or maintained by or on behalf of the Company
or any member of the Company Group that relate, whether in whole or in part, to
the Spinco Business.
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"Spinco" shall have the meaning specified in the preamble to this Agreement
and shall mean any successors by merger or otherwise.
"Spinco Business" shall have the meaning specified in Section 6.02.
"Spinco Common Stock" shall have the meaning specified in the recitals to
this Agreement.
"Spinco Group" shall mean Spinco and those subsidiaries listed on Schedule
1.01, including any subsidiaries transferred to Spinco pursuant to Section 3.06.
"Spinco Policies" shall mean all Policies, current or past, which are owned
or maintained by or on behalf of any member of the Company Group, which relate
to the Spinco Business but do not relate to the Company Business.
"Spinco Preferred Stock" shall have the meaning specified in Section 2.01.
"Tax Disaffiliation Agreement" shall have the meaning specified in Section
3.02.
"Third Party Claim" shall have the meaning specified in Section 6.03.
"Trademark License Agreement" shall have the meaning specified in Section
3.02.
"Transfer Agent" shall mean First Chicago Trust Company of New York, the
transfer agent for the Company Common Stock.
"Transferred Assets" shall have the meaning specified in Section 3.06(a).
"Transition Services Agreement" shall have the meaning specified in Section
3.02.
ARTICLE II
RECAPITALIZATION OF SPINCO;
MECHANICS AND TIMING OF THE DISTRIBUTION
2.01. Recapitalization of Spinco. The authorized capital stock of
Spinco currently consists of 5,000 shares of Spinco Common Stock, all of which
are issued and outstanding and owned beneficially and of record by the Company,
and sixty-three thousand two hundred sixty-nine (63,269) shares of preferred
stock (the "Spinco Preferred Stock"), all of which shares are issued and
outstanding and owned beneficially and of record by the Company. Prior to the
Distribution Date, the parties hereto shall take all steps necessary so that,
prior to the Distribution, the number of shares of Spinco Common Stock
outstanding and held by the Company shall equal the number of shares of
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Company Common Stock outstanding on the Record Date and all shares of Spinco
Preferred Stock shall have been redeemed by Spinco in accordance with the terms
of the Spinco Preferred Stock.
2.02. Timing of the Distribution. Subject to the terms and conditions
hereof, the Board of Directors of the Company shall formally declare the
Distribution and, immediately prior to the Effective Time, pay it by delivery of
certificates for Spinco Common Stock to the Transfer Agent for delivery to the
holders entitled thereto. The Distribution shall be deemed to be effective upon
notification by the Company to the Transfer Agent that the Distribution has been
declared and that the Transfer Agent is authorized to proceed with the
distribution of the certificates representing shares of Spinco Common Stock.
2.03. Mechanics of the Distribution. The Distribution shall be effected by
the distribution to each holder of record of the Company Common Stock, as of the
close of the stock transfer books on the record date designated by, or pursuant
to the authorization of, the Board of Directors of the Company (the "Record
Date"), of certificates representing the number of shares of Spinco Common Stock
equal to the number of shares of Company Common Stock held by such holder. All
shares of Spinco Common Stock delivered in the Distribution shall be duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights.
2.04. Changes; Amendments to Various Agreements. The parties hereto agree
that without the written consent of Merger Partner, which written consent shall
not be unreasonably withheld, no changes, amendments, modifications, waivers or
supplements may be made by either party hereto to this Agreement or any of the
Other Agreements. In addition, each of the Company and Spinco agrees to furnish
to Merger Party copies of drafts of the Registration Statement and all
supplements and amendments thereto and all other SEC Documents, and such other
documents contemplated in Section 3.03(d) hereunder, prior to the filing of the
Registration Statement, such supplements or amendments, or such other documents,
with the SEC in connection with the transactions contemplated hereunder.
ARTICLE III
CERTAIN TRANSACTIONS PRIOR TO THE DISTRIBUTION
3.01. Certificate of Incorporation; By-laws; Rights Plan. Prior to the
Distribution Date, the parties hereto shall take all action necessary so that
(i) the Certificate of Incorporation and By-laws of Spinco shall be amended as
specified by Spinco prior to the Distribution Date, and (ii) Spinco shall adopt
a rights plan in the form as specified by Spinco prior to the Distribution Date.
3.02. Other Agreements. On or prior to the Distribution Date, the Company
and Spinco shall enter into the Tax Disaffiliation Agreement, substantially in
the form attached hereto as Exhibit A (the "Tax Disaffiliation Agreement"), the
Employee Benefits Agreement, substantially in the form attached hereto as
Exhibit B (the "Employee Benefits Agreement"), the Transition Services
Agreement, substantially in the form attached hereto as Exhibit C (the
"Transition Services
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Agreement"), the Trademark License Agreement, substantially in the form attached
hereto as Exhibit D (the "Trademark License Agreement"), and such other
agreements as may be advisable in connection with the Distribution, including
agreements with respect to restructuring, transfer of assets and assumption of
liabilities and other matters, all such other agreements to be on terms
reasonably acceptable to the Company, Spinco and Merger Partner (the Tax
Disaffiliation Agreement, the Employee Benefits Agreement, the Transition
Services Agreement, the Trademark License Agreement and such other agreements
being collectively referred to herein as the "Other Agreements").
3.03. Registration and Listing. On or prior to the Distribution Date:
(a) The Company and Spinco shall prepare and file with the SEC a
Registration Statement on Form 10, or such other form as Spinco may deem
appropriate, with respect to the Spinco Common Stock (the "Registration
Statement"), and each of them shall use reasonable efforts to have the
Registration Statement declared effective such that the Distribution can
occur upon the satisfaction of the other conditions to the Merger
Agreement.
(b) The parties hereto shall use reasonable efforts to take all such
action as may be necessary or appropriate under state securities and blue
sky laws in connection with the transactions contemplated by this
Agreement.
(c) Spinco shall prepare, and Spinco shall file and seek to make
effective, an application for the listing of the Spinco Common Stock on the
New York Stock Exchange, or such other exchange or quotations system as
Spinco may determine in its discretion, subject to official notice of
issuance.
(d) The parties hereto shall cooperate in preparing, filing with the
SEC and causing to become effective any other registration statements or
amendments thereto that are necessary or appropriate in order to effect the
transactions contemplated hereby or to reflect the establishment of, or
amendments to, any employee benefit plans contemplated by the Employee
Benefits Agreement requiring registration under the Securities Act.
3.04. Spinco Board. Prior to the Distribution Date, the parties
hereto shall use reasonable efforts to take all steps necessary so that,
effective immediately after the Distribution, the Board of Directors of Spinco
shall be comprised of those individuals so named in the Information Statement.
3.05. Intercompany Accounts. On or before the Distribution Date, the
parties shall pay, or otherwise settle, intercompany loans, payables,
receivables and accounts between the Company Group, on the one hand, and the
Spinco Group on the other, all as more specifically provided for on Schedule
3.05. From the date hereof through the Distribution Date, any increases in such
accounts, loans, payables and receivables shall only be made in the ordinary
course of business consistent with past practice. Notwithstanding the
foregoing, any amounts required to be paid after the date hereof pursuant to the
agreements set forth on Schedule 7.02 (except for the accumulated amounts with
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respect to such agreements that are set forth on Schedule 3.05) shall be paid in
accordance with the terms of such agreements.
3.06. Certain Transactions. (a) On or prior to the Distribution Date, or as
soon as reasonably practicable thereafter, the Company shall:
(i) assign, transfer and convey, or cause to be assigned, transferred
or conveyed, to Spinco, or the appropriate member of the Spinco Group
designated by Spinco, all of the Company's or such member of the Company
Group's respective right, title and interest to the assets, contracts,
permits, licenses, authorizations and agreements listed or described on
Schedule 3.06(a);
(ii) assign, transfer and convey to Spinco all of the Company's right,
title and interest in and to the "Providian" name and logo and related
tradenames and marks pursuant to the Assignment Agreements attached hereto
as Exhibits E and F; and
(iii) assign, transfer and convey to Spinco, any and all other assets,
properties, claims and rights, whether real or personal, tangible or
intangible, primarily relating to the Spinco Business and not required by
the Company for the conduct of, and in the ordinary course of, the Company
Business, to the extent such assets, properties, claims or rights are not
owned by a member of the Spinco Group as of the Distribution Date (all of
items in (i) -(iii) being referred to herein as the "Transferred Assets").
(b) From and after the Distribution Date, Spinco shall assume, pay, perform
and discharge all Liabilities arising from or with respect to the Transferred
Assets, except for any Liabilities with respect to the Transferred Assets
arising out of or relating to the Company Business, whether or not such
Liabilities were incurred before or after the Distribution Date.
(c) To the extent that any transfers contemplated by this Section 3.06
shall not have been consummated on or prior to the Distribution Date, the
parties shall cooperate to effect such transfers as promptly following the
Distribution Date as shall be practicable. In the event that any such transfer
of Transferred Assets, including the assumption of all Liabilities arising from
or with respect to such Transferred Assets to the extent provided for in Section
3.06(b), has not been consummated, from and after the Distribution Date the
Company shall hold such Transferred Asset in trust for the use and benefit of
Spinco (at Spinco's expense) upon receipt of an undertaking from Spinco to
assume the Liabilities relating to such transfer, and take such other actions as
may be reasonably requested in order to place Spinco, insofar as is reasonably
possible, in the same position as would have existed had such Transferred Assets
been transferred and such Liabilities assumed as contemplated hereby.
3.07. External Financing of Spinco. The Company agrees to use its
reasonable efforts to assist Spinco in obtaining waivers or other necessary
modifications to the external financing agreements to which Spinco or any member
of the Spinco Group is a party and which are listed on Schedule 3.07 in order to
effect the Distribution.
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3.08. Certain Company Agreements. The Company and Spinco shall cooperate
and use their reasonable efforts to negotiate separate agreements with the third
parties listed on Schedule 3.08 in order to permit the Company Group and the
Spinco Group to each have the benefits of such agreements after the
Distribution; provided that with respect to any agreements that cannot be
separated, such agreements will remain with the Company and will be terminated
as to Spinco as of the Distribution Date or as soon as practicable thereafter.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SPINCO
4.01. Spinco Representations. Spinco represents and warrants to the
Company as follows:
(a) Organization. Spinco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own and operate its properties and to
carry on its business as now being conducted.
(b) Authority. Spinco has the corporate power and authority to execute
this Agreement and the Other Agreements, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Other Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Spinco. This Agreement has been, and the Other Agreements, when
executed and delivered by Spinco will be, duly executed and delivered by Spinco
and constitute legal, valid and binding obligations of Spinco enforceable
against it in accordance with their terms, (i) except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally, and (ii) subject to general
principles of equity.
(c) No Conflict. Except as set forth on Schedule 4.01(c), the execution,
delivery and performance by Spinco of this Agreement and the Other Agreements
will not contravene, violate, result in a breach or constitute a default under
(i) any provision of the certificate of incorporation or by-laws of Spinco, (ii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Spinco or any of its properties or assets, or (iii) any material
contract or agreement to which Spinco is a party or by which any of its
properties or assets is bound, except where such contravention, violation,
breach or default would not have a material adverse effect on (i) the financial
condition, business or results of operations of Spinco or (ii) the ability of
Spinco to consummate the transactions contemplated by this Agreement and the
Other Agreements (a "Material Adverse Effect on Spinco").
(d) Approvals. Except as set forth on Schedule 4.01(d) and other than
consents, approvals, orders, authorizations, registrations, declarations or
filings, the failure of which to give or obtain would not individually or in the
aggregate have a Material Adverse Effect on Spinco, no
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consent, approval, order, authorization of, or registration, declaration or
filing with, any governmental authority is required in connection with the
making or performance by Spinco of this Agreement or the Other Agreements,
subject to compliance with applicable securities or banking laws.
(e) Spinco Insurance Policies. Except as set forth on Schedule 4.01(e),
there are no Policies directly owned or maintained by or on behalf of Spinco or
the Spinco Business.
(f) Claims, Etc. Except for this Agreement, the Other Agreements, the
agreements listed on Schedules 3.05 and 7.02 and the transactions contemplated
hereby and thereby, Spinco has no debts, demands, actions, causes of action,
suits, accounts, covenants, contracts, agreements, damages, claims or other
liabilities, either in law or equity as against any of the Company or its
officers, directors, agents, affiliates, record or beneficial securityholders,
advisors or representatives that arise out of or relate to events, circumstances
or actions taken by the Company prior to the Distribution Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.01. Company Representations. The Company represents and warrants to
Spinco as follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and operate its properties
and to carry on its business as now being conducted.
(b) Authority. The Company has the corporate power and authority to
execute this Agreement and the Other Agreements, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Other Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been, and the
Other Agreements, when executed and delivered by the Company will be, duly
executed and delivered by the Company and constitute legal, valid and binding
obligations of the Company enforceable against it in accordance with their
terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to the enforcement of creditors' rights
generally, and (ii) subject to general principles of equity.
(c) No Conflict. Except as set forth on Schedule 5.01(c), the execution,
delivery and performance by the Company of this Agreement and the Other
Agreements will not contravene, violate, result in a breach or constitute a
default under (i) any provision of or the certificate of incorporation or by-
laws of the Company, (ii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to the Company or any of its properties or assets,
or (iii) any material
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contract or agreement to which the Company is a party or by which any of its
properties or assets is bound, except where such contravention, violation,
breach or default would not have a Material Adverse Effect on Company.
(d) Approvals. Except as set forth on Schedule 5.01(d) and other than
consents, approvals, orders, authorizations, registrations, declarations or
filings, the failure of which to give or obtain would not, individually or in
the aggregate, have a Material Adverse Effect on Company, no consent, approval,
order, authorization of, or registration, declaration or filing with, any
governmental authority is required in connection with the making or performance
by the Company of this Agreement or the Other Agreements, subject to compliance
with applicable securities or insurance laws.
(e) Claims, Etc. Except for this Agreement, the Other Agreements, the
agreements listed on Schedules 3.05 and 7.02 and the transactions contemplated
hereby and thereby, the Company has no debts, demands, actions, causes of
action, suits, accounts, covenants, contracts, agreements, damages, claims or
other liabilities, either in law or equity as against any of Spinco or its
officers, directors, agents, affiliates, record or beneficial securityholders,
advisors or representatives that arise out of or relate to events, circumstances
or actions taken by Spinco prior to the Distribution Date.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01. Survival of Agreements and Representations and Warranties. All
covenants, agreements, representations and warranties of each of the Company and
Spinco contained in this Agreement shall survive the Distribution Date for the
duration of any applicable statute of limitations with respect thereto.
6.02. Indemnification. (a) Spinco agrees to indemnify and hold harmless
the Company, and its affiliates, successors and assigns and the officers,
directors, partners, employees, agents and representatives of any of them, from
and against any and all losses, damages, claims or Liabilities, including
reasonable attorneys' fees and disbursements (collectively "Losses"), arising
out of, based upon, or resulting from (i) the operation of the businesses of, or
relating to, Spinco or any other member of the Spinco Group (the "Spinco
Business") (including those Losses arising due to the failure of Spinco or any
other member of the Spinco Group to pay, perform or otherwise discharge its
obligations under this Agreement or arising out of or connected with the Spinco
Business), (ii) any breach of or inaccuracy in any representation or warranty of
Spinco contained in Sections 4.01(a) - (d) of this Agreement, or any material
breach of or material inaccuracy in any representation or warranty of Spinco
contained in Sections 4.01(e) and (f) of this Agreement and (iii) subject to
Section 6.02(c), any material breach of any covenant contained in this Agreement
or the Other Agreements.
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Without limiting the generality of the foregoing, Spinco agrees to
indemnify and hold harmless the Company, its officers, directors, partners,
employees, agents and representatives of any of them, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, and each of the heirs, executors, successors
and assigns of any of the foregoing, from and against any and all Losses arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the Information
Statement), the Form F-4, the Proxy Statement or any other document filed with
the SEC in connection with the transactions contemplated hereby or any
preliminary or final form thereof or any amendment or supplement thereto
(collectively, the "SEC Documents") or any omission or alleged omission to state
in any SEC Document a material fact required to be stated therein or necessary
to make the statements made therein not misleading, but in each case only to the
extent such untrue statement or omission or alleged untrue statement or omission
relates to any member of the Spinco Group or the Spinco Business.
(b) The Company agrees to indemnify and hold harmless Spinco, its
affiliates, successors and assigns and the officers, directors, partners,
employees, agents and representatives of any of them from and against any and
all Losses arising out of, based upon, or resulting from (i) the operation of
the businesses of, or relating to, the Company or any other member of the
Company Group (the "Company Business") (including those Losses arising due to
the failure of the Company or any other member of the Company Group to pay,
perform or otherwise discharge its obligations under this Agreement or arising
out of or connected with the Company Business), (ii) any breach of or inaccuracy
in any representation or warranty of the Company contained in Sections 5.01(a)-
(d) of this Agreement or any material breach or material inaccuracy in the
representation and warranty contained in Section 5.01(e), or (iii) subject to
Section 6.02(c), any material breach of any covenant contained in this Agreement
or the Other Agreements.
Without limiting the generality of the foregoing, the Company agrees to
indemnify and hold harmless Spinco, its officers, directors, partners,
employees, agents and representatives of any of them, each person, if any, who
controls Spinco within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, and each of the heirs, executors, successors
and assigns of any of the foregoing, from and against any and all Losses arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any SEC Document or any omission or alleged omission
to state in any SEC Document a material fact required to be stated therein or
necessary to make the statements made therein not misleading, but in each case
only to the extent such untrue statement or omission or alleged untrue statement
or omission does not relate to any member of the Spinco Group or the Spinco
Business.
(c) The indemnification provided by this Section 6.02 shall not include any
Losses (i) relating to any Tax (as defined in the Tax Disaffiliation Agreement),
which shall be covered exclusively by the Tax Disaffiliation Agreement, (ii)
relating to matters for which indemnification is provided in any of the Other
Agreements or (iii) relating to matters governed by any of the agreements listed
on Schedule 7.02, which, in each case, shall be covered exclusively by the
applicable provisions of such agreements.
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(d) If any indemnification provided in paragraph (a) or (b) of this
Section 6.02 is unavailable for any reason, the parties shall contribute in
respect of the applicable Losses on an equitable basis.
(e) Any indemnification or contribution pursuant to this Section 6.02
shall be paid net of the amount of any insurance (other than any insurance paid
for by the applicable indemnitee) or other amounts that would be payable by any
third party to the indemnified party in the absence of this Agreement. The
parties hereto expressly agree that no insurer or other third party shall be (i)
entitled to any benefit if such entity would not be entitled to receive such
benefit in the absence of the foregoing indemnification and contribution
provisions, (ii) relieved of the responsibility to pay any claims for which it
is under an obligation to pay or (iii) entitled to any subrogation rights with
respect to any obligation hereunder.
(f) Notwithstanding any other provision hereof to the contrary, this
Section 6.02 shall not be deemed to create any obligation, or expand the scope
of any existing obligation on the part of any party to this Agreement to
indemnify or hold harmless such party's own officers, directors, partners,
employee, agents or representatives.
(g) (i) The amount of any indemnifiable Loss shall be (x) increased to
take into account any net Tax cost actually incurred by the Indemnified Party
arising from any payments received from the Indemnifying Party (grossed up for
such increase) and (y) reduced to take account of any net Tax benefit actually
realized by the Indemnified Party arising from the incurrence or payment of any
such indemnifiable Loss. In computing the amount of such Tax cost or Tax
benefit, the Indemnified Party shall be deemed to have recognized all other
items of income, gain, loss, deduction or credit before recognizing any item
arising from the receipt of any payment with respect to an indemnifiable Loss or
the incurrence or payment of any indemnifiable Loss.
6.03. Procedure for Indemnification for Third Party Claims. (a) Any
person seeking any indemnification provided for under this Agreement (the
"Indemnified Party") in respect of, arising out of or involving a claim made by
any person against the Indemnified Party (a "Third-Party Claim"), shall notify
in writing (and to the extent received, deliver copies of all related notices
and documents, including court papers), to the party from whom indemnification
is sought (the "Indemnifying Party") of the Third-Party Claim within 15 days
after receipt by such Indemnified Party of written notice of the Third-Party
Claim; provided, however, that failure to give such notification (or make such
delivery) shall not affect the indemnification provided hereunder except to the
extent that the Indemnifying Party shall have been actually prejudiced as a
result of such failure.
(b) If a Third-Party Claim is made against an Indemnified Party, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses (except as provided below), to assume the defense thereof with
counsel selected by the Indemnifying Party and reasonably satisfactory to the
Indemnified Party. Should the Indemnifying Party so elect to assume the defense
of a Third Party Claim, the Indemnifying Party shall not be liable to the
Indemnified Party for any legal expenses (except as provided below) subsequently
incurred by the Indemnified Party in
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connection with the defense thereof. Notwithstanding the Indemnifying Party's
election to assume the defense of such Third Party Claim, the Indemnified Party
shall have the right to employ separate counsel and to participate in the
defense of such action at its own expense; provided, however, that the
Indemnifying Party shall bear the reasonable fees, costs, and expenses of such
separate counsel if (i) the use of counsel chosen by the Indemnifying Party to
represent the Indemnified Party would present such counsel with a conflict of
interest that would preclude such counsel from representing the Indemnified
Party pursuant to legal canons of ethics or other applicable law; (ii) the
Indemnifying Party shall not have employed counsel reasonably satisfactory to
the Indemnified Party to represent it within 30 days after notice to the
Indemnifying Party of the institution of such Third Party Claim or (iii) the
Indemnifying Party shall authorize the Indemnified Party to employ separate
counsel at the Indemnifying Party's expense. If the Indemnifying Party chooses
to defend a Third Party Claim, each party hereto shall cooperate in the defense
thereof. Such cooperation shall include the retention and (upon the Indemnifying
Party's request) the provision to the Indemnifying Party of records and
information which are reasonably relevant to such Third Party Claim, and making
employees available (subject to reimbursement by the Indemnifying Party of
actual expenses incurred therewith) on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. If
the Indemnifying Party chooses to defend any Third Party Claim, the Indemnifying
Party shall have the right to agree to a settlement, compromise or discharge of
such Third Party Claim which by its terms obligates the Indemnifying Party to
pay the full amount of the liability in connection with such Third Party Claim
and releases the Indemnified Party completely in connection with such Third
Party Claim; provided that such settlement, compromise or discharge shall be
subject to the prior written consent of the Indemnified Party, which consent may
not be unreasonably withheld, unless, (A) there is no finding or admission of
any violation of law or any violation of the rights of any person and no effect
on any other claims that may be made against the Indemnified Party, and (B) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Party. Whether or not the Indemnifying Party shall have assumed the
defense of a Third Party Claim, so long as the Indemnifying Party acknowledges
in writing its obligation to indemnify the Indemnified Party with respect to the
applicable claims, the Indemnified Party shall not admit any liability with
respect to, or settle, compromise or discharge, such Third Party Claim without
the Indemnifying Party's prior written consent, which consent may not be
withheld unless, in the Indemnifying Party's good-faith judgment, such
settlement, compromise or discharge is unreasonable in light of such Third Party
Claim against, and defenses available to, the Indemnified Party.
(c) In no event shall an Indemnifying Party be liable for the fees and
expenses of more than one counsel for all Indemnified Parties in connection with
any one action, or separate but similar or related actions, in the same
jurisdiction arising out of the same general allegations or circumstances.
6.04. Remedies Cumulative. The remedies provided in this Article VI shall
be cumulative and shall not preclude assertion by any Indemnified Party of any
other rights or the seeking of any other remedies against any Indemnifying
Party; provided, however, that the procedures set forth in Section 6.03 shall be
the exclusive procedures governing any indemnity action brought under this
<PAGE>
14
Agreement or otherwise and relating to a Third-Party Claim, except as otherwise
specifically provided in any of the Other Agreements.
ARTICLE VII
CERTAIN ADDITIONAL COVENANTS
7.01. Notices to Third Parties. The members of the Company Group and the
Spinco Group shall cooperate to make all filings and give notice to and use
their reasonable efforts to obtain consents from all third parties that may
reasonably be required to consummate the transactions contemplated by this
Agreement and the Other Agreements.
7.02. Intercompany Agreements. All contracts, licenses, agreements,
commitments, joint marketing test programs and other arrangements, formal or
informal, between any member of the Spinco Group, on the one hand, and any
member of the Company Group, on the other, in existence as of the Distribution
Date, pursuant to which any member of either Group provides to any member of the
other Group services (including management, administrative, legal, financial,
accounting, data processing, insurance or technical support), or the use of any
assets of any member of the other Group, or the secondment of any employee, or
pursuant to which any rights, privileges or benefits are afforded to members of
either Group as an affiliate of the other Group, shall terminate as of the close
of business on the day prior to the Distribution Date, except as specifically
provided herein or on Schedule 7.02 hereto or in the Other Agreements. From and
after the Distribution Date, no member of either Group shall have any rights
under any such contract, license, agreement, commitment or arrangement with any
member of the other Group, except as specifically provided herein or on Schedule
7.02 hereto or in the Other Agreements.
7.03. Further Assurances. In addition to the actions specifically
provided for elsewhere in this Agreement, each of the parties hereto shall use
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the Other Agreements. Without
limiting the foregoing, each party hereto shall cooperate with the other party,
and execute and deliver, or use reasonable efforts to cause to be executed and
delivered, all instruments, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any governmental or regulatory
authority or any other person under any permit, license, agreement, indenture or
other instrument, and take all such other actions as such party may reasonably
be requested to take by any other party hereto from time to time, including
cooperating in identifying and establishing other mutually satisfactory interim
arrangements between the parties, consistent with the terms of this Agreement
and the Other Agreements, in order to effectuate the provisions and purposes of
this Agreement.
7.04. Mutual Release, Etc. Effective upon the Distribution and except as
otherwise specifically set forth in this Agreement, each of the Company and
Spinco releases and forever
<PAGE>
15
discharges the other, and its affiliates, successors and assigns and the
officers, directors, employees, partners, agents and representatives of any of
them, of and from all debts, demands, actions, causes of action, suits,
accounts, covenants, contracts, agreements, damages, and any and all claims,
demands and liabilities whatsoever of every name and nature, both in law and in
equity, against such other party or any of its successors or assigns, that the
releasing party has or ever had, that arise out of or relate to events,
circumstances or actions taken by such other party prior to the Distribution
Date; provided, however, that the foregoing general release shall not apply to
this Agreement, the Other Agreements or any of the agreements listed on Schedule
7.02 or the transactions contemplated hereby or thereby and shall not affect
either party's right to enforce this Agreement, any of the Other Agreements or
any of the agreements listed on Schedule 7.02, in each case in accordance with
its terms. Each party understands and agrees that, except as otherwise
specifically provided herein, neither the other party nor any of its affiliates,
successors and assigns or the officers, directors, employees, partners, agents
and representatives of any of them, in this Agreement or any of the Other
Agreements, is representing or warranting to such party in any way as to the
assets, business or liabilities transferred, assumed or licensed as contemplated
hereby or thereby, it being agreed and understood that each party shall take or
keep all of its assets "as is" and that it shall bear the economic and legal
risk that conveyance or licensing of such assets shall prove to be insufficient
or that the title to any assets conveyed or licensed shall be other than good
and marketable and free from encumbrances.
ARTICLE VIII
ACCESS TO INFORMATION
8.01. Provision of Corporate Records. Prior to or as promptly as
practicable after the Distribution Date, the Company shall deliver to Spinco all
corporate books and records of the Spinco Group and the Spinco Business in its
possession, including all active agreements, planning and product approval
documents, active litigation files and government filings. From and after the
Distribution Date, all such books, records and copies shall be the property of
Spinco.
8.02. Access to Information. From and after the Distribution Date,
each of the Company and Spinco shall afford to the other and to the other's
authorized representatives reasonable access and duplicating rights during
normal business hours to all records, books, contracts, instruments, computer
database, magnetic or optical media and any form of recorded, computer generated
or stored information and other data and information ("Information") within the
possession or control of such party's Group relating to the other party's
Group's pre-Distribution business or liabilities or relating to or arising in
connection with the relationship between the Groups on or prior to the
Distribution Date, insofar as such access is reasonably required by such other
party for a reasonable purpose, including, without limitation, audit,
accounting, tax and litigation purposes.
8.03. Retention of Records. Except as otherwise agreed in writing or
as otherwise provided in the Other Agreements, each of the Company and Spinco
shall retain all Information in such party's
<PAGE>
16
possession or under its control relating directly and primarily to the pre-
Distribution business of the other party that is less than seven years old until
such Information is at least seven years old except that if, prior to the
expiration of such period, either party wishes to destroy or dispose of any such
Information, prior to destroying or disposing of any of such Information, (a)
the party who is proposing to dispose of or destroy any such Information shall
provide no less than 30 days' prior written notice to the other party,
specifying the Information proposed to be destroyed or disposed of, and (b) if,
prior to the scheduled date for such destruction or disposal, the other party
requests in writing that any of the Information proposed to be destroyed or
disposed of be delivered to such other party, the party who is proposing to
dispose of or destroy such Information promptly shall arrange for the delivery
of the requested Information to a location specified by, and at the expense of,
the requesting party.
8.04. Reimbursement; Other Matters. Except to the extent otherwise
contemplated by any Other Agreement, a party providing records or access to
information to the other party under this Article VIII shall be entitled to
receive from the recipient, upon the presentation of invoices therefor, payments
for such amounts, relating to supplies, disbursements and other out-of-pocket
expenses (which shall be deemed to exclude costs of salaries and benefits of
employees who provide such services), as may be reasonably incurred in providing
such records or access to information.
8.05. Production of Witnesses. From and after the Distribution Date
each party hereto shall, and shall cause the members of the Group of which it is
a member to, use reasonable efforts to make available to the other party or any
member of the other party's Group, upon written request, its officers,
directors, employees and agents as witnesses to the extent that any such person
may reasonably be required in connection with any legal, administrative or other
proceedings in which the requesting party may from time to time be involved. A
party providing witness services to the other party under this Section shall be
entitled to receive from the recipient of such services, upon the presentation
of invoices therefor, payments for such amounts, relating to disbursements and
other out-of-pocket expenses (which shall be deemed to exclude costs of salaries
and benefits of employees who are witnesses), as may be reasonably incurred in
providing such witness services.
8.06. Confidentiality. From and after the Distribution Date, the
Company and Spinco shall hold, and cause their respective affiliates, directors,
officers, employees, agents, consultants, advisors (including the members of the
Group of which it is a member), and representatives to hold, in strict
confidence, and shall not make use of, divulge or otherwise disclose any
Information concerning the other party's Business obtained by it prior to the
Distribution Date, including any trade secret or other similar proprietary data,
or furnished to it by such other party pursuant to this Agreement or the Other
Agreements and shall not release or disclose such Information to any other
person, except its directors, officers, employees, agents, consultants,
advisors, affiliates and representatives, who (in the case of agents,
consultants, advisors and representatives) shall execute an agreement agreeing
to be bound by the provisions of this Section 8.06, and each party shall be
responsible for a breach by any of such persons or representatives; provided,
however, that the Company or Spinco, or any of their respective affiliates, may
disclose such Information to the extent that (a) disclosure is compelled by an
order of a court of competent jurisdiction or is required by law to be disclosed
to a
<PAGE>
17
governmental authority, (b) such party can show that such Information was (i)
available to such person on a nonconfidential basis (other than from the other
party or its affiliates or representatives) prior to its disclosure by the other
party, (ii) in the public domain through no fault of such person or (iii)
lawfully acquired by such person from another source after the time that it was
furnished to such person by the other party, and not acquired from such source
subject to any confidentiality obligation on the part of such source, or on the
part of the acquiror and (c) the applicable party uses reasonable efforts to
notify the other party prior to (and, to the extent practicable, at least 10
days prior to) any disclosure of Information pursuant to the foregoing clause
(a), except to the extent that the giving of such notice would be unlawful or
violate any order, ruling or directive of any governmental authority.
8.07. Ownership of Information. Any Information owned by one party or
any of its subsidiaries that is provided to a requesting party pursuant to this
Article VIII shall be deemed to remain the property of the providing party;
provided, however, that the Company and Spinco shall each be entitled to the
unrestricted use of any and all corporate-wide administration policies and
procedures in use at the Company prior to the Distribution Date, including
corporate-wide policies, training materials, preventive law procedures and
corporate-wide planning methodologies. Unless specifically set forth herein,
nothing contained in this Agreement shall be construed as granting or conferring
rights of license or otherwise in any such Information.
8.08. Non-Competition. Spinco agrees that, for a period of two years
after the date hereof, neither it nor any of its affiliates shall, anywhere in
the United States of America, directly or indirectly, (a) sell or offer life
insurance and related products through the home service channel, (b) offer, sell
or otherwise provide to the non-individual market (i) guaranteed investment
contracts or (ii) other funding agreements directly competitive with products
offered as of the date hereof by Providian Capital Management, (c) sell or offer
life insurance products directly competitive with products offered as of the
date hereof by Providian Direct Insurance except, in the case of this clause
(c), for offers or sales of accidental death and dismemberment insurance and
offers or sales to current or future Spinco customers of life insurance products
that are incremental to a product that is currently being offered by Spinco.
Spinco further agrees that, for a period of eighteen months after the date
hereof, neither it nor any of its affiliates shall, anywhere in the United
States of America, directly or indirectly, use, with respect to any life
insurance product or the offer or sale of any such product, the name Providian,
or any derivative thereof, in conjunction with the term "insurance", "assurance"
or any similar insurance related term, as the name of an entity, joint venture
or similar marketing arrangement.
<PAGE>
18
ARTICLE IX
INSURANCE
9.01. Policies and Rights Included Within Transferred Assets. The
Transferred Assets shall include (i) any and all rights of an insured party
under each of the Shared Policies, subject to the terms of such Shared Policies
and any limitations or obligations of Spinco contemplated by this Article IX,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer, with respect to all claims, suits, actions,
proceedings, injuries, losses, liabilities, damages and expenses incurred or
claimed to have been incurred prior to the Distribution Date by any party in or
in connection with the conduct of the Spinco Business or, to the extent any
claim is made against Spinco or any member of the Spinco Group, the conduct of
the Company Business, and which claims, suits, actions, proceedings, injuries,
losses, liabilities, damages and expenses may arise out of an insured or
insurable occurrence under one or more of such Shared Policies; provided,
however, that nothing in this clause shall be deemed to constitute an assignment
of such Shared Policies, or any of them, to Spinco, and (ii) the Spinco
Policies.
9.02. Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any person shall assert a claim against Spinco or any member
of the Spinco Group (including where Spinco or any member of the Spinco Group is
a joint defendant with any person other than a member of the Company Group) with
respect to any claim, suit, action, proceeding, injury, loss, liability, damage
or expense incurred or claimed to have been incurred prior to the Distribution
Date in, or in connection with, the conduct of the Spinco Business or, to the
extent any claim is made against Spinco or any member of the Spinco Group
(including where any member of the Spinco Group is a joint defendant with any
person other than a member of the Company Group), in, or in connection with, the
conduct of the Company Business, and which claim, suit, action, proceeding,
injury, loss, liability, damage or expense may arise out of an insured or
insurable occurrence under one or more of the Shared Policies, the Company
shall, at the time such claim is asserted, to the extent any such Policy may
require that Insurance Proceeds thereunder be collected directly by the named
insured be deemed to designate, without need of further documentation, Spinco as
the agent and attorney-in-fact to assert and to collect any related Insurance
Proceeds under such Shared Policy, and shall further be deemed to assign,
without need of further documentation, to Spinco any and all rights of an
insured party under such Shared Policy with respect to such asserted claim,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer and the right to any applicable Insurance Proceeds
thereunder; provided, however, that nothing in this Section 9.02 shall be deemed
to constitute an assignment of the Shared Policies, or any of them, to Spinco.
9.03. Administration; Other Matters. (a) Except as otherwise provided
in Section 9.02 hereof, from and after the Distribution Date, the Company shall
be responsible for Insurance Administration of, and Claims Administration under,
the Shared Policies; provided that the retention of such responsibilities by the
Company is in no way intended to limit, inhibit or preclude any right to
insurance coverage for any Insured Claim of a named insured under such Policies
as contemplated by the terms of this Agreement; and provided further that the
Company's retention of the
<PAGE>
19
administrative responsibilities for the Shared Policies shall not relieve
Spinco, when submitting any Insured Claim, of its responsibility for reporting
such Insured Claim accurately, completely and in a timely manner or of Spinco's
authority to settle any such Insured Claim within any period permitted or
required by the relevant Policy. The Company may discharge its administrative
responsibilities under this Section 9.03 by contracting for the provision of
services by independent parties. Each of the parties hereto shall administer and
pay any costs relating to defending its respective Insured Claims under Shared
Policies to the extent such defense costs are not covered under such Policies
and shall be responsible for obtaining or reviewing the appropriateness of
releases upon settlement of its respective Insured Claims under Shared Policies.
Spinco shall reimburse the Company for its reasonable out-of-pocket expenses and
direct and indirect costs of employees or agents of the Company relating to
Claims Administration and Insurance Administration contemplated by this Section
9.03(a).
(b) Except for Losses that are subject to the indemnification provisions of
Section 6.02, the Company and Spinco shall not be liable to one another for
claims not reimbursed by insurers for any reason not within the control of the
Company or Spinco, as the case may be, including coinsurance provisions,
deductibles, quota share deductibles, self-insured retentions, bankruptcy or
insolvency of an insurance carrier, Shared Policy limitations or restrictions,
any coverage disputes, any failure to timely claim by the Company or Spinco or
any defect in such claim or its processing.
(c) In the event that the aggregate limits on any Shared Policies are
exceeded by the aggregate of outstanding Insured Claims filed by the parties
hereto with respect to the period of coverage under such Shared Policy, the
parties agree to allocate the Insurance Proceeds received thereunder based upon
their respective percentage of the total of their bona fide claims that were
covered under such Shared Policy with respect to such coverage period (the
"allocable portion of insurance proceeds"), and any party who has received
Insurance Proceeds in excess of such party's allocable portion of such Insurance
Proceeds shall pay to the other party the appropriate amount so that each party
will have received its allocable portion of such Insurance Proceeds pursuant
hereto. Each of the parties agrees to use reasonable efforts to maximize
available coverage under the Shared Policies, and to take all reasonable steps
to recover from all other responsible parties in respect of an Insured Claim to
the extent coverage limits under a Shared Policy have been exceeded or would be
exceeded as a result of such Insured Claim.
(d) In the event that each party has bona fide claims under any Shared
Policy for which a deductible is payable with respect to the period of coverage
under such Shared Policy, the parties agree that the aggregate amount of the
deductible paid shall be borne by the parties in the same proportion that the
Insurance Proceeds received by each such party with respect to such coverage
period bears to the total Insurance Proceeds received under the applicable
Shared Policy (the "allocable share of the deductible"), and any party that has
paid more than such share of the deductible shall be entitled to receive from
the other party an appropriate amount such that each party has borne its
allocable share of the deductible pursuant hereto. For purposes of this
paragraph 9.03(d), the amount of the relevant deductible under any Shared Policy
shall be that set forth in Schedule 9.03(d) hereto.
<PAGE>
20
9.04. Agreement for Waiver of Conflict and Shared Defense. In the event
that Insured Claims of both parties hereto exist relating to the same
occurrence, the parties shall jointly defend and waive any conflict of interest
necessary to the conduct of the joint defense. Nothing in this Article IX shall
be construed to limit or otherwise alter in any way the obligations of the
parties to this Agreement, including those created by this Agreement or the
Other Agreements, by operation of law or otherwise.
9.05. Cooperation. The parties agree to use their reasonable efforts to
cooperate with respect to the various insurance matters contemplated by this
Agreement.
ARTICLE X
MISCELLANEOUS
10.01. Conditions to Obligations. (a) The obligations of the parties
hereto to consummate the Distribution are subject to the satisfaction or waiver
of each of the following conditions:
(i) The Other Agreements shall have been executed and delivered by
each of the Company and Spinco;
(ii) The Company shall have received a favorable no-action letter with
respect to those issues on which the Company proposes to ask the SEC to
rule in a letter to the SEC, substantially in the form of the letter
attached hereto as Exhibit G;
(iii) The representations and warranties of each of the Company and
of Spinco set forth in this Agreement shall be true and correct in all
material respects as of the date hereof and as of the Distribution Date;
(iv) Spinco shall have obtained the approval of the Board of Governors
of the Federal Reserve System to, or shall have received a no-action letter
to the effect that it may, continue to operate as a grandfathered
institution under the Competitive Equality Banking Act of 1987 or Spinco
shall have been registered as a bank holding company;
(v) The Registration Statement shall have become effective under the
Exchange Act;
(vi) The Spinco Common Stock shall have been approved for listing on
the New York Stock Exchange, or such other exchange or quotations system as
Spinco may determine in its discretion, subject to official notice of
issuance;
(vii) No governmental authority or regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule,
<PAGE>
21
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) to prevent or prohibit the
Distribution;
(viii) All conditions to the Merger set forth in the Merger Agreement
shall have been satisfied or waived prior to or contemporaneously with the
Effective Time; and
(ix) All other agreements or conditions set forth and described in
Article III shall have been satisfied or waived.
(b) Any determination made by the Board of Directors of the Company on
behalf of either party hereto prior to the Distribution Date concerning the
satisfaction or waiver of any or all of the conditions set forth in this Section
shall be conclusive.
10.02. Complete Agreement. This Agreement, the Exhibits and Schedules
hereto and the agreements and other documents referred to herein, including the
Other Agreements, shall constitute the entire agreement between the parties
hereto with respect to the subject matter hereof (other than the Merger
Agreement and the Schedules and Exhibits thereto) and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
10.03. Expenses. Spinco shall bear all fees and expenses of outside
counsel to Spinco in connection with the preparation, review and filing of the
Registration Statement and Information Statement, all filing fees, printing and
mailing expenses in connection with the Registration Statement and Information
Statement, all exchange listing fees with respect to Spinco Common Stock, and
any fees of transfer agents and registrars in connection with the Distribution.
The Company shall bear all other costs and expenses with respect to the
transactions contemplated hereby, by the Merger Agreement and the Other
Agreements, including, without limitation, all fees and disbursements of
Goldman, Sachs & Co. relating to the transactions contemplated hereby, by the
Merger Agreement and the Other Agreements.
10.04. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware (other than the laws
regarding choice of laws and conflicts of laws that would apply the substantive
laws of any other jurisdiction) as to all matters, including matters of
validity, construction, effect, performance and remedies.
10.05. Notices. All notices, requests, claims, demands and other
communications that are required or permitted hereunder shall be in writing and
shall be sufficient if delivered in person, by overnight courier, by hand
delivery, telecopied with confirmation of receipt, or sent by registered or
certified mail, postage prepaid, return receipt requested, to the addresses set
forth below, or to such other addresses of which either party shall notify the
other party in accordance with this Section 10.05, and shall be deemed given as
of the time of such delivery.
<PAGE>
22
If to the Company prior to the Distribution Date:
Providian Center
400 West Market Street
Louisville, Kentucky 40207
Attention: Irving W. Bailey II
Telecopy No.: 502-584-5960
with a copy to:
King & Spalding
120 West 45th Street
New York, New York 10036
Attention: Mr. E. William Bates, II
Telecopy No.: (212) 556-2222
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Mr. Steven A. Rosenblum
Telecopy No.: (212) 403-2000
If to the Company after the Distribution Date:
(VIA MAIL)
AEGON N.V.
P.O. Box 202
2501 CE The Hague
The Netherlands
Attention: Mr. Kees J. Storm
Telecopy No.: (31-70) 347-7929
(VIA HAND DELIVERY)
AEGON N.V.
Mariahoeveplein 50
2591 TV The Hague
The Netherlands
Attention: Mr. Kees J. Storm
Telecopy No.: (31-70) 347-7929
and
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23
LeBoeuf, Lamb, Greene & MacCrae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Mr. Donald B. Henderson, Jr.
Telecopy No.: (212) 474-8500
If to Spinco:
201 Mission Street
San Francisco, California 94105
Attention: Chief Financial Officer
Telecopy No.: 415-278-6028
with a copy to:
Providian Bancorp, Inc.
201 Mission Street
San Francisco, California 94105
Attention: General Counsel
Telecopy No.: 415-278-6046
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section.
10.06. Specific Performance. Each party hereto acknowledges that there is
no adequate remedy at law for failure by such party to comply with the
provisions of this Agreement and that such failure would cause immediate harm
that would not be adequately compensable in damages, and therefore each party
agrees that its agreements contained herein may be specifically enforced without
the requirement of posting a bond or other security, in addition to all other
remedies available to the parties hereto under this Agreement.
10.07. Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a written agreement signed by the parties
hereto.
10.08. Successors and Assigns; Third-Party Beneficiaries. This Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their successors and permitted assigns, but neither
this Agreement nor any of the rights, interests and obligations hereunder shall
be assigned by any party hereto without the prior written consent of the other
party. Except for the provisions of Sections 6.02 and 6.03 relating to
indemnities, which are also for the benefit of the applicable Indemnified Party,
this Agreement is solely for the benefit of the parties hereto, and is not
intended to confer upon any other persons any rights or remedies hereunder,
except that, prior to the Distribution Date, Merger Partner shall be a third
party beneficiary of and shall be entitled to enforce the rights of the Company
hereunder.
<PAGE>
24
10.09. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
10.10. Interpretation. (a) The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties hereto and shall not in any way affect the meaning or
interpretation of this Agreement.
(b) The parties hereto intend that the Distribution shall be a distribution
pursuant to the provisions of Section 355 of the Code, so that no gain or loss
shall be recognized for federal income tax purposes as a result of such
transaction, and all provisions of this Agreement shall be so interpreted.
10.11. Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.
10.12. References; Construction. References to any "Article", "Exhibit",
"Schedule" or "Section", without more, are to Articles, Exhibits, Schedules and
Sections to or of this Agreement. Unless otherwise expressly stated, clauses
beginning with the term "including" set forth examples only and in no way limit
the generality of the matters thus exemplified.
10.13. Termination. Notwithstanding any provision hereof, following
termination of the Merger Agreement, this Agreement may be terminated and the
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Board of Directors of the Company without the approval of
any other party hereto or of the Company's shareholders. In the event of such
termination, no party hereto or to any Other Agreement shall have any liability
to any person by reason of this Agreement or any Other Agreement.
<PAGE>
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PROVIDIAN CORPORATION
By: /s/ Irving W. Bailey II
-------------------------------------------
Name: Irving W. Bailey II
Title: Chairman of the Board and
Chief Executive Officer
PROVIDIAN BANCORP, INC.
By : /s/ Shailesh J. Mehta
-------------------------------------------
Name: Shailesh J. Mehta
Title: Chief Executive Officer
<PAGE>
EXHIBIT 2.2
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
PLAN AND AGREEMENT OF
MERGER AND REORGANIZATION
AMONG
AEGON N.V.,
LT MERGER CORP.
AND
PROVIDIAN CORPORATION
- --------------------------------------------------------------------------------
------------------------------
December 28, 1996
------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
THE SPIN-OFF........................................................... 2
1.1 The Spin-off..................................................... 2
1.2 Amendments to the Distribution Agreement......................... 2
1.3 Further Agreements with Spinco................................... 2
ARTICLE 2
PLAN OF MERGER......................................................... 2
2.1 The Merger....................................................... 2
2.2 Conversion of Shares............................................. 3
2.3 Exchange of Certificates......................................... 4
2.4 Dividends........................................................ 5
2.5 Escheat Laws..................................................... 6
2.6 Closing of Company Transfer Books................................ 6
ARTICLE 3
CLOSING................................................................ 6
3.1 Time and Place of Closing........................................ 6
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY.............................. 6
4.1 Organization, Good Standing and Power............................ 6
4.2 Capitalization................................................... 7
4.3 Company Subsidiaries; Voting Trusts.............................. 7
4.4 Authority; Enforceability........................................ 8
4.5 Non-Contravention; Consents...................................... 8
4.6 SEC Reports; Company Financial Statements........................ 9
4.7 Statutory Statements............................................. 10
4.8 Absence of Certain Changes or Events............................. 10
4.9 Taxes and Tax Returns............................................ 11
4.10 Litigation....................................................... 12
4.11 Contracts and Commitments........................................ 13
4.12 Registration Statement, Etc...................................... 13
4.13 Employee Benefit Plans........................................... 14
i
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Page
----
4.14 Collective Bargaining; Labor Disputes; Compliance................ 15
4.15 Brokers and Finders.............................................. 16
4.16 No Violation of Law.............................................. 16
4.17 Indebtedness for Borrowed Money.................................. 17
4.18 Fairness Opinion................................................. 17
4.19 Real Estate Operations........................................... 17
4.20 DGCL Section 203................................................. 19
4.21 Spin-off; Merger................................................. 19
4.22 Voting Requirements.............................................. 19
4.23 Business Operating Condition..................................... 19
4.24 Assets........................................................... 19
4.25 Computer Software................................................ 20
4.26 Intellectual Property............................................ 20
4.27 Permits, Licenses and Franchises................................. 21
4.28 Insurance Business............................................... 21
4.29 Threats of Cancellation.......................................... 21
4.30 Liabilities and Reserves......................................... 21
4.31 Separate Accounts................................................ 22
4.32 Funds............................................................ 23
4.33 Insurance........................................................ 23
4.34 Solvency of Spinco............................................... 23
4.35 Investigation by Company......................................... 23
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
MERGER PARTNER AND SUB................................................. 24
5.1 Organization, Good Standing and Power............................ 24
5.2 Capitalization................................................... 24
5.3 Merger Partner Subsidiaries; Voting Trusts....................... 25
5.4 Authority; Enforceability........................................ 25
5.5 Non-Contravention; Consents...................................... 26
5.6 SEC Reports; Merger Partner Financial Statements................. 27
5.7 Statutory Statements............................................. 27
5.8 Absence of Certain Changes or Events............................. 28
5.9 Taxes and Tax Returns............................................ 28
5.10 Litigation....................................................... 29
5.11 Contracts and Commitments........................................ 29
5.12 Registration Statement, Etc...................................... 30
5.13 Employee Benefit Plans........................................... 30
5.14 Collective Bargaining; Labor Disputes; Compliance................ 32
5.15 Brokers and Finders.............................................. 32
ii
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Page
----
5.16 No Violation of Law.............................................. 32
5.17 Indebtedness for Borrowed Money.................................. 33
5.18 Environmental Liabilities........................................ 33
5.19 Merger Partner Ownership of Company Common Stock................. 34
5.20 Interim Operations of Sub........................................ 34
5.21 Spin-off; Merger................................................. 34
5.22 Business Operating Condition..................................... 34
5.23 Assets........................................................... 34
5.24 Computer Software................................................ 35
5.25 Intellectual Property............................................ 35
5.26 Permits, Licenses and Franchises................................. 35
5.27 Liabilities and Reserves......................................... 35
5.28 Insurance........................................................ 36
5.29 Investigation by Merger Partner.................................. 36
ARTICLE 6
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; CERTAIN COVENANTS...................................... 37
6.1 Access and Information........................................... 37
6.2 Conduct of Business Pending Merger............................... 38
6.3 Fiduciary Duties................................................. 43
6.4 Certain Fees..................................................... 44
6.5 Amendment to Rights Plan......................................... 44
6.6 Takeover Statutes................................................ 44
6.7 Consents......................................................... 44
6.8 Further Assurances............................................... 45
6.9 NYSE Listing..................................................... 45
6.10 Notice; Efforts to Remedy........................................ 45
6.11 Registration Statement; Stockholder Approvals.................... 46
6.12 Expenses......................................................... 46
6.13 Press Releases; Filings.......................................... 47
6.14 Indemnification of Officers and Directors........................ 47
6.15 Tax Treatment.................................................... 48
6.16 Employee Benefits................................................ 48
6.17 Stock Options.................................................... 49
6.18 Aegon USA Guaranty............................................... 50
6.19 Determination of Comparable Benefits............................. 50
6.20 Merger Partner Exchange Transaction.............................. 50
6.21 Company Contracts................................................ 51
6.22 Agents........................................................... 52
6.23 Litigation....................................................... 52
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<PAGE>
Page
----
6.24 Certain Reporting Requirements................................... 52
6.25 Investment Company Act........................................... 52
6.26 Ruling Request................................................... 52
ARTICLE 7
CONDITIONS PRECEDENT TO MERGER......................................... 53
7.1 Conditions to Each Party's Obligations........................... 53
7.2 Conditions to Obligations of Company............................. 54
7.3 Conditions to Obligations of Merger Partner...................... 55
ARTICLE 8
TERMINATION AND ABANDONMENT OF THE MERGER.............................. 56
8.1 Termination...................................................... 56
8.2 Effect of Termination and Abandonment............................ 58
ARTICLE 9
MISCELLANEOUS.......................................................... 58
9.1 Waiver and Amendment............................................. 58
9.2 Non-Survival of Representations, Warranties and Agreements....... 58
9.3 Notices.......................................................... 58
9.4 Descriptive Headings; Interpretation............................. 60
9.5 Counterparts..................................................... 61
9.6 Entire Agreement................................................. 61
9.7 GOVERNING LAW.................................................... 61
9.8 Severability..................................................... 61
9.9 Enforcement of Agreement......................................... 61
9.10 Assignment....................................................... 61
9.11 Limited Liability................................................ 62
9.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS...................... 62
iv
<PAGE>
DEFINITIONS
-----------
Acquisition Proposal 6.2(f)
Agreement Introductory Paragraph
Association 5.4
Certificate 2.2(c)
Certificate of Merger 2.1(a)
Closing 3.1
Closing Date 3.1
Code Recitals
Company Introductory Paragraph
Company Business Unit 4.8
Company Collective Bargaining Agreements 4.14
Company Common Stock 2.2(b)
Company Consolidated Financial Statements 4.6(b)
Company Controlled Group Liability 4.13(b)
Company Employee Plans 4.13(a)
Company Employees 6.16(b)
Company Entities 4.3
Company Insurance Contracts 4.28
Company Insurance Subsidiary 4.7
Company Investment Assets 4.24(a)
Company Permitted Liens and Encumbrances 4.24(a)
Company Plan 6.17(a)
Company Reports 4.6(a)
Company Rights 6.5
Company Rights Agreement 6.5
Company SAR 6.17(a)
Company Separate Accounts 4.31(a)
Company Stock Option 6.17(a)
Company Subsidiaries 4.3
Confidentiality Agreements 6.1(a)
DGCL Recitals
Distribution Agreement Recitals
Effective Time 2.1(a)
Environmental Laws 4.19(c)
ERISA 4.13(a)
Exchange Act 4.6(a)
Exchange Agent 2.3(a)
Exchange Fund 2.3(a)
Exchange Ratio 2.2(c)
Fair Market Value at the Effective Time 2.2(c)
Fee Payment Event 6.3
Funds 4.32(a)
Goldman Sachs 4.15
<PAGE>
HSR Act 4.4
Indemnified Parties 6.14(a)
Insurance Laws 4.16(a)
IRS 4.9(c)
Knowledge of Company Introduction to Article 4
Knowledge of Merger Partner Introduction to Article 5
Lender 4.19(g)
Manager 4.32(b)
Material Adverse Effect on Company 4.1
Material Adverse Effect on Merger Partner 5.1
Material to Merger Partner 6.2(e)(xii)
Merger Recitals
Merger Partner Introductory Paragraph
Merger Partner Collective Bargaining Agreements 5.14
Merger Partner Common Stock 2.2(c)
Merger Partner Consolidated Financial Statements 5.6(b)
Merger Partner Controlled Group Liability 5.13(b)
Merger Partner Employee Plans 5.13(a)
Merger Partner Entities 5.3
Merger Partner Insurance Subsidiary 5.7
Merger Partner Investment Assets 5.23
Merger Partner Permitted Liens and Encumbrances 5.23
Merger Partner Preferred Stock 5.2
Merger Partner Reports 5.6(a)
Merger Partner Subsidiary 5.3
Merger Partner SARs 6.17(a)
1940 Act 4.31(a)
NYSE 2.2(c)
Option Adjustment Ratio 6.17(a)
Outstanding Company Preferred Stock 2.2(b)
Person 4.24(a)
Pivot Price 2.2(c)
Plan 6.1(b)
Process Agent 9.12(b)
Proxy Statement 4.12
Real Estate Assets 4.19(a)
Registration Statement 4.12
Retirement Plan 6.2(c)(xii)
Ruling 7.1(g)
Ruling Request 6.26
SEC 4.6(a)
Section 6.4 Fee 6.4
-2-
<PAGE>
Securities Act 4.6(a)
Share Price 2.2(c)
Significant Brokers 6.22
Spinco Recitals
Spin-off Recitals
Spin-off Adjusted Financial Statements 4.6(c)
Stockholders' Meeting 4.12
Sub Introductory Paragraph
Subsidiaries 6.1(a)
Surviving Corporation 2.1(a)
-3-
<PAGE>
AMENDED AND RESTATED
PLAN AND AGREEMENT OF
MERGER AND REORGANIZATION
AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER AND REORGANIZATION (this
"Agreement"), dated as of December 28, 1996, by and among AEGON N.V., a company
formed under the laws of The Netherlands ("Merger Partner"), LT MERGER CORP., a
Delaware corporation and a wholly owned subsidiary of Merger Partner ("Sub"),
and PROVIDIAN CORPORATION, a Delaware corporation ("Company"), pursuant to the
Amendment No. 1 and Consent, dated as of April 2, 1997, between Merger Partner,
Sub and Company, amending and restating the Plan and Agreement of Merger, dated
as of December 28, 1996, between Merger Partner, Sub and Company.
WHEREAS, the Board of Directors of Company has approved a plan of
distribution embodied in the form of the agreement attached hereto as Exhibit A
and to be signed concurrently with this Agreement (the "Distribution Agreement")
which distribution, subject to the terms and conditions of the Distribution
Agreement, will be effected prior to the Effective Time (as defined in Section
2.1(a)) and pursuant to which all of the shares of capital stock of Providian
Bancorp, Inc., a Delaware corporation and wholly owned subsidiary of Company
("Spinco"), will be distributed on a pro rata basis to Company's stockholders as
provided in the Distribution Agreement (the "Spin-off");
WHEREAS, Merger Partner has formed Sub as a wholly owned subsidiary
corporation under the Delaware General Corporation Law (the "DGCL") for the
purpose of Sub merging with and into Company following the Spin-off pursuant to
the applicable provisions of the DGCL (the "Merger") so that Company will
continue as the surviving corporation of the Merger and will become a wholly
owned subsidiary of Merger Partner;
WHEREAS, the respective Boards of Directors of Company, Merger Partner and
Sub have approved and declared advisable the Merger, the terms and provisions of
this Agreement and the transactions contemplated hereby;
WHEREAS, the respective Boards of Directors of Merger Partner and Company
have determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is fair to and in the best
interests of their respective stockholders;
WHEREAS, for federal income tax purposes, it is intended that (a) the Spin-
off shall qualify as a tax-free distribution within the meaning of Section 355
of the Internal Revenue Code, as amended (the "Code"), and (b) the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Code,
and this Agreement is intended to be and is adopted as a plan of reorganization;
and
WHEREAS, the Merger described herein is subject to the approval of the
stockholders of Company and applicable state and federal authorities, and
satisfaction of certain other conditions described in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties agree as follows:
<PAGE>
ARTICLE 1
THE SPIN-OFF
1.1 The Spin-off. Upon the terms and subject to the conditions of the
Distribution Agreement, Company shall use commercially reasonable efforts to
divest its interest in Spinco prior to the Effective Time through the
distribution of all of the outstanding shares of capital stock of Spinco on a
pro rata basis to the stockholders of Company as provided in the Distribution
Agreement.
1.2 Amendments to the Distribution Agreement. No amendments to the
Distribution Agreement shall be executed without the approval of Merger Partner,
which approval shall not be unreasonably withheld.
1.3 Further Agreements with Spinco. Unless otherwise approved by Merger
Partner, which approval shall not be unreasonably withheld, except as
contemplated by this Agreement or the Distribution Agreement or as set forth in
Schedule 1.3, neither any new agreement between Spinco and Company or any
Company Subsidiary (as defined in Section 4.3) nor any material amendment to any
existing agreements between Spinco and Company or any Company Subsidiary which
survive the Distribution Date (as defined in the Distribution Agreement) shall
be executed.
ARTICLE 2
PLAN OF MERGER
2.1 The Merger
----------
(a) Upon the terms and subject to the conditions of this Agreement, at
the Effective Time and in accordance with the provisions of this Agreement and
the DGCL, Sub shall be merged with and into Company, which shall be the
surviving corporation (sometimes referred to hereinafter as the "Surviving
Corporation") in the Merger, and the separate corporate existence of Sub shall
cease. Subject to the provisions of this Agreement, a certificate of merger
(the "Certificate of Merger") shall be duly prepared, executed and acknowledged
by Company, on behalf of the Surviving Corporation, and thereafter delivered to
the Secretary of State of the State of Delaware, for filing, as provided in the
DGCL on the Closing Date (as defined in Section 3.1). The Merger shall become
effective immediately following the Spin-off upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware or at such time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
(b) From and after the Effective Time, the Merger shall have all the
effects set forth in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, by virtue of the Merger and in accordance with
the DGCL, all of the properties, rights, privileges, powers and franchises of
Company and Sub shall vest in the Surviving Corporation and all of the debts,
liabilities
2
<PAGE>
and duties of Company and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
(c) The Certificate of Incorporation of Sub in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with the provisions
thereof and the DGCL.
(d) The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until altered, amended or
repealed as provided therein, in the Certificate of Incorporation of the
Surviving Corporation and the DGCL.
(e) The officers and directors of Sub immediately prior to the
Effective Time shall be the initial officers and directors of the Surviving
Corporation, in each case until their respective successors are duly elected and
qualified.
2.2 Conversion of Shares. As of the Effective Time, by virtue of the Merger
and without any action on the part of any holder thereof:
(a) Each share of capital stock of Sub that is issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of Common Stock, par value $1 per share, of
the Surviving Corporation.
(b) All shares of common stock, par value $1 per share, of Company
("Company Common Stock") or other capital stock of Company that are owned by
Company as treasury stock or by any wholly owned Company Subsidiary (other than
the outstanding shares of Company Preferred Stock, par value $5 per share (the
"Outstanding Company Preferred Stock"), and any shares of Company Preferred
Stock issued in exchange for the Outstanding Company Preferred Stock) and any
shares of Company Common Stock owned by Merger Partner, Sub or any other wholly
owned Merger Partner Subsidiary (as defined in Section 5.3) shall be canceled
and retired and shall cease to exist and no stock of Merger Partner or other
consideration shall be delivered in exchange therefor. Any shares of Outstanding
Company Preferred Stock (or any shares of Preferred Stock of Company issued in
exchange for, or upon conversion of, the Outstanding Company Preferred Stock)
which are outstanding immediately prior to the Merger shall continue to be
outstanding immediately following the Merger.
(c) Subject to Section 2.3(c), each share of Company Common Stock that
is issued and outstanding immediately prior to the Effective Time (other than
shares to be canceled in accordance with Section 2.2(b)) shall be converted into
a right to receive a number (the "Exchange Ratio") of shares, or fraction
thereof, of voting common stock, par value of one Dutch Guilder per share, of
Merger Partner ("Merger Partner Common Stock") determined by dividing $28.00 by
the Share Price (as defined below), subject to the provisions of Section
8.1(b)(vi) or 8.1(c)(vi), if applicable. All such shares of Company Common
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each certificate
previously representing any such shares (a "Certificate") shall thereafter
represent the right to receive that number of shares of Merger Partner Common
Stock into which such shares of Company Common Stock have been converted.
Certificates previously representing shares of Company Common Stock shall be
exchanged for certificates representing whole shares of Merger Partner Common
Stock, and cash in lieu of any fractional share, issued in consideration
therefor upon the surrender of such certificates in accordance with Section 2.3,
without interest. For purposes of this Agreement, (i) the term "Share Price"
shall be equal to the Fair Market Value at the Effective
3
<PAGE>
Time of one share of Merger Partner Common Stock; provided, however, that if
such Fair Market Value at the Effective Time is less than $50.034, then the
Share Price shall be $50.034, and if such Fair Market Value at the Effective
Time is greater than $61.153, then the Share Price shall be $61.153; and (ii)
the term "Fair Market Value at the Effective Time" of one share of Merger
Partner Common Stock shall be the average during the 20 trading days immediately
preceding the last business day before the date of the Effective Time of the
average daily high and low prices per share of Merger Partner Common Stock on
the New York Stock Exchange ("NYSE").
(d) If after the date hereof and prior to the Effective Time, Merger
Partner shall have declared a stock split (including a reverse split) of Merger
Partner Common Stock or a dividend payable in Merger Partner Common Stock or any
other similar transaction, then the Exchange Ratio shall be appropriately
adjusted to reflect such stock split or dividend or similar transaction.
(e) Each Company Stock Option (as defined in Section 6.17) and each
Company SAR (as defined in Section 6.17) shall be converted in accordance with
Section 6.17.
2.3 Exchange of Certificates.
------------------------
(a) As of the Effective Time, Merger Partner shall deposit with Morgan
Guaranty Trust Company of New York, or such other bank or trust company
designated by Merger Partner and reasonably acceptable to Company (the "Exchange
Agent"), for the benefit of the holders of shares of Company Common Stock, for
exchange in accordance with this Article 2 through the Exchange Agent,
certificates representing the shares of Merger Partner Common Stock (such shares
of Merger Partner Common Stock, together with any dividends or distributions
with respect thereto or cash deposited by Merger Partner in accordance with this
Section 2.3, being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.2 in exchange for outstanding shares of Company Common
Stock, together with cash to be paid in lieu of fractional shares. The
aggregate number of shares of Merger Partner Common Stock which shall be
issuable shall be a number of such shares equal to the Exchange Ratio multiplied
by the total number of outstanding shares of Company Common Stock as of the
Effective Time, subject to adjustments for nonissuance of fractional shares as
provided herein.
(b) As soon as practicable after the Effective Time, Merger Partner
and the Surviving Corporation shall cause the Exchange Agent to mail to each
holder of record of a Certificate or Certificates (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent accompanied by a properly executed letter of transmittal and
shall be in such form and have such other provisions as Merger Partner and
Company may reasonably specify), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Merger Partner Common Stock. Upon the surrender to the Exchange Agent of one
or more Certificates for cancellation, together with such letter of transmittal,
duly executed, the holder will be entitled to receive certificates representing
that number of whole shares of Merger Partner Common Stock to be issued in
respect of the aggregate number of such shares of Company
4
<PAGE>
Common Stock previously represented by the stock certificates surrendered based
upon the Exchange Ratio.
(c) No certificate or scrip representing fractional shares of Merger
Partner Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights as a stockholder of Merger Partner. All
fractional shares of Merger Partner Common Stock that a holder of Company Common
Stock would otherwise be entitled to receive as a result of the Merger shall be
aggregated and if a fractional share results from such aggregation, such holder
shall be entitled to receive, in lieu thereof, an amount in cash determined by
multiplying (i) the Fair Market Value at the Effective Time of one share of
Merger Partner Common Stock, by (ii) the fraction of a share of Merger Partner
Common Stock to which such holder would otherwise have been entitled. Merger
Partner shall timely make available to the Exchange Agent any cash necessary to
make payments in lieu of fractional shares as aforesaid. No such cash in lieu
of fractional shares of Merger Partner Common Stock shall be paid to any holder
of Company Common Stock until Certificates are surrendered and exchanged in
accordance with Section 2.3(a).
(d) If a certificate for Merger Partner Common Stock is to be sent to
a person other than the person in whose name the Certificates for shares of
Company Common Stock surrendered for exchange are registered, it shall be a
condition of the exchange that the person requesting such exchange shall pay to
the Exchange Agent any transfer or other taxes required by reason of the
delivery of such Certificate to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable.
(e) The cash paid and shares of Merger Partner Common Stock issued
upon the surrender of Certificates in accordance with the terms hereof shall be
deemed to have been paid and issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock.
2.4 Dividends. No dividends or other distributions that are declared or
made after the Effective Time with respect to Merger Partner Common Stock
payable to holders of record thereof after the Effective Time shall be paid to a
Company stockholder entitled to receive certificates representing Merger Partner
Common Stock until such stockholder has properly surrendered such stockholder's
Certificates. Upon such surrender, there shall be paid to the stockholder in
whose name the certificates representing such Merger Partner Common Stock shall
be issued any dividends which shall have become payable with respect to such
Merger Partner Common Stock between the Effective Time and the time of such
surrender, without interest. After such surrender, there shall also be paid to
the stockholder in whose name the certificates representing such Merger Partner
Common Stock shall be issued any dividend on such Merger Partner Common Stock
that shall have a record date subsequent to the Effective Time and prior to such
surrender and a payment date after such surrender; provided that such dividend
payments shall be made on such payment dates. In no event shall the stockholders
entitled to receive such dividends be entitled to receive interest on such
dividends. Any portion of the Exchange Fund which remains undistributed to the
stockholders of Company for six months after the Effective Time pursuant to this
Section 2.4 shall be returned by the Exchange Agent
5
<PAGE>
to Merger Partner which shall thereafter act as Exchange Agent, subject to the
rights of holders of unsurrendered Certificates under this Article 2.
2.5 Escheat Laws. Notwithstanding any other provision of this Article 2,
none of Merger Partner, Sub, Company, the Surviving Corporation, the Exchange
Agent or any other party hereto shall be liable to any holder of Company Common
Stock for any Merger Partner Common Stock, or dividends or distributions thereon
or cash in lieu of fractional shares, delivered to a public official pursuant to
any applicable abandoned property, escheat or similar laws.
2.6 Closing of Company Transfer Books. At the Effective Time, the stock
transfer books of Company shall be closed and no transfer of Company Common
Stock shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall, when accompanied by proper
documentation, be exchanged for Merger Partner Common Stock in the manner
provided in this Article 2.
ARTICLE 3
CLOSING
3.1 Time and Place of Closing. Unless otherwise mutually agreed upon in
writing by Merger Partner and Company, the closing of the Merger (the "Closing")
will be held at 10:00 a.m., local time, on the later of (i) June 1, 1997, and
(ii) the second business day following the date that all of the conditions
precedent specified in this Agreement have been (or can be at the Closing)
satisfied or waived by the party or parties permitted to do so (such date being
referred to hereinafter as the "Closing Date"). The place of Closing shall be at
the offices of King & Spalding, 191 Peachtree Street, N.E., Atlanta, Georgia
30303, or at such other place as may be agreed between Merger Partner and
Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Merger Partner as follows (the
words "to the Knowledge of Company" or "to Company's Knowledge" and any words of
similar import shall mean that any one of the persons listed in Exhibit B has
actual knowledge of the matter):
4.1 Organization, Good Standing and Power. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Company is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties make such qualification or licensing necessary, except
where the failure to be so qualified or licensed
6
<PAGE>
or to be in good standing would not, individually or in the aggregate, have a
Material Adverse Effect on Company (as defined below). Company has delivered to
Merger Partner complete and correct copies of its Certificate of Incorporation
and all amendments thereto to the date hereof and its Bylaws as amended to the
date hereof. As used in this Agreement, the phrase "Material Adverse Effect on
Company" means a material adverse effect on (a) the financial condition,
business or results of operations of Company and the Company Subsidiaries on a
consolidated basis or (b) the ability of Company to consummate the transactions
contemplated by this Agreement.
4.2 Capitalization. The authorized capital stock of Company as of the date
hereof consists of 300,000,000 shares of Common Stock, par value $1 per share,
of which as of December 20, 1996, 93,765,999 shares were issued and outstanding,
6,000,000 shares of Preferred Stock, par value $5 per share, of which as of the
date hereof no shares are issued and outstanding (other than 467,400 shares
which are held by a Company Subsidiary), and 25,000,000 shares of Preference
Stock, par value $.01 per share, of which as of the date hereof no shares are
issued or outstanding. All outstanding shares of Company Common Stock are, and
all shares which may be issued prior to the Effective Time pursuant to any
outstanding Company Stock Options will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to any preemptive rights.
Except as set forth above, as of December 20, 1996, there were no shares of
capital stock or other equity securities of Company outstanding, and, except as
set forth in Schedule 4.2, there are no outstanding options, warrants or rights
to purchase or acquire from Company any capital stock of Company, there are no
existing registration covenants with Company with respect to outstanding shares
of Company Common Stock, and there are no convertible securities or other
contracts, commitments, agreements, understandings, arrangements or restrictions
by which Company is bound to issue any additional shares of its capital stock or
other securities.
4.3 Company Subsidiaries; Voting Trusts. Schedule 4.3 sets forth a correct
and complete list of each corporation, association, subsidiary or other entity
of which Company owns or controls, directly or indirectly, more than 20% of the
outstanding equity securities (other than equity securities acquired in the
ordinary course of business for investment purposes which constitute more than
20% but less than 35% of the outstanding equity securities of such issuer and
which, in the case of equity securities acquired prior to December 31, 1995, are
listed in the annual statements of the Company Insurance Subsidiaries), but
excluding Spinco and any subsidiary, corporation, association or other entity in
which Company owns an indirect equity interest exclusively through Spinco of
which Spinco owns or controls, directly or indirectly, more than 20% of the
outstanding equity securities (such entities, excluding Spinco and any entities
so owned or controlled by Spinco, are hereinafter referred to as "Company
Entities"). Any Company Entity of which Company owns or controls, directly or
indirectly, more than 50% of the outstanding equity securities is hereinafter
referred to individually as a "Company Subsidiary" and such entities are
referred to collectively as the "Company Subsidiaries." Except as disclosed in
Schedule 4.3, Company owns, directly or indirectly, the securities of each
Company Entity held by Company, free and clear of all liens, charges, pledges,
security interests or other encumbrances. All of the capital stock of each
Company Subsidiary has been duly authorized, and is validly issued, fully paid
and nonassessable. There are no outstanding options or rights to subscribe to,
or any contracts or commitments to issue or sell any shares of the capital stock
or any securities or obligations convertible into or exchangeable for, or giving
any
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person any right to acquire, any shares of the capital stock of any Company
Entity to which Company or any Company Subsidiary is a party. There are no
voting trusts or other agreements or understandings with respect to the voting
of capital stock of Company or any Company Subsidiary to which Company or any
Company Subsidiary is a party. Each Company Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has the corporate power and authority
necessary for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority
would not, individually or in the aggregate, have a Material Adverse Effect on
Company. Each Company Subsidiary is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed or
to be in good standing would not, individually or in the aggregate, have a
Material Adverse Effect on Company.
4.4 Authority; Enforceability. Company has the corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby, subject to the approval of this Agreement by the
stockholders of Company and approval of this Agreement and the Distribution
Agreement by insurance regulatory authorities and banking regulatory
authorities, and subject to compliance with the provisions of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Subject
to such approvals and compliance, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Company, and this
Agreement has been duly executed and delivered by Company and constitutes the
valid and binding obligation of Company, enforceable against it in accordance
with its terms, (i) except as may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) subject to general principles of equity.
4.5 Non-Contravention; Consents.
---------------------------
(a) Except as set forth in Schedule 4.5(a), neither the execution,
delivery and performance by Company of this Agreement or the Distribution
Agreement, nor the consummation by Company of the transactions contemplated
hereby or the Spin-off, nor compliance by Company with any of the provisions
hereof or the Distribution Agreement, will:
(i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination
or acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Company, under any of
the terms, conditions or provisions of, (x) its Certificate of
Incorporation or Bylaws, or (y) any note, bond, mortgage, indenture, deed
of trust, license, lease, contract, agreement or other instrument or
obligation to which Company or any of the Company Subsidiaries is a party,
or by which Company or any of the Company Subsidiaries may be bound, or to
which Company or any of the Company Subsidiaries or the properties or
assets of any of them may
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be subject, and that would, in any such event specified in this
clause (y), have, individually or in the aggregate, a Material
Adverse Effect on Company; or
(ii) subject to compliance with the statutes and regulations
referred to in Section 4.5(b), violate any valid and enforceable
judgment, ruling, order, writ, injunction, decree, or any statute,
rule or regulation applicable to Company or any of the Company
Subsidiaries or any of their respective properties or assets where
such violation would, individually or in the aggregate, have a
Material Adverse Effect on Company.
(b) Except as set forth in Schedule 4.5(b) and other than
notices, filings, authorizations, exemptions, consents or approvals, the failure
of which to give or obtain would not, individually or in the aggregate, have a
Material Adverse Effect on Company, no notice to, filing with, authorization of,
exemption by, or consent or approval of, any governmental authority or other
regulatory body is necessary for the consummation by Company of the transactions
contemplated by this Agreement.
4.6 SEC Reports; Company Financial Statements.
-----------------------------------------
(a) Since January 1, 1995, Company has timely filed all reports,
registration statements, proxy statements or information statements and all
other documents, together with any amendments required to be made thereto,
required to be filed with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (the "Securities Act") or the Securities Exchange Act
of 1934 (the "Exchange Act") (collectively, the "Company Reports"). Company has
heretofore made available to Merger Partner true copies of all the Company
Reports, together with all exhibits thereto, that Merger Partner has requested.
Included in such Company Reports are (i) audited consolidated balance sheets of
Company and its subsidiaries at December 31, 1994 and 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended, and the notes thereto and (ii) the unaudited consolidated
balance sheets of Company and its subsidiaries at March 31, 1996, June 30, 1996
and September 30, 1996 and the related unaudited consolidated statements of
income, stockholders' equity and cash flows for the periods then ended and the
notes thereto.
(b) All of the financial statements included in the Company Reports
(which are collectively referred to herein as the "Company Consolidated
Financial Statements") fairly presented in all material respects the
consolidated financial position of Company and its subsidiaries as at the dates
mentioned and the consolidated results of operations, changes in stockholders'
equity and cash flows for the periods then ended in conformity with generally
accepted accounting principles applied on a consistent basis (subject to any
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or in the case of the unaudited statements, as may be permitted by
Form 10-Q of the SEC and subject, in the case of unaudited statements, to
normal, recurring audit adjustments). As of their respective dates, the Company
Reports complied in all material respects with all applicable rules and
regulations promulgated by the SEC and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made,
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not misleading. Except as set forth in the Company Reports, neither Company nor
any Company Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of Company
and its consolidated subsidiaries or in the notes thereto, other than
liabilities or obligations which would not individually or in the aggregate
reasonably be expected to have a Material Adverse Effect on Company.
(c) Company has delivered to Merger Partner an unaudited pro forma
consolidated balance sheet of Company and the Company Subsidiaries (specifically
excluding Spinco and its subsidiaries) at September 30, 1996 and the related
unaudited pro forma consolidated statements of income and stockholders' equity
for the period then ended, and the notes thereto (the "Spin-off Adjusted
Financial Statements"). Such Spin-Off Adjusted Financial Statements fairly
presented in all material respects the consolidated pro forma financial position
of Company and the Company Subsidiaries (specifically excluding Spinco and its
subsidiaries) as at the date mentioned and the consolidated pro forma results of
operations and pro forma changes in stockholders' equity for the period then
ended in conformity with generally accepted accounting principles applied on a
consistent basis (subject to any exceptions as to consistency specified therein
or as may be indicated in the notes thereto or as may be permitted by Form 10-Q
of the SEC and subject to normal, recurring audit adjustments).
4.7 Statutory Statements. Company has previously furnished to Merger
Partner the annual statements of each Company Subsidiary that is engaged in the
business of insurance (a "Company Insurance Subsidiary") for the years ended
December 31, 1994 and December 31, 1995, which have been filed with the
insurance regulatory authority of the jurisdiction of organization of such
Company Insurance Subsidiary, and statutory statements, where required, for each
such company for the periods ended March 31, 1996, June 30, 1996 and September
30, 1996, and Company shall promptly furnish to Merger Partner all statutory
statements for any calendar years or quarters ending thereafter but prior to the
Effective Time. Except as set forth in Schedule 4.7, such statutory statements
present or will present fairly in all material respects the admitted assets,
liabilities and surplus of each Company Insurance Subsidiary at the end of each
of the periods then ended, and the results of its operations and changes in its
surplus for each of the periods then ended in conformity with accounting
practices prescribed or permitted by the insurance regulatory authority of the
jurisdiction of organization of such Company Insurance Subsidiary, applied on a
consistent basis as and to the extent described in such statutory statements.
4.8 Absence of Certain Changes or Events. Except as disclosed in Schedule
4.8 and the Company Reports and except for transactions contemplated by this
Agreement or the Distribution Agreement, since December 31, 1995, Company and
the Company Subsidiaries have conducted their business in all material respects
only in the ordinary course, and there has not been (i) any change in the
business, financial condition or results of operations of Company and Company
Subsidiaries which has had a Material Adverse Effect on Company, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Company's
outstanding capital stock, except regular quarterly cash dividends with respect
to the Company Common Stock, (iii) any split, combination or reclassification of
any of Company's outstanding
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<PAGE>
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Company's
outstanding capital stock, (iv) (x) any granting by Company or any Company
Subsidiary to any executive officer or other employee of Company or any Company
Subsidiary of any increase in compensation, except for increases which in the
aggregate are in the ordinary course of business consistent with prior practice
or as was required under employment agreements in effect as of December 31,
1995, (y) any granting by Company or any Company Subsidiary to any such
executive officer or other employee of any increase in severance or termination
pay, except (A) for obligations which have been satisfied prior to the date
hereof, (B) for increases in the ordinary course of business in any one case not
in excess of $25,000, or (C) as was required under any employment, severance or
termination agreements in effect as of December 31, 1995 or (z) any entry by
Company or any Company Subsidiary into any new severance or termination
agreement with any such executive officer or other employee (other than (A) for
obligations which have been satisfied prior to the date hereof, and (B) new
severance or termination obligations in the ordinary course of business in any
one case not in excess of $25,000), (v) any significant change in accounting
methods, principles or practices by Company or any Company Subsidiary materially
affecting its assets, liabilities or business, except insofar as may be
appropriate to conform to changes in statutory accounting rules or generally
accepted accounting principles, or (vi) except for changes in a manner
consistent with past practice or consistent with industry standards, any
material change in the underwriting, pricing, actuarial or investment practices
or policies of any Company Business Unit (as defined below). Notwithstanding the
foregoing, the representation contained in this Section 4.8 shall not apply to
any change or development, or combination of changes or developments, to the
extent such changes and developments are the result of adverse changes in
general economic conditions, stock market fluctuations or conditions or adverse
changes in or affecting the insurance industry generally. As used in this
Agreement, the term "Company Business Unit" shall mean the business segments of
the Company identified as of the date hereof as Providian Direct Insurance,
Providian Agency Group and Providian Capital Management.
4.9 Taxes and Tax Returns. Except as disclosed in Schedule 4.9 or as
otherwise disclosed to Merger Partner in writing:
(a) Company and the Company Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate governmental authorities all
tax returns required to be filed by them, on or prior to the date hereof, except
to the extent that any failure to file would not, individually or in the
aggregate, have a Material Adverse Effect on Company, and (ii) duly paid in full
or made provisions in accordance with generally accepted accounting principles
(or there has been paid or provision has been made on their behalf) for the
payment of all taxes for all periods ending on or prior to the date hereof,
except to the extent that any failure to fully pay or make provision for the
payment of such taxes would not, individually or in the aggregate, have a
Material Adverse Effect on Company;
(b) no federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any taxes
or tax returns of Company or the Company Subsidiaries wherein an adverse
determination or ruling in any one such proceeding or in all such proceedings in
the aggregate would have a Material Adverse Effect on Company;
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<PAGE>
(c) the federal income tax returns of Company and the Company
Subsidiaries have been examined by the Internal Revenue Service ("IRS") (or the
applicable statutes of limitation for the assessment of federal income taxes for
such periods have expired) for all periods through and including December 31,
1992, and no material deficiencies were asserted as a result of such
examinations that have not been resolved and fully paid. Neither Company nor any
of the Company Subsidiaries has granted any requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessment of any taxes with respect to any tax returns of Company or any of the
Company Subsidiaries;
(d) neither Company nor any of the Company Subsidiaries is a party to
any tax sharing or material tax indemnity agreement;
(e) any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Company or any Company
Subsidiary who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Company Benefit Plan
currently in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280G(b)(1) of the Code). In addition,
Section 162(m) of the Code will not apply to any amount paid or payable by
Company or any Company Subsidiary under any contract or Company Employee Plan
currently in effect;
(f) all annuity contracts and life insurance policies issued by a
Company Insurance Subsidiary meet all definitional or other requirements for
qualification under the Code applicable (or intended to be applicable) to such
annuity contracts or life insurance policies, including, without limitation, the
following: (A) any life insurance policies meet the requirements of Sections
101(f) or 7702 of the Code, as applicable; (B) any annuity contracts that are
intended to qualify as "annuity contracts" (excluding contracts that are
described in Section 72(s) of the Code) meet the requirements of Section 72(s)
of the Code; (C) any annuity contracts that are intended to qualify under
Sections 130, 403(a), 403(b) or 408(b) of the Code contain all provisions
required for qualification under such sections of the Code; and (D) any annuity
contracts that are marketed as, or in connection with, plans that are intended
to qualify under Sections 401, 403, 408 or 457 of the Code comply with the
requirements of such sections; except in the case of any of the foregoing to the
extent that any failure to so meet such requirements has not and would not,
individually or in the aggregate, have a material adverse effect on (A) the
financial condition, business or results of operations of any Company Business
Unit or (B) the ability of Company to consummate the transactions contemplated
by this Agreement; and
(g) as used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, premium, sales, excise, employment,
payroll, withholding and other taxes.
4.10 Litigation. Except as disclosed in Schedule 4.10 or in the Company
Reports, neither Company nor any Company Subsidiary is a party to any pending
or, to the Knowledge of Company, threatened claim, action, suit, investigation
or proceeding which would reasonably be expected to
12
<PAGE>
have, either individually or in the aggregate, a Material Adverse Effect on
Company. Except as disclosed in Schedule 4.10, at the date of this Agreement,
neither Company nor any Company Insurance Subsidiary has received actual notice
of any proceeding, claim or investigation pending or threatened against Company
or any Company Insurance Subsidiary before any insurance department or agency
which would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on Company. Except as disclosed in Schedule
4.10, at the date of this Agreement there is no outstanding order, writ,
judgment, stipulation, injunction, decree, determination, award or other
decision against Company or any Company Subsidiary which, either individually or
in the aggregate, has had or would have a Material Adverse Effect on Company.
4.11 Contracts and Commitments. Neither Company nor any Company Subsidiary
has received notice from any person alleging that Company or any Company
Subsidiary is in default under any contracts within the scope of Section 6.21 as
to which it is reasonably foreseeable that an adverse determination would
result, individually or in the aggregate, in a Material Adverse Effect on
Company.
4.12 Registration Statement, Etc. None of the information supplied or to be
supplied by Company for inclusion or incorporation by reference in (a) the
Registration Statement to be filed by Merger Partner with the SEC in connection
with the Merger Partner Common Stock to be issued in the Merger (the
"Registration Statement"), (b) the Proxy Statement (the "Proxy Statement") to be
mailed to Company's stockholders in connection with the meeting (the
"Stockholders' Meeting") to be called to consider the Merger, and (c) any other
documents to be filed with the SEC in connection with the transactions
contemplated hereby (including the Registration Statement on Form 10 or, if
applicable, Form S-1 to be filed in connection with the Spin-off) will, at the
respective times such documents are filed and at the time such documents become
effective or at the time any amendment or supplement thereto becomes effective
contain any untrue statement of a material fact, or omit to state any material
fact required or necessary in order to make the statements therein not
misleading; and, in the case of the Registration Statement, when it becomes
effective or at the time any amendment or supplement thereto become effective,
cause the Registration Statement or such supplement or amendment to contain any
untrue statement of a material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; or, in the case of the Proxy Statement, when first mailed to the
stockholders of Company, or in the case of the Proxy Statement or any amendment
thereof or supplement thereto, at the time of the Stockholders' Meeting, cause
the Proxy Statement or any amendment thereof or supplement thereto to contain
any untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All documents that Company is responsible for filing with the SEC
and any other regulatory agency in connection with the Merger will comply as to
form in all material respects with the provisions of applicable law and any
applicable rules or regulations thereunder, except that no representation is
made by Company with respect to statements made therein based on information
supplied by Merger Partner or with respect to information concerning Merger
Partner or Sub which is incorporated by reference in the Registration Statement
or the Proxy Statement.
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4.13 Employee Benefit Plans.
----------------------
(a) Schedule 4.13 contains a list of each material plan, program,
arrangement, practice or contract which is maintained by Company or any Company
Subsidiary or to which Company or any Company Subsidiary is obligated to make
contributions and which provides benefits or compensation to or on behalf of
employees, including but not limited to executive arrangements (for example, any
bonus, incentive compensation, stock option, deferred compensation, commission,
severance, golden parachute or other executive compensation plans, programs,
contracts or arrangements) and "employee benefit plans" as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). All such plans, programs, arrangements, practices or contracts are
referred to herein as "Company Employee Plans." Company has made available to
Merger Partner the plan documents or other writing constituting each Company
Employee Plan and, if applicable, the trust, insurance contract or other funding
arrangement, the ERISA summary plan description and the most recent Forms 5500
and annual reports for each such plan. Company has identified those Company
Employee Plans which Company intends to satisfy the requirements of Section 401
of the Code and has made available to Merger Partner accurate copies of the most
recent favorable determination letters for such plans.
(b) With respect to each Company Employee Plan that is subject to
Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there
does not exist any accumulated funding deficiency within the meaning of Section
412 of the Code or Section 302 of ERISA, whether or not waived; (ii) no
reportable event within the meaning of Section 4043(c) of ERISA with respect to
which the 30-day notice period has not been waived has occurred before the date
of this Agreement, nor will any such event occur after the date of this
Agreement except by reason of the Spin-off; and (iii) all premiums required to
be paid to the Pension Benefit Guaranty Corporation have been timely paid in
full. There does not now exist, nor do any circumstances exist that could result
in, any Company Controlled Group Liability (as defined below) that would be a
liability of Company or any Company Subsidiary following the Effective Time.
"Company Controlled Group Liability" means any and all liabilities under (i)
Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the
Code and (iv) the continuation coverage requirements of Section 601 et seq. of
ERISA and Section 4980B of the Code, other than such liabilities that arise
solely out of, or relate solely to, the Company Employee Plans.
(c) Neither Company nor any Company Subsidiary is, or has been, a
participant in a multi-employer plan (within the meaning of ERISA Section
3(37)). Except as set forth in Schedule 4.13, neither Company nor any Company
Subsidiary maintains or has at any time maintained a Company Employee Plan which
is subject to Title IV of ERISA. Except as set forth in Schedule 4.13, neither
Company nor any Company Subsidiary is obligated to provide post employment or
retirement medical benefits or any other unfunded welfare benefits to or on
behalf of any person who is no longer an employee of Company or any Company
Subsidiary, except for health continuation coverage as required by Section 4980B
of the Code or Part 6 of Title I of ERISA.
(d) Except as set forth in Schedule 4.13, (i) each Company Employee
Plan has at all times been maintained, by its terms and in operation, in
accordance with all applicable laws, and
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(ii) each of those Company Employee Plans which are intended to be qualified
under Section 401 of the Code has at all times been maintained, by its terms and
in operation, in accordance with Section 401 of the Code, in each case except
where a failure to be so maintained would not have a Material Adverse Effect on
Company. Except as set forth in Schedule 4.13, as of December 31, 1995, neither
Company nor any of the Company Subsidiaries had any liability under any Company
Employee Plan that was not reflected in the Company audited consolidated balance
sheet at December 31, 1995 or disclosed in the notes thereto, other than
liabilities which individually or in the aggregate would not have a Material
Adverse Effect on Company.
(e) Except as set forth in Schedule 4.13, to the Knowledge of Company,
no prohibited transaction has occurred with respect to any Company Employee Plan
maintained by Company or any of the Company Subsidiaries that would result,
directly or indirectly, in the imposition of an excise tax or other liability
under the Code or ERISA, except for such a tax or other liability that would not
have a Material Adverse Effect on Company.
(f) Except as set forth in Schedule 4.13, all contributions or premium
payments with respect to the Company Employee Plans due for any period ending on
or before the Effective Time have been or will be timely paid by Company. Except
as set forth in Schedule 4.13, the execution of or performance of the
transactions contemplated by this Agreement will not create, accelerate or
increase any obligations under the Company Employee Plans which would have a
Material Adverse Effect on Company.
(g) Neither Spinco nor any entity owned or controlled by Spinco is, or
has been, a participant in a multi-employer plan (within the meaning of ERISA
Section 3(37)) or has maintained or contributed to a plan that is subject to
Title IV of ERISA.
4.14 Collective Bargaining; Labor Disputes; Compliance. The only collective
bargaining agreements to which Company or any of the Company Subsidiaries is a
party are set forth in Schedule 4.14 (the "Company Collective Bargaining
Agreements"). Except as set forth in Schedule 4.14, to the Knowledge of Company,
the employees of Company and the Company Subsidiaries are not represented by any
unions other than the unions which are parties to the Company Collective
Bargaining Agreements. Except as set forth in Schedule 4.14, neither Company nor
any of the Company Subsidiaries is currently, nor has been during the past three
years, the subject of any certification or decertification organization drive.
Neither Company nor any of the Company Subsidiaries is currently, nor has been
during the past three years, the subject of any strike relating to Company or
any of the Company Subsidiaries nor, to the Knowledge of Company, is any such
activity threatened. Each of Company and each Company Subsidiary has complied
with all laws relating to the employment and safety of labor, including
provisions relating to wages, hours, benefits, collective bargaining and all
applicable occupational safety and health acts, laws and regulations except, in
each case, where the failure to be in compliance would not, individually or in
the aggregate, have a Material Adverse Effect on Company. Each of Company and
the Company Subsidiaries has complied with the terms of each collective
bargaining agreement to which it is a party or is bound, except where the
failure to so comply would not have, individually or in the aggregate, a
Material Adverse Effect on Company.
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4.15 Brokers and Finders. Neither Company nor any of the Company
Subsidiaries, nor any of their respective officers, directors or employees, has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for Company or any of the Company
Subsidiaries, in connection with this Agreement or any of the transactions
contemplated hereby, except that Company has retained Goldman, Sachs & Co.
("Goldman Sachs") as its financial advisor, whose fees and expenses will be paid
by Company.
4.16 No Violation of Law.
-------------------
(a) The business and operations of the Company Insurance Subsidiaries
have been conducted in compliance with all applicable statutes and regulations
regulating the business of insurance and all applicable orders and directives of
insurance regulatory authorities and market conduct recommendations resulting
from market conduct examinations of insurance regulatory authorities
(collectively, "Insurance Laws"), except where the failure to so conduct such
business and operations would not individually or in the aggregate have a
Material Adverse Effect on Company. Notwithstanding the generality of the
foregoing, except where the failure to do so would not have, individually or in
the aggregate, a Material Adverse Effect on Company and except as set forth in
Schedule 4.16, each Company Insurance Subsidiary and its agents have marketed,
sold and issued insurance products in compliance, in all material respects, with
all statutes, laws, ordinances, rules, orders and regulations applicable to the
business of such Company Insurance Subsidiary and in the respective
jurisdictions in which such products have been sold, including, without
limitation, in compliance with (i) all applicable prohibitions against
"redlining," (ii) all applicable requirements relating to the disclosure of the
nature of insurance products as policies of insurance and (iii) all applicable
requirements relating to insurance product projections. In addition, except as
set forth in Schedule 4.16, (i) there is no pending or, to the Knowledge of
Company, threatened charge by any insurance regulatory authority that any of the
Company Insurance Subsidiaries has violated, nor any pending or, to the
Knowledge of Company, threatened investigation by any insurance regulatory
authority with respect to possible violations of, any applicable Insurance Laws
where such violations would have individually or in the aggregate a Material
Adverse Effect on Company; (ii) none of the Company Insurance Subsidiaries is
subject to any order or decree of any insurance regulatory authority relating
specifically to such Company Insurance Subsidiary (as opposed to insurance
companies generally) which would have individually or in the aggregate a
Material Adverse Effect on Company; and (iii) the Company Insurance Subsidiaries
have filed all reports required to be filed with any insurance regulatory
authority on or before the date hereof as to which the failure to file such
reports would have individually or in the aggregate a Material Adverse Effect on
Company.
(b) In addition to Insurance Laws, the business and operations of
Company and the Company Subsidiaries have been conducted in compliance with all
other applicable laws, ordinances, regulations and orders of all governmental
entities and other regulatory bodies (including, without limitation, laws,
ordinances, regulations and orders relating to zoning, environmental matters and
the safety and health of employees), except where such noncompliance,
individually or in the aggregate, would not have a Material Adverse Effect on
Company. Except as set forth in Schedule 4.16, in addition to Insurance Laws,
(i) neither Company nor any Company Subsidiary has
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been charged with or, to the Knowledge of Company, is now under investigation
with respect to, a violation of any applicable law, regulation, ordinance, order
or other requirement of a governmental entity or other regulatory body, which
violations or penalties would have, individually or in the aggregate, a Material
Adverse Effect on Company, (ii) neither Company nor any Company Subsidiary is a
party to or bound by any order, judgment, decree or award of a governmental
entity or other regulatory body which has or will have, individually or in the
aggregate, a Material Adverse Effect on Company; and (iii) Company and the
Company Subsidiaries have filed all reports required to be filed with any
governmental entity or other regulatory body on or before the date hereof as to
which the failure to file such reports would result, individually or in the
aggregate, in a Material Adverse Effect on Company. Company and the Company
Subsidiaries have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of the business of
Company and the Company Subsidiaries, except for permits, certificates,
licenses, approvals and other authorizations the failure of which to have would
not, individually or in the aggregate, have a Material Adverse Effect on Company
and except for such permits, certificates, licenses, approvals and other
authorizations required to be obtained in connection with the consummation of
the transactions contemplated hereby.
4.17 Indebtedness for Borrowed Money. Company has made available to Merger
Partner the instruments or other documents relating to all indebtedness of
Company or any Company Subsidiary for borrowed money the principal balance of
which is $10 million or more, whether such indebtedness is direct or indirect,
primary or secondary, by guarantee or otherwise.
4.18 Fairness Opinion. The Board of Directors of Company has received an
opinion dated December 28, 1996 from Goldman Sachs to the effect that as of such
date the consideration to be received by the stockholders of Company pursuant to
the Spin-off and the Merger, taken together, is fair to such stockholders.
4.19 Real Estate Operations. Except as otherwise would not have a Material
Adverse Effect on Company:
(a) Schedules A, B, BA and D of the statutory statements of the
Company Insurance Subsidiaries for the year ended December 31, 1995 contain true
and complete disclosures of all "Real Estate Owned" (Schedule A Assets),
"Mortgage Loans" (Schedule B Assets), "Partnership Interests" in partnerships
owning real estate (Schedule BA Assets) and "Credit Tenant Loans and Industrial
Revenue Bonds with Publicly Traded Borrowers" (Schedule D) owned by the Company
Insurance Subsidiaries as of December 31, 1995. All Real Estate Owned, Mortgage
Loans and Partnership Interests owned by Company or any Company Subsidiaries are
collectively hereinafter referred to as "Real Estate Assets." All information
concerning the Real Estate Assets in the statutory statements of the Company
Insurance Subsidiaries for the year ended December 31, 1995 is true and complete
in all material respects in the opinion of Company; all values expressed in such
statements fairly represent Company's opinion of the value of the Real Estate
Owned and Partnership Interests; and reserves taken in respect of impairment to
value of the Mortgage Loans are in the opinion of Company adequate to fairly
represent such impairment.
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(b) All Real Estate Assets comply with all regulations of the
applicable authorities of the domiciliary jurisdiction of the Company Insurance
Subsidiary owning such assets to qualify as "admitted assets" pursuant to the
laws and regulations of such domicile.
(c) To the Knowledge of Company without inspection or inquiry other
than the most recent property inspection report, each Real Estate Owned asset
and all activities upon, or use or occupancy of, such assets are in material
compliance with all applicable laws, including Environmental Laws (as defined
below). For each Real Estate Owned asset and commercial mortgage loan originated
since 1989, Company has obtained an environmental report covering the
environmental condition of the asset. As used in this Agreement, the term
"Environmental Laws" shall mean all state, federal and local laws and all rules
and regulations promulgated thereunder governing or in any way relating to the
generation, handling, manufacturing, treatment, storage, use, transportation,
spillage, leakage, dumping, release, discharge or disposal of any contaminant,
pollutant or hazardous or toxic substance, material or waste, or other
environmentally regulated material including, but not limited to, those
substances, materials and wastes listed in the United States Department of
Transportation Table (49 CRF 172.101) or by the Environmental Protection Agency
as a hazardous substance, material or waste or which is or becomes regulated
under any applicable local, state or federal law and all rules and regulations
promulgated thereunder, including, without limitation, any of the following
materials, wastes or substances: (i) petroleum and petroleum products, (ii)
asbestos in any form, (iii) polychlorinated biphenyls, (iv) urea formaldehyde,
(v) atmospheric radon at levels over four (4) picocuries per cubic liter, (vi)
those designated as a "hazardous substance" pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (vii)
those defined as a "hazardous substance" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42
U.S.C. Section 6903), or (viii) those defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C.
Section 9601). Neither Company nor any Company Subsidiary has participated in
the management of any of the partnership properties or of the borrowers under
the Mortgage Loans or has participated in the management or operation of the
real property encumbered by any of the Mortgage Loans or any of the improvements
located on said real property. As used in this Section 4.19(c) "participated in
the management" shall have the meaning ascribed to such phrase in the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 and
"operation" shall have the meaning ascribed in 42 U.S.C. 6901 et. seq.
(d) Based solely on opinions from partnership counsel obtained upon
the acquisition of such partnership interests, all Schedule BA assets are valid
limited partnership interests in partnerships which are legally formed.
(e) Company or a Company Subsidiary is owner of a fee simple interest
in all Real Estate Owned assets and such assets are free and clear of prior
monetary liens and encumbrances, except for Company Permitted Liens and
Encumbrances (as defined in Section 4.24), and except as disclosed in the
statutory statements.
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(f) Company or a Company Subsidiary is the sole named insured on a
policy of title insurance with respect to each of the Real Estate Assets (other
than Partnership Interests), and each of said title insurance policies insures
Company as the holder of a first priority mortgage in regard to Mortgage Loans
and as the fee simple owner in regard to Real Estate Owned.
(g) Company or the Company Subsidiary owning each Mortgage Loan asset
(hereinafter sometimes referred to as "Lender") has possession of the original
promissory note or notes creating such Mortgage Loan debt and all other
documents creating, evidencing or modifying the Mortgage Loan or its terms and
conditions. The lien associated with each Mortgage Loan constitutes a first
priority lien against the property purported to be encumbered, subject to
certain exceptions.
(h) To the Knowledge of Company, none of the Mortgage Loans is cross-
defaulted or cross-collateralized with a loan owned by Spinco.
4.20 DGCL Section 203. Assuming the accuracy of Merger Partner's
representations and warranties contained in Section 5.19, prior to the date
hereof Company has taken all appropriate actions so that the restrictions on
business combinations contained in DGCL Section 203 will not apply with respect
to or as a result of this Agreement, the Distribution Agreement, the Merger or
the Spin-off.
4.21 Spin-off; Merger. Neither Company nor any Company Subsidiary has taken
any action or failed to take any action which action or failure to take action
would jeopardize the Spin-off as a tax-free distribution within the meaning of
Section 355 of the Code or the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
4.22 Voting Requirements. The affirmative vote of the holders of a majority
of the shares of Company Common Stock with respect to this Agreement and the
Merger is the only vote of the holders of any class or series of Company's
capital stock necessary to approve this Agreement and the transactions
contemplated by this Agreement.
4.23 Business Operating Condition. Except as listed in Schedule 4.23 and
except as otherwise would not have a Material Adverse Effect on Company, all
furniture, fixtures, machinery and equipment necessary to conduct the businesses
and operations of Company and the Company Insurance Subsidiaries in
substantially the same manner as such businesses and operations are carried on
currently by Company and the Company Insurance Subsidiaries are in the
possession of Company and in good working order and condition for the purposes
for which they are currently used.
4.24 Assets.
(a) Except as set forth in Schedule 4.24 or as otherwise would not
have a Material Adverse Effect on Company and except for Company Permitted Liens
and Encumbrances (as defined below), Company and/or the Company Subsidiaries
have good and valid title to all personal property (including, without
limitation, Company Investment Assets (as defined below)) that was carried as
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an asset on the Spin-off Adjusted Financial Statements or acquired in the
ordinary course of business since September 30, 1996, other than with respect to
those assets which have been disposed of in the ordinary course of business or
redeemed in accordance with their terms since such date or with respect to
statutory deposits which are subject to certain restrictions on transfer. As
used in this Agreement, "Company Permitted Liens and Encumbrances" means, as to
any assets or property, any (i) liens or encumbrances securing taxes,
assessments or other governmental charges which are not yet due or which are
being diligently contested in good faith by appropriate proceedings if adequate
reserves have been established in accordance with generally accepted accounting
principles or the statutory accounting principles and practices prescribed or
permitted by the insurance department of the state of domicile of a Company
Insurance Subsidiary, as appropriate, or, in the case of Mortgage Loans, funds
are held in escrow sufficient to discharge such liens or the borrower has posted
a bond in the amount of such lien, (ii) liens or encumbrances imposed by law or
incurred in the ordinary course of business with respect to the claims of
materialmen, mechanics, carriers, warehousemen, landlords and other Persons (as
defined below) which (A) are not yet due and payable and which do not materially
detract from the value of such property or assets or materially impair the use
thereof by Company and the Company Subsidiaries in the operation of their
respective businesses, or (B) are being diligently contested in good faith and
by proper proceedings if adequate reserves have been established with respect
thereto in accordance with generally accepted accounting principles or the
statutory accounting principles and practices prescribed or permitted by the
insurance department of the state of domicile of a Company Insurance Subsidiary,
as appropriate, and (iii) liens and encumbrances that would not, individually or
in the aggregate, have a Material Adverse Effect on Company. As used in this
Agreement "Company Investment Assets" means bonds, stocks, mortgage loans or
other investments that are carried on the books and records of Company and the
Company Insurance Subsidiaries. As used in this Agreement, "Person" means any
individual, corporation, partnership, firm, joint venture, association, joint-
stock company, trust, unincorporated organization, governmental, judicial or
regulatory body, business unit, division or other entity.
(b) The annual statement of each Company Insurance Subsidiary for the
year ended December 31, 1995 sets forth a list, which list is accurate and
complete in all material respects, of all Company Investment Assets owned by
such Company Insurance Subsidiary as of December 31, 1995, together with the
cost basis book or amortized value, as the case may be, of such Company
Investment Assets as of December 31, 1995.
4.25 Computer Software. Company owns, or possesses valid license rights to,
all computer software programs that are material to the conduct of the business
of Company and the Company Insurance Subsidiaries taken as a whole. Except as
listed in Schedule 4.25, there are no infringement suits, actions or proceedings
pending or, to the Knowledge of Company, threatened against Company or any
Company Insurance Subsidiary with respect to any software owned or licensed by
Company or any Company Subsidiary, which, if determined adversely, would have,
either individually or in the aggregate, a Material Adverse Effect on Company.
4.26 Intellectual Property. Company owns, or possesses valid license rights
to, all intellectual property that is material to the conduct of the business of
Company and the Company Insurance Subsidiaries taken as a whole. Except as
listed in Schedule 4.26, Company has not
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received any notice of any conflict with or violation or infringement of, any
asserted rights of any other Person with respect to any such intellectual
property owned or licensed by Company or any Company Insurance Subsidiary,
which, if determined adversely, would have, either individually or in the
aggregate, a Material Adverse Effect on Company.
4.27 Permits, Licenses and Franchises. Schedule 4.27 lists (i) all
jurisdictions in which each Company Insurance Subsidiary is licensed to transact
the business of insurance and (ii) the lines of business which each Company
Insurance Subsidiary is authorized to transact in each such jurisdiction. Except
as listed in Schedule 4.27, to the Knowledge of Company, except as otherwise
would not have a material adverse effect on the financial condition, business or
results of operation of any Company Business Unit taken as a whole, neither
Company nor any Company Insurance Subsidiary has engaged in any activity which
would cause revocation or suspension of any license to transact the business of
insurance and no action or proceeding looking to or contemplating the revocation
or suspension of any license to transact the business of insurance is pending or
threatened.
4.28 Insurance Business. Except as listed in Schedule 4.28 and except as
otherwise would not have a Material Adverse Effect on Company, all policies,
binders, slips, certificates, annuity contracts and participation agreements and
other agreements of insurance, whether individual or group, in effect as of the
date hereof (including all supplements, endorsements, riders and ancillary
agreements in connection therewith) that are issued by the Company Insurance
Subsidiaries (the "Company Insurance Contracts"), are, to the extent required
under applicable law, on forms approved by applicable insurance regulatory
authorities or which have been filed and not objected to by such authorities
within the period provided for objection, and such forms comply in all material
respects with the insurance statutes, regulations and rules applicable thereto.
Premium rates established by the Company Insurance Subsidiaries that are
required to be filed with or approved by insurance regulatory authorities have
been so filed or approved, the premiums charged conform thereto in all material
respects, and such premiums comply in all material respects with the insurance
statutes, regulations and rules applicable thereto, except where the failure to
be so filed or approved, or to so conform or comply, would not, individually or
in the aggregate, have a Material Adverse Effect on Company.
4.29 Threats of Cancellation. Except as disclosed in Schedule 4.29 and
except for terminations at maturity or in the ordinary course of business, since
January 1, 1996 and through the date hereof, no individual policyholder (or
individual party to a joinder agreement) which accounted for $5 million or more
in premium income and policyholder deposits for the year ended December 31, 1995
has terminated or, to the Knowledge of Company, has given written notice of
termination of, its relationship with any Company Insurance Subsidiary.
4.30 Liabilities and Reserves.
------------------------
(a) The reserves carried on the books of each Company Insurance
Subsidiary for the year ended December 31, 1995 for future insurance policy
benefits, losses, claims and similar purposes are in compliance in all material
respects with the requirements for reserves established by the insurance
departments of the state of domicile of such Company Insurance Subsidiary, were
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determined in all material respects in accordance with generally accepted
actuarial standards consistently applied, and are fairly stated in all material
respects in accordance with sound actuarial principles. Company has delivered to
Merger Partner true, correct and complete copies of the actuarial valuation
reports delivered to the insurance department of the domiciliary state of each
Company Insurance Subsidiary for the years ended December 31, 1995 and 1994.
(b) Company has delivered to Merger Partner true, complete and correct
copies of all analyses, reports and other data prepared or submitted by any
Company Insurance Subsidiary to insurance regulatory authorities relating to
risk based capital calculations for the years ended December 31, 1995 and 1994.
(c) Except for regular periodic assessments in the ordinary course of
business or except as set forth in Schedule 4.30(c), no claim or assessment is
pending nor, to the Knowledge of Company, threatened against any Company
Insurance Subsidiary by any state insurance guaranty association in connection
with such association's fund relating to insolvent insurers which if determined
adversely, would have, either individually or in the aggregate, a Material
Adverse Effect on Company.
4.31 Separate Accounts.
(a) Each separate account maintained by a Company Insurance Subsidiary
is listed in Schedule 4.31 (collectively, the "Company Separate Accounts").
Except as otherwise would not, individually or in the aggregate, have a Material
Adverse Effect on Company, each Company Separate Account is duly and validly
established and maintained under the laws of its state of formation and is
either excluded from the definition of an investment company pursuant to Section
3(c)(11) of the Investment Company Act of 1940 (the "1940 Act") or is duly
registered as an investment company under the 1940 Act. Except as otherwise
would not, individually or in the aggregate, have a Material Adverse Effect on
Company, each such Company Separate Account, if registered, is operated in
compliance with the 1940 Act, has filed all reports and amendments of its
registration statement required to be filed, and has been granted all exemptive
relief necessary for its operations as presently conducted. Except as otherwise
would not, individually or in the aggregate, have a Material Adverse Effect on
Company, the Company Insurance Contracts under which Company Separate Account
assets are held are duly and validly issued and are either exempt from
registration under the Securities Act pursuant to Section 3(a)(2) of the
Securities Act or were sold pursuant to an effective registration statement
under the Securities Act, and any such registration statement is currently in
effect to the extent necessary to allow the appropriate Company Insurance
Subsidiary to receive contributions under such policies.
(b) Except as otherwise would not, individually or in the aggregate,
have a Material Adverse Effect on Company, to the extent required, the assets of
each Company Separate Account are adequately diversified within the meaning of
Section 817(h) of the Code.
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4.32 Funds.
(a) Each of the mutual funds presently intended to be sponsored by a
Company Insurance Subsidiary is listed on Schedule 4.32 (the "Funds"). Except as
listed on Schedule 4.32 and except as otherwise would not have a Material
Adverse Effect on Company, (i) each Fund will be duly registered with the SEC as
an open-end management investment company under the 1940 Act, (ii) each Fund
will be in material compliance with the 1940 Act and the SEC regulations
promulgated thereunder, including the requirements to file semi-annual or annual
reports on N-SAR with the SEC, (iii) all shares of the Funds will be duly
registered under the Securities Act and any applicable state securities laws,
and (iv) each of the Funds will be duly incorporated and in good standing under
the laws of the state of its incorporation or will be a validly existing
business trust under the laws of the jurisdiction in which it was formed.
(b) Except as otherwise would not have a Material Adverse Effect on
Company, Providian Investment Advisors, Inc. (the "Manager") is duly registered
under the Investment Advisers Act of 1940.
4.33 Insurance. The insurance maintained by Company and the Company
Subsidiaries insures against risks and liabilities to the extent and in the
manner reasonably deemed appropriate and sufficient by Company or such Company
Subsidiary, and the coverage provided thereunder will not be materially and
adversely affected by the Merger. Schedule 4.33 sets forth a list of the
insurance policies held by Company relating to directors' and officers'
liability insurance.
4.34 Solvency of Spinco. After giving effect to the Spin-off, Spinco will
not be insolvent and will not be rendered insolvent by the transactions
contemplated by this Agreement or the Distribution Agreement.
4.35 Investigation by Company. Company has conducted its own independent
review and analysis of the businesses, assets, condition, operations and
prospects of Merger Partner and the Merger Partner Subsidiaries and acknowledges
that Company has been provided access to the properties, premises and records of
Merger Partner and the Merger Partner Subsidiaries for this purpose. In entering
into this Agreement, Company has relied solely upon its own investigation and
analysis and the representations and warranties contained herein, and Company:
(a) acknowledges that none of Merger Partner, the Merger Partner
Subsidiaries or any of their respective directors, officers, employees,
affiliates, agents or representatives makes any representation or warranty,
either express or implied, as to the accuracy or completeness of any of the
information provided or made available to Company or their agents or
representatives prior to the execution of this Agreement; and
(b) agrees, to the fullest extent permitted by law, that none of
Merger Partner, the Merger Partner Subsidiaries or any of their respective
directors, officers, employees, affiliates, agents or representatives shall have
any liability or responsibility whatsoever to Company on any basis (including,
without limitation, in contract or tort, under federal or state securities laws
or otherwise)
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based upon any information provided or made available, or statements made, to
Company prior to the execution of this Agreement,
except that the foregoing shall not apply (i) to the extent Merger Partner makes
the specific representations and warranties set forth in Article 5 of this
Agreement and in the Disclosure Schedules, but always subject to the limitations
and restrictions contained in this Agreement and in such Disclosure Schedules,
or (ii) to the extent Merger Partner, the Merger Partner Subsidiaries or any of
their respective directors, officers, employees, affiliates, agents or
representatives commits fraud with respect to the information that it provides
or makes available to the Company.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
MERGER PARTNER AND SUB
Each of Merger Partner and Sub hereby represents and warrants to Company as
follows (the words "to the Knowledge of Merger Partner" or "to Merger Partner's
Knowledge" and any words of similar import shall mean that any one of the
persons listed in Exhibit C has actual knowledge of the matter):
5.1 Organization, Good Standing and Power. Merger Partner is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Merger Partner is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties make such qualification
or licensing necessary, except where the failure to be so qualified or licensed
or to be in good standing would not, individually or in the aggregate, have a
Material Adverse Effect on Merger Partner (as defined below). Merger Partner has
delivered to Company complete and correct copies of its articles or certificate
of incorporation, bylaws or other organizational documents and all amendments
thereto to the date hereof. As used in this Agreement, the phrase "Material
Adverse Effect on Merger Partner" means a material adverse effect on (a) the
financial condition, business or results of operations of Merger Partner and the
Merger Partner Subsidiaries on a consolidated basis or (b) the ability of Merger
Partner or Sub to consummate the transactions contemplated by this Agreement.
5.2 Capitalization. The authorized capital stock of Merger Partner consists
of 525,000,000 shares of Common Stock, par value of one Dutch Guilder per share,
of which as of November 30, 1996, 265,176,630 shares were issued and
outstanding, 350,000,000 shares of Preferred Stock, par value one Dutch Guilder
per share ("Merger Partner Preferred Stock"), of which as of the date hereof
80,000,000 shares are issued and outstanding and 125,000,000 shares of Preferred
Stock convertible into Merger Partner Common Stock, par value one Dutch Guilder
per share, none of which is issued or outstanding. All outstanding shares of
Merger Partner Common Stock are, and all shares which may be issued prior to the
Effective Date pursuant to any outstanding
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stock options issued by Merger Partner will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. All of the shares of Merger Partner Common Stock to be issued in
exchange for Company Common Stock at the Effective Time in accordance with this
Agreement will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights. Except as set forth above, as
of November 30, there were no shares of capital stock or other equity securities
of Merger Partner outstanding, and, except as set forth in Schedule 5.2, there
are no outstanding options, warrants or rights to purchase or acquire from
Merger Partner any capital stock of Merger Partner, there are no existing
registration covenants with Merger Partner with respect to outstanding shares of
Merger Partner Common Stock, and there are no convertible securities or other
contracts, commitments, agreements, understandings, arrangements or restrictions
by which Merger Partner is bound to issue any additional shares of its capital
stock or other securities.
5.3 Merger Partner Subsidiaries; Voting Trusts. Schedule 5.3 sets forth a
correct and complete list of each corporation, association, subsidiary or other
entity of which Merger Partner owns or controls, directly or indirectly, more
than 20% of the outstanding equity securities and which is material to the
operations of Merger Partner and its subsidiaries, taken as a whole (such
entities are hereinafter referred to as "Merger Partner Entities"). Any Merger
Partner Entity of which Merger Partner owns or controls, directly or indirectly,
more than 50% of the outstanding equity securities is hereinafter referred to
individually as a "Merger Partner Subsidiary" and such entities are referred to
collectively as the "Merger Partner Subsidiaries." Except as disclosed in
Schedule 5.3, Merger Partner owns, directly or indirectly, the securities of
each Merger Partner Entity held by Merger Partner, free and clear of all liens,
charges, pledges, security interests or other encumbrances. All of the capital
stock of each Merger Partner Subsidiary has been duly authorized, and is validly
issued, fully paid and nonassessable. Except as disclosed in Schedule 5.3, there
are no outstanding options or rights to subscribe to, or any contracts or
commitments to issue or sell any shares of the capital stock or any securities
or obligations convertible into or exchangeable for, or giving any person any
right to acquire, any shares of the capital stock of any Merger Partner Entity
to which Merger Partner or any Merger Partner Subsidiary is a party. Except as
disclosed in Schedule 5.3, there are no voting trusts or other agreements or
understandings with respect to the voting of capital stock of Merger Partner or
any Merger Partner Subsidiary to which Merger Partner or any Merger Partner
Subsidiary is a party. Each Merger Partner Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has the corporate power and authority
necessary for it to own or lease its properties and assets and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority
would not, individually or in the aggregate, have a Material Adverse Effect on
Merger Partner. Each Merger Partner Subsidiary is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed or to be in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on Merger Partner.
5.4 Authority; Enforceability. Each of Merger Partner and Sub has the
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby,
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subject to the approval of this Agreement by insurance regulatory authorities
and banking regulatory authorities and subject to compliance with the provisions
of the HSR Act. Subject to such approvals and compliance, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of each of Merger Partner and Sub (including all necessary approvals on the part
of Vereniging AEGON (the "Association")), and this Agreement has been duly
executed and delivered by Merger Partner and Sub and constitutes the valid and
binding obligation of each such party, enforceable against it in accordance with
its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) subject to general principles of equity.
5.5 Non-Contravention; Consents.
---------------------------
(a) Except as set forth in Schedule 5.5, neither the execution, delivery
and performance by Merger Partner or Sub of this Agreement, nor the consummation
by Merger Partner or Sub of the transactions contemplated hereby, nor compliance
by Merger Partner or Sub with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in a right of termination
or acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Merger Partner or Sub,
under any of the terms, conditions or provisions of, (x) its respective
organizational documents, or (y) any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to
which Merger Partner or any of the Merger Partner Subsidiaries is a party,
or by which Merger Partner or any of the Merger Partner Subsidiaries may be
bound, or to which Merger Partner or any of the Merger Partner Subsidiaries
or the properties or assets of any of them may be subject, and that would,
in any such event, specified in this clause (y) have, individually or in
the aggregate, a Material Adverse Effect on Merger Partner; or
(ii) subject to compliance with the statutes and regulations referred
to in Section 5.5, violate any valid and enforceable judgment, ruling,
order, writ, injunction, decree, or any statute, rule or regulation
applicable to Merger Partner or any of the Merger Partner Subsidiaries or
any of their respective properties or assets where such violation would,
individually or in the aggregate, have a Material Adverse Effect on Merger
Partner.
(b) Except as set forth in Schedule 5.5 and other than notices,
filings, authorizations, exemptions, consents or approvals, the failure of which
to give or obtain would not, individually or in the aggregate, have a Material
Adverse Effect on Merger Partner, no notice to, filing with, authorization of,
exemption by, or consent or approval of, any governmental authority or other
regulatory body is necessary for the consummation by Merger Partner or Sub of
the transactions contemplated by this Agreement.
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5.6 SEC Reports; Merger Partner Financial Statements.
------------------------------------------------
(a) Since January 1, 1995, Merger Partner has timely filed all
reports, registration statements, proxy statements or information statements and
all other documents, together with any amendments required to be made thereto,
required to be filed with the SEC under the Securities Act or the Exchange Act
(collectively, the "Merger Partner Reports"). Merger Partner has heretofore made
available to Company true copies of all the Merger Partner Reports, together
with all exhibits thereto, that Company has requested. Included in such Merger
Partner Reports are (i) audited consolidated balance sheets of Merger Partner
and its subsidiaries at December 31, 1994 and 1995 and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended, and the notes thereto and (ii) the unaudited balance sheets of Merger
Partner and its subsidiaries at March 31, 1996, June 30, 1996 and September 30,
1996 and the related unaudited statements of income, stockholders' equity and
cash flows for the periods then ended and the notes thereto, each consolidated
to the extent indicated therein.
(b) All of the financial statements included in the Merger Partner
Reports (which are collectively referred to herein as the "Merger Partner
Consolidated Financial Statements") fairly presented in all material respects
the consolidated financial position of Merger Partner and its subsidiaries as at
the dates mentioned and the consolidated results of operations, changes in
stockholders' equity and cash flows for the periods then ended in conformity
with Dutch accounting principles with a reconciliation on an annual basis to
United States generally accepted accounting principles applied on a consistent
basis (subject to any exceptions as to consistency specified therein or as may
be indicated in the notes thereto or in the case of the unaudited statements, as
may be permitted by Form 6-K of the SEC and subject, in the case of unaudited
statements, to normal, recurring audit adjustments). As of their respective
dates, the Merger Partner Reports complied in all material respects with all
applicable rules and regulations promulgated by the SEC and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Except as set
forth in the Merger Partner Reports, neither Merger Partner nor any Merger
Partner Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by Dutch accounting
principles to be set forth on a consolidated balance sheet of Merger Partner and
its consolidated subsidiaries or in the notes thereto, other than liabilities or
obligations which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Merger Partner.
5.7 Statutory Statements. Merger Partner has previously furnished to
Company the annual statements (or equivalent statements) of each Merger Partner
Insurance Subsidiary (as defined below) that is engaged in the business of
insurance in the United States, the United Kingdom and The Netherlands for the
years ended December 31, 1994 and December 31, 1995, which have been filed with
the insurance regulatory authority of the jurisdiction of organization of such
Merger Partner Insurance Subsidiary, and statutory statements, where required,
for each such Merger Partner Insurance Subsidiary for the periods ended March
31, 1996, June 30, 1996 and September 30, 1996, and Merger Partner shall
promptly furnish to Company all statutory statements for any calendar years
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or quarters ending thereafter but prior to the Effective Time. As used herein,
the term "Merger Partner Insurance Subsidiary" means each Merger Partner
Subsidiary that is engaged in the business of insurance. Except as set forth in
Schedule 5.7, such statutory statements (or equivalent statements) present or
will present fairly in all material respects the admitted assets, liabilities
and surplus of each Merger Partner Insurance Subsidiary at the end of each of
the periods then ended, and the results of its operations and changes in its
surplus for each of the periods then ended in conformity with accounting
practices prescribed or permitted by the insurance regulatory authority of the
jurisdiction of organization of such Merger Partner Insurance Subsidiary,
applied on a consistent basis as and to the extent described in such statutory
statements (or equivalent statements).
5.8 Absence of Certain Changes or Events. Except as disclosed in Schedule
5.8 and the Merger Partner Reports and except for the transactions contemplated
by this Agreement or the Distribution Agreement, since December 31, 1995, Merger
Partner and the Merger Partner Subsidiaries have conducted their business in all
material respects only in the ordinary course, and there has not been (i) any
change in the business, financial condition or results of operations of Merger
Partner and the Merger Partner Subsidiaries which has had a Material Adverse
Effect on Merger Partner, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of Merger Partner's outstanding capital stock, except regular cash and
stock dividends with respect to its capital stock, or (iii) any split,
combination or reclassification of any of Merger Partner's outstanding capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Merger
Partner's outstanding capital stock. Notwithstanding the foregoing, the
representation contained in this Section 5.8 shall not apply to any change or
development, or combination of changes or developments, to the extent such
changes and developments are the result of adverse changes in general economic
conditions, stock market fluctuations or conditions or adverse changes in or
affecting the insurance industry generally.
5.9 Taxes and Tax Returns. Except as disclosed in Schedule 5.9:
---------------------
(a) Merger Partner and the Merger Partner Subsidiaries have (i) duly
filed (or there has been filed on their behalf) with appropriate governmental
authorities all tax returns required to be filed by them, on or prior to the
date thereof, except to the extent that any failure to file would not,
individually or in the aggregate, have a Material Adverse Effect on Merger
Partner, and (ii) duly paid in full or made provisions in accordance with Dutch
generally accepted accounting principles (or there has been paid or provision
has been made on their behalf) for the payment of all material taxes for all
periods ending through the date hereof, except to the extent that any failure to
pay or make provision for the payment of such taxes would not, individually or
in the aggregate, have a Material Adverse Effect on Merger Partner;
(b) no federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any taxes
or tax returns of Merger Partner or the Merger Partner Subsidiaries wherein an
adverse determination or ruling in any one such proceeding or in all such
proceedings in the aggregate would have a Material Adverse Effect on Merger
Partner;
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(c) the United States federal income tax returns of each Merger
Partner Subsidiary have been examined by the IRS (or the applicable statutes of
limitation for the assessment of federal income taxes for such periods have
expired) for all periods through and including December 31, 1987. No
deficiencies have been asserted as a result of such examinations (or as a result
of examinations by any non-United States taxing authorities) that have not been
resolved and fully paid which would have, individually or in the aggregate, a
Material Adverse Effect on Merger Partner. Neither Merger Partner nor any Merger
Partner Subsidiary has granted any requests, agreements, consents or waivers to
extend the statutory period of limitations applicable to the assessment of any
taxes with respect to any tax returns of such Merger Partner Subsidiary; and
(d) all annuity contracts and life insurance policies issued by a
Merger Partner Insurance Subsidiary in the United States meet all definitional
or other requirements for qualification under the Code applicable (or intended
to be applicable) to such annuity contracts or life insurance policies,
including, without limitation, the following: (A) any life insurance policies
that meet the requirements of Sections 101(f) or 7702 of the Code, as
applicable; (B) any annuity contracts that are intended to qualify as "annuity
contracts" (excluding contracts that are described in Section 72(s) of the Code)
meet the requirements of Section 72(s) of the Code; (C) any annuity contracts
that are intended to qualify under Sections 130, 403(a), 403(b) or 408(b) of the
Code contain all provisions required for qualification under such sections of
the Code; and (D) any annuity contracts that are marketed as, or in connection
with, plans that are intended to qualify under Sections 401, 403, 408 or 457 of
the Code comply with the requirements of such sections; except in the case of
any of the foregoing to the extent that any failure to so meet such requirements
has not and would not, individually or in the aggregate, have a material adverse
effect on the financial condition, business or results of operations of the
United States operations of Merger Partner.
5.10 Litigation. Except as disclosed in Schedule 5.10 or in the Merger
Partner Reports, neither Merger Partner nor any Merger Partner Subsidiary is a
party to any pending or, to the Knowledge of Merger Partner, threatened, claim,
action, suit, investigation or proceeding which would reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect on
Merger Partner. Except as disclosed in Schedule 5.10, at the date of this
Agreement, neither Merger Partner nor any Merger Partner Insurance Subsidiary
has received actual notice of any proceeding, claim or investigation pending or
threatened against Merger Partner or any Merger Partner Insurance Subsidiary
before any insurance department or agency which would reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect on
Merger Partner. Except as disclosed in Schedule 5.10, at the date of this
Agreement there is no outstanding order, writ, judgment, stipulation,
injunction, decree, determination, award or other decision against Merger
Partner or any Merger Partner Subsidiary which, either individually or in the
aggregate, has had or would have a Material Adverse Effect on Merger Partner.
5.11 Contracts and Commitments. Except as set forth in Schedule 5.11,
neither Merger Partner nor any Merger Partner Subsidiary has received notice
from any person alleging that Merger Partner or any Merger Partner Subsidiary is
in default under any contracts, agreements, leases, commitments, assignments in
other interests which are material to Merger Partner and the Merger
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Partner Subsidiaries as a whole as to which it is reasonably foreseeable that an
adverse determination would result, individually or in the aggregate, in a
Material Adverse Effect on Merger Partner.
5.12 Registration Statement, Etc. None of the information supplied or to be
supplied by Merger Partner for inclusion or incorporation by reference in (a)
the Registration Statement, (b) the Proxy Statement and (c) any other documents
to be filed with the SEC in connection with the transactions contemplated hereby
(including the Registration Statement on Form 10 or, if applicable, Form S-1, to
be filed in connection with the Spin-off) will, at the respective times such
documents are filed, and, in the case of the Registration Statement, when it
becomes effective, cause the Registration Statement to contain any untrue
statement of a material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading, or, in the case of the
Proxy Statement, when first mailed to the stockholders of Company, or in the
case of the Proxy Statement or any amendment thereof or supplement thereto, at
the time of the Stockholders' Meeting, cause the Proxy Statement or any
amendment thereof or supplement thereto to contain any untrue statement of a
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All documents that Merger Partner is responsible for filing with
the SEC and any other regulatory agency in connection with the Merger will
comply as to form in all material respects with the provisions of applicable
law, except that no representation is made by Merger Partner with respect to
statements made therein based on information supplied by Company or with respect
to information concerning Company or Sub which is incorporated by reference in
the Registration Statement or the Proxy Statement.
5.13 Employee Benefit Plans.
----------------------
(a) Schedule 5.13 contains a list of each material plan, program,
arrangement, practice or contract which is maintained by Merger Partner or any
Merger Partner Subsidiary or to which Merger Partner or any Merger Partner
Subsidiary is obligated to make contributions and which provides benefits or
compensation to or on behalf of persons employed in the United States, including
but not limited to executive arrangements (for example, any bonus, incentive
compensation, stock option, deferred compensation, commission, severance, golden
parachute or other executive compensation plans, programs, contracts or
arrangements) and "employee benefit plans" as defined in Section 3(1) of ERISA.
All such plans, programs, arrangements, practices or contracts are referred to
herein as "Merger Partner Employee Plans." Merger Partner has made available to
Company the plan documents or other writing constituting each Merger Partner
Employee Plan and, if applicable, the trust, insurance contract or other funding
arrangement, the ERISA summary plan description and the most recent Forms 5500
and annual reports for each such plan. Merger Partner has identified those
Merger Partner Employee Plans which Merger Partner intends to satisfy the
requirements of Section 401 of the Code and has made available to Company
accurate copies of the most recent favorable determination letters for such
plans.
(b) With respect to each Merger Partner Employee Plan that is subject
to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i)
there does not exist any accumulated funding deficiency within the meaning of
Section 412 of the Code or Section 302 of
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ERISA, whether or not waived; (ii) no reportable event within the meaning of
Section 4043(c) of ERISA with respect to which the 30-day notice period has not
been waived has occurred; and (iii) all premiums required to be paid to the
Pension Benefit Guaranty Corporation have been timely paid in full. There does
not now exist, nor do any circumstances exist that could result in, any Merger
Partner Controlled Group Liability (as defined below) that would be a liability
of Merger Partner or any Merger Partner Subsidiary following the Effective Time.
"Merger Partner Controlled Group Liability" means any and all liabilities under
(i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of
the Code and (iv) the continuation coverage requirements of Section 601 et seq.
of ERISA and Section 4980B of the Code, other than such liabilities that arise
solely out of, or relate to, the Merger Partner Employee Plans.
(c) Neither Merger Partner nor any Merger Partner Subsidiary is, or
has been, a participant in a multi-employer plan (within the meaning of ERISA
Section 3(37)). Except as set forth in Schedule 5.13, neither Merger Partner
nor any Merger Partner Subsidiary maintains or has at any time maintained a
Merger Partner Employee Plan which is subject to Title IV of ERISA. Except as
set forth in Schedule 5.13, neither Merger Partner nor any Merger Partner
Subsidiary is obligated to provide post employment or retirement medical
benefits or any other unfunded welfare benefits to or on behalf of any person
who is no longer an employee of Merger Partner or any Merger Partner Subsidiary,
except for health continuation coverage as required by Section 4980B of the Code
or Part 6 of Title I of ERISA.
(d) Except as set forth in Schedule 5.13, (i) each Merger Partner
Employee Plan has at all times been maintained, by its terms and in operation,
in accordance with all applicable laws, and (ii) each of those Merger Partner
Employee Plans which are intended to be qualified under Section 401 of the Code
has at all times been maintained, by its terms and in operation, in accordance
with Section 401 of the Code, except where a failure to be so maintained would
not have a Material Adverse Effect on Merger Partner. Except as set forth in
Schedule 5.13, as of December 31, 1995, neither Merger Partner nor any of the
Merger Partner Subsidiaries had any liability under any Merger Partner Employee
Plan that was not reflected in the Merger Partner audited consolidated balance
sheet at December 31, 1995 or disclosed in the notes thereto, other than
liabilities which individually or in the aggregate would not have a Material
Adverse Effect on Merger Partner.
(e) Except as set forth in Schedule 5.13, to the Knowledge of Merger
Partner, no prohibited transaction has occurred with respect to any Merger
Partner Employee Plan maintained by Merger Partner or any of the Merger Partner
Subsidiaries that would result, directly or indirectly, in the imposition of an
excise tax or other liability under the Code or ERISA, except for such a tax or
other liability that would not have a Material Adverse Effect on Merger Partner.
(f) Except as set forth in Schedule 5.13, all contributions or premium
payments with respect to the Merger Partner Employee Plans due for any period
ending on or before the Effective Time have been or will be timely paid by
Merger Partner. Except as set forth in Schedule 5.13, the execution of or
performance of the transactions contemplated by this Agreement will not create,
accelerate or increase any obligations under the Merger Partner Employee Plans
which would have a Material Adverse Effect on Merger Partner.
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5.14 Collective Bargaining; Labor Disputes; Compliance. The only collective
bargaining agreements to which Merger Partner or any of the Merger Partner
Subsidiaries is a party with respect to persons employed in the United States
are set forth in Schedule 5.14 (the "Merger Partner Collective Bargaining
Agreements"). Except as set forth in Schedule 5.14, to the Knowledge of Merger
Partner, the employees of Merger Partner and the Merger Partner Subsidiaries
employed in the United States are not represented by any unions other than the
unions which are parties to the Merger Partner Collective Bargaining Agreements.
Except as set forth in Schedule 5.14, neither Merger Partner nor any of the
Merger Partner Subsidiaries is currently, nor has been during the past three
years, the subject of any certification or decertification organization drive
with respect to persons employed in the United States. Neither Merger Partner
nor any of the Merger Partner Subsidiaries is currently, nor has been during the
past three years, the subject of any strike by persons employed in the United
States relating to the Merger Partner or any of the Merger Partner Subsidiaries
nor, to the Knowledge of Merger Partner, is any such activity threatened. Merger
Partner and each Merger Partner Subsidiary have complied in all material
respects with all laws relating to the employment and safety of labor, including
provisions relating to wages, hours, benefits, collective bargaining and all
applicable occupational safety and health acts, laws and regulations except, in
each case, where the failure to be in compliance would not have, individually or
in the aggregate, a Material Adverse Effect on Merger Partner.
5.15 Brokers and Finders. Neither Merger Partner nor any of the Merger
Partner Subsidiaries, nor any of their respective officers, directors or
employees, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for Merger Partner or any of
the Merger Partner Subsidiaries, in connection with this Agreement or any of the
transactions contemplated hereby, except that Merger Partner has retained UBS
Securities LLP as its financial advisor, whose fees and expenses will be paid by
Merger Partner.
5.16 No Violation of Law.
-------------------
(a) The business and operations of the Merger Partner Insurance
Subsidiaries have been conducted in compliance with all applicable Insurance
Laws, except where the failure to so conduct such business and operations would
not individually or in the aggregate have a Material Adverse Effect on Merger
Partner. Notwithstanding the generality of the foregoing, except where the
failure to do so would not have, individually or in the aggregate, a Material
Adverse Effect on Merger Partner and except as set forth in Schedule 5.16, each
Merger Partner Insurance Subsidiary and its agents have marketed, sold and
issued insurance products in compliance, in all material respects, with all
statutes, laws, ordinances, rules, orders and regulations applicable to the
business of such Merger Partner Insurance Subsidiary and in the respective
jurisdictions in which such products have been sold, including, without
limitation, in compliance with (i) all applicable prohibitions against
"redlining," (ii) all applicable requirements relating to the disclosure of the
nature of insurance products as policies of insurance and (iii) all applicable
requirements relating to insurance product projections. In addition, except as
set forth in Schedule 5.16, (i) there is no pending or, to the Knowledge of
Merger Partner, threatened charge by any insurance regulatory authority that
any of the Merger Partner Insurance Subsidiaries has violated, nor any pending
or, to the Knowledge of
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Merger Partner, threatened investigation by any insurance regulatory authority
with respect to possible violations of, any applicable Insurance Laws where such
violations would have individually or in the aggregate a Material Adverse Effect
on Merger Partner; (ii) none of the Merger Partner Insurance Subsidiaries is
subject to any order or decree of any insurance regulatory authority relating
specifically to such Merger Partner Insurance Subsidiary (as opposed to
insurance companies generally) which would have individually or in the aggregate
a Material Adverse Effect on Merger Partner; and (iii) the Merger Partner
Insurance Subsidiaries have filed all reports required to be filed with any
insurance regulatory authority on or before the date hereof as to which the
failure to file such reports would have individually or in the aggregate a
Material Adverse Effect on Merger Partner.
(b) In addition to Insurance Laws, the business and operations of
Merger Partner and the Merger Partner Subsidiaries have been conducted in
compliance with all other applicable laws, ordinances, regulations and orders of
all governmental entities and other regulatory bodies (including, without
limitation, laws, ordinances, regulations and orders relating to zoning,
environmental matters and the safety and health of employees), except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect on Merger Partner. Except as set forth in Schedule 5.16, in
addition to Insurance Laws, (i) neither Merger Partner nor any Merger Partner
Subsidiary has been charged with or, to the Knowledge of Merger Partner, is now
under investigation with respect to, a violation of any applicable law,
regulation, ordinance, order or other requirement of a governmental entity or
other regulatory body, which violations or penalties would have, individually or
in the aggregate, a Material Adverse Effect on Merger Partner, (ii) neither
Merger Partner nor any Merger Partner Subsidiary is a party to or bound by any
order, judgment, decree or award of a governmental entity or other regulatory
body which has or will have, individually or in the aggregate, a Material
Adverse Effect on Merger Partner; and (iii) Merger Partner and the Merger
Partner Subsidiaries have filed all reports required to be filed with any
governmental entity or other regulatory body on or before the date hereof as to
which the failure to file such reports would result, individually or in the
aggregate, in a Material Adverse Effect on Merger Partner. Merger Partner and
the Merger Partner Subsidiaries have all permits, certificates, licenses,
approvals and other authorizations required in connection with the operation of
the business of Merger Partner and the Merger Partner Subsidiaries, except for
permits, certificates, licenses, approvals and other authorizations the failure
of which to have would not have, individually or in the aggregate, a Material
Adverse Effect on Merger Partner and except for such permits, certificates,
licenses, approvals and other authorizations required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.17 Indebtedness for Borrowed Money. Merger Partner has made available to
Company the instruments or other documents relating to all indebtedness of
Merger Partner or any Merger Partner Subsidiary for borrowed money the principal
balance of which is $250 million or more, whether such indebtedness is direct or
indirect, primary or secondary, by guarantee or otherwise.
5.18 Environmental Liabilities. To the Knowledge of Merger Partner, except
as disclosed in Schedule 5.18, as of the date hereof, neither Merger Partner nor
any Merger Partner Subsidiary
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has any liability or obligation of any kind arising out of any law or regulation
relating to environmental protection, including obligations relating to removal,
remediation, clean up or improvement of any property owned by Merger Partner or
any Merger Partner Subsidiaries, which individually or in the aggregate would
have a Material Adverse Effect on Merger Partner.
5.19 Merger Partner Ownership of Company Common Stock. Merger Partner does
not "own" and has not within the past three years "owned" (as such terms are
defined in Section 203 of the DGCL), and does not "beneficially own" (as such
term is defined in the Company Rights Agreement) three percent (3%) or more of
the outstanding shares of Company Common Stock. Merger Partner agrees to vote or
cause to be voted any shares of Company Common Stock owned by it or the Merger
Partner Subsidiaries in favor of the Spin-off and the Merger.
5.20 Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
5.21 Spin-off; Merger. Neither Merger Partner nor any Merger Partner
Subsidiary has taken any action or failed to take any action which action or
failure to take action would jeopardize the Spin-off as a tax-free distribution
within the meaning of Section 355 of the Code or the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
5.22 Business Operating Condition. Except as otherwise would not have a
Material Adverse Effect on Merger Partner, all furniture, fixtures, machinery
and equipment necessary to conduct the businesses and operations of Merger
Partner and the Merger Partner Insurance Subsidiaries in substantially the same
manner as such businesses and operations are carried on currently by Merger
Partner and the Merger Partner Insurance Subsidiaries are in the possession of
Merger Partner and in good working order and condition for the purposes for
which they are currently used.
5.23 Assets. Except as otherwise would not have a Material Adverse Effect
on Merger Partner and except for Merger Partner Permitted Liens and Encumbrances
(as defined below), Merger Partner and/or the Merger Partner Subsidiaries have
good and valid title to all personal property (including, without limitation,
Merger Partner Investment Assets (as defined below)) that was carried as an
asset on the Merger Partner Consolidated Financial Statements or acquired in the
ordinary course of business since September 30, 1996, other than with respect to
those assets which have been disposed of in the ordinary course of business or
redeemed in accordance with their terms since such date or with respect to
statutory deposits which are subject to certain restrictions on transfer. As
used in this Agreement, "Merger Partner Permitted Liens and Encumbrances" means,
as to any assets or property, any (i) liens or encumbrances securing taxes,
assessments or other governmental charges which are not yet due or which are
being diligently contested in good faith by appropriate proceedings if adequate
reserves have been established in accordance with generally accepted accounting
principles or the statutory accounting principles and practices prescribed or
permitted by the insurance department of the state of domicile of a Merger
Partner Insurance Subsidiary, as appropriate, or, in the case of mortgage loans,
funds are held in escrow sufficient to
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discharge such liens or the borrower has posted a bond in the amount of such
lien, (ii) liens or encumbrances imposed by law or incurred in the ordinary
course of business with respect to the claims of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons which (A) are not yet due
and payable and which do not materially detract from the value of such property
or assets or materially impair the use thereof by Merger Partner and the Merger
Partner Subsidiaries in the operation of their respective businesses, or (B) are
being diligently contested in good faith and by proper proceedings if adequate
reserves have been established with respect thereto in accordance with generally
accepted accounting principles or the statutory accounting principles and
practices prescribed or permitted by the insurance department of the state of
domicile of a Merger Partner Insurance Subsidiary, as appropriate, and (iii)
liens and encumbrances that would not, individually or in the aggregate, have a
Material Adverse Effect on Merger Partner. As used in this Agreement "Merger
Partner Investment Assets" means bonds, stocks, mortgage loans or other
investments that are carried on the books and records of Merger Partner and the
Merger Partner Insurance Subsidiaries.
5.24 Computer Software. Merger Partner owns, or possesses valid license
rights to, all computer software programs which are material to the conduct of
the business of Merger Partner and the Merger Partner Insurance Subsidiaries
taken as a whole. There are no infringement suits, actions or proceedings
pending or, to the Knowledge of Merger Partner, threatened against Merger
Partner or any Merger Partner Insurance Subsidiary with respect to any software
owned or licensed by Merger Partner or any Merger Partner Subsidiary, which, if
determined adversely, would have, either individually or in the aggregate, a
Material Adverse Effect on Merger Partner.
5.25 Intellectual Property. Merger Partner owns, or possesses valid license
rights to, all intellectual property which is material to the conduct of the
business of Merger Partner and the Merger Partner Insurance Subsidiaries taken
as a whole. Merger Partner has not received any notice of any conflict with or
violation or infringement of, any asserted rights of any other Person with
respect to any such intellectual property owned or licensed by Merger Partner or
any Merger Partner Insurance Subsidiary, which, if determined adversely, would
have, either individually or in the aggregate, a Material Adverse Effect on
Merger Partner.
5.26 Permits, Licenses and Franchises. To the Knowledge of Merger Partner,
except as otherwise would not have a Material Adverse Effect on Merger Partner,
neither Merger Partner nor any Merger Partner Insurance Subsidiary has engaged
in any activity which would cause revocation or suspension of any license to
transact the business of insurance and no action or proceeding looking to or
contemplating the revocation or suspension of any license to transact the
business of insurance is pending or threatened.
5.27 Liabilities and Reserves. The reserves carried on the books of each
Merger Partner Insurance Subsidiary for the year ended December 31, 1995 for
future insurance policy benefits, losses, claims and similar purposes are in
compliance in all material respects with the requirements for reserves
established by the insurance departments of the jurisdiction of domicile of such
Merger Partner Insurance Subsidiary, were determined in all material respects in
accordance with generally
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accepted actuarial standards consistently applied, and are fairly stated in all
material respects in accordance with sound actuarial principles.
5.28 Insurance. The insurance maintained by Merger Partner and the Merger
Partner Subsidiaries insures against risks and liabilities to the extent and in
the manner reasonably deemed appropriate and sufficient by Merger Partner or
such Merger Partner Subsidiary, and the coverage provided thereunder will not be
materially and adversely affected by the Merger.
5.29 Investigation by Merger Partner. Merger Partner has conducted
its own independent review and analysis of the businesses, assets, condition,
operations and prospects of Company and the Company Subsidiaries and
acknowledges that Merger Partner has been provided access to the properties,
premises and records of Company and the Company Subsidiaries for this purpose.
In entering into this Agreement, Merger Partner has relied solely upon its own
investigation and analysis and the representations and warranties contained
herein, and Merger Partner:
(a) acknowledges that none of Company, the Company Subsidiaries or any
of their respective directors, officers, employees, affiliates, agents or
representatives makes any representation or warranty, either express or implied,
as to the accuracy or completeness of any of the information provided or made
available to Merger Partner or their agents or representatives prior to the
execution of this Agreement; and
(b) agrees, to the fullest extent permitted by law, that none of
Company, the Company Subsidiaries or any of their respective directors,
officers, employees, affiliates, agents or representatives shall have any
liability or responsibility whatsoever to Merger Partner on any basis
(including, without limitation, in contract or tort, under federal or state
securities laws or otherwise) based upon any information provided or made
available, or statements made, to Merger Partner prior to the execution of this
Agreement,
except that the foregoing shall not apply (i) to the extent Company makes the
specific representations and warranties set forth in Article 4 of this Agreement
and in the Disclosure Schedules, but always subject to the limitations and
restrictions contained in this Agreement and in the Disclosure Schedules, or
(ii) to the extent Company, the Company Subsidiaries or any of their respective
directors, officers, employees, affiliates, agents or representatives commits
fraud with respect to the information that it provides or makes available to
Company.
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ARTICLE 6
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; CERTAIN COVENANTS
6.1 Access and Information.
(a) Subject to the restrictions contained in confidentiality
agreements to which such party is subject and subject to Section 6.1(b), upon
reasonable notice, each of Company and Merger Partner shall (and shall cause
each of their respective Subsidiaries (as defined below) to) give to the other
and to the respective accountants, counsel and other representatives of such
other party reasonable access during normal business hours throughout the period
prior to the Effective Time to all of its and its Subsidiaries' properties,
books, contracts, commitments and records (including tax returns and insurance
policies) and shall permit them to consult with its and its Subsidiaries'
respective officers, employees, auditors, actuaries, attorneys and agents;
provided, however, that any such investigation or consultation shall be
conducted in such a manner as not to interfere unreasonably with the business or
operations of the other party or its Subsidiaries. In addition, Company shall
cause Spinco to provide to Merger Partner and to Merger Partner's accountants,
counsel and other representatives reasonable access during normal business hours
throughout the period prior to the Effective Time to all records in Spinco's
possession relating to the business and operations of the Company Subsidiaries;
provided, however that any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the business or operations of
Spinco or its subsidiaries. All confidential information provided pursuant to
this Section 6.1 will be subject to the Confidentiality Agreement dated as of
October 28, 1996 and the Confidentiality Agreement dated as of December 17, 1996
(the "Confidentiality Agreements"), in each case between Company and Merger
Partner. Notwithstanding the foregoing, no party shall have access to
information or documents subject to the attorney/client privilege to the extent
that providing such access would, in the opinion of counsel to Company or Merger
Partner, as the case may be, constitute a waiver of such privilege. As used in
this Agreement, the term "Subsidiaries" shall mean (i) when used with reference
to Company, the Company Subsidiaries, and (ii) when used with reference to
Merger Partner, the Merger Partner Subsidiaries.
(b) As soon as practicable after the date of this Agreement, Company
and Merger Partner shall cooperate in good faith in an effort to develop a plan
(the "Plan") with respect to the communications with their respective employees
and the employees of their respective Subsidiaries regarding the transactions
contemplated by this Agreement and the Distribution Agreement. Notwithstanding
any other provision of this Section 6.1, neither Merger Partner or Company, nor
any of their respective Subsidiaries, nor any employee or other representative
of Merger Partner or Company, or any of their respective Subsidiaries, shall
contact or communicate with any employee of the other party or such other
party's Subsidiaries, with respect to the transactions contemplated by this
Agreement, unless pursuant to the Plan or with the prior consent of such other
party, which consent will not be unreasonably withheld or delayed. Except
pursuant to the Plan or with the prior
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consent of the other party, which consent will not be unreasonably withheld or
delayed, neither Merger Partner or Company, nor any of their respective
Subsidiaries, nor any employee or other representative of Merger Partner or
Company, or any of their respective Subsidiaries, shall have any communication
or contact with any employee of the other party or such other party's
Subsidiaries concerning, relating to or in any way bearing upon (i) future
employment or terms or conditions of employment of such employee or any other
employee of the other party, or (ii) any closing or relocation of or reduction
in size, staff or function of any present facility of the other party.
6.2 Conduct of Business Pending Merger.
(a) Company agrees that from the date hereof to the Effective Time,
except as contemplated by this Agreement or the Distribution Agreement or to the
extent that Merger Partner shall otherwise consent in writing (which consent
will not be unreasonably withheld or delayed), Company and the Company
Subsidiaries will operate their businesses only in the ordinary course, except
where the failure to so operate their businesses will not individually or in the
aggregate be material to any of the Company Business Units taken as a whole;
and, consistent with such operation, will use reasonable efforts consistent with
past practices to preserve their business organizations intact, to keep
available to them the goodwill of their agents, third party administrators,
policyholders, customers and others with whom business relationships exist to
the end that their goodwill and ongoing business shall not be impaired in any
material respect at the Effective Time, and will further exercise reasonable
efforts to maintain their existing relationships with their employees in
general.
(b) Company agrees that from the date hereof to the Effective Time,
except as otherwise consented to by Merger Partner in writing (which consent
will not be unreasonably withheld or delayed) or as permitted, required or
contemplated by this Agreement or the Distribution Agreement, (i) neither it nor
any Company Subsidiary will change any provision of its Certificate of
Incorporation or Bylaws or similar governing documents; (ii) it will not make,
declare or pay any dividend, except regular quarterly cash dividends with
respect to the Company Common Stock (not to exceed $0.275 per share per quarter)
and regular dividends on the Company's Preferred Stock in accordance with its
terms and except in connection with the Spin-off; and (iii) except in connection
with (v) the Spin-off, (w) the exchange rights on the part of former
shareholders of Durham Corporation and Southlife Corporation who have not
tendered their shares in connection with the mergers pursuant to which such
companies were acquired, (x) the issuance of capital stock under the Company
Rights Agreement pursuant to its terms, (y) the issuance of new employee stock
options after July 31, 1997 in the ordinary course of business consistent with
past practice and (z) the issuance of shares of common stock pursuant to (A) the
exercise of presently outstanding employee stock options or new stock options
granted after July 31, 1997 as contemplated above or (B) any stock ownership
plan, 401(k) plan, dividend reinvestment plan or similar plan (which in the case
of this clause (B) does not involve in the aggregate the issuance of more than
250,000 shares), it will not make any distribution or directly or indirectly
sell, issue, redeem, purchase or otherwise acquire, any shares of its
outstanding capital stock, change the number of shares of its authorized or
issued capital stock or issue or grant any option, warrant, call, commitment,
subscription, right to purchase or agreement of any character relating to its
authorized or issued capital stock or any securities convertible into shares of
such stock.
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(c) Company agrees that from the date hereof to the Effective Time it
will not take or permit any Company Subsidiary to take any of the following
actions, except to the extent consented to by Merger Partner in writing (which
consent will not be unreasonably withheld or delayed) or permitted, required or
contemplated by this Agreement or the Distribution Agreement or except as set
forth in Schedule 6.2:
(i) except in the ordinary course of business, enter into any
agreement representing an obligation for indebtedness for borrowed money or
increase the principal amount of indebtedness under any existing agreement
or assume, guarantee, endorse or otherwise become responsible for the
obligations of any other individual, firm or corporation (except a
guarantee of the obligation of a Subsidiary), except and to the extent all
such obligations in the aggregate do not exceed $10,000,000;
(ii) except in the ordinary course of business, mortgage or pledge any
of its properties or assets;
(iii) except as may be required by law or except in the ordinary
course of business, take any action to amend or terminate any Company
Employee Plan or increase the compensation of any of its executive officers
or employees (other than increases which are in the aggregate in the
ordinary course) or adopt any other material plan, program, arrangement or
practice providing new or increased benefits or compensation to its
employees, provided that this covenant shall not apply to variable payments
pursuant to Company's Management Incentive Plan or Variable Pay Plan or to
actions in the ordinary course of business taken with respect to employees
who are not directors or officers of Company;
(iv) materially amend or cancel or agree to the material amendment or
cancellation of any agreement, treaty or arrangement which is material to
any of the Company Business Units taken as a whole, or enter into any new
material agreement, treaty or arrangement which is material to any of the
Company Business Units taken as a whole (other than the renewal of any
existing agreements, treaties or arrangements);
(v) make any material changes in its underwriting standards, retention
limits or administrative practices with respect to additions to (new
business) or deletions from (policy terminations) any policy master files
which would have a substantive effect on such files;
(vi) enter into any negotiation with respect to, or adopt or amend in
any material respect, any Collective Bargaining Agreement without prior
notice to the other party;
(vii) make any significant change in any accounting methods or systems
of internal accounting controls, except as may be appropriate to conform to
changes in statutory accounting rules or generally accepted accounting
principles;
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(viii) pay, loan or advance (other than the payment of compensation,
directors' fees or reimbursements of expenses in the ordinary course of
business and other than as may be required by any agreement in effect as of
the date hereof) any amount to, or sell, transfer or lease any properties
or assets (real, personal or mixed, tangible or intangible) to, or enter
into any material agreement or arrangement with, any of its officers or
directors or any "affiliate" or "associate" of any of its officers or
directors (as such terms are defined in Rule 405 promulgated under the
Securities Act);
(ix) acquire, form or commence the operations of any business or any
corporation, partnership, joint venture, marketing arrangement, association
or other business organization or division thereof which in any case is
material to any of the Company Business Units taken as a whole;
(x) make any tax election or settle or compromise tax liability that
would reasonably be expected to have a Material Adverse Effect on Company;
(xi) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) which are material to Company and the Company Subsidiaries as a
whole, other than the payment, discharge or satisfaction of liabilities (i)
reflected or reserved against in, or contemplated by, the financial
statements (or the notes thereto) of Company included in the Company
Reports or (ii) incurred since December 31, 1995 in the ordinary course of
business consistent with past practice;
(xii) increase the benefits payable under the Providian Corporation
Retirement Plan (the "Retirement Plan") pursuant to the provisions of
Section 9.1 of the Retirement Plan;
(xiii) other than consistent with past practice (or following
consultation with the Merger Partner, consistent with industry standards),
materially alter the mix of Company Investment Assets or the duration or
credit quality of such assets;
(xiv) other than consistent with past practice (or following
consultation with the Merger Partner, consistent with industry standards),
materially alter the profile of its insurance liabilities or materially
alter the Company's pricing practices or policies; or
(xv) enter into any agreement to take any of the actions described in
Section 6.2(b) or elsewhere in this Section 6.2(c).
(d) Merger Partner agrees that from the date hereof to the Effective
Time, except as contemplated by this Agreement or to the extent that Company
shall otherwise consent in writing, it will, and will cause each Merger Partner
Subsidiary to, operate its business only in the ordinary course, except where
the failure to so operate its business will not individually or in the aggregate
be material to Merger Partner and the Merger Subsidiaries taken as a whole.
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(e) Merger Partner agrees that from the date hereof to the Effective
Time it will not take, or permit any Merger Partner Subsidiary to take, any of
the following actions, except to the extent consented to by Company in writing
(which consent will not unreasonably be withheld or delayed) or permitted,
required or contemplated by this Agreement or as set forth in Schedule 6.2:
(i) adopt or propose any change in its governing documents that would
have any adverse impact on the transactions contemplated by this Agreement
or which would amend or modify the terms or provisions of the capital stock
of Merger Partner;
(ii) effect any combination, reclassification, recapitalization,
division or similar transaction with respect to any class or series of
capital stock of Merger Partner (other than a stock split, stock dividend
or similar transaction contemplated by Section 2.2(d));
(iii) merge or consolidate with any other Person if such merger or
consolidation could reasonably be expected to have a material impact on the
ability of Merger Partner to consummate the transactions contemplated by
this Agreement;
(iv) make, declare, set aside or pay any dividend or other
distribution with respect to shares of capital stock of Merger Partner,
except the regular declaration and payment of cash or stock dividends with
respect to the Merger Partner Common Stock (not to exceed, in the aggregate
between the date of this Agreement and the Closing Date, $2.00 per share in
cash and market value of Merger Partner Common Stock), and the regular
declaration and payment of dividends with respect to Merger Partner
Preferred Stock in accordance with its terms;
(v) issue, sell, grant, pledge or otherwise encumber any shares of the
Merger Partner Common Stock, any other voting securities or any securities
convertible into such shares, if any such action could, individually or in
the aggregate, reasonably be expected to (A) require the consent of the
stockholders of Merger Partner, (B) delay materially the date of mailing of
the Proxy Statement such that the Closing would be delayed past June 1,
1997, (C) if it were to occur after such date of mailing, require an
amendment of the Proxy Statement such that the Closing would be delayed
past June 1, 1997 or (D) have a material adverse effect on the ability of
Merger Partner to consummate the transactions contemplated by this
Agreement;
(vi) acquire any business or any corporation, partnership, joint
venture, association or other business organization or division thereof, in
each case if any such action could, individually or in the aggregate,
reasonably be expected to (A) be material to Merger Partner, (B) delay
materially the date of mailing of the Proxy Statement such that the Closing
would be delayed past June 1, 1997, (C) if it were to occur after such date
of mailing, require an amendment of the Proxy Statement such that the
Closing would be delayed past June 1, 1997 or (D) have a material adverse
effect on the ability of Merger Partner to consummate the transactions
contemplated by this Agreement;
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(vii) except in the ordinary course of business, enter into any
agreement representing an obligation for indebtedness for borrowed money or
increase the principal amount of indebtedness under any existing agreement
or assume, guarantee, endorse or otherwise become responsible for the
obligations of any other individual, firm or corporation (except a
guarantee of the obligation of a Subsidiary), except and to the extent all
such obligations in the aggregate are not material to Merger Partner;
(viii) mortgage or pledge any of its properties or assets, except to
the extent that the aggregate amount of assets subject to such mortgages
and pledges is not material to Merger Partner;
(ix) except in the ordinary course of business, materially amend or
cancel or agree to the amendment or cancellation of any agreement, treaty
or arrangement, or enter into any new agreement, treaty or arrangement
(other than the renewal of any existing agreements, treaties or
arrangements), except and to the extent that the aggregate amount involved
with respect to such agreements, treaties or arrangements is not material
to Merger Partner;
(x) pay, loan or advance (other than the payment of compensation,
directors' fees or reimbursements of expenses in the ordinary course of
business and other than as may be required by any agreement in effect as of
the date hereof) any amount to, or sell, transfer or lease any properties
or assets (real, personal or mixed, tangible or intangible) to, or enter
into any agreement or arrangement with, any of its officers or directors or
any "affiliate" or "associate" of any of its officers or directors (as such
terms are defined in Rule 405 promulgated under the Securities Act), except
and to the extent that the aggregate amount involved with respect to such
transactions is not material to Merger Partner;
(xi) (A) prior to the twenty-fifth trading day before the Effective
Time acquire record or beneficial ownership of any shares of Company Common
Stock such that Merger Partner "beneficially owns" three percent (3%) or
more of the outstanding shares of Company Common Stock, or (B) during the
twenty-five trading days before the Effective Time, acquire record or
beneficial ownership of any shares of Company Common Stock; or
(xii) authorize any of, or commit or agree to take any of, the
foregoing actions.
As used in this Section 6.2(e), the phrase "material to Merger
Partner" means a matter or action that would (i) have a Material Adverse Effect
on Merger Partner or (ii) involve amounts in excess of ten percent (10%) of the
assets of Merger Partner and its subsidiaries, taken as a whole, as reflected on
the consolidated balance sheet of Merger Partner and its subsidiaries at
December 31, 1995 included in the Merger Partner Reports.
(f) Company shall not, nor shall it permit any Company Subsidiary to,
nor shall it authorize or permit any officer, director or employee of, or any
investment banker, attorney or other advisor or representative or agent of,
Company or any Company Subsidiary to, directly or indirectly, (i) solicit,
initiate or encourage the submission of any Acquisition Proposal (as hereinafter
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defined) or (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that nothing contained in this Section 6.2(f) shall prohibit the Board
of Directors of Company (and its authorized representatives) from furnishing
information to, or entering into discussions or negotiations with, any person or
entity that makes an unsolicited Acquisition Proposal if, and only to the extent
that (A) the Board of Directors of Company after consultation with and based on
the advice of outside counsel, determines in good faith that in order for the
Board of Directors of Company to comply with its fiduciary duties to
stockholders under applicable law it should take such action, (B) prior to
taking such action, Company receives from such person or entity an executed
agreement in reasonably customary form relating to the confidentiality of
information to be provided to such person or entity, and (C) the Acquisition
Proposal contains an offer of consideration that is superior to the
consideration set forth herein. Notwithstanding anything in this Agreement to
the contrary, Company shall (i) promptly advise Merger Partner orally and in
writing of (A) the receipt by it (or any of the other entities or persons
referred to above) after the date hereof of any Acquisition Proposal, or any
inquiry which could reasonably be expected to lead to any Acquisition Proposal,
(B) the material terms and conditions of such Acquisition Proposal or inquiry,
and (C) the identity of the person making any such Acquisition Proposal or
inquiry, (ii) keep Merger Partner reasonably informed of the status and details
of any such Acquisition Proposal or inquiry and (iii) negotiate with Merger
Partner to make such adjustments in the terms and conditions of this Agreement
as would enable Company to proceed with the transactions contemplated herein.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the first sentence of this Section 6.2(f) by any
officer, director or employee of Company or any Company Subsidiary or any
investment banker, attorney or other advisor, representative or agent of Company
or any Company Subsidiary, whether or not such person is purporting to act on
behalf of Company or any Company Subsidiary or otherwise, shall be deemed to be
a breach of this Section 6.2(f) by Company. For purposes of this Agreement,
"Acquisition Proposal" means any bona fide proposal with respect to a merger,
consolidation, share exchange or similar transaction involving Company or any
Company Insurance Subsidiary, or any purchase of all or any significant portion
of the assets of Company or any Company Business Unit other than the
transactions contemplated hereby.
6.3 Fiduciary Duties. Except as set forth below, the Board of Directors of
Company shall not (i) withdraw or modify in a manner materially adverse to
Merger Partner, the approval or recommendation by such Board of Directors of
this Agreement or the Merger, or (ii) approve, recommend or cause Company to
enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, if Company receives an unsolicited Acquisition
Proposal and the Board of Directors of Company determines in good faith,
following consultation with and based on the advice of outside counsel, that it
is necessary to do so in order to comply with its fiduciary duties to
stockholders under applicable law, the Board of Directors may (w) withdraw or
modify its approval or recommendation of this Agreement and the Merger, (x)
approve or recommend such Acquisition Proposal, (y) cause Company to enter into
an agreement with respect to such Acquisition Proposal or (z) terminate this
Agreement pursuant to Section 8.1(b). If the Board of Directors of Company takes
any action described in clause (y) or (z) of the preceding sentence or Merger
Partner exercises its right to terminate this Agreement under Section 8.1(c)
based on the Board of Directors
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of Company having taken any action described in clause (w) or (x) of the
preceding sentence, Company shall, concurrently with the taking of such action
or such termination (a "Fee Payment Event"), as applicable, pay to Merger
Partner the Section 6.4 Fee (as hereinafter defined). Notwithstanding anything
contained in this Agreement to the contrary, any action by the Board of
Directors of Company permitted by this Section 6.3 shall not constitute a breach
of this Agreement by Company.
6.4 Certain Fees. Company shall pay to Merger Partner upon demand (i) $80
million if the Fee Payment Event occurs on or prior to the date of the
Stockholders' Meeting, or (ii) $100 million if the Fee Payment Event occurs
after the date of the Stockholders' Meeting (the "Section 6.4 Fee"), payable in
same-day funds, as liquidated damages and not as a penalty, if the Section 6.4
Fee is payable pursuant to Section 6.3. If Company fails to promptly pay to
Merger Partner any amounts due under this Section 6.4, Company shall pay the
costs and expenses (including reasonable legal fees and expenses) in connection
with any action, including the filing of any lawsuit or other legal action,
taken to collect payment, together with interest on the amount of any unpaid fee
at the publicly announced prime rate of Citibank, N.A. in effect from time to
time from the date such fee was required to be paid.
6.5 Amendment to Rights Plan. Prior to the Effective Time, the Board of
Directors of Company shall amend the 1987 Stockholder Rights Agreement as
amended on November 4, 1992 (the "Company Rights Agreement") between Company and
First Chicago Trust Company of New York, so that (i) Merger Partner will not
become an "Acquiring Person" as a result of the consummation of the transactions
contemplated by this Agreement, (ii) no "Shares Acquisition Date" or
"Distribution Date" (as such terms are defined in the Company Rights Agreement)
will occur as a result of the consummation of the transactions contemplated by
this Agreement, and (iii) all outstanding Company Common Stock Purchase Rights
(the "Company Rights") issued and outstanding under the Company Rights Agreement
will expire immediately prior to the Effective Time.
6.6 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition," "business combination," "stockholder protection" or similar
antitakeover statute or regulation enacted under state or Federal law shall
become applicable to the Merger, the Spin-off or any of the other transactions
contemplated hereby, each of Company and Merger Partner and the Board of
Directors of each of Company and Merger Partner shall grant such approvals and
take such commercially reasonable actions as are within its authority and
consistent with its fiduciary obligations to its stockholders as determined in
good faith by such Board so that the Merger, the Spin-off and the other
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise use commercially reasonable
efforts, subject to such fiduciary duties, to eliminate or minimize the effects
of such statute or regulation on the Merger, the Spin-off and the other
transactions contemplated hereby.
6.7 Consents. Company and Merger Partner will use commercially reasonable
efforts to obtain the written consent or approval of each and every governmental
authority and other regulatory body, including, without limitation, each
applicable banking and insurance regulatory authority, the
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consent or approval of which shall be required in order to permit Merger
Partner, Sub and Company to consummate the transactions contemplated by this
Agreement and the Distribution Agreement. Company will use commercially
reasonable efforts to obtain the written consent or approval, in form and
substance reasonably satisfactory to Merger Partner, of each person whose
consent or approval shall be required in order to permit Merger Partner, Sub and
Company to consummate the transactions contemplated by this Agreement and the
Distribution Agreement, except for any contracts of Company as to which the
failure to obtain any required written consent or approval thereunder would not
individually or in the aggregate result in a Material Adverse Effect on Company.
Merger Partner will use commercially reasonable efforts to obtain the written
consent or approval, in form and substance reasonably satisfactory to Company,
of each person whose consent or approval shall be required in order to permit
Merger Partner, Sub and Company to consummate the transactions contemplated by
this Agreement and the Distribution Agreement, except for any contracts of
Merger Partner as to which the failure to obtain any required written consent or
approval thereunder would not individually or in the aggregate result in a
Material Adverse Effect on Merger Partner.
6.8 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto will promptly file and prosecute diligently
the applications and related documents required to be filed by such party with
the applicable regulatory authorities in order to effect the transactions
contemplated hereby, including filings under the HSR Act requesting early
termination of the applicable waiting period and filings with state banking and
insurance authorities. Each party hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each corporation which is a party to this
Agreement shall take all such necessary action. Each of the parties hereto
agrees to defend vigorously against any actions, suits or proceedings in which
such party is named as defendant which seeks to enjoin, restrain or prohibit the
transactions contemplated hereby or seeks damages with respect to such
transactions.
6.9 NYSE Listing. Merger Partner will use all commercially reasonable
efforts to cause to be approved for listing on the NYSE, subject to official
notice of issuance, a sufficient number of shares of Merger Partner Common Stock
to be issued in the Merger and pursuant to Company Stock Options (as defined in
Section 6.17).
6.10 Notice; Efforts to Remedy. Each party hereto shall promptly give
written notice to the other parties hereto upon becoming aware of the impending
occurrence of any event which would cause or constitute a breach of any of the
representations, warranties or covenants of such party contained in this
Agreement and shall use all commercially reasonable efforts to prevent or
promptly remedy the same. During the period from the date of this Agreement to
the Effective Time, Company and Merger Partner each shall cause one or more of
its representatives to confer on a regular and frequent basis with
representatives of the other and to report on the general status of its ongoing
operations. Company shall promptly notify Merger Partner of any material change
in each case on
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a consolidated basis in the normal course of Company's or the Company
Subsidiaries' businesses or in the operation of its or their properties and of
the receipt by Company or the Company Subsidiaries of notice of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) or the receipt by Company or the Company Subsidiaries
of a notice of the institution or the threat of litigation involving Company or
any of the Company Subsidiaries which, individually or in the aggregate, would
have a Material Adverse Effect on Company, and will keep Merger Partner fully
informed with respect to such events. Merger Partner shall promptly notify
Company of any material change in each case on a consolidated basis in the
normal course of Merger Partner's or the Merger Partner Subsidiaries' businesses
or in the operation of its or their properties, and of the receipt by Merger
Partner or the Merger Partner Subsidiaries of notice of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) or the receipt by Merger Partner or the Merger Partner
Subsidiaries of a notice of the institution or the threat of litigation
involving Merger Partner or any of the Merger Partner Subsidiaries which,
individually or in the aggregate, would have a Material Adverse Effect on Merger
Partner and will keep Company fully informed with respect to any such events.
6.11 Registration Statement; Stockholder Approvals.
(a) As soon as is reasonably practicable after the execution of this
Agreement, Merger Partner shall prepare and file with the SEC the Registration
Statement (in which the Proxy Statement will be included as a prospectus) and
Company shall prepare and file with the SEC the Proxy Statement (which shall
also include the Information Statement relating to the Spin-off). Merger Partner
shall use all commercially reasonable efforts to cause the Registration
Statement to become effective under the Securities Act as promptly as
practicable after such filing and shall take all commercially reasonable actions
required to be taken under any applicable state blue sky or securities laws in
connection with the issuance of the shares of Merger Partner Common Stock
pursuant to this Agreement. Each party hereto shall furnish all information
concerning it and the holders of its capital stock as the other party hereto may
reasonably request in connection with such actions.
(b) Company shall call a Stockholders' Meeting to be held as soon as
practicable after the date hereof for the purpose of voting upon the Merger and
this Agreement. In connection with the Stockholders' Meeting, Company and
Merger Partner shall prepare and file the Proxy Statement with the SEC. Subject
to Section 6.3, (i) Company shall mail the Proxy Statement to its stockholders,
(ii) the Board of Directors of Company shall recommend to its stockholders the
approval of the Merger and this Agreement, and (iii) Company shall use
commercially reasonable efforts to obtain such stockholder approval. Without
limiting the generality of the foregoing, Company agrees that, subject to its
right to terminate this Agreement pursuant to Section 6.3, its obligations
pursuant to this Section 6.11(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to Company of any
Acquisition Proposal.
6.12 Expenses. If this Agreement is terminated for any reason without
breach by any party, each party hereto shall pay its own expenses incident to
preparing for, entering into, and carrying out this Agreement and to
consummating the Merger, except that Company and Merger Partner shall
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divide equally the following expenses: (a) the costs incurred in connection with
the printing and mailing of the Registration Statement, the Proxy Statement and
related documents; and (b) all filing or registration fees paid by Company or
Merger Partner, including state securities laws filing or registration fees, if
any.
6.13 Press Releases; Filings. Without the consent of the other
parties, none of the parties shall issue any press release or make any public
announcement with regard to this Agreement, the Distribution Agreement, the
Merger or the Spin-off or any of the transactions contemplated hereby or
thereby; provided, however, that nothing in this Section 6.13 shall be deemed to
(i) prohibit Company, Merger Partner or Spinco from making any disclosures,
press releases or announcements relating to their respective businesses or
operations, or (ii) prohibit any party hereto from making any disclosure which
its counsel deems necessary or advisable in order to fulfill such party's
disclosure obligations imposed by law or the rules of any national securities
exchange or automated quotation system. Each of Company and Merger Partner
shall promptly notify the other of each report, schedule and other document
filed by it or any of its respective Subsidiaries with the SEC and of any other
document pertaining to the transactions contemplated hereby filed with any other
governmental authorities.
6.14 Indemnification of Officers and Directors.
(a) Until such time as the applicable statute of limitations shall
have expired, the Surviving Corporation shall provide with respect to each
present or former director and officer of Company and its subsidiaries (both
present and past) (the "Indemnified Parties"), the indemnification rights
(including any rights to advancement of expenses) which such Indemnified Parties
had, whether from Company or such subsidiary, immediately prior to the Merger,
whether under the DGCL or the bylaws of Company or such subsidiary or otherwise.
(b) Immediately following the Effective Time, Merger Partner shall
cause to be in effect the current policies of directors' and officers' liability
insurance maintained by Company or any Company Subsidiary (provided Merger
Partner may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are no less advantageous) with
respect to claims arising from facts or events which occurred at or before the
Effective Time, and Merger Partner shall maintain such coverage for a period of
six years after the Effective Time; provided, however, that in no event shall
Merger Partner be required to expend pursuant to this Section 6.14(b) on an
annual basis more than an amount equal to 250% of the current annual premiums
paid by Company and the Company Subsidiaries for such insurance and, in the
event the cost of such coverage shall exceed that amount, Merger Partner shall
purchase as much coverage as possible for such amount.
(c) This Section 6.14 shall survive the Closing and is intended to
benefit Company, the Surviving Corporation and each of the Indemnified Parties
and his or her heirs and representatives (each of whom shall be entitled to
enforce this Section 6.14 against Merger Partner or the Surviving Corporation to
the extent specified herein) and shall be binding on all successors and assigns
of Merger Partner and the Surviving Corporation.
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6.15 Tax Treatment. Merger Partner and Company agree to treat the
Spin-off as a tax-free distribution within the meaning of Section 355 of the
Code and the Merger as a reorganization within the meaning of Section 368(a) of
the Code. During the period from the date of this Agreement through the
Effective Time, unless the parties shall otherwise agree in writing, none of
Merger Partner, Company or any of their respective Subsidiaries shall knowingly
take or fail to take any action which action or failure to act would jeopardize
qualification of the Spin-off as a tax-free distribution within the meaning of
Section 355 of the Code or the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
6.16 Employee Benefits.
(a) From and after the Effective Time, the Surviving Corporation
shall honor all obligations and commitments under the plans, programs,
arrangements, practices and contracts which are maintained by Company or any of
the Company Subsidiaries or to which Company or any Company Subsidiary is
obligated to make contributions and which provide benefits or compensation to or
on behalf of employees, including but not limited to executive arrangements and
"employee benefit plans" as defined in Section 3(1) of ERISA, in each case in
accordance with their terms as in effect at the Effective Time, with only such
amendments as are permitted by the terms thereof as in effect at the Effective
Time.
(b) Merger Partner shall take, and shall cause the Surviving
Corporation and its subsidiaries and all other affiliates of Merger Partner to
take, the following actions: (i) waive any limitations regarding pre-existing
conditions under any welfare or other employee benefit plan maintained by any of
them for the benefit of employees of Company or any of its subsidiaries (the
"Company Employees") or in which Company Employees participate after the
Effective Time, and (ii) for all purposes under all compensation and benefit
plans and policies applicable to employees of any of them, treat all service by
Company Employees with Company or any affiliates of Company before the Effective
Time as service with Merger Partner and its affiliates, except to the extent
such treatment would result in duplication of benefits.
(c) From and after the Effective Time, the Surviving Corporation
shall assume all obligations of Company under Company's Management Incentive
Plan and Variable Pay Plan and shall make all payments owed by Company pursuant
to the Management Incentive Plan and the Variable Pay Plan in respect of periods
through December 31, 1996 in accordance with Company's past practices.
(d) Effective as of the Effective Time: (i) the Pension Trustees of
the Retirement Plan shall appoint as their successors pursuant to Section 6.1 of
the Retirement Plan individuals and/or entities selected by Merger Partner and
shall resign as Pension Trustees; (ii) Section 6.1 of the Retirement Plan shall
be amended to delete the second and third sentences thereof; (iii) Section 9.1
of the Retirement Plan shall be amended to delete the parenthetical phrase in
the first sentence thereof; and (iv) Section 13.2 of the Retirement Plan shall
be amended to clarify that a merger of the Retirement Plan with a defined
benefit pension plan in accordance with Section 414(e) of the Code and all other
applicable law will not be considered a termination of the Retirement Plan for
purposes
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of Section 13.12 thereof. The amendments adopted pursuant to the preceding
sentence shall be in form and substance satisfactory to Merger Partner. Before
the Effective Time, the Company and Merger Partner shall take all steps
necessary and appropriate to comply with the requirements of Section 29.14
thereof for continuation of the Retirement Plan after the Effective Time.
6.17 Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock (a "Company Stock Option") and each outstanding stock
appreciation right (a "Company SAR") issued pursuant to any incentive or stock
option program of Company (the "Company Plan"), whether vested or unvested,
shall be assumed by Merger Partner, provided that the foregoing shall not apply
to options or stock appreciation rights assumed by Spinco pursuant to the
Distribution Agreement and such options and stock appreciation rights assumed by
Spinco shall not constitute Company Stock Options or Company SARs for purposes
of this Agreement. Each Company Stock Option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such Company Stock Option, a number of shares of Merger Partner Common Stock
equal to (x) the number of shares of Company Common Stock covered by such
Company Stock Option, multiplied by (y) the Option Adjustment Ratio, at a price
per share equal to (A) the exercise price of such Company Stock Option
immediately prior to the Spin-off, multiplied by (B) (1) one divided by (2) the
Option Adjustment Ratio; provided, however, that in the case of any option to
which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code ("incentive stock options"), the option price, the
number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. For purposes of the foregoing, the "Option
Adjustment Ratio" shall mean the amount obtained by dividing (i) the average of
the daily high and low trading prices on the New York Stock Exchange for the
Company Common Stock on each of the 20 trading days prior to the ex-dividend
date for the Spin-off by (ii) the average of the daily high and low trading
prices on the New York Stock Exchange for the Merger Partner Common Stock on
each of the same 20 trading days. Each holder of a Company SAR shall be
entitled to that number of stock appreciation rights of Merger Partner ("Merger
Partner SARs"), determined in the same manner as set forth above with respect to
Company Stock Options assumed by Merger Partner. At the Effective Time, the
agreements evidencing the grants of Company Stock Options and Company SARs
assumed by Merger Partner shall be amended to provide that the right of a holder
to exercise Company Stock Options and Company SARs shall continue beyond the
termination of such holder's employment, if such holder's employment is
terminated without Cause or such holder leaves employment for Good Reason (as
such terms are defined in the Company's change of control policy as in effect
immediately prior to the Effective Time or, if applicable, such holder's
employment agreement or change of control severance agreement), until the later
of (x) the second anniversary of the Effective Time, (y) 90 days after such
holder's termination of employment, and (z) the end of the period for exercise
of such Company Stock Options or Company SARs as provided in any employment or
severance agreement between the Company and such holder.
(b) As soon as practicable after the Effective Time, Merger Partner
shall deliver to the holders of Company Stock Options and Company SARs
appropriate notices setting forth such
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holders' rights pursuant to the Company Plan and the agreements evidencing the
grants of such Company Stock Options or Company SARs, as the case may be, shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 6.17 after giving effect to the Merger and the
assumption by Merger Partner as set forth above). If necessary, Merger Partner
shall comply with the terms of the Company Plan and ensure, to the extent
required by, and subject to the provisions of, such Plan, that Company Stock
Options which qualified as incentive stock options prior to the Effective Time
continue to qualify as incentive stock options of Merger Partner after the
Effective Time.
(c) Merger Partner shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Merger Partner Common
Stock for delivery upon exercise of Company Stock Options assumed by it in
accordance with this Section 6.17. As soon as practicable after the Effective
Time, Merger Partner shall file a registration statement on Form S-3 or Form S-
8, as the case may be (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Merger Partner Common Stock
subject to such options and shall use all reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, Merger
Partner shall administer each Company Plan assumed pursuant to this Section 6.17
in a manner that complies with Rule 16b-3 promulgated under the Exchange Act to
the extent the Company Plan complied with such rule prior to the Merger.
6.18 AEGON USA Guaranty. At the Closing, Merger Partner shall cause
AEGON USA, Inc. to enter into a Guaranty Agreement with Company and Spinco in
substantially the form of Exhibit D pursuant to which AEGON USA, Inc. will
guarantee the obligations of Company pursuant to Section 6.14 and Section 6.16
of this Agreement and the obligations of Company under the Distribution
Agreement and the Other Agreements (as defined in the Distribution Agreement).
6.19 Determination of Comparable Benefits. Prior to the Closing
Date, Company and Merger Partner shall work together in good faith to determine
whether the employee benefit plans and employee welfare plans currently
maintained by Company and the Company Subsidiaries for their employees are, in
the aggregate, at least as favorable as such plans currently maintained by
Merger Partner and the Merger Partner Subsidiaries, as contemplated in the
definition of "Good Reason" contained in Company's Change in Control Plan. The
determination of Company and Merger Partner, if any, shall be reduced to
writing, which shall be signed by both parties.
6.20 Merger Partner Exchange Transaction. Prior to the Closing Date,
Merger Partner shall effect, in one or more arm's length transactions which will
occur contemporaneously, (i) the purchase by Merger Partner of approximately 8%
of the currently outstanding shares of Merger Partner Common Stock from the
Association, and (ii) the sale of such number of shares of the existing class of
Merger Partner Common Stock to the Association, such that the Association shall
maintain its percentage of voting control as of the date hereof, subject to
increases such that the Association's percentage of voting control shall not
exceed historical percentages of voting control within the last five years.
Merger Partner agrees that, except as set forth in the preceding sentence,
between the date hereof and the Closing Date Merger Partner will not issue or
sell any shares of capital stock of Merger Partner to the
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Association, except that Merger Partner may issue or sell to the Association
during such period a maximum of 500,000 shares of capital stock in connection
with other transactions.
6.21 Company Contracts. Within 28 days after the date of this Agreement,
Company shall furnish to Merger Partner access to and copies of listings of
contracts, agreements, leases, commitments, arrangements or other instruments
hereinafter described in this Section 6.21 to which the Company or any Company
Subsidiary is a party or by or to which it or any of its assets or properties
are bound except for (i) agreements, commitments, arrangements, leases or other
instruments disclosed in the Company Annual Report on Form 10-K for the year
ended December 31, 1995, (ii) the Distribution Agreement (and the other
agreements contemplated thereby), and (iii) insurance, reinsurance and agency
contracts entered into or to be entered into in the normal course of business:
(a) contracts and other agreements with any current or former
officer, director, employee, consultant or other representative (other than an
insurance agent or broker) of Company or any Company Subsidiary pursuant to
which Company or any Company Subsidiary has ongoing obligations calling for
payments in any one year of more than $250,000 in any one case, other than such
contracts and other agreements that are terminable at will by Company or such
Company Subsidiary,
(b) contracts and other agreements for the purchase or sale of
equipment or services or to make capital expenditures (whether through the
purchase of real or personal property or otherwise), other than in the ordinary
course of business (including agreements for ordinary maintenance of equipment),
calling for a purchase price or payments in any one year of more than $2.5
million,
(c) contracts and other agreements for the sale of any of its assets
or properties or for the grant to any Person of any preferential rights to
purchase or use any of its assets or properties in each case involving assets or
properties with a book value in excess of $2.5 million, other than those entered
into in the ordinary course of business,
(d) joint venture, partnership and marketing agreements which are
material to any of the Company Business Units taken as a whole,
(e) contracts and other agreements containing covenants of Company or
any Company Subsidiary not to compete with any Person which are material to
Company and the Company Subsidiaries as a whole or which following the Effective
Time will be material to Merger Partner and the Merger Partner Subsidiaries
taken as a whole,
(f) contracts and other agreements relating to the making of any loan
in excess of $1 million in any one case, other than Investment Assets and
Company Employee Plan loans made in the ordinary course of business and other
than intercompany loans between or among Company and/or the Company
Subsidiaries,
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(g) contracts or other agreements for or relating to computer
equipment or computer services calling for a purchase price or payment in any
one case during any one year of more than $1 million,
(h) contracts or other agreements relating to any derivative
instruments or securities or any "off-balance sheet" financing transaction,
other than those entered into in the ordinary course of business for bona fide
hedging purposes, and
(i) to the Knowledge of Company, any other contract or other
agreement whether or not made in the ordinary course of business calling for
payments in any one year of more than $2.5 million in any one case.
6.22 Agents. Within 28 days after the date of this Agreement, Company
shall furnish to Merger Partner (a) a list of Company's agents and brokers as of
the date hereof who have acted as agent or broker with respect to insurance
contracts of Company which are in force and who were paid commissions in excess
of $500,000 by any Company Insurance Subsidiary within the past twelve months
("Significant Brokers"), (b) a list of and copies of the standard forms of
agreements between each Company Insurance Subsidiary and its insurance agents
and brokers, (c) a list of those Significant Brokers as to which such agreements
specified in clause (b) of this Section 6.22 are in effect and (d) a list of
those Significant Brokers who have entered into other agency agreements with any
Company Insurance Subsidiary that are in effect.
6.23 Litigation. Subject to the restrictions set forth in Section 6.1(a),
during the period from the date hereof until the Effective Time, Company shall,
and shall cause the Company Subsidiaries to, give Merger Partner and its
representatives access to and copies of listings of claims, actions, suits,
investigations and proceedings to which Company or any Company Subsidiary is
subject, to the extent such listings are in the possession of the Company or the
Company Subsidiaries and are reasonably requested by Merger Partner. It is
understood and agreed that the provision of any such listings shall not be
deemed to modify the representations of the Company set forth in Section 4.10.
6.24 Certain Reporting Requirements. After the Effective Time, Merger
Partner shall cause the Surviving Corporation to comply with the reporting
requirements of Section 6038B of the Code and the regulations thereunder.
6.25 Investment Company Act. Merger Partner covenants and agrees that it
will comply in all material respects with any requirements imposed by Section
15(f) of the 1940 Act with respect to the Manager.
6.26 Ruling Request. Prior to the filing of a request (the "Ruling
Request") for a Ruling (as defined in Section 7.1(g)) with the IRS, Company will
permit Merger Partner to review and comment on the Ruling Request and will
consult with Merger Partner regarding such Ruling Request. In addition, Company
will promptly make available for review by Merger Partner all written
correspondence that Company receives from the IRS concerning the Ruling Request
and will allow
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Merger Partner to participate in discussions with the IRS. Merger Partner
agrees to use all commercially reasonable efforts to cooperate with Company in
connection with such Ruling Request. Company shall be responsible for all costs
and expenses (including IRS user fees) relating to the Ruling Request, except
for costs and expenses relating to Merger Partner's review of the Ruling Request
and participation in such process.
ARTICLE 7
CONDITIONS PRECEDENT TO MERGER
7.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the satisfaction on or
prior to the Closing Date of each of the following conditions:
(a) This Agreement and the Merger shall have been approved and
adopted by the affirmative vote or consent of the holders of at least a majority
of the outstanding shares of Company Common Stock.
(b) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental authority or other regulatory body
required in connection with the execution, delivery and performance of this
Agreement and the Distribution Agreement, the failure to obtain which would
prevent the consummation of the Merger or the Spin-off or have a Material
Adverse Effect on Company or a Material Adverse Effect on Merger Partner, shall
have been obtained without the imposition of any conditions which would have,
individually or in the aggregate, a Material Adverse Effect on Company or a
Material Adverse Effect on Merger Partner.
(c) All authorizations, consents, waivers and approvals from parties
to contracts or other agreements to which any of Company or Merger Partner (or
their respective Subsidiaries) is a party, or by which either is bound, as may
be required to be obtained by them in connection with the performance of this
Agreement and the Distribution Agreement, the failure to obtain which would
prevent the consummation of the Merger or the Spin-off or have, individually or
in the aggregate, a Material Adverse Effect on Company or, individually or in
the aggregate, a Material Adverse Effect on Merger Partner, shall have been
obtained.
(d) Early termination shall have been granted or applicable waiting
periods shall have expired under the HSR Act.
(e) No governmental authority or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
then in effect and has the effect of making illegal, materially restricting or
in any way preventing or prohibiting the Merger, the Spin-off or the
transactions contemplated by this Agreement or the Distribution Agreement.
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(f) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such purpose,
or under the proxy rules of the SEC pursuant to the Exchange Act and with
respect to the transactions contemplated hereby, shall be pending before or
threatened by the SEC. At the effective date of the Registration Statement, the
Registration Statement shall not contain any untrue statement of a material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, and, at the mailing date of the Proxy
Statement and the date of the Stockholders' Meeting, the Proxy Statement shall
not contain any untrue statement of a material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading.
(g) The parties shall have received a private letter ruling from the
IRS (the "Ruling") to the effect that (i) the Spin-off will qualify as a tax-
free distribution within the meaning of Section 355 of the Code, (ii) the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, (iii) the exchange in the Merger of Company Common Stock for Merger
Partner Common Stock will not give rise to gain or loss for federal income tax
purposes to the stockholders of Company with respect to such exchange (except to
the extent of the cash received), and (iv) neither Company nor Sub will
recognize gain or loss as a consequence of the Merger.
(h) The shares of Merger Partner Common Stock to be issued pursuant
to this Agreement and pursuant to the Company Stock Options shall have been
authorized for listing on the NYSE, subject to official notice of issuance.
(i) The Spin-off shall have been effected.
7.2 Conditions to Obligations of Company. The obligations of Company to
effect the Merger shall be subject to the satisfaction on or prior to the
Closing Date of each of the following conditions unless waived by Company:
(a) The representations and warranties of Merger Partner set forth in
this Agreement shall be true and correct in all material respects at and as of
the date of this Agreement and at and as of the Closing Date as though made at
and as of the Closing Date, except to the extent such representations and
warranties (i) speak as of a specified date and except to the extent
contemplated or permitted by this Agreement; or (ii) are already qualified by
materiality, in which event such representations and warranties shall be true
and correct in all respects.
(b) Merger Partner and Sub each shall have performed in all material
respects all covenants and agreements required to be performed by them under
this Agreement at or prior to the Closing Date.
(c) Merger Partner shall furnish Company with a certificate of its
appropriate officers as to compliance with the conditions set forth in Sections
7.2(a) and (b).
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(d) Company shall have received a letter addressed to Company, dated
the Closing Date, from a nationally recognized appraisal firm, which letter
shall be in form and substance reasonably satisfactory to Company and shall
support the conclusions that, after giving effect to the Merger and the Spin-
off, Company will not be insolvent and will not be rendered insolvent by the
transactions contemplated hereby or by the Distribution Agreement, will not be
left with unreasonably small capital with which to engage in their businesses
and will not have incurred debts beyond its ability to pay such debts as they
mature.
(e) Company shall have received from Moret Ernst & Young letters
dated (i) the effective date of the Registration Statement and (ii) the Closing
Date, with respect to certain financial information regarding Merger Partner
included in the Registration Statement, in each case in form and substance
reasonably satisfactory to Company and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
(f) Company shall have received opinions, dated the Closing Date, of
the General Counsel of Merger Partner and the General Counsel of AEGON USA,
Inc., in form and substance reasonably satisfactory to Company, with respect to
the matters set forth in Exhibit E.
7.3 Conditions to Obligations of Merger Partner. The obligations of
Merger Partner to effect the Merger shall be subject to the satisfaction on or
prior to the Closing Date of each of the following conditions unless waived by
Merger Partner:
(a) The representations and warranties of Company set forth in this
Agreement shall be true and correct in all material respects at and as of the
date of this Agreement and at and as of the Closing Date as though made at and
as of the Closing Date, except to the extent such representations and warranties
(i) speak as of a specified date and except to the extent contemplated or
permitted by this Agreement or the Distribution Agreement; and (ii) are already
qualified by materiality, in which event such representations and warranties
shall be true and correct in all respects.
(b) Company shall have performed in all material respects all
covenants and agreements required to be performed by it under this Agreement at
or prior to the Closing Date.
(c) Company shall furnish Merger Partner with a certificate of its
appropriate officers as to compliance with the conditions set forth in Sections
7.3(a) and (b).
(d) Merger Partner shall have received from Ernst & Young LLP letters
dated (i) the date of the Proxy Statement and (ii) the Closing Date, with
respect to certain financial information regarding Company included in the Proxy
Statement, in each case in form and substance reasonably satisfactory to Merger
Partner and customary in scope and substance for letters delivered by
independent public accountants in connection with proxy statements similar to
the Proxy Statement.
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(e) Company shall have used commercially reasonable efforts to cause
each person who Company believes, at the time the Merger is submitted to a vote
of the stockholders of Company, is an "affiliate" for purposes of Rule 145 under
the Securities Act, to deliver to Merger Partner on or prior to the Closing Date
a written agreement in terms satisfactory to Merger Partner, that such person
will not offer to sell, transfer or otherwise dispose of any of the shares of
Merger Partner Common Stock issued to such person pursuant to the Merger, except
in accordance with the applicable provisions of Rule 145, and except in other
transactions that are not in violation of the Securities Act. Exhibit F sets
forth a list of those persons who the Company believes, at the date hereof, are
"affiliates" for purposes of Rule 145 under the Securities Act.
(f) Merger Partner shall have received an opinion, dated the Closing
Date, of King & Spalding, counsel to Company, in form and substance reasonably
satisfactory to Merger Partner, with respect to the matters set forth in
Exhibit G.
ARTICLE 8
TERMINATION AND ABANDONMENT OF THE MERGER
8.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the approval by the stockholders of
Company:
(a) by the mutual written consent of Merger Partner and Company;
(b) by Company if:
(i) the Merger is not consummated on or before August 31, 1997 (or
such later date as shall have been approved by Merger Partner and Company),
unless the failure of such occurrence shall be due to the failure of
Company to perform or observe the covenants, agreements and conditions
hereof to be performed or observed by it at or before the Effective Time;
(ii) events occur which render impossible the satisfaction of one or
more of the conditions set forth in Sections 7.1 and 7.2 and such
conditions are not waived by Company, unless the failure of such occurrence
shall be due to the failure of Company to perform or observe the covenants,
agreements and conditions hereof to be performed or observed by it at or
before the Effective Time;
(iii) Company is enjoined or restrained by any governmental authority
or other regulatory body (including any court), such injunction or
restraining order prevents the performance by Company of its obligations
hereunder and such injunction shall not have been withdrawn by the earlier
to occur of the date 60 days after the date on which such injunction was
first issued or August 31, 1997;
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(iv) the Board of Directors of Company shall have exercised any of
its rights set forth in Section 6.3;
(v) the stockholders of Company do not approve this Agreement and
the Merger at the Stockholders' Meeting; or
(vi) the Fair Market Value at the Effective Time of one share of
Merger Partner Common Stock (assuming the Effective Time were to occur on
the Closing Date) would be less than $44.475, unless Merger Partner agrees
in such event that the Exchange Ratio shall be determined by dividing
$24.889 by the Fair Market Value at the Effective Time of one share of
Merger Partner Common Stock.
(c) by Merger Partner if:
(i) the Merger is not consummated on or before August 31, 1997 (or
such later date as shall have been approved by Company and Merger Partner),
unless the failure of such occurrence shall be due to the failure of Merger
Partner or Sub to perform or observe the covenants, agreements and
conditions hereof to be performed or observed by them at or before the
Effective Time;
(ii) events occur which render impossible the satisfaction of one or
more of the conditions set forth in Sections 7.1 and 7.3 and such
conditions are not waived by Merger Partner, unless the failure of such
occurrence shall be due to the failure of Merger Partner or Sub to perform
or observe the covenants, agreements and conditions hereof to be performed
or observed by them at or before the Effective Time;
(iii) Merger Partner is enjoined or restrained by any governmental
authority or other regulatory body (including any court), such injunction
or restraining order prevents the performance by Merger Partner of its
obligations hereunder and such injunction shall not have been withdrawn by
the earlier to occur of the date 60 days after the date on which such
injunction was first issued or August 31, 1997;
(iv) the stockholders of Company do not approve this Agreement and
the Merger at the Stockholders' Meeting;
(v) the Board of Directors of Company shall have withdrawn or
materially modified in a manner adverse to Merger Partner its
recommendation of this Agreement and the Merger or the Board of Directors
shall have approved or recommended another Acquisition Proposal; or
(vi) the Fair Market Value at the Effective Time of one share of
Merger Partner Common Stock (assuming the Effective Time were to occur on
the Closing Date) would be greater than $66.713, unless the Company agrees
in such event that the Exchange Ratio shall
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be determined by dividing $30.545 by the Fair Market Value at the Effective
Time of one share of Merger Partner Common Stock.
8.2 Effect of Termination and Abandonment. In the event of the
termination and abandonment of this Agreement under Section 8.1, this Agreement
shall become void and have no effect, without any liability on the part of any
party or its directors, officers or stockholders except (i) as provided in the
third sentence of Section 6.1(a), and in Sections 6.4 and 6.12 and (ii) to the
extent that such termination results from the willful breach by any party hereto
of any material representation, warranty or covenant hereunder.
ARTICLE 9
MISCELLANEOUS
9.1 Waiver and Amendment. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose stockholders are,
entitled to the benefits thereof, and any term or provision of this Agreement
may be amended or supplemented at any time by action of the respective Boards of
Directors (or its authorized representative) of Merger Partner or Company
without action of the stockholders, whether before or after the Stockholders'
Meeting; provided, however, that after approval of the stockholders of Company
no such amendment shall reduce the amount or change the form of the
consideration to be delivered to Company's stockholders as contemplated by this
Agreement or otherwise materially adversely affect the interests of such
stockholders unless such amendment is approved by Company's stockholders. No
amendment to this Agreement shall be effective unless it has been executed by
Company, Merger Partner and Sub.
9.2 Non-Survival of Representations, Warranties and Agreements. Except
for the agreements contained in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 6.8, 6.14,
6.15, 6.16, 6.17, 6.18, 6.24 and 6.25 and Article 9 and the representations and
warranties contained in Sections 4.35 and 5.29, none of the representations,
warranties and agreements of Company, Merger Partner or Sub in this Agreement,
or in any instrument or certificate delivered pursuant to this Agreement, shall
survive the Merger nor shall their respective stockholders, directors or
officers have any liability to the other after the Effective Time on account of
any breach of warranty or failure or the incorrectness of any of the
representations or warranties contained herein or in any certificate or other
instrument delivered pursuant to this Agreement. The sole right and remedy
arising from a misrepresentation or breach of warranty, from the failure of any
of the conditions of the Merger to be met, or from the failure to perform any
promise or discharge any obligation in this Agreement shall be termination of
this Agreement by the aggrieved party and the remedies provided in Section 8.2.
9.3 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
telecopied (if confirmed) or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
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If to Company:
Providian Center
400 West Market Street
Louisville, Kentucky 40202
Attention: Mr. Irving W. Bailey II
Telecopy No.: (502) 584-5960
With a copy to:
King & Spalding
120 West 45th Street
New York, New York 10036
Attention: Mr. E. William Bates, II
Telecopy No.: (212) 556-2222
and to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Mr. Steven A. Rosenblum
Telecopy No.: (212) 403-2000
If to Merger Partner:
(via mail):
P.O. Box 202
2501 CE The Hague
The Netherlands
Attention: Mr. Kees J. Storm
Telecopy No.: (31-70) 347-7929
(via hand delivery):
Mariahoeveplein 50
2591 TV The Hague
The Netherlands
Attention: Mr. Kees J. Storm
Telecopy No.: (31-70) 347-7929
59
<PAGE>
With a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Mr. Donald B. Henderson, Jr.
Telecopy No.: (212) 424-8500
If to Merger Sub:
4333 Edgewood Road, NE
Cedar Rapids, Iowa 52499
Attention: Mr. Craig D. Vermie
Telecopy No.: (319) 369-2206
With a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Mr. Donald B. Henderson, Jr.
Telecopy No.: (212) 424-8500
9.4 Descriptive Headings; Interpretation. The descriptive headings are
for convenience of reference only and shall not control or affect the meaning
or construction of any provision of this Agreement. When a reference is made
in this Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The phrase "made available" in this
Agreement shall mean that the information referred to has been made available
if requested by the party to whom such information is to be made available.
The phrases "the date of this Agreement", "the date hereof", and terms of
similar import, unless the context otherwise requires, shall be deemed to refer
to December 28, 1996. Notwithstanding anything to the contrary contained in
this Agreement or in any of the Schedules, any information disclosed on one
Schedule shall be deemed to be disclosed in all Schedules provided that the
context makes clear that such information relates to the other Schedule or
Schedules. Certain information set forth in the Schedules is included solely
for informational purposes and may not be required to be disclosed pursuant to
this Agreement. As between Company or Merger Partner, as applicable, and third
parties, the disclosure of any information shall not be deemed to constitute an
acknowledgment that such information is required to be disclosed in connection
with the representations and warranties made by Company and in this Agreement.
The foregoing two sentences shall nevertheless not affect the rights or
obligations of Company or Merger Partner as set forth herein. In addition, it
is understood and agreed that the inclusion of information in any Disclosure
Schedule which is not required to be disclosed in such Schedule shall not give
rise to any inference that any comparable information is required to be
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<PAGE>
disclosed and shall not give rise to any breach by a party due to the failure to
disclose comparable information which is also otherwise not required to be
disclosed.
9.5 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement. This Agreement shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties, it
being understood that the parties need not sign the same counterpart.
9.6 Entire Agreement. This Agreement and the Confidentiality Agreements
contain the entire agreement between Merger Partner, Sub and Company with
respect to the Merger, and supersede all prior arrangements or understandings
with respect to the subject matter hereof. Except as otherwise contemplated in
the covenants listed in Section 9.2 (which covenants shall be enforceable by the
person or persons affected thereby following the Effective Time), this Agreement
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
9.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO ANY
APPLICABLE CONFLICTS OF LAW PROVISIONS THEREOF).
9.8 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions be consummated as originally contemplated to the fullest extent
possible.
9.9 Enforcement of Agreement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
9.10 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties, and any attempt to make any such assignment without such consent shall
be null and void. Subject to the preceding sentence, this Agreement will
61
<PAGE>
be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns.
9.11 Limited Liability. Notwithstanding any other provision of this
Agreement or the Distribution Agreement, no stockholder, director, officer,
affiliate or representative of Company or Merger Partner shall have any personal
liability in respect of or relating to the covenants, obligations,
representations or warranties of such party under this Agreement or the
Distribution Agreement or in respect of any certificate delivered with respect
hereto or thereto, except to the extent that such person or entity has engaged
in fraud with respect to such matters. Except as set forth in the preceding
sentence, to the fullest extent legally permissible, each of Company and Merger
Partner, for itself and its stockholders, directors, officers and affiliates,
waives and agrees not to seek to assert or enforce any such liability that any
such person otherwise might have pursuant to applicable law.
9.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS.
-------------------------------------------
(a) EACH PARTY IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL
ACTION, SUIT OR PROCEEDING BY OR AGAINST IT WITH RESPECT TO ITS RIGHTS,
OBLIGATIONS OR LIABILITIES UNDER THIS AGREEMENT OR ANY OTHER AGREEMENT EXECUTED
IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT BY SUCH PARTY ONLY IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE OR, IF (BUT ONLY IF)
SUCH COURT DOES NOT HAVE SUBJECT MATTER JURISDICTION OVER SUCH ACTION, SUIT OR
PROCEEDING (INCLUDING, WITHOUT LIMITATION, CLAIMS FOR INTERIM RELIEF,
COUNTERCLAIMS, ACTIONS WITH MULTIPLE DEFENDANTS AND ACTIONS IN WHICH SUCH PARTY
IS IMPLED). EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A JURY TRIAL IN ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT
TO, OR ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT.
(b) MERGER PARTNER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION
SYSTEM (IN SUCH CAPACITY, THE "PROCESS AGENT"), WITH AN OFFICE AT 1209 ORANGE
STREET, WILMINGTON, DELAWARE 19801 AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, FOR AND ON ITS BEHALF SERVICE OF PROCESS IN SUCH JURISDICTION IN ANY
LEGAL ACTION OR PROCEEDINGS WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT, AND SUCH SERVICE SHALL BE
DEEMED COMPLETE UPON DELIVERY THEREOF TO THE PROCESS AGENT, PROVIDED THAT IN THE
CASE OF ANY SUCH SERVICE UPON THE PROCESS AGENT, THE PARTY EFFECTING SUCH
SERVICE SHALL ALSO DELIVER A COPY THEREOF TO MERGER PARTNER IN THE MANNER
PROVIDED IN SECTION 9.3. MERGER PARTNER SHALL TAKE ALL SUCH ACTION AS MAY BE
NECESSARY TO CONTINUE SAID APPOINTMENT IN FULL FORCE AND EFFECT OR TO APPOINT
ANOTHER AGENT SO
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<PAGE>
THAT MERGER PARTNER WILL AT ALL TIMES HAVE AN AGENT FOR SERVICE OF PROCESS FOR
THE ABOVE PURPOSES IN DELAWARE. IN THE EVENT OF THE TRANSFER OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS AND BUSINESS OF THE PROCESS AGENT TO ANY OTHER
CORPORATION BY CONSOLIDATION, MERGER, SALE OF ASSETS OR OTHERWISE, SUCH OTHER
CORPORATION SHALL BE SUBSTITUTED HEREUNDER FOR THE PROCESS AGENT WITH THE SAME
EFFECT AS IF NAMED HEREIN IN PLACE OF CT CORPORATION SYSTEM. MERGER PARTNER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED AIRMAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET
FORTH IN THIS AGREEMENT, SUCH SERVICE OF PROCESS TO BE EFFECTIVE UPON
ACKNOWLEDGMENT OF RECEIPT OF SUCH REGISTERED MAIL. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW. MERGER PARTNER EXPRESSLY ACKNOWLEDGES THAT THE FOREGOING WAIVER
IS INTENDED TO BE IRREVOCABLE UNDER THE LAWS OF THE STATE OF DELAWARE AND OF THE
UNITED STATES OF AMERICA.
63
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered by its respective duly authorized officers, all as of
the date first above written.
AEGON N.V.
By: /s/ Donald J. Shepard
----------------------------------------
Name: Donald J. Shepard
Title: Member of Executive Board
LT MERGER CORP.
By: /s/ Patrick S. Baird
----------------------------------------
Name: Patrick S. Baird
Title: President
PROVIDIAN CORPORATION
By: /s/ Irving W. Bailey II
----------------------------------------
Name: Irving W. Bailey II
Title: Chairman of the Board and
Chief Executive Officer
<PAGE>
Exhibit 2.3
EXHIBIT D
TO DISTRIBUTION
AGREEMENT
TRADEMARK LICENSE AGREEMENT
This AGREEMENT, entered into this ___ day of ___________, 199_ by and
between PROVIDIAN BANCORP, INC., a Delaware corporation, having offices at 201
Mission Street, San Francisco, California (the "LICENSOR") and PROVIDIAN
CORPORATION, a Delaware corporation, having offices at 400 West Market Street,
Louisville, Kentucky (the "LICENSEE");
WHEREAS, LICENSOR has adopted and is using the words PROVIDIAN, PROVIDIAN
_______________, and a logo Design as service marks, trademarks, trade names
and/or trade dress for _____________________ [describe] throughout the United
States and is the owner of U.S. Trademark Registrations Nos._________________
[fill in] and U.S. Trademark Application Serial Nos. _________ [fill in], copies
of which are attached hereto as Exhibits A and B (hereinafter collectively
referred to as the "SERVICE MARKS"); and
WHEREAS, prior to the date hereof, SPINCO was a wholly owned subsidiary of
COMPANY and, pursuant to the General Intellectual Property Assignment and
Renunciation referred to in the Agreement and Plan of Distribution between
LICENSOR and LICENSEE, dated December 28, 1996 (the "Distribution Agreement"),
COMPANY assigned to SPINCO the SERVICE MARKS;
WHEREAS, LICENSEE is the owner of certain insurance subsidiaries identified
on Exhibit C to this Agreement (the "LICENSEE'S SUBSIDIARIES");
WHEREAS, in accordance with the Distribution Agreement, LICENSEE and
LICENSEE'S SUBSIDIARIES intend to change their names and have agreed to cease
using COMPANY in their names and to cease using said SERVICE MARKS;
WHEREAS, LICENSEE'S SUBSIDIARIES need to obtain regulatory approval to
change their names;
WHEREAS, LICENSEE and LICENSEE'S SUBSIDIARIES are desirous of licensing
said SERVICE MARKS for use in connection with their respective businesses for
the periods set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants of the parties and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. LICENSE. LICENSOR grants to LICENSEE and LICENSEE'S SUBSIDIARIES
a license to use the SERVICE MARKS throughout the United States of
<PAGE>
2
America in connection with the Company Business, as defined in Article VI
of the Distribution Agreement (hereinafter, the "COMPANY BUSINESS").
2. QUALITY OF SERVICES. LICENSOR acknowledges that it has reviewed
LICENSEE'S and LICENSEE'S SUBSIDIARIES services, and the advertising
related thereto, and agrees that they meet LICENSOR'S quality standards.
LICENSEE agrees, and shall cause LICENSEE'S SUBSIDIARIES, to maintain the
quality of the services, and advertising related thereto, substantially at
the current level.
3. INSPECTION. LICENSEE and LICENSEE'S SUBSIDIARIES will permit duly
authorized representatives of LICENSOR to inspect the use of the SERVICE
MARKS by LICENSEE and LICENSEE'S SUBSIDIARIES at their respective offices,
at all reasonable times and on reasonable notice, for the purpose of
ascertaining or determining compliance with Paragraphs 1 and 2 hereof.
4. USE OF SERVICE MARKS. LICENSEE and LICENSEE'S SUBSIDIARIES shall,
at the request of LICENSOR on reasonable notice and to the extent that
LICENSOR has reasonable cause to believe that LICENSEE or LICENSEE'S
SUBSIDIARIES is not complying with its obligations under Paragraphs 1 and 2
hereof, provide LICENSOR with samples of all literature, brochures, signs
and advertising material prepared by LICENSEE or LICENSEE'S SUBSIDIARIES,
provided that LICENSOR shall pay 50% of LICENSEE'S and LICENSEE'S
SUBSIDIARIES' costs in providing such samples. When using the SERVICE MARKS
under this AGREEMENT, LICENSEE and LICENSEE'S SUBSIDIARIES undertake to
comply substantially with all laws pertaining to service marks in force at
any time. This provision includes compliance with marking requirements.
5. EXTENT OF LICENSE. The right granted in Paragraph 1 hereof shall
be nonexclusive and shall not be transferable (except, after notice to
LICENSOR, to successor entities in connection with internal reorganizations
of LICENSEE and LICENSEE'S SUBSIDIARIES, provided that such successor
entities remain direct or indirect wholly owned subsidiaries of Merger
Partner (as defined in the Distribution Agreement)) without LICENSOR'S
prior written consent, the LICENSOR shall have the right to use the SERVICE
MARKS and to license its use to any other designee, subject to Section 8.08
of the Distribution Agreement. Except as stated herein, the license granted
shall not be assignable or transferable in any manner whatsoever, nor shall
the LICENSEE or LICENSEE'S SUBSIDIARIES have the right to grant any
sublicenses, except by prior written consent of LICENSOR.
6. INDEMNITY. LICENSOR assumes no liability to LICENSEE or
LICENSEE'S SUBSIDIARIES or to third parties with respect to the performance
characteristics of the services rendered by LICENSEE or LICENSEE'S
SUBSIDIARIES under the SERVICE MARKS. LICENSEE and LICENSEE'S SUBSIDIARIES
shall
<PAGE>
3
indemnify LICENSOR against Losses (as defined in the Distribution
Agreement) incurred pursuant to claims of third parties against LICENSOR
arising out of the use of the SERVICE MARKS in connection with the COMPANY
BUSINESS or the provision of services by LICENSEE or LICENSEE'S
SUBSIDIARIES under the SERVICE MARKS, provided that such indemnity shall
not extend to Losses incurred by claims of third parties related to the
validity of LICENSOR'S rights in the SERVICE MARKS. LICENSOR and LICENSEE
further agree that any and all losses incurred by LICENSOR that are subject
to the foregoing indemnification shall be considered "Losses," as defined
in Article VI of the Distribution Agreement, and subject, but not in
addition, to the indemnification provisions set forth therein.
7. TERMINATION. LICENSEE and LICENSEE'S SUBSIDIARIES agree to effect
the change in the name of LICENSEE and LICENSEE'S SUBSIDIARIES as promptly
as reasonably practicable after the date hereof, to use reasonable efforts
to obtain all necessary regulatory approvals to effect such name change,
and to transition, as promptly as reasonably practicable, to usage of a new
name and to cease usage of the COMPANY name and the other SERVICE MARKS.
The license granted herein shall remain in effect only until said
transition is complete, or (i) six months from the date hereof with respect
to LICENSEE and (ii) 18 months from the date hereof with respect to
LICENSEE'S SUBSIDIARIES. Notwithstanding the foregoing, with respect to the
LICENSEE'S SUBSIDIARIES, if, despite reasonable efforts on the part of
LICENSEE to obtain regulatory approval for the name change of the
LICENSEE'S SUBSIDIARIES by the end of the 18-month period, such period may
be extended with the consent of LICENSOR, which consent shall not be
unreasonably withheld. LICENSOR shall also be entitled to terminate this
Agreement if LICENSEE and LICENSEE'S SUBSIDIARIES fail to comply with their
obligations hereunder in all material respects, subject to notice to
LICENSEE from LICENSOR and an opportunity for LICENSOR to cure such failure
within thirty days.
8. OWNERSHIP OF SERVICE MARKS. LICENSEE, LICENSEE'S SUBSIDIARIES and
all parties to this AGREEMENT acknowledge LICENSOR'S exclusive right, title
and interest in and to the SERVICE MARKS, except for the license granted
herein, and any registrations that have issued or may issue thereon, and
will not at any time do or cause to be done any act or thing contesting or
in any way impairing or tending to impair any part of such right, title and
interest. In connection with the use of the SERVICE MARKS, neither LICENSEE
nor LICENSEE'S SUBSIDIARIES nor any other party hereto shall in any manner
represent that he or it has any ownership in the SERVICE MARKS or
registrations thereof, and all parties acknowledge that LICENSEE'S and
LICENSEE'S SUBSIDIARIES use of the SERVICE MARKS shall enure to the benefit
of the LICENSOR. On termination of this AGREEMENT in any manner provided
herein, the LICENSEE and LICENSEE'S SUBSIDIARIES will cease and desist from
all use of the SERVICE MARKS in any way and will destroy all material and
paper upon which the SERVICE MARKS appear, other than for standard record
retention requirements, and furthermore, LICENSEE and LICENSEE'S
SUBSIDIARIES will not at any time adopt or use without LICENSOR'S prior
<PAGE>
4
written consent, any word or mark which is similar to or likely to be
confused with the SERVICE MARKS.
9. The following provisions of the Distribution Agreement are
incorporated herein by reference: Section 10.05 (Governing Laws), Section
10.06 (Notices), Section 10.09 (Counterparts), Section 10.10
(Interpretation), Section 10.11 (Severability), Section 10.12 (References;
Construction); Section 8.06 (Confidentiality).
PROVIDIAN BANCORP, INC.
201 Mission Street
San Francisco, California 94105
By: _______________________________ Dated: _____________________________
, Its
PROVIDIAN CORPORATION
400 West Market Street
Louisville, Kentucky 40202
By: _______________________________ Dated: _____________________________
, Its
<PAGE>
Exhibit 2.4
EXHIBIT E TO
DISTRIBUTION AGREEMENT
GENERAL INTELLECTUAL PROPERTY ASSIGNMENT AND RENUNCIATION
WHEREAS, PROVIDIAN CORPORATION ("COMPANY") is a Delaware corporation,
having offices at 400 West Market Street, Louisville, Kentucky;
WHEREAS, PROVIDIAN BANCORP, INC. ("SPINCO") is a Delaware corporation,
having offices at 201 Mission Street, San Francisco, California, and prior to
_________, 199_ was a wholly owned subsidiary of COMPANY;
WHEREAS, COMPANY and SPINCO, in connection with a reorganization of
COMPANY, executed an Agreement and Plan of Distribution between COMPANY and
SPINCO on December 28, 1996 (hereinafter, the "Distribution Agreement");
WHEREAS, COMPANY is desirous of assigning, transferring and conveying to
SPINCO any and all right, title and interest of COMPANY in and to certain
PROPRIETARY RIGHTS as hereinafter defined;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, COMPANY does hereby assign, transfer and convey to SPINCO its
successors, legal representatives and assigns, any and all world-wide rights,
title and interest of COMPANY in and to the following (hereinafter the
"PROPRIETARY RIGHTS"):
1. MARKS AND TRADE DRESS, which shall mean any and all trademarks,
service marks, trade names, trade dress and other proprietary terms, words,
designations, designs, colors, color combinations, product configurations
and indicia used, or as to which an application based on a bona fide
intention to use has been filed with the U.S. Patent and Trademark Office
in connection with SPINCO, the Spinco Business, as defined in ARTICLE VI of
the Distribution Agreement (hereinafter, the "SPINCO BUSINESS"), and/or the
business or services conducted by or provided by COMPANY under the
trademark, service mark or trade name that includes the word "PROVIDIAN",
or the "PRO" prefix, or other forms of the word "PROVIDIAN"; any and all
trademark applications filed and trademark registrations received for any
of the foregoing in the United States, the individual states thereof, or
any foreign county, as set forth in the attached Exhibits A and B; the
goodwill of the business appurtenant to and connected with said MARKS AND
TRADE DRESS; any non-privileged information, research and investigations
conducted in connection with the selection of said MARKS; and the right to
apply for, register, renew, protect, defend and enforce any and all rights
to the foregoing including the right to sue for past infringement thereof,
the right to enforce any and all rights of the COMPANY related to the
foregoing and causes of action therefor, presently known or unknown and
inuring to SPINCO, and the right to recover all claims for damages or for
<PAGE>
2
compensation for past infringement arising out of any cause of action,
whether presently known, unknown, accrued or to accrue.
2. WORKS, which shall mean any and all fixed expressions of concepts
and ideas created, used or published by or for SPINCO or COMPANY for
business or services conducted under the trademark, service mark or trade
name that includes the word "PROVIDIAN", the "PRO" prefix or other forms of
the word "PROVIDIAN" solely relating to the SPINCO BUSINESS, including
without limitation any and all marketing, advertising and promotional
materials in printed or other form, whether or not the same constitute
"Works of Authorship" under the United States copyright laws; and any and
all copyright applications filed and copyright registrations received for
any of the foregoing in the United States or any foreign country, as set
forth in the attached Exhibit C;
3. CONFIDENTIAL INFORMATION, which shall mean any and all
information, comprising trade secrets, proprietary information, formulas,
products, protocols, forms, procedures, methods for operating business,
marketing and advertising practices and plans and financial data, whether
or not any of the foregoing is embodied in written or otherwise recorded
form, that was developed or obtained by SPINCO or COMPANY solely for the
SPINCO BUSINESS and solely relating to business or services conducted under
the trademark, service mark or trade name that includes the word
"PROVIDIAN", the "PRO" prefix or other forms of the word "PROVIDIAN;"
4. INVENTIONS, which shall mean any and all discoveries, concepts,
developments and ideas, whether or not protectable under the patent laws or
other laws, conceived, reduced to practice, or developed by, or for, SPINCO
or COMPANY solely relating to the SPINCO BUSINESS and solely for the
business or services conducted under the trademark, service mark or trade
name that includes the word "PROVIDIAN", the "PRO" prefix or other forms of
the word "PROVIDIAN", including without limitation proprietary designs,
methods, formulas, techniques, articles of manufacture, processes and
procedures, as well as improvements and know-how relating thereto; and any
and all patent applications filed and patents obtained for any of the
foregoing in the United States or any foreign country as set forth in the
attached Exhibit D; and
5. Any and all other rights and privileges provided under the
copyright, patent, trademark, unfair competition, trade secret and other
laws of the United States, the individual states thereof and any foreign
country with respect to the foregoing, provided that such rights and
privileges are related solely to the SPINCO BUSINESS; any and all grants of
rights to and under any and all licenses and other agreements and documents
relating to any of the foregoing, provided that such rights are related
solely to the SPINCO BUSINESS; and any and all grants of rights of
<PAGE>
3
publicity and waivers of privacy rights of any and all persons whose names,
images, licenses and other identifying indicia are included in the subject
matter to which the foregoing relates, provided that such grants and
waivers are related solely to the SPINCO BUSINESS.
COMPANY does hereby waive, renounce and relinquish any and all claims of
ownership, rights, title and interest in the PROPRIETARY RIGHTS, and COMPANY
agrees that no rights in any of the PROPRIETARY RIGHTS are retained by COMPANY.
COMPANY agrees to cooperate as reasonably necessary with SPINCO (at
SPINCO's expense and without further consideration to COMPANY) in connection
with perfecting SPINCO's ownership of the PROPRIETARY RIGHTS, and in connection
with perfecting the transfer of all rights to and the vesting of full and
complete title and ownership in SPINCO to the PROPRIETARY RIGHTS, including
execution of the Short-Form Assignment attached as Exhibit F to the Distribution
Agreement. COMPANY further agrees to cooperate as reasonably necessary with
SPINCO (at SPINCO's expense and without further consideration to COMPANY) in
connection with, enforcing and defending the rights transferred, and executing
any and all instruments deemed by SPINCO to be reasonably necessary or desirable
to implement and accomplish the transfer, enforcement and/or defense of rights
granted by COMPANY hereunder in the United States and foreign jurisdictions.
COMPANY and SPINCO agree that any and all Losses, as defined in Article IV
of the Distribution Agreement, arising out of use of the MARKS AND TRADE DRESS
prior to the Distribution Date, as defined in the Distribution Agreement, shall
be governed by the indemnification provision set forth in Article VI thereof.
This Agreement shall be binding upon and shall inure to the benefit of the
parties, and their respective officers, directors, employees, agents,
affiliates, attorneys, legal representatives, heirs, successors and assigns.
This instrument shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, COMPANY has executed this Assignment by the hand of its
duly authorized representative.
PROVIDIAN CORPORATION
By: Dated:
------------------------------- ------------------------------
, Its
<PAGE>
Exhibit 2.5
EXHIBIT F TO
DISTRIBUTION AGREEMENT
SHORT-FORM ASSIGNMENT
WHEREAS, PROVIDIAN CORPORATION, a Delaware corporation, having offices at
400 West Market Street, Louisville, Kentucky (the "ASSIGNOR"), has used in its
business and is the owner of the entire right, title and interest in and to the
trademarks set forth in the attached Exhibit A, and the goodwill appurtenant to
said marks; and the United States Trademark Registrations and Applications for
said marks;
WHEREAS PROVIDIAN BANCORP, INC. is a Delaware corporation, having offices
at 201 Mission Street, San Francisco, California (the "ASSIGNEE").
WHEREAS ASSIGNEE is desirous of acquiring ASSIGNOR's entire right, title
and interest in and to said trademarks, the appurtenant goodwill, the federal
trademark registrations and applications for said marks and the rights at common
law in and to said marks;
WHEREAS ASSIGNOR desires to assign said trademarks, trademark registrations
and trademark applications to ASSIGNEE so that they follow the associated
business of SPINCO;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged; ASSIGNOR hereby assigns, transfers and conveys to ASSIGNEE, it
successors, legal representatives and assigns, ASSIGNOR's entire right, title
and interest in and to each of the service marks identified in Exhibit A, the
goodwill of the business appurtenant to and connected with the marks, the United
States Trademark Registrations and Applications for said marks, and all rights
at common law in the marks.
IN WITNESS WHEREOF, ASSIGNOR has executed this Assignment by the hand of
its duly authorized representative.
PROVIDIAN CORPORATION
By: Dated:
--------------------------------- ----------------------------
, Its
<PAGE>
EXHIBIT 2.6
EXHIBIT C TO
DISTRIBUTION AGREEMENT
TRANSITION SERVICES AGREEMENT
BETWEEN
PROVIDIAN CORPORATION
AND
PROVIDIAN BANCORP, INC.
Dated as of _______, 1997
<PAGE>
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT, dated as of ____, 199_ (this "Agreement"),
by and between Providian Corporation, a Delaware corporation (the "Company"),
and Providian Bancorp, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("Spinco").
RECITALS
A. The Merger Transaction. The Company, AEGON N.V., a company organized
under the laws of The Netherlands ("Merger Partner"), and LT MERGER CORP., a
Delaware corporation and a wholly owned subsidiary of Merger Partner ("Sub"),
have entered into a Plan and Agreement of Merger and Reorganization, dated as of
December 28, 1996 (the "Merger Agreement"), providing for the Merger (as defined
in the Merger Agreement) of Sub with and into the Company, with the Company as
the surviving corporation.
B. The Distribution. Immediately prior to the Effective Time (as defined
in the Merger Agreement), the Company intends to distribute (the "Distribution")
as a dividend to the holders of the Company's common stock, par value $1.00 per
share, on a pro rata basis, all of the then outstanding shares of common stock,
par value $1.00 per share, of Spinco.
C. Purpose. The purpose of the Distribution is to facilitate the
reorganization of the Company, and to make possible the Merger by divesting the
Company of the businesses and operations conducted by Spinco in a tax-free
distribution to the Company's stockholders. The Company and Spinco have entered
into an Agreement and Plan of Distribution (the "Distribution Agreement"), which
sets forth or provides for certain agreements between the Company and Spinco in
consideration of the separation of their ownership.
D. This Agreement. Among other things, the Distribution Agreement
provides that the Company and Spinco will enter into this Transition Services
Agreement regarding certain administrative and operational functions of the
businesses conducted by the Company and Spinco for a transition period after the
Distribution Date.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used in this Agreement, the following terms
shall have the following respective meanings (capitalized terms used but not
defined herein shall have the respective meanings ascribed thereto in the
Distribution Agreement):
"Agreement" shall have the meaning specified in the first paragraph hereof.
<PAGE>
2
"Company" shall have the meaning specified in the first paragraph hereof.
"Distribution" shall have the meaning specified in the recitals to this
Agreement.
"Distribution Agreement" shall have the meaning specified in the recitals
to this Agreement.
"Merger Agreement" shall have the meaning specified in the recitals to this
Agreement.
"Spinco" shall have the meaning set forth in the first paragraph hereof.
"Transition Period" shall have the meaning specified in Section 2.01.
"Transition Services" shall have the meaning specified in Section 2.01.
ARTICLE II
TRANSITION SERVICES
Section 2.01. Transition Period. For a period of 180 days beginning on
the Distribution Date (the "Transition Period"), the Company shall make
available to Spinco the services described below in Section 2.03 (the
"Transition Services"). The Company shall only be obligated to provide
Transition Services during normal business hours and in a manner that will not
interfere with the Company's business operations.
Section 2.02. Fees. Spinco shall reimburse the Company for the Company's
allocable overhead and any reasonable out-of-pocket expenses (including the
reasonable costs of salaries and benefits of employees providing such services)
incurred by the Company in providing the Transition Services. Any payments
required to be made hereunder shall be due and payable within 30 days of date of
invoice.
Section 2.03. Transition Services. During the Transition Period, the
Company shall make available to Spinco certain administrative services relating
to financial, tax, accounting, legal, human resources and other administrative
services, as set forth on Schedule 2.03 hereto (the "Transition Services").
Section 2.04. Performance of Transition Services. The Company agrees to
perform the Transition Services to be provided hereunder in a professional and
competent manner, using at least the same standard of care that it uses in
performing such services in its own affairs.
<PAGE>
3
ARTICLE III
NO WARRANTIES; LIMITATION ON LIABILITY
Section 3.01. No Warranties. THE COMPANY MAKES NO WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE TRANSITION SERVICES TO
BE PROVIDED HEREUNDER.
Section 3.02. Limitation on Liability. In no event shall the Company be
liable for any incidental or consequential damages to Spinco arising from the
provision of the Transition Services by the Company hereunder, other than for
the Company's gross negligence or willful misconduct.
ARTICLE IV
MISCELLANEOUS
Section 4.01. Cooperation. The parties hereto shall cooperate with each
other and shall cause their officers, employees, agents, auditors and
representatives to cooperate with each other during the Transition Period to
facilitate the orderly transition of the separation of the Company Business and
the Spinco Business and to minimize any disruption to the respective Businesses
that might result from the transactions contemplated by the Distribution
Agreement and hereby.
Section 4.02. Relationship of the Parties. The parties hereto agree that,
after the Distribution Date, nothing herein shall constitute, be construed to
be, or create a partnership, joint venture or similar relationship between them,
and that any actions performed by or on behalf of another party hereunder shall
be as an agent for such other party.
Section 4.03. Amendments. This Agreement may be amended, modified or
supplemented only by a written agreement signed by all of the parties hereto.
Section 4.04. Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
Section 4.05. Termination. This Agreement shall be terminated in the
event that the Distribution Agreement is terminated and the Distribution is
abandoned prior to the Distribution Date. In the event of such termination,
neither party shall have any liability of any kind to the other party.
Section 4.06. Incorporation by Reference. The following provisions of the
Distribution Agreement are hereby incorporated into this Agreement by reference
(except that references therein to the Distribution Agreement shall be deemed to
be references to this Agreement): Section 8.06 (Confidentiality); Section 10.04
(Governing Law); Section 10.05 (Notices); Section
<PAGE>
4
10.09 (Counterparts); Section 10.10 (Interpretation); Section 10.11
(Severability); Section 10.12 (References; Construction).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PROVIDIAN CORPORATION
By:
----------------------------------------
Name:
Title:
PROVIDIAN BANCORP, INC.
By:
----------------------------------------
Name:
Title:
<PAGE>
SCHEDULE 2.03
TO TRANSITION SERVICES AGREEMENT
Transition Services
-------------------
I. Human Resources
A. Employee benefit program administration and development, including
with respect to:
1. stock purchase plan
2. bonus program
3. deferred compensation
4. stock options
5. claims paying
II. Accounting/Controller
A. SEC accounting advice
B. Financial audit relationship with Ernst and Young
C. Tax administrative accounting activities, with respect to providing
information regarding:
1. sharing agreements
2. services and advice
3. records
4. liability for prior years
D. General financial record keeping
E. Purchasing
III. Corporate
A. Insurance administration
<PAGE>
IV. Legal
A. Tax law
V. Miscellaneous
A. Network integration and protocol administration services
B. Providian Home Loans Louisville office space, facilities, maintenance
and services
<PAGE>
EXHIBIT 2.7
EXHIBIT A TO
DISTRIBUTION AGREEMENT
TAX DISAFFILIATION AGREEMENT dated as of _______________, 199__ by and among
PROVIDIAN CORPORATION, a Delaware corporation ("Company"), and PROVIDIAN
BANCORP, INC., a Delaware corporation and a direct wholly owned subsidiary of
Company ("Spinco").
RECITALS
WHEREAS:
A. Company is the common parent of an affiliated group of corporations
(the "Company Affiliated Group") within the meaning of Section 1504(a) of the
Code (as hereinafter defined), and the members of the Company Affiliated Group
have heretofore joined in filing consolidated Federal income tax returns.
B. Company expects, pursuant to the Agreement and Plan of Distribution
dated as of December 28, 1996 (the "Distribution Agreement") between Company and
Spinco and subject to the terms thereof, to distribute its entire interest in
Spinco to its shareholders. In furtherance of this decision, among other things
(and as more fully set forth in the Distribution Agreement), (i) Spinco intends
to undertake a recapitalization so that the number of shares of Spinco Common
Stock (as defined in the Distribution Agreement) outstanding and held by the
Company immediately prior to the Distribution Date (as hereinafter defined)
shall equal the number of shares of Company Common Stock (as defined in the
Distribution Agreement) outstanding on the Record Date (as defined in the
Distribution Agreement) and (ii) Company intends to distribute on the
Distribution Date pro rata to the holders of Company Common Stock all of the
outstanding shares of Spinco Common Stock (the "Distribution").
C. Immediately after the Distribution, Company will merge with LT Merger
Corp., a Delaware corporation ("Sub"), with Company surviving (the "Merger"), as
contemplated by the Plan and Agreement of Merger and Reorganization dated as of
December 28, 1996 (the "Merger Agreement") between AEGON N.V., a company formed
under the laws of The Netherlands ("Merger Partner"), Sub, and Company, in
connection with which the holders of Company Common Stock will receive common
stock of Merger Partner in a transaction intended to qualify as a reorganization
under Section 368(a) of the Code.
D. Company and Spinco intend the Distribution to be a transaction
described in Section 355 of the Code, after which neither Spinco nor any of its
Subsidiaries (as hereinafter defined) will be a member of the Company Affiliated
Group for Federal income tax purposes.
E. Company and Spinco desire on behalf of themselves, their respective
Subsidiaries and their successors to set forth their rights and obligations with
respect to Taxes (as hereinafter defined) due for periods before and after the
Distribution.
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Agreement,
1.1 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.2 "Company Group" shall mean, for any period, Company and its then
Subsidiaries.
1.3 "Distribution Date" shall mean the day on which, due to the
distribution of the shares of Spinco Common Stock to the holders of the Company
Common Stock, Spinco could no longer be considered a member of the Company
Affiliated Group.
1.4 "Event of Loss" shall mean the incurrence by the Company Group of any
liability for Taxes which arise as a result of the Distribution and related
transactions failing to qualify as a reorganization under Section 368(a)(1)(D)
of the Code and as a tax-free spinoff under Section 355 of the Code.
1.5 "Final Determination" shall mean with respect to any issue (i) a
decision, judgment, decree or other order by any court of competent
jurisdiction, which decision, judgment, decree or other order has become final
and not subject to further appeal, (ii) a closing agreement entered into under
Section 7121 of the Code or any other binding settlement agreement (whether or
not with the Internal Revenue Service (the "Service")) entered into in
connection with or in contemplation of an administrative or judicial proceeding,
or (iii) the completion of the highest level of administrative proceedings if a
judicial contest is not available or is no longer available.
1.6 "Indemnitor" shall have the meaning set forth in Section 5.2.
1.7 "Overlap Period" shall have the meaning set forth in Section 2.5(b).
1.8 "Period After Distribution" shall mean any taxable year or other
taxable period beginning after the Distribution Date and, in the case of any
taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period that
begins after the close of the Distribution Date.
1.9 "Period Before Distribution" shall mean any taxable year or other
taxable period that ends on or before the Distribution Date and, in the case of
any taxable year or other taxable period that begins before and ends after the
Distribution Date, that part of the taxable year or other taxable period through
the close of the Distribution Date.
2
<PAGE>
1.10 "Spinco Group" shall mean, for any period, Spinco and its then
Subsidiaries.
1.11 "Subsidiary" shall mean a corporation, partnership, joint venture or
other business entity where 50% or more of the outstanding equity or voting
power of such entity is owned directly or indirectly by another corporation. In
determining whether a Subsidiary is a Subsidiary of Spinco or Company for any
period, Spinco shall not be considered a Subsidiary of Company, and any
Subsidiary of Spinco shall be considered a Subsidiary of Spinco, not Company,
for such period.
1.12 "Tax" or "Taxes" whether used in the form of a noun or adjective,
shall mean taxes on or measured by or with respect to income, franchise, gross
receipts, sales, use, excise, payroll, personal property, real property, ad-
valorem, value-added, leasing, leasing use and shall also include all other
taxes, levies, imposts, duties, charges or withholdings of any nature. Whenever
the term "Tax" or "Taxes" is used (including, without limitation, regarding any
duty to reimburse another party for indemnified Taxes or refunds or credit of
Taxes) it shall include penalties, fines, additions to Tax and interest thereon.
1.13 "Tax Returns" shall mean all returns or reports to be filed or that
may be filed for any period with any taxing authority (whether domestic or
foreign) in connection with any Tax (whether domestic or foreign).
1.14 "Tax Sharing Agreements" shall mean (i) the Tax Allocation Agreement
between Company and First Deposit National Bank, dated as of May 12, 1994; (ii)
the Tax Allocation Agreement between Company and Providian Credit Services,
Inc., dated as of May 12, 1994; and (iii) the Tax Allocation Agreement between
Company and Providian National Bank, dated as of May 12, 1994.
ARTICLE II
TAX RETURNS, TAX PAYMENTS, EVENT OF LOSS
AND TAX SHARING AGREEMENTS
2.1 Obligation to File Tax Returns. Company shall timely file or cause to
be filed all Tax Returns with respect to the Spinco Group that (a) are filed on
a consolidated, combined or unitary basis, (b) include Spinco or any of its
Subsidiaries and Company or any of its Subsidiaries, and (c) are required to be
filed (i) for any Period Before Distribution, or (ii) for any taxable year or
period of the Company Group that begins before and ends after the Distribution
Date. Spinco shall timely file or cause to be filed any other Tax Return with
respect to the Spinco Group.
2.2 Obligation to Remit Taxes. Company and Spinco shall each remit or
cause to be remitted on a timely basis any Taxes due in respect of any Tax for
which it is required to file a Tax Return or which is otherwise due and shall be
entitled to reimbursement for such payments only to the extent provided in
Section 2.3.
3
<PAGE>
2.3 Certain Tax Sharing Obligations and Prior Agreements.
(a) Spinco shall be liable for and shall hold the Company Group harmless
against any liability attributable to Spinco or to any Subsidiary that is a
member of the Spinco Group for Taxes, regardless of whether attributable to a
Period Before Distribution or a Period After Distribution, including any
liability asserted against any member of the Company Group under the provisions
of Treas. Reg. 1.1502-6(a) that impose several liability on members of an
affiliated group of corporations that files consolidated returns, or similar
provisions of any foreign, state or local law, in respect of Taxes of any member
of the Spinco Group. Spinco shall be entitled to any refund or credit of Taxes
for any period that is attributable to losses, deductions, credits, adjustments
to income or other tax attributes of the Spinco Group. Refunds or credits of
Taxes generated by losses, deductions, credits, adjustments to income or other
tax attributes of the Company Group shall not be treated as attributable to the
Spinco Group, even where such losses, deductions, credits, adjustments to income
or other tax attributes are used to offset income or Tax liability of the Spinco
Group. Any liability for Taxes or right to a refund under this Section 2.3(a)
shall be measured in accordance with the methods contained in the Tax Sharing
Agreements as implemented by the Company and Spinco prior to the date hereof.
(b) Company shall be liable for and shall hold the Spinco Group harmless
against (i) any liability attributable to Company or to any Subsidiary that is a
member of the Company Group for Taxes, regardless of whether attributable to a
Period Before Distribution or a Period After Distribution, including any
liability asserted against any member of the Spinco Group under the provisions
of Treas. Reg. 1.1502-6(a) that impose several liability on members of an
affiliated group of corporations that files consolidated returns, or similar
provisions of any foreign, state or local law, in respect of Taxes of any member
of the Company Group and (ii) any Tax liability for gain required to be
recognized by the Company as a result of the Distribution of the Spinco stock
failing to qualify under Section 355 of the Code, other than a Tax liability
resulting from the breach by Spinco of a representation contained in Section
2.4(c)(i) of this Agreement. Company shall be entitled to any refund of Taxes
for any period that is attributable to losses, deductions, credits, adjustments
to income or other tax attributes of Company Group. Refunds or credits of Taxes
generated by losses, deductions, credits, adjustments to income or other tax
attributes of the Spinco Group shall not be treated as attributable to the
Company Group, even where such losses, deductions, credits, adjustments to
income or other tax attributes are used to offset income or Tax liability of the
Company Group. Any liability for Taxes or right to a refund under this Section
2.3(b) shall be measured in accordance with the methods contained in the Tax
Sharing Agreements as implemented by the Company and Spinco prior to the date
hereof.
(c) Except for obligations between Company and First Deposit National
Bank, Providian Credit Services, Inc., or Providian National Bank under Sections
2 and 3 of the Tax Sharing Agreements and equivalent arrangements with the other
members of the Spinco Group for taxable periods ending on or before the
Distribution Date and except as set forth herein, the Tax Sharing Agreements and
any and all other tax sharing agreements or practices between any member of the
4
<PAGE>
Company Group and any member of the Spinco Group shall be terminated as of the
Distribution Date.
2.4 Event of Loss.
(a) Notwithstanding anything in Section 2.3 of this Agreement to the
contrary, to the extent that an Event of Loss is caused by an act (other than an
act required by the Distribution Agreement or the Merger Agreement) or omission
of the Spinco Group or the Spinco Group's shareholders that constitutes a breach
of Spinco's representation contained in Section 2.4(c)(i) of this Agreement,
Spinco shall indemnify and hold harmless each member of the Company Group from
and against such Event of Loss.
(b) Notwithstanding anything in Section 2.3 of this Agreement to the
contrary, to the extent that an Event of Loss is caused by an act (other than an
act required by the Distribution Agreement or the Merger Agreement) or omission
of the Company Group or the shareholders of the Company Group that constitutes a
breach of Company's representation contained in Section 2.4(c)(ii) of this
Agreement, Company shall indemnify and hold harmless each member of the Spinco
Group from and against such Event of Loss.
(c) (i) Spinco represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, it has no plan or intention, as
of the date hereof, to participate in any of the following described events or
transactions: a reorganization, consolidation or merger; the sale or disposition
of more than an immaterial portion of its assets other than in the ordinary
course of business; ceasing to engage in the active conduct of a trade or
business; the acquisition or disposition of shares of stock of Spinco by any
person or persons; the redemption or repurchase of shares of its stock by Spinco
or any successor; the recapitalization or other reclassification of the shares
of its stock by Spinco or any successor; exercising, transferring or
repurchasing rights distributed pursuant to a stock purchase rights plan; or any
other act or omission of Spinco which would result in the failure to comply with
each representation and statement made to the Service in connection with any
rulings received with respect to the Distribution or made to tax counsel in
connection with any tax opinions received with respect to the Distribution.
(ii) Company represents that, except as otherwise provided in the
Distribution Agreement or the Merger Agreement, it has no plan or intention, as
of the date hereof, to participate in any of the following described events or
transactions: a reorganization, consolidation or merger; the sale or
disposition of more than an immaterial portion of its assets other than in the
ordinary course of business; ceasing to engage in the active conduct of a trade
or business; the acquisition or disposition of shares of stock of Company by any
person or persons; the redemption or repurchase of shares of its stock by
Company or any successor; the recapitalization or other reclassification of the
shares of its stock by Company or any successor; exercising, transferring or
repurchasing rights distributed pursuant to a stock purchase rights plan; or any
other act or omission of Company which would result in the failure to comply
with each representation and statement made to the Service in
5
<PAGE>
connection with any rulings received with respect to the Distribution or made to
tax counsel in connection with any tax opinions received with respect to the
Distribution.
(iii) Spinco or Company, as the case may be, may engage in acts or
transactions described in paragraphs (i) or (ii) of this Section 2.4(c): (x) if
the act or transaction occurs after the expiration of two years from the
Distribution Date, (y) if the act or transaction consists of the sale, exchange
or disposition of assets having a fair market value on the Distribution Date of
10 percent or less of the fair market value of the total assets of the Company
or Spinco, as the case may be; or (z) if the other party to this Agreement
consents in writing in advance to such act or transactions (which consent may be
given or withheld in the sole discretion of such party), or if Spinco or
Company, as the case may be, at its discretion obtains a ruling from the
Service, or obtains an unqualified opinion from a nationally recognized tax
counsel or "Big Six" accounting firm, which ruling or opinion states, in form
satisfactory to the other party to this Agreement in its sole discretion, that
such action will not cause the Company Group to experience an Event of Loss, and
that any Service ruling obtained remains in full force and effect and may
continue to be relied upon by Spinco or Company, as the case may be, and their
respective shareholders. Any acts or transactions permitted under clauses (x) or
(y) of this paragraph (iii) of this Section 2.4(c) will not be treated as a
breach of the representations of Spinco or Company, as the case may be, for
purposes of applying the indemnification provisions of this Section 2.4 unless
there is a Final Determination that those acts or transactions result in an
Event of Loss. In addition, any acts or transactions permitted under clause (z)
of this paragraph (iii) of this Section 2.4(c) will not be treated as a breach
of the representations of Spinco or Company, as the case may be, for purposes of
applying the indemnification provisions of this Section 2.4.
2.5 Period that Includes the Distribution Date.
(a) To the extent permitted by law or administrative practice, the taxable
year or other taxable period of the Spinco Group shall be treated as closing at
the closing of the Distribution Date.
(b) If a taxable year or other taxable period (the "Overlap Period")
cannot be treated as closing at the closing of the Distribution Date under
Section 2.5(a) hereof, and if it is necessary for purposes of this Agreement to
determine the tax liability of any member of the Spinco Group or of the Company
Group for the period of time in such Overlap Period that either ends at the
closing of the Distribution Date or begins on the day after the Distribution
Date, such determination shall be made by assuming that such Overlap Period
ended at the close of the Distribution Date and that another taxable year or
other taxable period begins on the day after the Distribution Date and ends at
the end of the Overlap Period, except that exemptions, allowances or deductions
that are calculated for the full Overlap Period shall be apportioned on a per
diem basis.
6
<PAGE>
ARTICLE III
CARRYBACKS
Without the prior consent of Company, no member of the Spinco Group shall
carry back any net operating loss or other Tax attribute (unless required to
carry back such loss or Tax attribute by law) from a Period After Distribution
to a Period Before Distribution. Provided that Company consents to the carryback
or if the carryback is required by law, Company (or any other member of the
Company Group receiving such refund) shall promptly remit to Spinco any refunds
it receives with respect to any such carryback.
ARTICLE IV
PAYMENTS
4.1 Payments. Payments due to a party under Article II hereof shall be
paid not later than 30 days after the receipt or crediting of a refund or the
receipt of notice of a Final Determination which results in one of the parties
hereto becoming obligated to make a payment hereunder to the other party hereto.
4.2 Notice. Company and Spinco shall give each other reasonable notice of
any payment that may be due under this Agreement.
ARTICLE V
TAX AUDITS
5.1 General. Except as provided in Section 5.2, each of Spinco and
Company shall have sole responsibility for all audits or other proceedings with
respect to Tax Returns that it is required to file under Section 2.1.
5.2 Indemnified Claims. Company or Spinco shall promptly notify the other
in writing within 30 days of receiving any proposed adjustment to a Tax Return
that may result in liability of the other party (the "Indemnitor") under this
Agreement. The Indemnitor shall have the sole right to contest the proposed
adjustment, and to employ counsel of its choice at its expense; provided,
however, that if the proposed adjustment involves a consolidated, combined or
similar Tax Return for which the other party is responsible and cannot be
separated from the Tax Return under applicable law, the Indemnitor shall not
settle the proposed adjustment without the consent of the other party, which
consent shall not be unreasonably withheld. The Indemnitor shall provide the
other party with information concerning the proposed adjustments and, in the
sole discretion of the Indemnitor, may permit the other party to participate in
the proceeding.
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<PAGE>
ARTICLE VI
COOPERATION
Company and Spinco shall cooperate with each other in the filing of any Tax
Returns and the conduct of any audit or other proceeding and each shall execute
and deliver such powers of attorney and make available such other documents as
are necessary to carry out the intent of this Agreement. Each party agrees to
notify the other party of any audit adjustments which do not result in Tax
liability but can be reasonably expected to affect Tax Returns of the other
party, or any of its Subsidiaries, for a Period After Distribution. Each party
agrees to treat the Distribution for all income tax purposes as a tax-free
spinoff under Section 355 of the Code unless and until there has been a Final
Determination that the Distribution is not a tax-free spinoff under Section 355
of the Code.
ARTICLE VII
RETENTION OF RECORDS; ACCESS
The Company Group and the Spinco Group shall (a) in accordance with their
current record retention policy, retain records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns in respect of Taxes of the Company Group or of the
Spinco Group or for the audit of such Tax Returns; and (b) give to the other
reasonable access to, and allow for the copying of, such records, documents,
accounting data and other information (including computer data) and give access
to its personnel (insuring their cooperation) and premises, for the purpose of
the review or audit of such Tax Returns to the extent relevant to an obligation
or liability of a party under this Agreement.
ARTICLE VIII
DISPUTES
If Company and Spinco cannot agree on any calculation of any liability
under this Agreement, such calculation shall be made by any "Big Six" accounting
firm acceptable to both Company and Spinco. The decision of such firm shall be
final and binding on both Company and Spinco. The fees and expenses incurred in
connection with such calculation shall be borne ratably, in accordance with the
determination of the allocation of the disputed liability between Company and
Spinco.
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<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Notices and Governing Law. All notices required or permitted to be
given pursuant to this Agreement shall be given, and the applicable law
governing the interpretation of this Agreement shall be determined, by the
applicable provisions of the Distribution Agreement.
9.2 Treatment of Payments. The parties hereto shall treat any payments
made pursuant to the terms of this Agreement as a capital transaction for all
tax purposes.
9.3 Binding Effect; No Assignment; Third Party Beneficiaries. This
Agreement shall be binding on, and shall inure to the benefit of, the parties
and their respective successors and assigns, including Merger Partner. Company
and Spinco hereby guarantee the performance of all actions, agreements and
obligations provided for under this Agreement of each member of the Company
Group and of the Spinco Group, respectively. Company and Spinco shall, upon the
written request of the other, cause any of their respective Subsidiaries to
execute this Agreement. Company or Spinco shall not assign any of its rights or
delegate any of its duties under this Agreement without the prior written
consent of the other party. No person (including, without limitation, any
employee of a party or any stockholder of a party) shall be, or shall be deemed
to be, a third party beneficiary of this Agreement.
9.4 Coordination with Employee Benefits Agreement. All rights,
obligations, and liabilities relating to any Company Plan (as defined in the
Employee Benefits Agreement Between Company and Spinco, Dated as of
____________, 199___ (the "Employee Benefits Agreement")) or Spinco Plan (as
defined in the Employee Benefits Agreement) shall be determined solely under the
Employee Benefits Agreement. This Tax Disaffiliation Agreement shall in no way
affect such rights, obligations, and liabilities as determined under the
Employee Benefits Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PROVIDIAN CORPORATION
BY:________________________
Name:
Title:
PROVIDIAN BANCORP, INC.
BY:_________________________
Name:
Title:
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<PAGE>
EXHIBIT 2.8
EXHIBIT D
TO MERGER AGREEMENT
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT (this "Guarantee") is made and entered into as of
___________, 1997 by and between AEGON USA, INC. (the "Guarantor"), a Delaware
corporation and wholly owned subsidiary of AEGON N.V., a company formed under
the laws of The Netherlands ("Merger Partner"), PROVIDIAN CORPORATION, a
Delaware corporation ("Company"), and PROVIDIAN BANCORP, INC., a Delaware
corporation and wholly owned subsidiary of Company ("Spinco").
WHEREAS, Merger Partner, Company and LT Merger Corp., a Delaware
corporation and wholly owned subsidiary of Merger Partner ("Sub"), have entered
into a Plan and Agreement of Merger and Reorganization dated December 28, 1996
(the "Merger Agreement"), which provides for the merger of Sub into Company with
the result that Company will survive as a wholly owned subsidiary of Merger
Partner;
WHEREAS, Company and Spinco have entered into an Agreement and Plan of
Distribution, dated December 28, 1996 (the "Distribution Agreement") in
connection with the spin-off of Spinco by Company immediately prior to the
Merger; and
WHEREAS, as an inducement to Spinco and Company to enter into the
Distribution Agreement and to Company to enter into the Merger Agreement,
Guarantor has agreed to enter into this Guarantee;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. The Guarantor hereby unconditionally and irrevocably guarantees to
Spinco and to the other Protected Parties (as defined below) (a) the due,
punctual and full payment by Company of all amounts payable by Company under the
Distribution Agreement and the Other Agreements (as defined in the Distribution
Agreement) and under Sections 6.14 and 6.16 of the Merger Agreement as and when
the same shall become due and payable in accordance with the terms thereof and
(b) the due, prompt and faithful performance of, and compliance with, all other
obligations, covenants, terms, conditions and undertakings of Company contained
in the Distribution Agreement and the Other Agreements and under Sections 6.14
and 6.16 of the Merger Agreement in accordance with the terms thereof; provided,
however, that, notwithstanding the foregoing, the aggregate amount required to
be paid by the Guarantor as a result of its liabilities and obligations under
this Agreement shall not exceed [insert at the Closing: the amount in U.S.
dollars equal to the shareholders' equity of Company, determined in accordance
with generally accepted accounting principles, as of the latest quarter ended
prior to the Closing, adjusted to give effect to the spin-off of Spinco by the
Company on the Distribution Date]. As used in this Agreement, the term
"Protected Parties"
<PAGE>
shall mean Spinco and each person who is entitled to the benefits of Section
6.14 or Section 6.16 of the Merger Agreement.
2. This guarantee is a guarantee of payment, performance and compliance
when due, and is in no way conditional or contingent upon any attempt to collect
from Company or upon any other event, contingency or circumstance whatsoever
(other than the condition that Company fail to pay or perform its obligations
when due or when required to be performed).
3. The covenants and agreements of the Guarantor set forth in this
Guarantee and the Guarantor's obligations under this Agreement shall be absolute
and unconditional, shall not be subject to any counterclaim, setoff, deduction,
diminution, abatement, recoupment, suspension, deferment, reduction or defense
(other than full and strict compliance by the Guarantor with its obligations
hereunder) based upon any claim that the Guarantor or any other person or entity
have against Company or any other person or entity, and shall remain in full
force and effect without regard to, and shall not be released, discharged or in
any way affected by, any circumstance or condition whatsoever (whether or not
the Guarantor shall have any knowledge or notice thereof). Subject to the
proviso to the first sentence of Section 1 of this Agreement, the obligations of
the Guarantor set forth in this Guarantee constitute the full recourse
obligations of the Guarantor enforceable against it to the full extent of all of
the Guarantor's assets and properties, notwithstanding any provision in any
agreement limiting the liability of any other person or entity.
4. The Guarantor hereby waives notice of, and consents to, any change in
the time, manner or place of payment or performance, and any other amendment or
waiver, or any consent to departure or other indulgence, from time to time
granted to Company by Spinco or any other Protected Party with respect to the
matters guaranteed hereunder, and the Guarantor hereby waives notice of
nonperformance or nonpayment, and, except as provided herein, all other notices
and demands whatsoever and any requirement that Spinco or any other Protected
Party protect, secure, perfect or insure any security interest or lien or any
property subject thereto or exhaust any right.
5. No amendment or waiver of any provision of this Guarantee nor any
consent to any departure by the Guarantor herefrom shall in any event be
effective unless the same shall be in writing and signed by the party or parties
against whom such amendment or waiver is sought to be enforced, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall operate as a waiver of
any of, nor shall any single or partial exercise of any right hereunder preclude
any other or further exercise thereof or the exercise of, any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
6. The Guarantor represents and warrants to Spinco and to the other
Protected Parties as follows:
(a) The Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Iowa. The Guarantor is duly
qualified to do business in each
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<PAGE>
jurisdiction in which the ownership of properties by the Guarantor and the
business and activities of the Guarantor require such qualification, except
where the failure to be so qualified would not have a material adverse effect on
the financial condition, business or results of operation of the Guarantor or on
the ability of the Guarantor to perform its obligations under this Guarantee;
(b) The Guarantor has full power, authority and legal right to own its
properties and to carry on its business as now conducted and is duly authorized
and empowered to execute, deliver and perform its obligations under this
Guarantee; and
(c) This Guarantee has been duly authorized, executed and delivered by
the Guarantor and constitutes a legal, valid and binding instrument, enforceable
against the Guarantor in accordance with its terms, subject in the case of the
enforcement of remedies to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforceability of creditors'
rights generally.
7. This Guarantee is a continuing guarantee and shall remain in full
force and effect until payment in full of the obligations and all other amounts
payable under this Guarantee, and shall (a) be binding upon the Guarantor, its
successors and assigns, and (b) inure to the benefit of and be enforceable by
(i) any successors of Spinco or any transferee of all or substantially all of
the assets of Spinco, and (ii) any successors, heirs, executors or beneficiaries
of any of the other Protected Parties.
8. Any provision of this Guarantee which is prohibited or unenforceable in
any jurisdiction shall be, as to such jurisdiction, ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition on unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9. This Guarantee shall be governed, construed, applied and enforced in
accordance with the laws of the State of Delaware, and no defense given or
allowed by the laws of any other state or country shall be interposed in any
action hereon unless such defense is also given or allowed by the laws of the
State of Delaware.
10. This Agreement is not intended to confer upon any person other than
the parties hereto and the other Protected Parties any rights or remedies
hereunder.
11. This Guarantee may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement. This Guarantee shall
become effective when one or more counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that the parties
need not sign the same counterpart.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Guarantee to
be executed on its behalf by its duly authorized officer.
AEGON USA, INC.
By:
-----------------------------
Name:
Title:
PROVIDIAN CORPORATION
By:
-----------------------------
Name:
Title:
PROVIDIAN BANCORP, INC.
By:
-----------------------------
Name:
Title:
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<PAGE>
EXHIBIT 2.9
EXHIBIT B TO THE
DISTRIBUTION AGREEMENT
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
PROVIDIAN CORPORATION
AND
PROVIDIAN BANCORP, INC.
DATED AS OF __________ __, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.......................................... 1
1.01. Definitions.............................................. 1
1.02. Schedules, Etc........................................... 4
ARTICLE II GENERAL............................................. 4
2.01. Transfers of Employees................................... 4
2.02. Liabilities Under Plans.................................. 4
ARTICLE III STOCK-BASED PLANS.................................. 5
3.01. Stock Options............................................ 5
3.02. Stock Ownership Plan..................................... 5
3.03 Spinco Equity Units...................................... 6
ARTICLE IV OTHER PLANS......................................... 6
4.01. Deferred Compensation.................................... 6
4.02. Severance Pay............................................ 7
4.03. Master Savings Trust..................................... 7
ARTICLE V OTHER LIABILITIES.................................... 7
5.01. Other Liabilities and Obligations........................ 7
ARTICLE VI MISCELLANEOUS....................................... 8
6.01. Recognition of Company Employment Service, etc........... 8
6.02. Indemnification.......................................... 8
6.03. Guarantee of Subsidiaries' Obligations................... 8
6.04. Sharing of Information................................... 8
6.05. Amendments............................................... 8
6.06. Successors and Assigns................................... 8
6.07. Termination.............................................. 8
6.08. Rights to Amend or Terminate Plans; No Third Party
Beneficiaries............................................ 9
6.09. Payments Under Other Agreements.......................... 9
6.10. Incorporation by Reference............................... 9
SCHEDULE A List of Company Plans
SCHEDULE B List of Spinco Plans
SCHEDULE C Employees Transferring to Spinco
SCHEDULE D Employees Referred to in Section 3.01(c)
SCHEDULE E Company Employees in Spinco Equity Unit Plan
SCHEDULE F Allocation of Rabbi Trust Assets
(i)
<PAGE>
EMPLOYEE BENEFITS AGREEMENT
EMPLOYEE BENEFITS AGREEMENT, dated as of _________ __, 1997 (this
"Agreement"), by and between Providian Corporation, a Delaware corporation (the
"Company"), and Providian Bancorp, Inc., a Delaware corporation and a wholly
owned subsidiary of the Company ("Spinco").
RECITALS
A. The Merger Transaction. The Company, AEGON N.V., a Dutch
----------------------
corporation ("Merger Partner"), and LT Merger Corp., a Delaware corporation and
a wholly owned subsidiary of Merger Partner ("Sub"), have entered into a Plan
and Agreement of Merger and Reorganization, dated as of December 28, 1996 (the
"Merger Agreement"), providing for the Merger (as defined in the Merger
Agreement) of Sub with and into the Company, with the Company as the surviving
corporation.
B. The Distribution. Immediately prior to the Effective Time (as
----------------
defined in the Merger Agreement), the Company intends to distribute (the
"Distribution") as a dividend to the holders of the Company's common stock, par
value $1.00 per share ("Company Common Stock"), on a pro rata basis, all of the
then outstanding shares of common stock, par value $1.00 per share ("Spinco
Common Stock"), of Spinco.
C. Purpose. The purpose of the Distribution is to facilitate the
-------
reorganization of the Company, wherein the shareholders of the Company will
continue to own and operate Spinco, and to make possible the Merger by divesting
the Company of the businesses and operations conducted by Spinco in a tax-free
distribution to the Company's shareholders. The Company and Spinco have entered
into an Agreement and Plan of Distribution (the "Distribution Agreement"), which
sets forth or provides for certain agreements between the Company and Spinco in
consideration of the separation of their ownership.
D. This Agreement. Among other things, the Distribution Agreement
--------------
provides that the Company and Spinco will enter into this Employee Benefits
Agreement regarding certain liabilities and obligations relating to employees.
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms
-----------
shall have the following respective meanings (capitalized terms used but not
defined herein (other than the names of Company employee benefit plans) shall
have the respective meanings ascribed thereto in the Distribution Agreement):
"Agreement" shall have the meaning specified in the first paragraph
hereof.
1
<PAGE>
"Company" shall have the meaning specified in the first paragraph
hereof.
"Company Annual Bonus Plan" shall mean the Company's Management
Incentive Plan.
"Company Common Stock" shall have the meaning specified in paragraph B
of the recitals to this Agreement.
"Company Deferred Compensation Plans" shall mean the Company's
Deferred Compensation Plan, effective as of January 1, 1988 and amended and
restated effective as of January 1, 1992; the Company's Deferred Compensation
Plan for Deferral of Payments under the Management Incentive Plan, effective as
of January 1, 1992; and the Company's Operating and Policy Committee Deferred
Compensation Plan.
"Company Employee" shall mean any individual who is employed by any
member of the Company Group immediately before the Distribution Date and who is
not a Spinco Employee.
"Company Former Employee" shall mean any individual who is,
immediately before the Distribution Date, a former employee of any member of the
Company Group who has not been an employee of any member of the Spinco Group
since his or her most recent active employment with any member of the Company
Group.
"Company Option" shall mean an option to purchase shares of Company
Common Stock granted pursuant to the Company's 1981 Stock Option Incentive Plan,
1981 Tax-Qualified Stock Option Plan, 1989 Stock Option Plan or 1995 Stock
Option Plan.
"Company Participants" shall mean Company Employees, Company Former
Employees, and their respective beneficiaries and dependents.
"Company Plan" shall mean the plans, policies, programs and other
arrangements maintained by, contributed to or sponsored by any member of the
Company Group providing benefits to employees, former employees or non-employee
directors of any member of the Company Group listed on Schedule A hereto.
"Company Restricted Stock" shall mean restricted shares of Company
Common Stock granted pursuant to, and subject to forfeiture under, the Company's
Stock Ownership Plan.
"Company Subsidiary" shall mean any of the subsidiaries of the Company
other than those listed on Schedule 1.01 to the Distribution Agreement.
"Distribution" shall have the meaning specified in paragraph B of the
recitals to this Agreement.
"Distribution Agreement" shall have the meaning specified in paragraph
C of the recitals to this Agreement.
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<PAGE>
"Distribution Year" shall mean the calendar year in which the
Distribution Date occurs.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Liabilities" shall mean any and all losses, claims, charges, debts,
demands, actions, causes of action, suits, damages, obligations, payments, costs
and expenses, indemnities and similar obligations, covenants, contracts,
controversies, agreements, promises, guarantees, make whole agreements and
similar obligations, and other liabilities, including all contractual
obligations, whether absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising.
"Merger Agreement" shall have the meaning specified in paragraph A of
the recitals to this Agreement.
"Pre-Distribution Year" shall mean the calendar year immediately
preceding the Distribution Year.
"Ratio" shall mean the amount obtained by dividing the average of the
daily high and low trading prices on the New York Stock Exchange for the Company
Common Stock on each of the ten trading days prior to the ex-dividend date for
the Distribution by the average of the daily high and low trading prices on the
New York Stock Exchange for the Spinco Common Stock on each of the ten trading
days beginning with the ex-dividend date for the Distribution.
"Spinco" shall have the meaning set forth in the first paragraph
hereof.
"Spinco Common Stock" shall have the meaning specified in paragraph B
of the recitals to this Agreement.
"Spinco Deferred Compensation Plan" shall mean any Deferred
Compensation Plan of Spinco in effect immediately prior to the Distribution.
"Spinco Employee" shall mean any individual who, immediately before
the Distribution Date, is employed by any member of the Spinco Group.
"Spinco Equity Unit Plan" shall mean the Equity Unit Plan of Spinco.
"Spinco Equity Units" shall mean Equity Units granted under, and as
defined in, the Spinco Equity Unit Plan.
"Spinco Former Employee" shall mean any individual who is, immediately
before the Distribution Date, a former employee of any member of the Spinco
Group who has not been an employee of any member of the Company Group since his
or her most recent active employment with any member of the Spinco Group.
"Spinco Option" shall mean an option to purchase from Spinco shares of
Spinco Common Stock provided to a Spinco Participant pursuant to Section 3.01.
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<PAGE>
"Spinco Participants" shall mean Spinco Employees, Spinco Former
Employees, and their respective beneficiaries and dependents.
"Spinco Plans" shall mean any plan, policy, program, payroll practice,
ongoing arrangement, trust, insurance policy or other agreement or funding
vehicle maintained by, contributed to or sponsored by any member of the Spinco
Group providing benefits to employees, former employees or non-employee
directors of any member of the Spinco Group, including without limitation the
plans listed on Schedule B hereto; provided, however, that the term "Spinco
Plans" shall not include any Company Plans.
"Spinco Subsidiary" shall mean any of the subsidiaries of Spinco
listed on Schedule 1.01 to the Distribution Agreement.
Welfare Plan" shall mean an "employee welfare benefit plan" as defined
in Section 3(1) of ERISA (whether or not such plan is subject to ERISA).
1.02. Schedules, Etc. References to a "Schedule" are, unless
---------------
otherwise specified, to one of the Schedules attached to this Agreement, and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
ARTICLE II
GENERAL
2.01. Transfers of Employees. Before the Distribution Date, the
----------------------
individuals listed on Schedule C hereto shall be transferred from the employ of
members of the Company Group to the employ of Spinco or any other member of the
Spinco Group designated by Spinco. Schedule C hereto may be amended by Spinco
at any time or from time to time before the Distribution Date with the consent
of the Company, which consent shall not be unreasonably withheld.
2.02. Liabilities Under Plans. From and after the Distribution Date,
-----------------------
except as otherwise specifically set forth in this Agreement, the Spinco Group
shall assume or retain, as the case may be, and shall be solely responsible for,
all Liabilities arising under, resulting from or relating to the Spinco Plans
(whether to Company Participants or to Spinco Participants), whether incurred
before, on or after the Distribution Date, and the Company Group shall assume or
retain, as the case may be, and shall be solely responsible for, all Liabilities
arising under, resulting from or relating to the Company Plans (whether to
Company Participants or to Spinco Participants), whether incurred before, on or
after the Distribution Date.
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<PAGE>
ARTICLE III
STOCK-BASED PLANS
-----------------
3.01. Stock Options. (a) The Company and Spinco shall take all
-------------
action necessary or appropriate (including obtaining the consent of the holders
of Company Options, if required) so that each Company Option held by a Spinco
Participant that is outstanding as of the Distribution Date shall be replaced
as of the Distribution Date with a Spinco Option with respect to a number of
shares of Spinco Common Stock equal to the number of shares of Company Common
Stock subject to such Company Option immediately before such replacement,
multiplied by the Ratio (rounded down to the nearest whole share if necessary),
and with a per-share exercise price equal to the per-share exercise price of
such Company Option immediately before such replacement, divided by the Ratio
(rounded up to the nearest cent). Such Spinco Option shall otherwise have the
same terms and conditions as the corresponding Company Option, except that
references to the Company shall be changed to refer to Spinco.
(b) Effective as of the Distribution Date, the Spinco Group shall
assume and be solely responsible for all Liabilities of the Company Group to or
with respect to Spinco Participants arising out of or relating to Company
Options that are outstanding as of the Distribution Date. Spinco and the Spinco
Subsidiaries shall be solely responsible for all Liabilities arising out of or
relating to Spinco Options.
(c) To the extent the Company, Spinco and the affected holder or
holders of Company Options so agree, Company Options held by the Company
Employees listed on Schedule D hereto relating to up to an aggregate of 285,000
shares of Company Common Stock may be replaced as of the Distribution Date with
Spinco Options. Each such Spinco Option shall cover a number of shares of
Spinco Common Stock equal to the number of shares of Company Common Stock
subject to the Company Option so replaced immediately before such replacement,
multiplied by the Ratio (rounded down to the nearest whole share if necessary),
and with a per-share exercise price equal to the per-share exercise price of
such Company Option immediately before such replacement, divided by the Ratio
(rounded up to the nearest cent). Each such Spinco Option shall otherwise have
the same terms and conditions as the corresponding Company Option, except that
references to the Company shall be changed to refer to Spinco. As soon as
practicable after the Distribution Date, the Company shall pay to Spinco an
amount equal to the aggregate of the Spread with respect to all shares of
Company Common Stock subject to Company Options converted into Spinco Options
pursuant to this Section 3.01(c). The "Spread" with respect to any share of
Company Common Stock covered by a Company Option shall mean the excess (if any)
of (i) the average of the daily high and low per share trading prices on the New
York Stock Exchange for Company Common Stock on each of the ten trading days
prior to the ex-dividend date for the Distribution over (ii) the per share
exercise price for such Company Option.
3.02. Stock Ownership Plan. The Company shall take all action
--------------------
necessary so that all restrictions applicable to each award of Company
Restricted Stock held by a Spinco Participant that is outstanding as of the
Distribution Date shall terminate effective immediately before the Distribution
and certificates representing the shares subject thereto, as well as
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<PAGE>
certificates representing the related shares of Company Common Stock on deposit,
are immediately distributed to such Spinco Participant (together with
certificates for any Spinco Common Stock distributed with respect thereto in the
Distribution).
3.03. Spinco Equity Units. The Spinco Equity Unit Plan may be
-------------------
terminated by Spinco, in Spinco's sole discretion, on or before the Distribution
Date. In such event, all participants therein shall be entitled to receive
payments, in a lump sum or in installments, in settlement of their Spinco Equity
Units. Effective as of the earlier of the date of termination of the Spinco
Equity Unit Plan (the "Termination Date") or the Distribution Date: (i) the
Company Group shall assume or retain, as applicable, and be solely responsible
for all Liabilities to or with respect to Company Employees arising out of or
relating to Spinco Equity Units; and (ii) the Spinco Group shall assume or
retain, as applicable, and be solely responsible for all other Liabilities
arising out of or relating to the Spinco Equity Unit Plan, whether arising
before, on or after the Termination Date or the Distribution Date.
Notwithstanding the foregoing: (i) each Company Employee who holds Spinco
Equity Units as of the Termination Date and who has elected to receive payments
with respect thereto in installments shall be permitted to elect to receive such
installment payments from Spinco rather than the Company; (ii) Spinco shall
assume and be solely responsible for all Liabilities to or with respect to each
such Company Employee who so elects (an "Electing Company Employee") arising out
of or relating to Spinco Equity Units; and (iii) the Company shall pay to
Spinco, as soon as practicable after the Termination Date, the aggregate
principal amount of the payments to be made with respect to Spinco Equity Units
of Electing Company Employees. The Company Employees who are, or will be, as of
the earlier of the Termination Date or the Distribution Date, participants in
the Spinco Equity Unit Plan are listed on Schedule E hereto.
ARTICLE IV
OTHER PLANS AND ARRANGEMENTS
4.01. Deferred Compensation. (a) Effective as of the Distribution
---------------------
Date, the Company shall amend the Company Deferred Compensation Plans, if
necessary, so that no Spinco Employee who is a participant therein shall be
deemed to have terminated employment as a result of the Distribution or as a
result of becoming a Spinco Employee in connection with the Distribution;
provided, however, that Spinco shall assume and be solely responsible for all
- -------- -------
Liabilities of the Company Group to or relating to Spinco Participants under the
Company Deferred Compensation Plans. Spinco and the Company shall cooperate in
taking all actions necessary or appropriate to accomplish the foregoing and to
ensure that as of the Distribution Date, the Company Group and the Company
Subsidiaries cease to have any Liabilities to or relating to the Spinco
Participants under the Company Deferred Compensation Plans, including, but not
limited to, amending the Company Deferred Compensation Plans or any grant
thereunder and obtaining any necessary consents of affected participants.
(b) Effective as of the Distribution Date, Spinco shall amend the
Spinco Deferred Compensation Plans, if necessary, so that no Company Employee
who is a participant therein shall be deemed to have terminated employment as a
result of the Distribution or as a result of becoming a Company Employee in
connection with the Distribution (with the
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<PAGE>
result that such Company Employee shall continue as a participant in such Spinco
Deferred Compensation Plans in accordance with the terms of such plans).
4.02. Severance Pay. (a) Spinco and the Company agree that
-------------
individuals who, on or prior to the Distribution Date, in connection with the
Distribution, cease to be Company Employees and become Spinco Employees shall
not be deemed to have experienced a termination or severance of employment from
the Company and its subsidiaries for purposes of any policy, plan, program or
agreement of the Company or any of its subsidiaries that provides for the
payment of severance, salary continuation or similar benefits.
(b) The Spinco Group shall assume and be solely responsible for all
Liabilities of the Company Group in connection with claims made by or on behalf
of Spinco Employees in respect of severance pay, salary continuation and similar
obligations relating to the termination or alleged termination of any such
person's employment on or after the Distribution Date.
4.03. Master Savings Trust, The Company and Spinco shall take all
--------------------
steps necessary or appropriate so that, effective on or before the Distribution
Date, all assets of Spinco's 401(k) Plan that are held in the Master Long-Term
Savings Trust are transferred to one or more trustees appointed by Spinco to be
held in one or more separate trusts established by Spinco in connection with
Spinco's 401(k) Plan.
ARTICLE V
OTHER LIABILITIES
5.01. Other Liabilities and Obligations. (a) As of the Distribution
---------------------------------
Date: (i) the Spinco Group shall assume and be solely responsible for all
Liabilities of the Company Group not otherwise provided for in this Agreement to
or relating to Spinco Participants arising out of or relating to employment by
any of the Company Group or the Spinco Group, or any predecessors thereof; and
(ii) the Company Group shall assume and be solely responsible for all
Liabilities of the Spinco Group not otherwise provided for in this Agreement to
or relating to Company Participants arising out of or relating to employment by
any of the Company Group or the Spinco Group, or any predecessors thereof.
(b) In consideration of the reallocation of certain employee costs
from the Company to Spinco effected by this Agreement, in addition to the
payments contemplated by Sections 3.01(c) and 3.03, the Company shall make a
cash payment to Spinco, immediately prior to the Distribution, in the amount of
$6.55 million.
(c) At the Distribution, or as promptly as practicable thereafter,
the Company shall cause the Company's rabbi trust to transfer to Spinco, or to a
trust or other entity designated by Spinco, a pro rata share of the assets held
by the Company's rabbi trust, in the same proportion as the contributions to
such rabbi trust charged to Spinco as of the Distribution Date bear to the total
contributions made to such rabbi trust (it being understood that all such
contribution charges between the date of the Merger Agreement and the
Distribution Date will be on a basis consistent with past practice), except to
the extent not permitted under the terms of the Company's rabbi trust; provided,
that if the terms of the Company's rabbi trust do not permit such transfer, the
Company shall use best
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<PAGE>
efforts to amend such terms to permit such transfer. Schedule F hereto sets
forth as of January 1, 1996 and on an estimated basis as of January 1, 1997 the
allocation of rabbi trust assets between the Company and Spinco based on the
allocation of rabbi trust contribution charges as contemplated by the foregoing
provisions.
ARTICLE VI
MISCELLANEOUS
6.01. Recognition of Company Employment Service, etc. To the extent
----------------------------------------------
applicable, the Spinco Plans shall recognize service by a Spinco Employee before
the Distribution with the Company Group as service with the Spinco Group. The
foregoing provision shall not, however, be construed to require Spinco or any
member of the Spinco Group to adopt or continue any specific employee benefit
plans or arrangements.
6.02. Indemnification. All Liabilities retained or assumed by or
---------------
allocated to the Spinco Group pursuant to this Agreement shall be deemed to be
Losses arising out of the Spinco Business, as defined in the Distribution
Agreement, and all Liabilities retained or assumed by or allocated to the
Company Group pursuant to this Agreement shall be deemed to be Losses arising
out of the Company Business, as defined in the Distribution Agreement and, in
each case, shall be subject to the indemnification provisions set forth in
Article IV thereof.
6.03. Guarantee of Subsidiaries' Obligations. Each of the parties
--------------------------------------
hereto shall cause to be performed, and hereby guarantees the performance and
payment of, all actions, agreements, obligations and liabilities set forth
herein to be performed or paid by any subsidiary of such party which is
contemplated by the Distribution Agreement to be a subsidiary of such party on
or after the Distribution Date.
6.04. Sharing of Information. Each of the Company and Spinco shall,
----------------------
and shall cause the other members of their respective Groups to, provide to the
other all such information in its possession as the other may reasonably request
to enable it to administer its employee benefit plans and programs, and to
determine the scope of, and fulfill, its obligations under this Agreement. Such
information shall, to the extent reasonably practicable, be provided in the
format and at the times and places requested, but in no event shall the party
providing such information be obligated to incur any direct expense not
reimbursed by the party making such request, nor to make such information
available outside its normal business hours and premises.
6.05. Amendments. This Agreement may be amended, modified or
----------
supplemented only by a written agreement signed by all of the parties hereto.
6.06. Successors and Assigns. This Agreement and all of the
----------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns.
6.07. Termination. This Agreement shall be terminated in the event
-----------
that the Distribution Agreement is terminated and the Distribution abandoned
prior to the Distribution
-8-
<PAGE>
Date. In the event of such termination, neither party shall have any liability
of any kind to the other party.
6.08. Rights to Amend or Terminate Plans; No Third Party
--------------------------------------------------
Beneficiaries. No provision of this Agreement shall be construed (a) to limit
- -------------
the right of any member of the Company Group or any member of the Spinco Group
to amend any plan or terminate any plan, or (b) to create any right or
entitlement whatsoever in any employee or beneficiary including, without
limitation, a right to continued employment or to any benefit under a plan or
any other benefit or compensation (it being understood that this Agreement will
also not be construed to limit any right or entitlement of any employee or
beneficiary existing without reference to this Agreement). This Agreement is
solely for the benefit of the parties hereto and their respective subsidiaries
and should not be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement.
6.09. Payment Under Other Agreements. No payment made by one party
------------------------------
to the other pursuant to this Agreement will affect in any manner any payments
required to be made under the Distribution Agreement or any other agreement
between the parties hereto, including, without limitation, the settlement of
intercompany payables and receivables provided for in the Distribution
Agreement.
6.10. Incorporation by Reference. The following provisions of the
--------------------------
Distribution Agreement are hereby incorporated into this Agreement by reference
(except that references therein to the Distribution Agreement shall be deemed to
be references to this Agreement): Section 8.06 (Confidentiality); Section 10.04
(Governing Law); Section 10.05 (Notices); Section 10.09 (Counterparts); Section
10.10 (Interpretation); Section 10.11 (Severability); and Section 10.12
(References; Construction).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
PROVIDIAN CORPORATION
By:
----------------------
Name:
Title:
PROVIDIAN BANCORP, INC.
By:
----------------------
Name:
Title:
-9-
<PAGE>
SCHEDULE A TO THE EMPLOYEE BENEFITS AGREEMENT
LIST OF COMPANY PLANS
1. 1995 Stock Option Plan
2. 1989 Stock Option Plan
3. 1981 Stock Option Incentive Plan
4. 1981 Tax Qualified Incentive Stock Option Plan
5. Arts Activities ticket subsidy
6. Attendance Bonus Program
7. Base Pay Deferred Compensation Plan
8. Bereavement Leave
9. Change in Control Plan
10. Child Care and Eldercare Resources Service
11. Educational Assistance Plan: Plan Number 502
12. Employee Assistance Program: Plan Number 612
13. Executive Physical Program
14. Family Medical Leave
15. Friday Business Casual Day and Summer Business Casual from Memorial Day to
Labor Day
16. Holidays
17. Insurance education expenses, cash awards and graduation conference trip
for completion of programs to achieve the following designations:
. FLMI
. CLU
. CHFC
. FALU
. HIAA
. CPCU
. ALHC
. FLM/M
. ACS
. IIA
18. Jury Duty Leave
19. Management Incentive Deferred Compensation Plan
20. Management Incentive Plan
21. Matching Gift Program
22. Medical Plan/Dental Plan: Plan Number 610
23. Non-Qualified Supplemental Defined Benefit Plan
24. Non-Qualified Supplemental Defined Contribution Plan
25. Personal Days
26. Relocation Program
27. Retirement Gift Fund
28. Retirement Plan: Plan Number 001
<PAGE>
29. Section 125 Plan: Plan Number 700; includes
. Health Care Account
. Dependent Care Assistance Plan
30. Senior Officer luncheon club memberships
31. Service Award Program
32. Severance Plan
33. Stock Ownership Plan
34. Stock Purchase Plan
35. Survivor Benefits Plan and Long-Term Disability Plan: Plan Number 611;
includes
. Employee Basic Life Insurance
. Employee Additional Life Insurance
. Business Travel Accident Insurance
. Accidental Death and Dismemberment Insurance
. Spouse's Life Insurance
. Child(ren)'s Life Insurance
36. TARC ticket subsidy
37. Temporary Disability Program
38. Thrift Savings Plan: Plan Number 002
39. Vacation
40. Variable Pay Plan
41. Various sales commission arrangements, such as COMPASS Compensation
Program, Life Universal Offer Model Sales Commission Plan, Life Universal
Telemarketing Compensation Plan, Military Home Office Commission Plan for
Assistant Regional Vice Presidents, P&C Inbound Sales Incentive Plan
42. Executive Travel - personal use of jet by Irving W. Bailey II up to 17,000
miles per year and by Shailesh Mehta up to 9,000 miles per year.
-2-
<PAGE>
SCHEDULE B TO THE EMPLOYEE BENEFITS AGREEMENT
LIST OF SPINCO PLANS
SPINCO PLANS
Providian Bancorp Health and Welfare Plan: Plan #502
(This plan includes the following contracts or arrangements)
John Hancock Medical
PCS Prescription Coverage
Health Net HMO
Healthsource HMO
Matthew Thornton HMO
John Hancock Dental
John Hancock Life & Dependent Life Insurance
VSP Vision
Preferred Works Short-term Disability
Met Life Long-term Disability
Hartford AD&D Insurance
Health Care FSA
Dependent Care FSA
Providian Bancorp 401(k) Plan: Plan #001
includes:
Employer Match
Retirement Contribution
Providian Bancorp Timebank Plan: Plan #503
Sabbatical Program
Workers Compensation Self Insured Program
Sentry Workers Compensation Insurance (Company Plan)
Providian Bancorp Equity Unit Plan
Providian Bancorp Deferred Compensation Plan
Providian Bancorp Supplemental Defined Contribution Plan
Phone Channel Variable Pay Program
U.S. Savings Bond Payroll Deduction
Holidays
Bereavement Leave
Jury Duty Leave
Military Leave
Family Medical Leave Policy
Tuition Reimbursement Program
Matching Gift Program
Employee Referral Award Program
<PAGE>
Commuter Checks
Meal Allowance
Annual Holiday Party
Annual Picnic
Friday and Summer Casual Attire
-2-
<PAGE>
SCHEDULE C TO THE EMPLOYEE BENEFITS AGREEMENT
TRANSFERRING EMPLOYEES
1. Shailesh Mehta
2. James Rowe
<PAGE>
SCHEDULE D TO THE EMPLOYEE BENEFITS AGREEMENT
EMPLOYEES REFERRED TO IN SECTION 3.01(C)
Irving W. Bailey, II
-2-
<PAGE>
SCHEDULE E TO THE EMPLOYEE BENEFITS AGREEMENT
COMPANY EMPLOYEES IN SPINCO EQUITY UNIT PLAN
Larry Pitterman
Jim Elliott
Kathy Fritzsche
Dennis Brady
Tammy Owens
<PAGE>
SCHEDULE F TO THE EMPLOYEE BENEFITS AGREEMENT
ALLOCATION OF RABBI TRUST ASSETS
1. AS OF JANUARY 1, 1996
Company $55,913,709
Spinco 3,272,319
-----------
Total $59,186,028
===========
2. ESTIMATED AS OF JANUARY 1, 1997
Company $68,707,290
Spinco 4,558,880
-----------
Total $73,266,170
===========
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PROVIDIAN BANCORP, INC.
FIRST. The name of the Corporation is Providian Bancorp, Inc.
SECOND. The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. (A) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 450 million, of which 50 million
are to be Preferred Stock, par value $.01 per share (hereafter called the
"Preferred Stock"), and 400 million are to be Common Stock, par value $.01 per
share (hereafter called the "Common Stock").
(B) The designations, preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions on the
Preferred Stock are as follows:
Preferred Stock may be issued from time to time in one or more series.
The number of shares of each such series and the voting powers,
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof
shall be fixed by and set forth in resolutions of the Board of Directors of
the Corporation pursuant to authority hereby expressly vested in such
Board. The authority of the Board of Directors with respect to each series
shall include to the full extent now or hereafter permitted by the laws of
Delaware, but shall not be limited to, the determination or fixing of the
following:
(1) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time
<PAGE>
to time by like action of the Board of Directors to the extent
permitted by law;
(2) the dividend rate of such series, the conditions and times
upon which such dividends shall be payable, the relations which such
dividends shall bear to the dividends payable on any other class or
classes of stock or series thereof, or any other series of the same
class, whether the Corporation shall be required to pay such dividends
on specified dates, if funds are legally available for the payment
thereof, or whether the payment of such dividends shall be entirely at
the discretion of the Board of Directors, whether such dividends shall
be payable in cash or by the issuance of Common or Preferred Stock of
the Corporation, and whether dividends shall be cumulative or
noncumulative;
(3) whether or not the shares of such series shall be subject to
redemption by the Corporation and the conditions thereof, and the
times, prices and other terms and provisions upon which the shares of
the series may be redeemed;
(4) whether or not the shares of the series shall be subject to
the operation of a retirement or sinking fund to be applied to the
purchase or redemption of such shares and, if such retirement or
sinking fund be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;
(5) whether or not the shares of the series shall be convertible
into or exchangeable for shares of any other class or classes, with or
without par value, or any other series of the same class, and, if
provision is made for conversion or exchange, the times, prices,
rates, adjustments and other terms and conditions of such conversion
or exchange;
(6) whether or not the shares of the series have voting rights,
in addition to the voting rights provided by law, and, if so, the
terms of such voting rights;
(7) the rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution, or upon the
distribution of assets of the Corporation; and
-2-
<PAGE>
(8) any other powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of the shares of such series, as the Board of
Directors may deem advisable and as shall not be inconsistent with the
provisions of this Certificate of Incorporation.
(C) The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restrictions thereof. The number of authorized shares of Preferred Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of the holders of any such series is required pursuant to
the certificate or certificates establishing such series of Preferred Stock.
(D) Except as otherwise provided by law or by the resolution or
resolutions adopted by the Board of Directors designating the rights, powers and
preferences of any series of Preferred Stock, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
FIFTH. Unless and except to the extent that the By-Laws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
SIXTH. In furtherance and not in limitation of the powers conferred
by law, except as otherwise provided herein, the Board of Directors is expressly
authorized and empowered to make, alter and repeal the By-Laws of the
Corporation by a majority vote at any regular or special meeting of the Board of
Directors or by written consent, subject to the power to the stockholders of the
corporation to alter or repeal any By-Laws made by the Board of Directors.
Notwithstanding the foregoing and anything contained in this Certificate of
Incorporation to the contrary, Sections 1.2 and 1.8 of Article I of the By-Laws,
and paragraphs (a), (b), (d) and (e) of Section 2.2 of Article II of the By-
Laws, shall not be altered, amended or repealed
-3-
<PAGE>
and no provision inconsistent therewith shall be adopted without the affirmative
vote of the holders of at least 80 percent of the voting power of all the shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80 percent of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend, adopt any
provision inconsistent with or to repeal this Article SIXTH.
SEVENTH. Except as otherwise fixed by or pursuant to the provision of
Article FOURTH hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional directors under specified circumstances,
the number of directors shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption), but such number shall not be less than three. The
directors, other than those who may be elected by any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
shall be divided into three classes, as nearly equal in number as possible, with
the term of office of the first class to expire at the annual meeting of
stockholders to be held in 1998, the term of office of the second class to
expire at the annual meeting of stockholders to be held in 1999, and the term of
office of the third class to expire at the annual meeting of stockholders to be
held in 2000, with each director to hold office until his or her successor shall
have been duly elected and qualified. At each annual meeting of the
stockholders of the Corporation, the successors of the directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified. If authorized by a resolution of
the Board of Directors, directors may be elected to fill any vacancy on the
Board of Directors, regardless of how such vacancy shall have been created.
Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in the By-Laws of the
Corporation.
-4-
<PAGE>
Except as otherwise provided for or fixed by or pursuant to the
provisions of Article FOURTH hereof relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, newly created directorships resulting from any increase in the
authorized number of directors and any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, any director, or the
entire Board of Directors, may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least 80 percent of
the combined voting power of all of the then outstanding shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with or to repeal
this Article SEVENTH.
EIGHTH. Subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject
to the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation, a special meeting of
stockholders of the Corporation may be called only by the
-5-
<PAGE>
Chairman of the Board of the Corporation or by the Board of Directors pursuant
to a resolution stating the purpose or purposes of such special meeting adopted
by a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). The stockholders shall not
have the power to call a special meeting for any purpose. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80 percent of the voting power of
all shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend,
adopt any provision inconsistent with or to repeal this Article EIGHTH.
NINTH. The Corporation reserves the right at any time from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and any other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the right
reserved in this Article.
TENTH. (A) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any repeal or
modification of any provision of this Article TENTH shall not adversely affect
any right or protection of a director of the Corporation existing hereunder with
respect to any act, omission or occurrence or matter arising prior to such
repeal or modification.
(B) (1) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that such person, or another person for whom such person is
the legal representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action
-6-
<PAGE>
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, to the fullest
extent permitted by law, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of such person's
heirs, executors and administrators; provided, however, that, except as provided
-------- -------
in Section (B), paragraph (2) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that, if the Delaware General Corporation Law requires, the payment
- -------
of such expenses incurred by a director or officer in such person's capacity as
a director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of the Board, to the extent permitted by the Delaware
General Corporation Law, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
(2) If a claim under Section (B), paragraph (1) of this Article TENTH
is not paid in full by the Corporation within thirty days after a written claim
has been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting
-7-
<PAGE>
such claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because the claimant has met the applicable standard
of conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
(3) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Article TENTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
-8-
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
PROVIDIAN BANCORP, INC.
ARTICLE I
Stockholders
Section 1.1 Annual Meetings. (a) An annual meeting of stockholders shall
---------------
be held for the election of the directors and for the transaction of such other
business as may properly come before the meeting, at such date, time and place,
either within or without the State of Delaware, as may be designated by
resolution of the Board of Directors from time to time.
(b) The Board of Directors or the Chairman of the Board, as the case may be,
may designate the place of meeting for any annual meeting of the stockholders.
If no designation is so made, the place of meeting shall be the principal office
of the Corporation.
Section 1.2 Special Meetings. (a) Subject to the rights of the holders of
----------------
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders. Except as otherwise required by
law and subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation, a
special meeting of stockholders of the Corporation may be called only by the
Chairman of the Board or by the Board of Directors pursuant to a resolution
stating the purpose or purposes of such special meeting adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption) (the "Whole Board").
(b) The Board of Directors or the Chairman of the Board, as the case may be,
may designate the place of meeting for any special meeting of the stockholders
called by the Board of Directors or the Chairman of the Board. If no
designation is so made, the place of meeting shall be the principal office of
the Corporation.
<PAGE>
Section 1.3 Notice of Meetings; Waiver of Notice. Whenever stockholders are
------------------------------------
required or permitted to take any action at a meeting, a written or printed
notice of the meeting shall be given which shall state the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or purposes
for which the meeting is called. No business may be conducted at a special
meeting except such business as has been brought before the meeting pursuant to
the Corporation's notice of meeting. Unless otherwise provided by law, the
written notice of any meeting shall be given not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, addressed to the stockholder at his address as it
appears on the records of the Corporation. A written waiver of notice, signed
by the person or persons entitled thereto, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice. Any previously
scheduled meeting of the stockholders may be postponed, and (unless the
Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such meeting of
stockholders.
Section 1.4 Adjournments. At any meeting of stockholders, annual or
------------
special, the Chairman of the meeting may, without a stockholder vote, or the
stockholders present may, by majority vote, adjourn from time to time to
reconvene at the same or some other place, and notice need not be given of any
such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 1.5 Quorum. Except as otherwise provided by law, by the Certificate
------
of Incorporation or these By-Laws, the
-2-
<PAGE>
holders of a majority of the outstanding shares of the Corporation entitled to
vote generally in the election of directors, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series of stock voting as a
class, the holders of a majority of the shares of such class or series shall
constitute a quorum of such class or series for the transaction of such
business. In the absence of a quorum, the Chairman of the meeting may, without a
stockholder vote, or the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided by Section 1.4 of these By-
laws until a quorum shall attend. The stockholders present at a duly called
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 1.6 Organization. Meetings of stockholders shall be presided over
------------
by the Chairman of the Board or in the Chairman's absence by the President or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in the Secretary's absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7 Voting; Proxies. Except where otherwise provided by law or the
---------------
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for such stockholder by proxy, but no such proxy shall
be voted or acted upon more than three years after its date, unless the proxy
provides for a longer period. Voting at meetings of stockholders need not be by
written ballot or, except as may be required by law, need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for election of
directors a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or by the
Certificate of Incorporation or by these By-laws, be decided by the vote of the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at the meeting.
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Section 1.8 Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
-------------------------------
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to such
annual meeting and not later than the close of business on the later of the 90th
day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14a-11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such
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business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of
this By-Law to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 100
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this By-Law shall also be considered timely,
but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted
--------------------------------
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this By-
Law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this By-Law. In the event the Corporation calls
a special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the stockholder's notice required by
paragraph (a)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior
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to such special meeting and not later than the close of business on the later of
the 90th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(c) General. (1) Only such persons who are nominated in accordance with
-------
the procedures set forth in this By-Law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-Law. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this By-Law and, if
any proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
By-Law. Nothing in this By-Law shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified circumstances.
Section 1.9 Inspectors of Elections; Opening and Closing the Polls. The
------------------------------------------------------
Board of Directors by resolution shall appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors
to replace
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any inspector who fails to act. If no inspector or alternate has been appointed
to act or is able to act at a meeting of stockholders, the Chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting the date
and time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
ARTICLE II
Board of Directors
Section 2.1 General Powers. The Board of Directors shall manage the
--------------
business and affairs of the Corporation, and may exercise all powers of the
Corporation, and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws required to be exercised or
done by the stockholders.
Section 2.2 Number and Term of Directors. (a) Except as otherwise fixed by
----------------------------
or pursuant to the provisions of Article FOURTH of the Certificate of
Incorporation relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specified circumstances, the
number of directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by the Whole Board, but such number
shall not be less than the minimum number prescribed in the Certificate of
Incorporation. The directors, other than those who may be elected by the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be divided into three classes,
as nearly equal in number as possible, as determined by the Board of Directors
of the Corporation, with the term of office of the first class to expire at the
annual meeting of stockholders to be held in 1998, the term of office of the
second class to expire at the annual meeting of stockholders to be held in 1999,
and the term of office of the third class to expire at the annual meeting of
stockholders to be held in 2000, with each director to hold office until his or
her successor shall have been duly elected and qualified. At each annual
meeting of the stockholders of the Corporation, the successors of the directors
whose term
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expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election, with each director to hold office until his or her successor
shall have been duly elected and qualified. If authorized by a resolution of the
Board of Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
(b) Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in Section 1.8 of Article I of these By-
laws.
(c) No person shall be eligible to serve as a director after the annual
meeting of stockholders next after such person reaches seventy (70) years of
age. When the employment status of a director who is employed by the
Corporation or any of its affiliates changes so that such director is no longer
an officer of the Corporation or any of its affiliates, that person shall offer
his or her resignation from the Board of Directors.
(d) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article FOURTH of the Certificate of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors under specified circumstances, newly created directorships resulting
from any increase in the authorized number of directors and any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(e) Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, any director, or the
entire Board of Directors, may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least eighty (80)
percent of the combined
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voting power of all of the then outstanding shares of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class.
Section 2.3 Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.
Section 2.4 Special Meetings. Special meetings of the Board of Directors
----------------
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board or by a majority of the Board of
Directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place and time of the meetings.
Section 2.5 Notice. Notice of any special meeting of directors shall be
------
given to each director at his business or residence in writing by hand delivery,
first-class or overnight mail or courier service, telegram or facsimile
transmission, or orally by telephone. If mailed by first-class mail, such
notice shall be deemed adequately delivered when deposited in the United States
mails so addressed, with postage thereon prepaid, at least five (5) days before
such meeting. If by telegram, overnight mail or courier service, such notice
shall be deemed adequately delivered when the telegram is delivered to the
telegraph company or the notice is delivered to the overnight mail or courier
service company at least twenty-four (24) hours before such meeting. If by
facsimile transmission, such notice shall be deemed adequately delivered when
the notice is transmitted at least twelve (12) hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least twelve (12)
hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these By-Laws, as provided under Section 7.4. A written waiver of
notice, signed by the person or persons entitled thereto, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting of directors shall constitute a waiver of notice of
such meeting, except when the director attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be
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transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
Section 2.6 Quorum. Subject to Section 2.2(d), a whole number of directors
------
equal to at least a majority of the Whole Board shall constitute a quorum for
the transaction of business at any meeting of the Board, except that if the
number of directors constituting the Whole Board is an even number, one-half of
such number shall constitute a quorum. Whether or not a quorum is present, a
majority of the directors present at any meeting of the Board may adjourn the
meeting to some later time without further notice. Unless otherwise provided in
the Certificate of Incorporation or elsewhere in these By-laws, when a quorum is
present, the vote of a majority of the directors present shall decide any
question. The directors present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
directors to leave less than a quorum.
Section 2.7 Organization. Meetings of the Board of Directors shall be
------------
presided over by the Chairman of the Board or in his absence by the President or
in their absence by a chairman chosen at the meeting. The Secretary shall act
as secretary of the meeting, but in the Secretary's absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8 Informal Action by Directors. Any action required or permitted
----------------------------
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board of Directors
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes or proceedings of the Board of
Directors or committee.
Section 2.9 Compensation. Fees for service as a director and/or fees and
------------
reimbursement for expenses for attendance at meetings of the Board or any
committee thereof may be fixed by resolution of the Board.
ARTICLE III
Committees
Section 3.1 Committees. The Board of Directors may, by resolution adopted
----------
by a majority of the Whole Board, designate an Executive Committee to exercise,
subject to applicable
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provisions of law, all the powers of the Board in the management of the business
and affairs of the Corporation when the Board is not in session, including
without limitation the power to declare dividends, to authorize the seal of the
Corporation to be affixed to all papers which may require it, to authorize the
issuance of the Corporation's capital stock and to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware, and may, by resolution similarly adopted, designate one
or more other committees. The Executive Committee and each such other committee
shall consist of two or more directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, other than the Executive Committee (the powers of which are
expressly provided for herein), may to the extent permitted by law exercise such
powers and shall have such responsibilities as shall be specified in the
designating resolution. In the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board when required.
A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in Section 2.5 of these By-Laws. The Board shall have power at any time to
fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
-------- -------
have or may exercise any authority of the Board.
ARTICLE IV
Officers
Section 4.1 Executive Officers; Election; Qualifications; Term of Office;
-------------------------------------------------------------
Resignation; Vacancies. The Board of Directors shall choose a Chairman, a
- ----------------------
President, a Secretary and a Treasurer. The Board of Directors (or a committee
thereof) the Chairman of the Board or the President, may also choose one
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or more Vice Presidents, one or more Assistant Secretaries and one or more
Assistant Treasurers. Each such officer shall, subject to the last sentence of
this Section, hold office until the first meeting of the Board of Directors
after the annual meeting of stockholders next succeeding such officer's
election, and until such officer's successor is duly elected and qualified or
until the earlier resignation or removal of such officer. Any officer may resign
at any time upon written notice to the Corporation. Any number of offices may be
held by the same person.
Section 4.2 Chairman of the Board. The Chairman of the Board shall preside
---------------------
at all meetings of the Board of Directors and of the stockholders at which the
Chairman shall be present. The Chairman shall be the chief executive officer
and shall have general charge and supervision of the business of the
Corporation; and, in general, the Chairman shall perform all duties incident to
the office of chairman of a corporation, and such other duties as, from time to
time, may be assigned by the Board of Directors or as may be provided by law.
Section 4.3 President. In the absence of the Chairman of the Board, the
---------
President or such other officer as shall be designated by the Chairman shall
preside at all meetings of the Board of Directors and of the stockholders at
which the President shall be present. The President shall have and may exercise
such powers as are from time to time assigned by the Board of Directors or by
the Chairman or as may be provided by law.
Section 4.4 Vice Presidents. The Vice President or Vice Presidents shall
---------------
perform such duties and exercise such functions as may be assigned to them by
the Board of Directors or the Chairman of the Board or the President or as may
be provided by law.
Section 4.5 Secretary or Assistant Secretary. The Secretary, or if there be
--------------------------------
none, the Assistant Secretary, shall record all the proceedings of the meetings
of the stockholders and directors and of any committees in a book to be kept for
that purpose; shall see that all notices are duly given in accordance with the
provisions of these By-laws or as required by law; shall be custodian of the
records of the Corporation; shall see that the corporate seal is affixed where
required to documents the execution of which, on behalf of the Corporation, is
duly authorized, and when so affixed may attest the same; and, in general, shall
perform all duties incident to the office of Secretary of a Corporation, and
such other duties as, from time to time, may be assigned by the Board of
Directors or the Chairman or the President or as may be provided by law.
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Section 4.6 Treasurer. The Treasurer shall have charge of and be
---------
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors; if required by the Board of Directors,
shall give a bond for the faithful discharge of the duties, with such surety or
sureties as the Board of Directors may determine; shall keep or cause to be kept
full and accurate records of all receipts and disbursements in books of the
Corporation; shall render to the Chairman and to the Board of Directors,
whenever requested, an account of the financial condition of the Corporation;
and, in general, shall perform all the duties incident to the office of
Treasurer of a Corporation, and such other duties as may be assigned by the
Board of Directors or the Chairman or the President or as may be provided by
law.
Section 4.7 Other Officers. The Board of Directors (or a committee thereof)
--------------
the Chairman of the Board or the President may from time to time appoint such
other officers, agents or employees, and may delegate to them such powers and
duties as it may deem desirable.
Section 4.8 Removal. Any officer elected, or agent appointed, by the Board
-------
of Directors may be removed by the affirmative vote of a majority of the Whole
Board whenever, in their judgment, the best interests of the Corporation would
be served thereby. Any officer or agent appointed by the Chairman of the Board
or the President may be removed by him or her whenever, in his or her judgment,
the best interests of the Corporation would be served thereby. No elected
officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
or her successor, his or her death, resignation or removal, whichever event
shall first occur, except as otherwise provided in an employment contract or
under an employee deferred compensation plan.
Section 4.9 Vacancies. A newly created elected office and a vacancy in any
---------
elected office because of death, resignation, or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors. Any vacancy in an office appointed by the Chairman of the
Board or the President because of death, resignation, or removal may be filled
by the Chairman of the Board or the President.
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ARTICLE V
Stock
Section 5.1 Certificates. The interest of each stockholder of the
------------
Corporation shall be evidenced by certificates for shares of stock in such form
as the appropriate officers of the Corporation may from time to time prescribe.
The shares of the stock of the Corporation shall be transferred on the books of
the Corporation by the holder thereof in person or by his attorney, upon
surrender for cancellation of certificates for at least the same number of
shares, with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof of the authenticity of the signature as
the Corporation or its agents may reasonably require.
The certificates of stock shall be signed, countersigned and registered in
such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be in
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Section 5.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New
-------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
- ------------
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the legal representative of such owner, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VI
Indemnity
Section 6.1 Indemnification and Insurance. (a) Each person who was or is
-----------------------------
made a party or is threatened to be
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made a party to or is involved in any action, suit, or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that such person or a person for whom such person is the
legal representative is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, to the extent permitted by law, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
--------
however, that except as provided in paragraph (c) of this By-Law, the
- -------
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this By-Law shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition, such advances to be paid by the Corporation within 20 days after
the receipt by the Corporation of a statement or statements from the claimant
requesting such advance or advances from time to time; provided, however, that
-------- -------
if the Delaware General Corporation Law requires, the payment of such expenses
incurred by a director or officer in such person's capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this By-Law or otherwise.
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(b) To obtain indemnification under this By-Law, a claimant shall submit to
the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (b), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by the Board of
Directors by a majority vote of a quorum consisting of Disinterested Directors
(as hereinafter defined), or (ii) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the
stockholders of the Corporation. In the event the determination of entitlement
to indemnification is to be made by Independent Counsel at the request of the
claimant, the Independent Counsel shall be selected by the Board of Directors
unless there shall have occurred within two years prior to the date of the
commencement of the action, suit or proceeding for which indemnification is
claimed a "Change of Control" as defined in the Providian Bancorp 1997 Stock
Option Plan in which case the Independent Counsel shall be selected by the
claimant unless the claimant shall request that such selection be made by the
Board of Directors. If it is so determined that the claimant is entitled to
indemnification, payment to the claimant shall be made within 10 days after such
determination.
(c) If a claim under paragraph (a) of this By-Law is not paid in full by the
Corporation within thirty days after a written claim pursuant to paragraph (b)
of this By-Law has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but
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<PAGE>
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, Independent
Counsel or stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is proper in the
circumstances because the claimant has met the applicable standard of conduct,
nor an actual determination by the Corporation (including its Board of
Directors, Independent Counsel or stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(d) If a determination shall have been made pursuant to paragraph (b) of
this By-Law that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (c) of this By-Law.
(e) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (c) of this By-Law that the
procedures and presumptions of this By-Law are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-Law.
(f) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this By-
Law shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this By-Law shall in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(g) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law. To the extent that the Corporation
maintains any policy or policies providing such insurance, each such director or
officer, and each such agent or employee to which rights to indemnification have
been granted as provided in paragraph (h) of this By-Law, shall be covered by
such policy or policies in
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<PAGE>
accordance with its or their terms to the maximum extent of the coverage
thereunder for any such director, officer, employee or agent.
(h) The Corporation may, by action of the Board of Directors, to the extent
permitted by the Delaware General Corporation Law, grant rights to
indemnification, and rights to be paid by the Corporation the expenses incurred
in defending any proceeding in advance of its final disposition, to any employee
or agent of the Corporation to the fullest extent of the provisions of this By-
Law with respect to the indemnification and advancement of expenses of directors
and officers of the Corporation.
(i) If any provision or provisions of this By-Law shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this By-Law
(including, without limitation, each portion of any paragraph of this By-Law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this By-Law (including, without limitation, each such portion of
any paragraph of this By-Law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(j) For purposes of this By-Law:
(1) "Disinterested Director" means a director of the Corporation
who is not and was not a party to the matter in respect of which
indemnification is sought by the claimant.
(2) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters
of corporation law and shall include any person who, under the
applicable standards of professional conduct then prevailing, would
not have a conflict of interest in representing either the Corporation
or the claimant in an action to determine the claimant's rights under
this By-Law.
(k) Any notice, request or other communication required or permitted
to be given to the Corporation under this By-Law shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier
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<PAGE>
service, or certified or registered mail, postage prepaid, return receipt
requested, to the Secretary of the Corporation and shall be effective only upon
receipt by the Secretary.
ARTICLE VII
Miscellaneous
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall be the
-----------
calendar year, or such other period as may hereafter be approved by resolution
of the Board of Directors.
Section 7.2 Seal. The corporate seal shall have the name of the Corporation
----
inscribed thereon.
Section 7.3 Books and Records. The books and records of the Corporation may
-----------------
be kept outside the State of Delaware at such place or places as may from time
to time be designated by the Board of Directors.
Section 7.4 Amendment of By-laws. Subject to the laws of the State of
--------------------
Delaware and the provisions of the Certificate of Incorporation, these By-Laws
may be altered, amended, or repealed at any meeting of the Board of Directors or
of the stockholders, provided notice of the proposed change was given in the
notice of the meeting.
Section 7.5 Voting Stock in Other Corporations. The Chairman of the Board
----------------------------------
or the President or such other officer as the Chairman of the Board or the
President may designate may act on behalf of the Corporation to vote the stock
held by this Corporation in any other corporation to cast the votes that the
Corporation may be entitled to cast as a stockholder or otherwise in any other
corporation; or either such officer or such other designated officer may consent
in writing to any action by any such other corporation.
Section 7.6 Transfer of Shares. Prior to due presentment of a certificate
------------------
for shares for registration of transfer the Corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to exercise all the rights and powers of an owner.
Where a certificate for shares is presented to the Corporation with a request to
register for transfer, the Corporation shall not be liable to the owner or any
other person suffering loss as a result of such registration of transfer if (a)
there were on or with the certificate the necessary endorsements, and (b) the
Corporation had no duty to inquire into
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<PAGE>
adverse claims or has discharged any such duty. The Corporation may require
reasonable assurance that said endorsements are genuine and effective and in
compliance with such other regulations as may be prescribed under the authority
of the Board of Directors.
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<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
PROVIDIAN BANCORP, INC.
and
[_____________]
Rights Agent
Rights Agreement
Dated as of _________, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
Section 1. Certain Definitions................................ 1
Section 2. Appointment of Rights Agent........................ 8
Section 3. Issue of Right Certificates........................ 9
Section 4. Form of Right Certificates......................... 12
Section 5. Countersignature and Registration.................. 13
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates.......................... 14
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights.......................... 16
Section 8. Cancellation and Destruction of
Right Certificates................................. 18
Section 9. Availability of Preferred Shares................... 19
Section 10. Preferred Shares Record Date....................... 20
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights......................... 21
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares................................ 36
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power......................... 36
Section 14. Fractional Rights and Fractional Shares............ 39
Section 15. Rights of Action................................... 41
Section 16. Agreement of Right Holders......................... 42
Section 17. Right Certificate Holder Not Deemed a
Stockholder........................................ 43
Section 18. Concerning the Rights Agent........................ 44
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<PAGE>
Section 19. Merger or Consolidation or Change of
Name of Rights Agent............................... 45
Section 20. Duties of Rights Agent............................. 46
Section 21. Change of Rights Agent............................. 50
Section 22. Issuance of New Right Certificates................. 52
Section 23. Redemption......................................... 53
Section 24. Exchange........................................... 54
Section 25. Notice of Certain Events........................... 57
Section 26. Notices............................................ 59
Section 27. Supplements and Amendments......................... 60
Section 28. Successors......................................... 61
Section 29. Benefits of this Rights Agreement.................. 61
Section 30. Severability....................................... 62
Section 31. Governing Law...................................... 62
Section 32. Counterparts....................................... 62
Section 33. Descriptive Headings............................... 62
Signatures......................................................... 64
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase
Preferred Shares
-ii-
<PAGE>
RIGHTS AGREEMENT
----------------
Rights Agreement, dated as of ____________, 1997, between Providian
Bancorp, Inc., a Delaware corporation (the "Company"), and _______________ (the
"Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding on _________, 1997 (the
"Record Date"), each Right representing the right to purchase one one-hundredth
of a Preferred Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right with respect to each Common Share that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Rights Agreement, the
-------------------
following terms have the meanings indicated:
<PAGE>
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 15% or more of the Common Shares of the Company then outstanding,
but shall not include the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the Company, or
any entity holding Common Shares for or pursuant to the terms of any such
plan. Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Shares by the Company
which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or
more of the Common Shares of the Company then outstanding; provided,
--------
however, that if a Person shall become the Beneficial Owner of 15% or more
-------
of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional Common Shares of the
Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph
(a), has become such
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<PAGE>
inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be
an "Acquiring Person," as defined pursuant to the foregoing provisions of
this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Rights Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Rights Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling
-3-
<PAGE>
group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
-------- -------
Beneficial Owner of, or to beneficially own, securities tendered
pursuant to a tender or exchange offer made by or on behalf of such
Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial
-------- -------
Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated
under the Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person with which such Person or any of such Person's
Affiliates or Associates has any
-4-
<PAGE>
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or disposing of
any securities of the Company.
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used
with reference to a Person's Beneficial Ownership of securities of the
Company, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to
own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the [State of Rights Agent] are
authorized or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M.,
[Rights Agent City] time, on such date; provided, however, that if such
-------- -------
date is not a Business Day it shall mean 5:00 P.M., [Rights Agent City]
time, on the next succeeding Business Day.
-5-
<PAGE>
(f) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $.01 per share, of the Company.
"Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary
of another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(g) "Company" shall have the meaning set forth in the preamble hereof.
(h) "Current per share market price" shall have the meaning set forth
in Section 11(d) hereof.
(i) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(j) "Equivalent preferred shares" shall have the meaning set forth in
Section 11(b) hereof.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
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<PAGE>
(m) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(n) "NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotation System.
(o) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(p) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company
having the rights and preferences set forth in the Form of Certificate of
Designations attached to this Rights Agreement as Exhibit A.
(q) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(r) "Record Date" shall have the meaning set forth in the second
paragraph hereof.
(s) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(t) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
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<PAGE>
(u) "Right" shall have the meaning set forth in the second paragraph
hereof.
(v) "Right Certificate" shall have the meaning set forth in Section
3(a) hereof.
(w) "Rights Agent" shall have the meaning set forth in the preamble
hereof.
(x) "Shares Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person
has become such.
(y) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person.
(z) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
(aa) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights
---------------------------
Agent to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3 hereof, shall, prior to the Distribution Date, also be
the holders of the Common Shares) in accordance with the terms and
-8-
<PAGE>
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Right Certificates.
---------------------------
(a) Until the earlier of (i) the tenth day after the Shares
Acquisition Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors of the Company prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) of, or of
the first public announcement of the intention of any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) to commence, a tender or exchange offer
the consummation of which would result in any Person becoming the Beneficial
Owner of Common Shares aggregating 15% or more of the then outstanding Common
Shares of the Company (including any such date which is after the date of this
Rights Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x)
-9-
<PAGE>
the Rights will be evidenced (subject to the provisions of Section 3(b) hereof)
by the certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right Certificates) and
not by separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer of Common
Shares. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate, in
substantially the form of Exhibit B hereto (a "Right Certificate"), evidencing
one Right for each Common Share so held. As of the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-
class, postage-prepaid mail, to each record holder of Common Shares as of the
Close of Business on the Record Date, at the address of such holder shown on the
records of the Company. With respect
-10-
<PAGE>
to certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following (or a substantially similar) legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Providian
Bancorp, Inc. and ________, dated as of _____, 1997 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of Providian Bancorp, Inc. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and
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<PAGE>
will no longer be evidenced by this certificate. Providian Bancorp,
Inc. will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
As described in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person (as defined in the Rights Agreement) shall
become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the forms
--------------------------
of election to purchase Preferred Shares and of assignment to be printed on the
reverse thereof) shall be substantially the same as Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or regulation made pursuant
-12-
<PAGE>
thereto or with any rule or regulation of any stock exchange or automated
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates shall be
---------------------------------
executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, any of its Vice Presidents, or its Treasurer,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the Secretary or
an Assistant Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be countersigned manually or by
facsimile signature by an authorized signatory of the Rights Agent who may, but
need not, be the same signatory for all the Right Certificates and shall not be
valid for any purpose unless countersigned. In case any officer of the Company
who shall have signed any of the Right Certificates shall cease to be such
officer of the Company before countersignature by the Rights Agent and issuance
and
-13-
<PAGE>
delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at its designated office, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
-------------------------------------------------------------------
Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the
- -------------------------------------------------------
provisions of Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the earlier of
the Redemption Date or the Final Expiration Date, any Right
-14-
<PAGE>
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined, or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the designated office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case
-15-
<PAGE>
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein), in whole or in
part, at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the designated office of the Rights Agent,
together with payment of the Purchase Price (in the manner specified in Section
7(c) hereof) for each one one-hundredth of a Preferred Share as to which the
Rights are exercised, at or prior to the earliest of (i) the Close of Business
on __________, 2007 (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or
(iii)
-16-
<PAGE>
the time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $150, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13 hereof and shall be payable in lawful money of the United States of America
in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i) (A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer
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<PAGE>
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when appropriate, requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14 hereof, (iii) after receipt of such certificates
or depositary receipts, cause the same to be delivered to or upon the order of
the registered holder of such Right Certificate, registered in such name or
names as may be designated by such holder and (iv) when appropriate, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All Right
--------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by
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<PAGE>
it, and no Right Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Rights Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any other Right Certificate
purchased or acquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Right Certificates to the Company,
or shall, at the written request of the Company, destroy such cancelled Right
Certificates, and in such case shall deliver a certificate of destruction
thereof to the Company.
Section 9. Availability of Preferred Shares. The Company covenants and
--------------------------------
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
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<PAGE>
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose name any
----------------------------
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the
- -------- -------
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<PAGE>
date of such surrender and payment is a date upon which the Preferred Shares
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the Preferred Shares transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.
------------------------------------------------------------------
The Purchase Price, the number of Preferred Shares covered by each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Rights Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred
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<PAGE>
Shares or (D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration
-------- -------
to be paid upon the exercise of one Right be less than the aggregate par value
of the shares of capital stock of the Company issuable upon exercise of one
Right.
(ii) Subject to Section 24 of this Rights Agreement, in the event
that any Person becomes an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-hundredths
of a Preferred Share for
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<PAGE>
which a Right is then exercisable, in accordance with the terms of this Rights
Agreement and in lieu of Preferred Shares, such number of Common Shares of the
Company as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable and dividing that product by (y) 50% of the
then current per share market price of the Company's Common Shares (determined
pursuant to Section 11(d) hereof) on the date of the occurrence of such event.
In the event that any Person shall become an Acquiring Person and the Rights
shall then be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are or
were acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Rights Agreement. No Right Certificate shall be issued pursuant to Section
3 that represents Rights beneficially owned by an Acquiring Person whose Rights
would be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any
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<PAGE>
Associate or Affiliate thereof or to any nominee of such Acquiring Person,
Associate or Affiliate; and any Right Certificate delivered to the Rights Agent
for transfer to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence shall be cancelled.
(iii) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph (ii), the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exercise of the Rights. In the event the
Company shall, after good faith effort, be unable to take all such action as may
be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within
-24-
<PAGE>
45 calendar days after such record date) to subscribe for or purchase Preferred
Shares (or shares having the same rights, privileges and preferences as the
Preferred Shares ("equivalent preferred shares")) or securities convertible into
Preferred Shares or equivalent preferred shares at a price per Preferred Share
or equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the then current per share market price of the Preferred Shares (as defined
in Section 11(d)) on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
-------- -------
in no event shall the consideration to be
-25-
<PAGE>
paid upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right. In
case such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall
-26-
<PAGE>
be determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the then current
per share market price of the Preferred Shares on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event shall
-------- -------
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
immediately prior to such date; provided, however,
-------- -------
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<PAGE>
that in the event that the current per share market price of the Security is
determined during a period following the announcement by the issuer of such
Security of (A) a dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security and prior to the
expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case, as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid
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<PAGE>
and low asked prices in the over-the-counter market, as reported by NASDAQ or
such other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Security
selected by the Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof), multiplied by one hundred. If neither the Common Shares
nor the Preferred Shares are publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as determined in good
faith
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<PAGE>
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
-------- -------
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained
-30-
<PAGE>
in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10
and 13 with respect to the Preferred Shares shall apply on like terms to any
such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (A) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (B) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
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<PAGE>
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price.
The Company shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
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<PAGE>
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable
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<PAGE>
upon exercise of the Rights, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable Preferred Shares (or the
relevant fraction thereof) at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
--------
however, that the Company shall deliver to such holder a due bill or other
- -------
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent
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<PAGE>
that it, in its sole discretion, shall determine to be advisable in order that
any consolidation or subdivision of the Preferred Shares, issuance wholly for
cash of any Preferred Shares at less than the current market price, issuance
wholly for cash of Preferred Shares or securities which by their terms are
convertible into or exchangeable for Preferred Shares, dividends on Preferred
Shares payable in Preferred Shares or issuance of rights, options or warrants
referred to hereinabove in Section 11(b), hereafter made by the Company to
holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Rights
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares, or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
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<PAGE>
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
----------------------------------------------------------
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power
--------------------------------------------------------------------
In the event, directly or indirectly, at any time after a Person has become an
Acquiring Person, (a) the Company shall consolidate with, or merge with and
into, any other Person, (b) any Person shall consolidate with the Company, or
merge with and into the Company and the Company shall be the continuing or
surviving corporation of such merger and, in connection with such merger, all or
part of the Common
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<PAGE>
Shares shall be changed into or exchanged for stock or other securities of any
other Person (or the Company) or cash or any other property, or (c) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person other than the Company or
one or more of its wholly-owned Subsidiaries, then, and in each such case,
proper provision shall be made so that (i) each holder of a Right (except as
otherwise provided herein) shall thereafter have the right to receive, upon the
exercise thereof at a price equal to the then current Purchase Price multiplied
by the number of one one-hundredths of a Preferred Share for which a Right is
then exercisable, in accordance with the terms of this Rights Agreement and in
lieu of Preferred Shares, such number of Common Shares of such other Person
(including the Company as successor thereto or as the surviving corporation) as
shall equal the result obtained by (a) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share for which a Right
is then exercisable and dividing that product by (b) 50% of the then current per
share market price of the
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<PAGE>
Common Shares of such other Person (determined pursuant to Section 11(d) hereof)
on the date of consummation of such consolidation, merger, sale or transfer;
(ii) the issuer of such Common Shares shall thereafter be liable for, and shall
assume, by virtue of such consolidation, merger, sale or transfer, all the
obligations and duties of the Company pursuant to this Rights Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such issuer; and (iv)
such issuer shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares in accordance with
Section 9 hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such issuer shall have executed and delivered to the Rights Agent a supplemental
agreement so providing. The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The
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<PAGE>
provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are
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<PAGE>
listed or admitted to trading or, if the Rights are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if on any
such date the Rights are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Rights selected by the Board of Directors of the Company. If on
any such date no such market maker is making a market in the Rights, the fair
value of the Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). In lieu of
fractional Preferred Shares that are not integral multiples of one one-hundredth
of a Preferred Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one Preferred
Share. For the purposes
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<PAGE>
of this Section 14(b), the current market value of a Preferred Share shall be
the closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise. Fractions of Preferred Shares in integral multiples
of one one-hundredth of a Preferred Share may, at the election of the Company,
be evidenced by depositary receipts, pursuant to an appropriate agreement
between the Company and a depositary selected by it; provided, that such
--------
agreement shall provide that the holders of such depositary receipts shall have
all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this Rights
----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common
-41-
<PAGE>
Shares), without the consent of the Rights Agent or of the holder of any other
Right Certificate (or, prior to the Distribution Date, of the Common Shares),
may, in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by such
Right Certificate in the manner provided in such Right Certificate and in this
Rights Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this Rights
Agreement and will be entitled to specific performance of the obligations under,
and injunctive relief against actual or threatened violations of the obligations
of any Person subject to, this Rights Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by accepting
--------------------------
the same, consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights
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<PAGE>
Agent if surrendered at the designated office of the Rights Agent, duly endorsed
or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as
-------------------------------------------------
such, of any Right Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold
-43-
<PAGE>
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
---------------------------
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Rights Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the Rights Agent for, and
to hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Rights Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection with,
its administration of this
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<PAGE>
Rights Agreement in reliance upon any Right Certificate or certificate for the
Preferred Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
---------------------------------------------------------
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Rights Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, that such corporation would be eligible for
--------
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Rights Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor
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<PAGE>
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Rights Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Rights Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and
----------------------
obligations imposed by this Rights Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
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<PAGE>
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Rights
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Rights Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
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<PAGE>
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Rights Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Rights Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Rights Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Section 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice that such change or adjustment is required);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this
-48-
<PAGE>
Rights Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and non-
assessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to
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<PAGE>
the Company or otherwise act as fully and freely as though it were not Rights
Agent under this Rights Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
----------------------
Agent may resign and be discharged from its duties under this Rights Agreement
upon 30-days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30-days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
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<PAGE>
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate or the Rights Agent may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a corporation organized and doing business under the laws of the
United States or of [the State of Rights Agent] (or of any other state of the
United States so long as such corporation is authorized to do business as a
banking institution in [the State of Rights Agent]), in good standing, having an
office in [the State of Rights Agent], which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and
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<PAGE>
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
----------------------------------
provisions of this Rights Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by the Board of Directors of the Company to reflect
any adjustment or change in the Purchase Price and the
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<PAGE>
number or kind or class of shares or other securities or property purchasable
under the Right Certificates made in accordance with the provisions of this
Rights Agreement.
Section 23. Redemption.
----------
(a) The Board of Directors of the Company may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the
Rights by the Board of Directors of the Company may be made effective at such
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (a) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
-------- -------
to give, or any defect in, any such notice shall not affect the validity of
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<PAGE>
such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange.
--------
(a) The Board of Directors of the Company may, at its option, at any
time after any Person becomes an Acquiring Person, exchange all or part of the
then outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii) hereof) for
Common Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock
-54-
<PAGE>
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors of the Company shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of Common Shares equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give public notice of any such exchange; provided,
--------
however, that the failure to give, or any defect in, such notice shall not
- -------
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed
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<PAGE>
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method by which
the exchange of the Common Shares for Rights will be effected and, in the event
of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exchange of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
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<PAGE>
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any
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reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person, (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares payable in
Common Shares or to effect a subdivision, combination or consolidation of the
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares), then, in each such case, the Company shall give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record
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<PAGE>
date for determining holders of the Preferred Shares for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Shares and/or Preferred Shares, whichever shall be
the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Rights Agreement to
-------
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Providian Bancorp, Inc.
201 Mission Street
San Francisco, California 94105
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by
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<PAGE>
the Company or by the holder of any Right Certificate to or on the Rights Agent
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with the Company)
as follows:
[Rights Agent]
_____________________________
_____________________________
_____________________________
Attention: [Tenders and Exchanges
Administration]
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to time
--------------------------
supplement or amend this Rights Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any
-------- -------
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<PAGE>
Person becomes an Acquiring Person, this Rights Agreement shall not be amended
in any manner which would adversely affect the interests of the holders of
Rights. Without limiting the foregoing, the Company may at any time prior to
such time as any Person becomes an Acquiring Person amend this Rights Agreement
to lower the thresholds set forth in Sections 1(a) and 3(a) hereof to not less
than the greater of (i) the sum of .001% and the largest percentage of the
outstanding Common Shares then known by the Company to be beneficially owned by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan) and (ii)
10%.
Section 28. Successors. All the covenants and provisions of this Rights
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Rights Agreement. Nothing in this Rights
---------------------------------
Agreement shall be construed to give to any Person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Rights Agreement; but this Rights Agreement
shall be for the sole and exclusive benefit of
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<PAGE>
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
------------
of this Rights Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Rights Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Rights Agreement and each Right
-------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of [Delaware] and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Rights Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Rights Agreement are inserted for
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<PAGE>
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
-63-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed and attested, all as of the day and year first
above written.
PROVIDIAN BANCORP, INC.
Attest:
By_____________________________ By_______________________________
Title: Title:
[RIGHTS AGENT]
Attest:
By_____________________________ By_______________________________
Title: Title:
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<PAGE>
Exhibit A
---------
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
PROVIDIAN BANCORP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------
Providian Bancorp, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on [____________],
1997:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall
----------------------
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be [__________]. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
--------
shall reduce the number of
A-1
<PAGE>
shares of Series A Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock, in preference to the holders of Common Stock,
par value $.01 per share (the "Common Stock"), of the Corporation, and of
any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March,
June, September and December in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such
A-2
<PAGE>
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1 per share on the Series A Preferred Stock shall nevertheless be payable
on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
-------------
Preferred Stock shall have the following voting rights:
A-3
<PAGE>
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation,
A-4
<PAGE>
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall
A-5
<PAGE>
upon their cancellation become authorized but unissued shares of Preferred Stock
and may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding-Up. Upon any
--------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
--------
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
---------------------------
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be
A - 6
<PAGE>
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
-------------
shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with
----
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
---------
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
A-7
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chairman of the Board and attested by its
Secretary this day of , 1997.
--------------------------------
Chairman of the Board
Attest:
- ----------------------
Secretary
A-8
<PAGE>
Exhibit B
---------
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER [________________], 2007 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION
AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT.
Right Certificate
PROVIDIAN BANCORP, INC.
This certifies that , or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of [________], 1997 (the "Rights Agreement"),
between Providian Bancorp, Inc., a Delaware corporation (the "Company"), and
[______________] (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., [Rights Agent City] time, on [_____________], 2007 at
the designated office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $150 per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one one-
hundredths of a Preferred Share which may be purchased upon exercise hereof) set
forth above, and the Purchase Price set forth above, are the number and Purchase
Price as of [_____________], 1997, based on the Preferred Shares as constituted
at such date. As provided in the Rights Agreement, the Purchase Price and the
number of one one-hundreths of a Preferred Share which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
B-1
<PAGE>
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the designated office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights
B-2
<PAGE>
evidenced by this Right Certificate shall have been exercised as provided in the
Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of , 1997.
ATTEST: PROVIDIAN BANCORP, INC.
By
------------------------
- -------------------------
Countersigned:
[RIGHTS AGENT]
By
--------------------------------------
Authorized Signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
----------------------------------------------------
hereby sells, assigns and transfers unto
----------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint
----------------------------------
Attorney, to transfer the within Right Certificate on the books of the within-
named Company, with full power of substitution.
Dated:
--------------------, -----
---------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
---------------------------
Signature
- --------------------------------------------------------------------------------
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: Providian Bancorp, Inc.:
The undersigned hereby irrevocably elects to exercise ______________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security
or other taxpayer identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other taxpayer identifying number
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Dated:
--------------------------, ------
---------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial
B - 5
<PAGE>
bank or trust company having an office or correspondent in the United States.
B-6
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- -------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
-----------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
------
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-7
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On [ ], 1997, the Board of Directors of Providian Bancorp, Inc.
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.01 per share
(the "Common Shares"), of the Company. The dividend is payable on [ ],
1997 (the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $.01 per
share (the "Preferred Shares"), of the Company at a price of $150 per one one-
hundredth of a Preferred Share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and [ ], as Rights Agent
(the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common
C-1
<PAGE>
Shares outstanding as of the Record Date, even without such notation or a copy
of this Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on [ ], 2007 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each
Preferred Share will have 100 votes, voting together
C-2
<PAGE>
with the Common Shares. Finally, in the event of any merger, consolidation or
other transaction in which Common Shares are exchanged, each Preferred Share
will be entitled to receive 100 times the amount received per Common Share.
These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. In the event that any person or
group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one Common Share, or
one one-hundredth of a Preferred Share (or of a share of a class or series of
the Company's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15%
C-3
<PAGE>
or more of the outstanding Common Shares, the Board of Directors of the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"). The redemption of the Rights may be made effective at
such time on such basis with such conditions as the Board of Directors in its
sole discretion may establish. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
Common Shares then known to the Company to be beneficially owned by any person
or group of affiliated or associated persons and (ii) 10%, except that from and
after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
[ ], 1997. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
C-4
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of March 27, 1997 between Providian Bancorp,
Inc., a Delaware corporation (the "Company"), and Shailesh J. Mehta (the
"Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company's parent, Providian Corporation ("Parent"), intends to
distribute all the shares of common stock of the Company to the Parent's
stockholders in a tax-free distribution (the "Distribution"), following which
the Company will be an independent, publicly held company; and
WHEREAS, the Company and the Executive desire to set forth the terms and
the conditions of the Executive's employment by the Company following the
Distribution in an agreement (this "Agreement");
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the Company and
the Executive (individually a "Party" and together the "Parties") agree as
follows:
1. Definitions
-----------
(a) "Act" shall mean the Securities Exchange Act of 1934, as amended.
---
(b) "Base Salary" shall mean the annual salary provided for in Section 3
-----------
below or any increased salary granted to the Executive by the Board.
(c) "Board" shall mean the Board of Directors of the Company.
-----
(d) "Bonus Percentage" shall mean the percentage obtained by dividing (i)
----------------
the highest amount of bonus paid to the Executive by the Company and its
affiliates (including, prior to the Distribution, by Parent and its affiliates)
in any of the three years prior to the year in which his termination of
employment occurs by (ii) the base salary paid to the Executive for such year.
(e) "Cause" shall mean:
-----
(i) a willful and continuing failure by the Executive to perform
substantially his obligations under this Agreement (other than as a result
of the Executive's death or Disability);
(ii) conduct undertaken by the Executive which is demonstrably willful
and deliberate on the Executive's part and which is intended to result in
(A) substantial personal enrichment of the Executive and (B) substantial
injury to the Company; or
(iii) commission by the Executive of a felony involving the Company.
<PAGE>
A termination for Cause within the meaning of clause (i) or (ii) shall not take
effect unless:
(A) the Board shall have delivered a written notice to the
Executive within 30 days of its having knowledge of one of the
circumstances constituting cause within the meaning of clause (i) or
(ii), stating which one of those circumstances has occurred;
(B) within 30 days after such notice, the Executive is permitted
to respond and defend himself before the Board personally, with
counsel of his own choosing, as well as in writing;
(C) within 15 days of the date on which the Executive is given
the opportunity to respond and defend himself before the Board, the
Executive has not remedied such circumstance; and
(D) if the Executive has not remedied such circumstance as
provided in subclause (C) above, within 30 days after the expiration
of the period during which the Executive may remedy such circumstance,
the Board notifies the Executive in writing that it is terminating
his employment for Cause.
(f) a "Change in Control" shall mean:
-----------------
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
-------- -------
purposes of this clause (i), the following acquisitions shall not
constitute a Change in Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (D) any acquisition
by any corporation pursuant to a transaction which complies with parts
(A), (B) and (C) of clause (iii) of this Section 1(f); or
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
-------- -------
subsequent to the date hereof whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
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<PAGE>
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(h) "Confidential Information" shall mean all nonpublic information
------------------------
concerning the Company's business, including its products, customer lists,
financial information and marketing plans and strategies. Confidential
Information does not include information that is, or becomes, available to the
public, unless such availability occurs through a breach by the Executive of the
provisions of Section 13 below.
(i) "Deferred Compensation Accounts" shall mean the two deferred
------------------------------
compensation accounts established in the Executive's name pursuant to Section 7
hereof, together with any additional deferred compensation account or accounts
that may be established in the Executive's name in the future.
(j) "Disability" shall mean the Executive's inability to discharge his
----------
duties and responsibilities under this Agreement due to his physical or mental
incapacity for a period of six consecutive months or for an aggregate of nine
months in any 12 consecutive month period.
(k) "Fair Market Value" shall mean the mean between the highest and lowest
-----------------
sale price of the common stock of the Company as reflected on the consolidated
tape of
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New York Stock Exchange issues on the date preceding the date as of
which such value is being determined. If the common stock of the Company is not
sold on such day, the value shall be determined on the next preceding day on
which the common stock of the Company is sold.
(l) "Good Reason" shall mean the occurrence of any one or more of the
-----------
following events without the Executive's prior written consent:
(i) a reduction in his then current Base Salary, target bonus
opportunity or benefits under any employee benefit program in which he
participates, except as otherwise permitted hereunder;
(ii) a breach of Section 2(c) below;
(iii) a significant diminution of his ongoing duties and
responsibilities;
(iv) the assignment to him of any duties inconsistent with his
duties and responsibilities described in Section 2 below;
(v) any purported termination of the Executive's employment by the
Company other than as permitted by this Agreement;
(vi) the relocation of the Company's principal office or the
Executive's own office location as assigned to him by the Company outside
an area within 35 miles of the current headquarters of the Company in San
Francisco, California;
(vii) following a Change in Control, the failure of any successor to
the Company to expressly assume and agree to discharge the Company's
obligations to the Executive under this Agreement in form and substance
satisfactory to the Executive; or
(viii) a termination by the Executive for any reason during the 30-
day period immediately following the first anniversary of the date a Change
in Control occurs.
(m) "Payment Date" shall mean the first business day following a
------------
termination of the Executive's employment on or after which he is no longer
subject to the provisions of Section 16(b) of the Act with respect to any
payments required to be made to him by the Company pursuant to Section 10 below.
(n) "Spread" shall mean the excess, if any, of the Fair Market Value of a
------
share of the common stock of the Company over the purchase price of such share
pursuant to any option to purchase such share granted by the Company to the
Executive.
(o) "Term of Employment" shall mean the period specified in Section 2
------------------
below.
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(p) "Termination Without Cause" shall mean a termination of the Executive's
-------------------------
employment:
(i) by the Company, other than due to Disability or Cause; or
(ii) by the Executive for Good Reason.
(q) "Total Cash Compensation" shall mean the Executive's Base Salary and
-----------------------
any bonuses earned by the Executive for any year whether or not such Base
Salary or bonus is paid in a subsequent year.
2. Term of Employment, Positions and Duties.
----------------------------------------
(a) The Company hereby employs the Executive, and the Executive hereby
accepts employment with the Company, for the Term of Employment, in the
positions and with the duties and responsibilities set forth below, and upon
such other terms and conditions as are hereinafter stated.
(b) The Term of Employment shall commence on the date of the Distribution
and shall terminate upon the close of business on the third anniversary of the
date of the Distribution; provided that, on each anniversary of the date of the
--------
Distribution, the Term of Employment shall automatically be extended for a new
term of three years (i.e., for one additional year beyond the
then existing termination date) unless either Party gives written notice to the
other, not less than one year prior to such anniversary, that it or he does not
want the term to be so extended. Unless the Term of Employment shall have
previously expired, upon the occurrence of a Change in Control, the Term of
Employment shall automatically be extended until the third anniversary of the
date on which a Change in Control occurs, notwithstanding any prior notice of
non-extension given pursuant to the immediately preceding sentence; provided,
--------
that any extension pursuant to this sentence shall not extend the Term of
Employment beyond the Executive's 65th birthday.
(c) At all times during the Term of Employment, the Executive shall be
employed as the Chairman of the Board and Chief Executive Officer of the
Company. It is also the intention of the Parties that at all times during the
Term of Employment the Executive shall serve as a member of the Board.
(d) During the Term of Employment, the Executive shall devote his full
business time and attention to the business and affairs of the Company and shall
use his best efforts, skills and abilities to promote its interests. Anything
herein to the contrary notwithstanding, nothing shall preclude the Executive
from serving on the boards of directors of other corporations, engaging in
charitable and community affairs, engaging in speaking appearances, teaching
(not on a full-time basis), writing articles or books, or managing his personal
investments, so long as these activities do not unreasonably interfere with
Executive's duties as an executive officer of the Company.
3. Base Salary.
-----------
During the Term of Employment, the Executive shall be paid by the Company a
Base Salary in accordance with the Company's regular payroll practices at an
annualized
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<PAGE>
rate of no less than $800,000. Such Base Salary shall be reviewed annually for
increase in the discretion of the Board.
4. Bonus and Other Incentive Compensation.
--------------------------------------
During the Term of Employment, the Executive shall be entitled to
participate in bonus and other incentive compensation programs applicable to
senior management of the Company, as such programs may be in effect from time to
time. Without limiting the foregoing, during the first year of the Term of
Employment, the Executive's annual bonus opportunity shall be no less than $1
million. Such bonus may be earned through the achievement of reasonable
performance goals to be determined by the Board, with payment of a lesser bonus
possible if such goals are not met.
5. Stock Options and Restricted Stock.
----------------------------------
(a) Effective on the Distribution Date, the Company shall grant to the
Executive options with respect to 500,000 shares of common stock of the Company
pursuant to the Company's stock option plan as then in effect. Such options
shall have a term of ten years and shall vest in three equal installments on the
day preceding the first three anniversaries of the date of grant. The per share
exercise price of such options shall equal the average during the ten trading
days beginning with the ex-dividend date for the Distribution of the average of
the daily high and low per share trading prices on the New York Stock Exchange
for the common stock of the Company.
(b) Effective on the Distribution Date, the Company shall grant to the
Executive 75,000 restricted shares of common stock of the Company. Such shares
of restricted stock shall vest in five equal installments on the day preceding
the first five anniversaries of the date of grant.
6. Employee Benefit Programs.
-------------------------
During the Term of Employment and thereafter as provided in Section 10
below, the Executive shall be entitled to participate in all employee benefit
programs applicable to the senior management of the Company, as such programs
may be in effect from time to time.
7. Deferred Compensation.
---------------------
(a) The Company shall establish two Deferred Compensation Accounts in the
Executive's name. The first Deferred Compensation Account will consist of the
aggregate amounts (including accrued interest) held, as of the date of the
Distribution, in the Executive's deferred compensation account and Phantom
Deferral Account established pursuant to the letter agreement between the
Executive and First Deposit Corporation dated February 28, 1986, as amended by
the letter agreement dated August 5, 1992. All amounts in the first Deferred
Compensation Account will bear interest, compounded quarterly, at a rate equal
to the prime interest rate charged by Bank of America (or a mutually agreed
substitute bank) on loans, as from time to time published by that bank. Other
than such accrual of interest, no further contributions will be made to the
first Deferred Compensation Account after the Distribution. The second Deferred
Compensation Account will consist of amounts contributed by the Company each
quarter equal to 17% of the Executive's quarterly Base Salary plus bonus, less
the Company's contributions on the Executive's
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<PAGE>
behalf for such quarter under the Company's Employee Savings (401(k)) Plan. All
amounts in the second Deferred Compensation Account will bear interest,
compounded quarterly, at an annual rate of 8.25%. Such contribution percentage
and interest rate for the second Deferred Compensation Account represent amounts
mutually agreed by the Company and the Executive as appropriate to compensate
the Executive for the amounts that the Executive would have received under
Parent's retirement plan had the Executive continued to be a participant therein
for the duration of this employment by the Company.
(b) If the Executive's employment is terminated (including by virtue of
such employment not being renewed at the end of the Term of Employment), all
amounts credited to the Deferred Compensation Accounts will be paid to the
Executive, in cash, within 60 days of the date of termination of employment, or
on such date or dates after termination as the Executive may select prior to the
date of termination or within two weeks following the date of termination. The
Executive may elect up to ten substantially equal annual installment payments of
such amounts.
(c) If the Executive dies prior to the full payment of such amounts in the
Deferred Compensation Accounts, the balance will be paid to the Executive's
designated beneficiary or beneficiaries in such manner as may be requested by
such beneficiary or beneficiaries, subject to the consent of the Board, or, if
no beneficiaries have been designated, shall be paid to the Executive's estate
or to such beneficiaries as may be named in a decree or distribution of the
Executive's estate. No right to any amount of the Deferred Compensation
Accounts shall vest in any person (other than the Executive) prior to the
payment date, nor may any interest in any such deferred compensation be
assigned, transferred, pledged, or otherwise encumbered.
(d) Amounts accrued in the Deferred Compensation Accounts will not be
deemed salary or other compensation for purposes of computing bonuses or
benefits. No money or other assets will be transferred in trust or otherwise
irrevocably set aside by the Company to fund the payment of any amounts in the
Deferred Compensation Accounts prior to the date on which such payments are
otherwise due to be paid, and the relationship between the Company and the
Executive in this regard shall be that of debtor and creditor.
8. Perquisites.
-----------
The Executive shall be entitled to all of the perquisites accorded to the
senior management of the Company and any additional perquisites that may be
granted to him from time to time, including, without limitation, reimbursement
of any legal expenses incurred by the Executive relating to the preparation and
review of employment agreements, and expenses incurred by him for financial
services in connection with his retirement, for estate planning services and for
an annual complete physical examination (to the extent not reimbursed by the
Company's medical plan).
9. Business Expenses.
-----------------
The Executive shall be entitled to prompt reimbursement for all expenses he
incurs on behalf of the Company upon the submission by him of the appropriate
documentation of such expenses.
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<PAGE>
10. Termination of Employment.
-------------------------
(a) Termination Due to Death. In the event of the Executive's death, his
------------------------
estate or his surviving spouse, as the case may be, shall be entitled to:
(i) the Base Salary, at the rate in effect at the time of the
Executive's death, through the end of the month in which the Executive
dies;
(ii) an annual bonus prorated until the date of his death;
(iii) any bonus earned or accrued but not yet paid under Section 4
above;
(iv) any bonus or other compensation deferred under any plans and
programs of the Company in accordance with such plans and programs;
(v) the deferred compensation provided under Section 7 above; and
(vi) other benefits in accordance with the plans and programs of the
Company.
(b) Termination Due to Disability. In the event the Executive is
-----------------------------
terminated due to Disability, he shall be entitled to:
(i) his Base Salary, at the rate in effect at the time the Executive's
Disability is determined, through the end of the month in which his
employment is terminated due to Disability;
(ii) an annual bonus prorated until the date on which his employment
is terminated;
(iii) any bonus earned or accrued but not yet paid under Section 4
above;
(iv) any bonus or other compensation deferred under any plans and
programs of the Company in accordance with such plans and programs;
(v) the deferred compensation provided under Section 7 above;
(vi) disability benefits as provided under the Company's short and
long-term disability plans; and
(vii) other benefits in accordance with the plans and programs of the
Company.
In addition, during the period of his Disability, the Executive shall be
entitled to continued coverage for himself, his spouse and his dependents under
the Company's health and welfare plans and to continued participation in all of
the Company's employee benefit plans, including, without limitation, continued
accrual of deferred compensation as provided in Section 7 above until he attains
age 60 (based on the average of the Executive's Total Cash Compensation for the
five highest consecutive years of his employment with the Company in the ten
years preceding the year in which his employment is terminated due to
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<PAGE>
Disability). To the extent terms and conditions of the aforesaid plans do not
permit participation by the Executive because of termination of his employment
due to Disability, the Company shall arrange to provide him with the after-tax
economic equivalent to him of such benefits.
(c) Termination by the Company for Cause. In the event the Executive is
------------------------------------
terminated for Cause, he shall be entitled to:
(i) his Base Salary through the date on which a termination of his
employment for Cause occurs;
(ii) any bonus earned or accrued but not yet paid under Section 4
above;
(iii) any bonus or other compensation deferred under any plans and
programs of the Company in accordance with such plans and programs;
(iv) the deferred compensation provided under Section 7 above; and
(v) other benefits in accordance with the plans and programs of the
Company.
(d) Termination Without Cause Prior to a Change in Control. In the event
------------------------------------------------------
there is a Termination Without Cause of the Executive's employment, he shall be
entitled to:
(i) his Base Salary through the date of termination of his employment;
(ii) a bonus equal to the product of (A) his Base Salary in effect on
the date of termination of his employment prorated to the date of such
termination, and (B) the Bonus Percentage;
(iii) his Base Salary, at the rate in effect at termination of his
employment, until the third anniversary of such termination, but not later
than the Executive's 65th birthday;
(iv) annual bonuses equal to his Base Salary in effect at termination
of his employment multiplied by the Bonus Percentage, until the third
anniversary of such termination, but not later than the Executive's 65th
birthday, such bonuses to be paid at the same time annual bonuses are
regularly paid by the Company to its senior management and prorated for any
portion of the period which is less than a full calendar year;
(v) any bonus earned or accrued but not yet paid under Section 4
above;
(vi) any bonus or other compensation deferred under any plans and
programs of the Company in accordance with such plans and programs;
(vii) the deferred compensation provided in Section 7 above;
-9-
<PAGE>
(viii) continued vesting following termination of his employment in
any awards of restricted stock made to the Executive, until the third
anniversary of such termination, but not later than the Executive's 65th
birthday;
(ix) continuation in all employee benefit plans or programs in which
he was participating at the termination of his employment until the third
anniversary of such termination, but in no event beyond the earlier of (A)
the Executive's 65th birthday and (B) the date, if any, the Executive
receives equivalent coverage and benefits under the plans and programs of a
subsequent employer; and
(x) other benefits in accordance with the plans and programs of the
Company.
In the event that the Executive may not be continued in any employee
benefit plan or program, as provided in (ix) above, he shall be provided with
the after-tax economic equivalent to him of such continued participation.
In the event there is a Termination Without Cause of the Executive's
employment, the Company shall, upon the Executive's written request furnished to
the Company within 20 days following such Termination Without Cause, make a lump
sum payment to the Executive in amount equal to the Spread on the Payment Date
with respect to the relevant options in each option grant, multiplied in each
case by the number of relevant options in each option grant. For the purpose of
the immediately preceding sentence, "relevant options" means any options granted
by the Company to the Executive to purchase its common stock that (i) are
outstanding on the date of termination of his employment and remain unexercised
on the Payment Date (whether or not such options expire by their terms prior to
the Payment Date) and (ii) by their terms, were exercisable on the date of
termination of his employment or which would have become exercisable if his
employment had continued until the third anniversary of such termination, but
not later than the Executive's 65th birthday. The Company shall make such
payment on the Payment Date (or, if later, promptly following the Executive's
request) and, as a condition to making such payment, the Executive agrees that
all outstanding options granted to him with respect to which such payment is
made shall thereupon be cancelled. In the event that the Executive does not
request such payment, each option grant shall become fully exercisable as of the
date of termination of employment and shall remain outstanding for the remainder
of the originally scheduled term.
(e) Termination of Employment Without Cause Following a Change in Control.
---------------------------------------------------------------------
In the event there is a Termination Without Cause of the Executive's employment,
following a Change in Control, he shall be entitled to:
(i) his Base Salary through the date on which his termination occurs
(disregarding, for this purpose, any reduction in his Base Salary following
a Change in Control, or that serves as a basis for a termination of the
Executive's employment for Good Reason) (the annual amount of such Base
Salary, the "Base Salary Amount");
(ii) a bonus equal to the product of (A) the Base Salary Amount
prorated to the date of such Termination Without Cause and (B) the Bonus
Percentage;
-10-
<PAGE>
(iii) a lump sum payment equal to the sum of three times
(A) the Base Salary Amount plus
(B) the Base Salary Amount multiplied by the Bonus Percentage;
(iv) any bonus earned or accrued but not yet paid under Section 4
above;
(v) any bonus or other compensation deferred under any plans and
programs of the Company in accordance with such plans and programs;
(vi) the deferred compensation provided under Section 7 above, and
additional accrual of deferred compensation under Section 7 above as if the
Executive had continued to be employed in accordance with the terms of this
Agreement for an additional three years after the date of such termination;
(vii) immediate, full vesting in all awards of restricted stock made
to the Executive;
(viii) continuation in all employee benefit plans or programs in
which he was participating on the date of termination of his employment
until the earlier of
(A) the third anniversary of the date on which the Executive is
terminated;
(B) the Executive's normal retirement date under the applicable
plans and programs of the Company; and
(ix) other benefits in accordance with the plans and programs of the
Company.
In the event that the Executive may not be continued in any employee
benefit plan or program, as provided in (viii) above, he shall be provided with
the after-tax economic equivalent to him of such continued participation.
In the event there is a Termination Without Cause of the Executive's
employment following a Change in Control, the Company shall, upon the
Executive's written request furnished to the Company within 20 days following
such Termination Without Cause, make a lump sum payment to the Executive in an
amount equal to the Spread on the Payment Date with respect to the relevant
options in each option grant, multiplied by the number of relevant options in
each option grant. For the purposes of the immediately preceding sentence,
"relevant options" means all options granted by the Company to the Executive to
purchase its common stock that are outstanding on the date of his termination of
employment and remain unexercised on the Payment Date (whether or not such
options expire by their terms prior to the Payment Date). The Company shall
make such payment on the Payment Date (or, if later, promptly following the
Executive's request) and, as a condition to making such payment, the Executive
agrees that all outstanding options granted to him with respect to which such
payment is made shall thereupon be cancelled. In the event that the Executive
does not request such payment, each option grant shall become
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<PAGE>
fully exercisable as of the date of termination of employment and shall remain
outstanding for the remainder of the originally scheduled term.
If the Termination Without Cause of the Executive's employment is for Good
Reason, a good faith determination by the Executive that any one of the events
described in Section 1(l) above has occurred shall be conclusive.
(f) Voluntary Termination. Upon 30 days prior notice to the Company, the
---------------------
Executive may voluntarily terminate his employment with the Company. A
voluntary termination shall not be a breach by the Executive of this Agreement
and shall not include a termination under Section 10(b), 10(d) or 10(e) above.
In the event the Executive voluntarily terminates his employment he shall be
entitled to:
(i) his Base Salary through the date of his voluntary termination;
(ii) any bonus earned or accrued but not yet paid under Section 4
above;
(iii) any bonus or other compensation deferred under any plans and
programs of the Company;
(iv) the deferred compensation provided under Section 7 above; and
(v) other benefits in accordance with the plans and programs of the
Company.
(g) Offset. The Executive shall have no obligation to offset any payments
------
he receives from the Company following a Termination Without Cause by any
payments he receives from a subsequent employer, provided, however, that if the
-------- -------
Executive becomes eligible to receive medical benefits under a plan provided by
a subsequent employer, the medical benefits provided for in this Section 10
shall be secondary to those provided under such other plan during such
applicable period of eligibility.
(h) Certain Additional Payments by the Company.
------------------------------------------
(i) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 10(h)) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
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(ii) Subject to the provisions of Section 10(h)(iii), all
determinations required to be made under this Section 10(h), including
whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
(the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. The Accounting Firm
shall be jointly selected by the Company and the Executive and shall not,
during the two years preceding the date of its selection, have acted in any
way on behalf of the Company. If the Company and the Executive cannot agree
on the firm to serve as the Accounting Firm, then the Company and the
Executive shall each select a nationally recognized accounting firm and
those two firms shall jointly select a nationally recognized accounting
firm to serve as the Accounting Firm. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 10(h), shall be paid by the Company
to the Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written
opinion that failure to report the Excise Tax on the Executive's applicable
federal income tax return would not result in the imposition of a
negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible
that Gross-Up Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its remedies
pursuant to Section 10(h)(iii) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the
Executive.
(iii) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which he gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(A) give the Company any information reasonably requested by the
Company relating to such claim,
(B) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
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<PAGE>
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(C) cooperate with the Company in good faith in order effectively
to contest such claim, and
(D) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs
-------- -------
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 10(h)(iii), the
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs the
-------- -------
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that
------- --------
the Executive shall not be required by the Company to agree to any
extension of the statute of limitations relating to the payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due unless such extension is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(iv) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 10(h)(iii), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section
10(h)(iii)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto).
If after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 10(h)(iii), a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the
Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount
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of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
(v) If, pursuant to regulations issued under Section 280G or 4999 of
the Code, the Company and the Executive were required to make a preliminary
determination of the amount of an excess parachute payment (as contemplated
by Q/A 33 of the proposed regulations under Section 280G of the Code as
issued on May 4, 1989) and thereafter a redetermination of the Excise Tax
is required under the applicable regulations, the parties shall request the
Accounting Firm to make such redetermination. If as a result of such
redetermination an additional Gross-Up Payment is required, the amount
thereof shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. If the redetermination
of the Excise Tax results in a reduction of the Excise Tax, the Executive
shall take such steps as the Company may reasonably direct in order to
obtain a refund of the excess Excise Tax paid. If the Company determines
that any suit or proceeding is necessary or advisable in order to obtain
such refund, the provisions of Section 10(h)(iii) relating to the
contesting of a claim shall apply to the claim for such refund, including,
without limitation, the provisions concerning legal representation,
cooperation by the Executive, participation by the Company in the
proceedings and indemnification by the Company. Upon receipt of any such
refund, the Executive shall promptly pay the amount of such refund to the
Company. If the amount of the income taxes otherwise payable by the
Executive in respect of the year in which the Executive makes such payment
to the Company is reduced as a result of such payment, the Executive shall,
no later than the filing of his income tax return in respect of such year,
pay the amount of such tax benefit to the Company. In the event there is a
subsequent redetermination of the Executive's income taxes resulting in a
reduction of such tax benefit, the Company shall, promptly after receipt of
notice of such reduction, pay to the Executive the amount of such
reduction. If the Company objects to the calculation or recalculation of
the tax benefit, as described in the preceding two sentences, the
Accounting Firm shall make the final determination of the appropriate
amount. The Executive shall not be obligated to pay to the Company the
amount of any further tax benefits that may be realized by him as a result
of paying to the Company the amount of the initial tax benefit.
(i) Payment of Lump Sum. Except as otherwise specifically provided in this
-------------------
Section 10, the Company shall pay the Executive any lump sum payment due to him
under this Section 10 within five business days of the termination of his
employment. No payments due to the Executive under this Section 10 may be
offset by the Company by amounts due to the Company from the Executive.
11. Indemnification.
---------------
(a) The Company agrees that if the Executive is made a party or is
threatened to be made a party to any action, suit or proceeding by reason of the
fact that he is or was a director, officer or employee of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation or entity, he shall be indemnified by the Company
to the fullest extent required or permitted by the Company's certificate of
incorporation as in effect on the date of this Agreement, but only to the
extent that such indemnification is then permitted by Delaware law, against
expenses,
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liabilities and losses reasonably incurred or suffered by the Executive in
connection therewith.
(b) The Company shall procure and continue in effect an officers' and
directors' liability policy covering the Executive with a limit of at least
$15,000,000 to the extent such policy is available.
12. Covenant Not to Solicit, Etc.
----------------------------
(a) Except as provided in Section 12(e) below, during the period beginning
on the date of the Executive's termination of employment and ending one year
thereafter, the Executive shall not personally solicit any existing customer or
partner of the Company or any prospective customer or partner identified in the
business proposals of the Company outstanding on the date of the Executive's
termination of employment, in either case as limited to those concerns known by
the Executive either to be, or to have the possibility of becoming, customers or
partners of the Company and, in the latter case, limited to business proposals
with which the Executive was familiar, for the purpose of inducing any such
existing or prospective customers or partners to reduce or forego using the
banking or financial services business of the Company within the United States
of America.
(b) During the period described in Section 12(a) above, except when acting
on behalf of the Company or any affiliate thereof and except as provided in
Section 12(e) below, the Executive shall not solicit any employee of the Company
or any affiliate thereof to terminate his employment.
(c) Except for testimony or similar statements that may be required from
Executive under applicable law, and except as provided in Section 12(e) below,
during the period described in Section 12(a) above, the Executive shall not
intentionally (i) do or say anything that reasonably may be expected to have the
effect of diminishing or impairing the goodwill and good reputation of the
Company and its officers, directors and products, (ii) disparage or injure the
reputation of the Company by making any material negative statements about the
Company's methods of doing business, the effectiveness of its business policies
or the quality of any of its products or personnel, (iii) make any substantive
statements or issue any releases regarding the internal business affairs of the
Company or the circumstances of the termination of his employment to any member
of the print or broadcast media except after consultation with the Company and
after giving due consideration to the reasonable suggestions of the Company in
connection with any such statements or releases.
(d) During the period described in Section 12(a) above, the Company shall
not (i) whether by authorizing or knowingly condoning such conduct by its
personnel, intentionally disparage the Executive or injure his reputation by
making any negative statement about him or his talents, (ii) make any
substantive statements or issue any releases regarding the circumstances of the
termination of the Executive's employment to any member of the print or
broadcast media except after consultation with the Executive and after giving
due consideration to the reasonable suggestions of the Executive in connection
with any such statements or releases. The foregoing notwithstanding, the
Company may publicly or privately (i) disclose the fact that such termination
has occurred, (ii) make any statement that conforms to the announcement
previously issued within the Company (the terms of which shall have previously
been furnished to and approved by the Executive, which
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<PAGE>
approval shall not be unreasonably withheld or delayed), or (iii) provide any
disclosure required by applicable law, without obligation to consult the
Executive.
(e) Notwithstanding anything contrary in this Section 12, the provisions of
Sections 12(a), (b) and (c) above shall have no force and effect following the
termination of the Executive's employment with the Company subsequent to a
Change in Control.
(f) In no event shall an asserted violation by the Executive of the
provisions of this Section 12 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
13. Disclosure of Confidential Information.
--------------------------------------
The Executive shall not, without the prior written consent of the Company,
divulge, disclose or make accessible to any other person, firm, partnership or
corporation or other entity any Confidential Information except (a) while
employed by the Company in the business of and for the benefit of the Company or
(b) when required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business of the
Company, or by any administrative body or legislative body (including a
committee thereof) with purported or apparent jurisdiction to order the
Executive to divulge, disclose or make accessible such information. In no event
shall an asserted violation of the provisions of this Section 13 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
14. Resolution of Disputes.
----------------------
(a) Any dispute arising under or in connection with this Agreement prior to
a Change in Control shall be resolved by arbitration to be held in San
Francisco, California in accordance with the then current Employment Dispute
Resolution Rules of the American Arbitration Association.
(b) Any dispute arising under or in connection with this Agreement
subsequent to a Change in the Control shall, at the discretion of the Executive,
be resolved by arbitration, to be held in San Francisco, California in
accordance with the then current Employment Dispute Resolution Rules of the
American Arbitration Association, or by litigation.
(c) Costs of the arbitration or litigation, including attorneys' fees of
both Parties, shall be borne by the Company.
(d) Pending the outcome of any arbitration or court proceeding, the Company
shall continue payment of all amounts which the Executive has a reasonable basis
to claim he is entitled to under this Agreement.
15. Effect of Agreement on Other Benefits.
-------------------------------------
Except as provided in Section 10 above, nothing in this Agreement shall
curtail the Executive's entitlement to full participation in the executive
compensation, employee benefit and other plans or programs in which senior
executives of the Company are eligible to participate.
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<PAGE>
16. Assignability; Binding Nature.
-----------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Company under this Agreement may be assigned or transferred
by the Company except that such rights or obligations may be assigned or
transferred pursuant to a merger or consolidation in which the Company is not
the continuing entity, or the sale or liquidation of all or substantially all of
the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company further agrees that in the event of a merger, consolidation,
sale of assets or liquidation as described in the preceding sentence the Company
shall take whatever action it legally can in order to cause such assignee or
transferee to assume the liabilities, obligations, and duties of the Company
hereunder.
17. Representation.
--------------
The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement will not violate any agreement between the
Company and any other person, firm or organization.
18. Entire Agreement.
----------------
This Agreement contains the entire agreement between the Parties concerning
the subject matter hereof and supersedes all prior agreements understandings,
discussions, negotiations and undertakings, whether written or oral, between the
Parties with respect thereto. Without limiting the foregoing, the Parties agree
that upon consummation of the Distribution and effectiveness of the Term of
Employment, the following agreements shall terminate and be of no further force
or effect: (i) the letter agreement between the Executive and First Deposit
Corporation dated February 28, 1986, as amended by the letter agreement dated
August 5, 1992; (ii) the change-in-control Employment Agreement between the
Executive and Parent dated February 21, 1996, as amended on November 6, 1996;
and (iii) the letter agreement between the Executive and Parent dated November
6, 1996. The termination of such agreements shall not affect any rights the
Executive may have with respect to compensation or benefits from Parent and its
affiliates that are vested as of the Distribution, including restricted and
unrestricted shares of Providian common stock and Providian options (which will
be treated in accordance with the Employee Benefits Agreement, dated the date of
the Distribution, between Parent and the Company (the "Employee Benefits
Agreement")), equity units granted by the Company (which will be replaced with
substitute awards with the consent of the Executive in connection with the
Distribution, and any other benefits to which the Executive is entitled as a
"Providian Bancorp Participant" as contemplated by the Employee Benefits
Agreement.
19. Amendment or Waiver.
-------------------
No provision in this Agreement may be amended or waived unless such
amendment or waiver is agreed to in writing, signed by the Executive and a duly
authorized officer of the Company. No waiver by either party of any breach by
the other of any condition or
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<PAGE>
provision of this Agreement to be performed by the other party shall be deemed a
waiver of a similar or dissimilar condition or provision at the same or any
prior or subsequent time.
20. Severability.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
such provision or portion shall be interpreted or may be reformed in a manner so
as to make such provision or portion valid or enforceable while still giving
effect as nearly as possible to the intention of the parties. In any event, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
Notwithstanding the foregoing, if any material portion of Section 10 above
affecting the entitlements of the Executive upon a termination of his employment
is determined to be invalid or unenforceable for any reason, in whole or in
part, the Executive, following a termination of his employment due to (a)
voluntary termination, or (b) any other termination as to which his entitlements
are diminished as a result of such invalidity or unenforceability, shall be
released from any obligations or duties under Section 12 above.
21. Survivorship.
------------
The respective rights and obligations of the Parties hereunder shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations. The provisions of this
Section 21 are in addition to the survivorship provisions of any other section
of this Agreement.
22. Beneficiaries; References.
-------------------------
The Executive shall be entitled to select (to the extent permitted under
any applicable law) a beneficiary or beneficiaries to receive any compensation
or benefit payable hereunder following the Executive's death and, in the case of
Company plans and programs, in accordance with such plans and programs, and may
change such election, in either case by giving the Company written notice
thereof. In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative. Any reference to the masculine gender in this Agreement shall
include, where appropriate, the feminine.
23. Governing Law.
-------------
Except as provided in Section 11 above, this Agreement shall be governed by
and construed in accordance with the laws of California without reference to
principles of conflict of laws.
24. Notices.
-------
Any notice given to either Party shall be in writing and shall be deemed to
have been given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as such
Party may subsequently give notice of:
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<PAGE>
If to the Company or the Board: Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
Attention: General Counsel
If to the Executive: Mr. Shailesh J. Mehta
60 Southdown Court
Hillsborough, CA 94010
and
c/o Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
25. Headings.
--------
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
26. Counterparts.
------------
This Agreement may be executed in two or more counterparts.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
Providian Bancorp, Inc.
By: /s/ John H. Rogers
-----------------------
/s/ Shailesh J. Mehta
-----------------------
Shailesh J. Mehta
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EXHIBIT 10.2
PROVIDIAN BANCORP CORPORATION
1997 STOCK OPTION PLAN
ARTICLE 1. HISTORY AND PURPOSE
1.1 This 1997 Stock Option Plan ("Plan") was originally adopted by
Providian Corporation, a Delaware corporation ("Parent") in 1995, and on March
27, 1997, it was adopted by Providian Bancorp ("Company"), a wholly owned
subsidiary of Parent.
1.2 The shareholders of Parent approved this Plan, as originally adopted,
at the 1995 annual meeting of the shareholders of Parent. On April 2, 1997,
Parent, as sole shareholder of Bancorp, approved the Plan as adopted by Bancorp.
1.3 The purpose of this Plan is to advance the interest of the Company by
enabling it and its operating companies to attract and retain the best available
personnel for positions of substantial responsibility, and to provide key
employees of the Company and its operating companies and non-employee directors
with an opportunity for investment in the Company Common Stock; thereby giving
them an additional incentive to increase their efforts on behalf of the long
term success of the Company and its operating companies.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such meanings shall apply equally to both the singular and plural
forms of the terms defined);
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty (as such terms are defined by the Committee in its
sole discretion), any of which is determined by the Committee to be
directly and materially harmful to the business or reputation of the
Company or its Subsidiaries.
(c) "Change of Control" shall mean:
i. When any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) becomes a beneficial owner
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20 percent or more of either (a) the Outstanding Common Stock or
(B) the Outstanding Voting Securities; provided, however, that
beneficial ownership by any of the following shall not constitute a
Change of Control: (1) the Company; (2) any employee benefit plan (or
related trust) sponsored or maintained by the Company; or (3) any
corporation with respect to which, following such acquisition, more
than 60 percent of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially
owned, directly or
<PAGE>
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities,
immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition,
of the Outstanding Common Stock and Outstanding Voting Securities, as
the case may be; or
ii. When individuals who, as of the date hereof, constitute the Board
cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director of the
Company subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors of the Company then comprising
the Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such term is used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act);
or
iii. A reorganization, merger or consolidation, with respect to which, in
each case, all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding
Common Stock and Outstanding Voting Securities immediately prior to
such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 60 percent of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation of the
Outstanding Common Stock and Outstanding Voting Securities, as the
case may be; or
iv. (A) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation, with respect to which following such sale
or other disposition, more than 60 percent of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Common Stock and Outstanding Voting Securities, as the
case may be.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto, together with any regulations
promulgated thereunder.
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<PAGE>
(e) "Committee" shall mean the committee described in Section 3.1.
(f) "Common Stock" shall mean the Company's common stock, $1 par value per
share.
(g) "Disability" shall mean when a Participant is considered permanently
disabled under a disability insurance policy carried by the Company, or, if
no such policy is carried by the Company, when a Participant is permanently
and totally disabled within the meaning of section 22(e) of the Code.
(h) "Effective Date" shall mean the date described in Section 9.1.
(i) "Employee" shall mean an individual who is a full-time or part-time
employee of the Company or a Subsidiary.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
(k) "Fair Market Value" of the Shares shall mean, as of any applicable date,
the mean between the highest and lowest sale price of the Shares as
reported on the New York Stock Exchange Composite Tape, or if no such
reported sale of the Shares shall have occurred on such date, on the next
preceding date on which there was such a reported sale. If there shall be
any material alteration in the present system of reporting sale prices of
the Shares, or if the Shares shall no longer be listed on the New York
Stock Exchange, the fair market value of the Shares as of a particular date
shall be determined by such method as shall be determined by the Committee.
(l) "Incumbent Board" shall mean the individuals who on the date of adoption of
this Plan by the Board of Directors constitute the Board of Directors.
(m) "ISOs" shall have the meaning given such term in Section 6.1.
(n) "NQSOs" shall have the meaning given such term in Section 6.1.
(o) "Option" shall mean an option to purchase Shares granted pursuant to
Article 6 (and, if applicable, related stock appreciation rights).
(p) "Option Agreement" shall mean an agreement evidencing the grant of an
Option, as described in Section 6.2.
(q) "Option Exercise Price" shall mean the purchase price per Share subject to
an Option, which shall not be less than the Fair Market Value of the Share
on the day on which the Option is granted.
(r) "Outstanding Common Stock" shall mean the then outstanding shares of Common
Stock.
(s) "Outstanding Voting Securities" shall mean the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors of the Company.
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<PAGE>
(t) "Participant" shall mean any individual who is (i) an Employee who is a key
salaried employee of the Company or its Subsidiaries or a member of the
Board who is not an Employee, and (ii) selected by the Committee to receive
an Award under the Plan.
(u) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including
a "group" as defined in Section 13(d) thereof.
(v) "Plan" shall mean this Providian Bancorp Corporation 1997 Stock Option Plan
as the same may be amended from time to time.
(w) "Retirement" shall mean retirement by a Participant in accordance with the
terms of the Company's retirement or pension plans or pursuant to a written
agreement.
(x) "Shares" shall mean the shares of Common Stock.
(y) "Subsidiary" shall mean, with respect to the Company, any corporation or
other Person of which a majority of its voting power, equity securities, or
equity interest is owned directly or indirectly by the Company.
2.2 Gender. Except where otherwise indicated by the context, reference to
the masculine gender shall include the feminine gender.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Human Resources
Committee of the Board, or by any other committee (the "Committee") appointed by
the Board which shall include two or more directors of the Company who are
"nonemployee directors" within the meaning of Rule 16b-3 (or any successor
provision) promulgated under the Exchange Act and all of whom shall be "outside
directors" within the meaning of Proposed Treasury Regulation (S)1.162-27 (or
any successor provision) promulgated under the Code. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan,
the Committee shall have full authority to administer the Plan, including
without limitation, the authority to:
(a) approve Participants to whom Options are granted;
(b) determine the size, types and frequency of Options granted under the
Plan;
(c) determine the terms and conditions of Options, including any
restrictions or conditions to the Option, which need not be identical
for all Participants;
(d) accelerate the exercisability of, and accelerate or waive any or all
the restrictions and conditions applicable to, any Option, for any
reason;
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<PAGE>
(e) modify the duration of an Option exercise period or term of an Award;
(f) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(g) establish, amend and rescind rules and regulations for the Plan's
administration; and
(h) amend the terms and conditions of any outstanding Option to the extent
such terms and conditions are within the discretion of the Committee
as provided in the Plan.
The Committee shall have sole discretion to make all other determinations which
may be necessary or advisable for the administration of the Plan. To the extent
permitted by law and Rule 16b-3 promulgated under the Exchange Act, the
Committee may delegate its authority as identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding on all Persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.4 Section 16 Compliance; Bifurcation of Plan. It is the intention of
the Company that the Plan and the administration of the Plan comply in all
respects with Section 16(b) of the Exchange Act and the rules and regulations
promulgated thereunder. If any Plan provision, or any aspect of the
administration of the Plan, is found not to be in compliance with Section 16(b)
of the Exchange Act, the provision or administration shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding
anything in the Plan to the contrary, the Board or the Committee, in its
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are subject to Section 16 of
the Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3,
the number of Shares reserved for issuance upon the exercise of Options is 10
million Shares, plus the number of Shares subject to Options issued to replace
options to acquire shares of common stock of Parent pursuant to the Employee
Benefits Agreement dated as of _________, 1997 between Parent and Bancorp. Any
Shares issued under the Plan may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares. If and to the extent an Option shall expire
or terminate for any reason without having been exercised in full (including a
cancellation and regrant of an Option), or shall be forfeited, the Shares
associated with such Options shall again become available for Options under the
Plan.
4.2 Adjustments in Authorized Shares and Outstanding Awards. In the event
of any change in corporate capitalization, such as a stock split or a corporate
transaction, such as any merger, consolidation, separation, including a spin-
off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Section 368 of the Code) or any partial or complete liquidation
of the Company, the Committee or the Board may make such substitution or
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<PAGE>
adjustments in the aggregate number and kind of stock or other securities or
property reserved for issuance under the Plan, in the number, kind and option
price of stock or other securities or property subject to outstanding Options
and stock appreciation rights, in the number and kind of stock or other
securities or property subject to other outstanding Awards granted under the
Plan and/or such other equitable substitution or adjustments as it may determine
to be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Award shall always be a whole number. Such adjusted
option price shall also be used to determine the amount payable by the Company
upon the exercise of any stock appreciation right associated with any Option.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Persons eligible to receive Awards under this plan shall be those Employees
who are key salaried employees of the Company or its Subsidiaries and all
members of the Board who are not Employees. A Participant shall be any such
eligible person who is designated by the Committee in its sole discretion to
receive an Option under the Plan.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
the Committee may grant Options to Participants at any time and from time to
time in the form of options which are intended to qualify as incentive stock
options within the meaning of section 422 of the Code ("ISOs"), Options which
are not intended to so qualify ("NQSOs") or a combination thereof; provided,
that ISOs may be granted only to Employees. No more than [__________]/*/
Options may be granted to any Participant during any calendar year. The
Committee may issue stock appreciation rights in tandem with any Option granted
to a Participant; provided, however, that the Committee may not issue stock
appreciation rights in tandem with Option with respect to more than 50 percent,
in the aggregate, of the shares under Options granted to any one Participant.
If stock appreciation rights are issued in tandem with an Option, the exercise
of such Option shall cause a pro tanto cancellation of the related stock
appreciation rights issued in tandem with such Option. The exercise of a stock
appreciation right issued in tandem with an Option shall cause a pro tanto
cancellation of such Shares under Option.
6.2 Option Agreement. Each Option Award shall be evidenced by an Option
Agreement that shall specify the Option Exercise Price, the duration of the
Option, the number of Shares to which the Option relates (and if any stock
appreciation rights are to be issued in tandem with such Option) and such other
provisions as the Committee may determine or which are required by the Plan.
The Option Agreement shall also specify whether the Option is intended to be an
ISO or a NQSO and shall include such provisions applicable to the particular
type of Option granted. In no event shall the Option Exercise Price be less
than the Fair Market Value of the Shares on the date the Option is granted.
- ----------
/*/ Insert number of shares having the same value as 500,000 Providian shares
before the spinoff.
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<PAGE>
6.3 Duration of Options. Subject to Section 3.2(e), each Option shall
expire at such time as is determined by the Committee at the time of grant;
provided, however, that no Option shall be exercised later than the tenth (10th)
anniversary of its grant.
6.4 Exercise of Options. Options shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall approve at
the time of grant, which need not be the same for each grant or for each
Participant. Options shall be exercised by delivery to the Company of a written
notice of exercise, setting forth the number of Shares with respect to which the
Option is to be exercised and accompanied by an arrangement acceptable to the
Company to provide full payment of the Option Exercise Price on or prior to the
settlement date and all applicable withholding taxes.
6.5 Stock Appreciation Rights. If the Committee issues stock appreciation
rights in tandem with an Option granted under this Plan, such rights shall be
subject to the same terms and conditions as the related Option and shall be
exercisable only to the extent that such Option is exercisable. A grant of
stock appreciation rights shall require, as a condition to its exercise, that
the grantee surrender to the Committee, unexercised, the related Option. Upon
exercise of a stock appreciation right, the grantee shall be entitled to receive
an aggregate value equal to the product of (a) the excess of the fair market
value of one Share on the date of exercise over the Option Exercise Price
multiplied by (b) the number of the stock appreciation rights being exercised.
The Committee shall have the right to determine whether such aggregate value
shall be paid to such grantee in Shares, cash, or part in cash and part in
Shares. No fractional shares will be issued, but instead cash will be paid in
lieu of the fractional Share to which the grantee would otherwise be entitled.
6.6 Payment of Option Exercise Price. The Option Exercise Price for
Shares as to which an Option is exercised shall be paid to the Company in full
at the time of exercise, at the discretion of the Committee, either (a) in cash
in the form of currency or other cash equivalent acceptable to the Company, (b)
by tendering Shares having a Fair Market Value at the time of exercise equal to
the Option Exercise Price, (c) any other reasonable consideration that the
Committee may deem appropriate or (d) by a combination of the forms of
consideration described in (a), (b) and (c) of this Section 6.6. The Committee
may permit the cashless exercise of Options as described in Regulation T
promulgated by the Federal Reserve Board, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
6.7 Sale, Merger or Change in Control. (a) Upon a Change of Control, any
then outstanding Options held by a Participant shall become fully vested and
immediately exercisable.
(b) If the Company agrees to sell all or substantially all of its assets
for cash or property or for a combination of cash and property or agrees to any
merger, consolidation, reorganization, division or other corporate transaction
in which Stock is converted into another security or into the right to receive
securities or property and such agreement does not provide for the assumption or
substitution of the Options granted under the Plan on a basis that is fair and
equitable to holders of such Options as determined by the Board, each Option
granted to a Participant at the direction and discretion of the Board (1) may
(subject to such conditions, if any, as the Board deems appropriate) be canceled
unilaterally by the Company in exchange for (A) whole shares of Stock (and cash
for any fractional share) the
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<PAGE>
number of which, if any, shall be determined by the Committee on a date set by
the Committee for this purpose by dividing (i) the excess of the then Fair
Market Value of the Stock then subject to exercise under such Option (as
determined without regard to any vesting schedule for such Option) over the
Option Exercise Price of such Stock by (ii) the then Fair Market Value of a
share of such Stock, or (B) the right to exercise his or her outstanding Option
in full on any date before the date as of which the Board unilaterally cancels
such Option in full or (2) may be canceled unilaterally by the Company if the
Option Exercise Price equals or exceeds the Fair Market Value of a share of
Stock on a date set by the Board. If the exchange described in this Section
6.7(b)(1) would result in a violation of Section 16 of the Exchange Act for a
Participant, each such Option may be canceled unilaterally by the Company after
advance written notice to such Participant.
6.8 Termination of Employment or Board Membership. If the employment or
Board membership of a Participant is terminated for Cause, all then outstanding
Options of such Participant, whether or not exercisable, shall terminate
immediately. If the employment or Board membership of a Participant is
terminated for any reason other than for Cause, death, Disability or Retirement,
to the extent then outstanding Options of such Participant are exercisable, such
Options may be exercised by such Participant or his personal representative at
any time prior to the earlier of the expiration date of the Options or the date
which is ninety (90) days after the date of such termination. In the event of
the Retirement of a Participant, to the extent then outstanding Options of such
Participant are exercisable, such Options may be exercised by the Participant
(a) in the case of NQSOs, within five years after the date of Retirement and (b)
in the case of ISOs, within ninety (90) days after Retirement as ISOs or four
years nine months thereafter as NQSOs; provided, however, that no such Options
may be exercised on a date subsequent to their expiration. In the event of the
death or Disability of a Participant while employed by the Company or a
Subsidiary or serving as a member of the Board, all then outstanding Options of
such Participant shall become fully vested and immediately exercisable, and may
be exercised at any time (q) in the case of NQSOs, within five years after the
date of death or determination of Disability, (r) in the case of ISOs, within
one year after the date of determination of Disability as ISOs, or four years
thereafter as NQSOs, and (s) in the case of ISOs within five years after the
date of death; provided however, that no such Options may be exercised on a date
subsequent to their expiration. Options may be exercised as provided in this
Section 6.8 (x) in the event of the death of a Participant, by the person or
persons to whom rights pass by will or by the laws of descent and distribution,
or if appropriate, the legal representative of his estate and (y) in the event
of the Disability of a Participant, by the Participant, or if such Participant
is incapacitated, by his legal representative.
ARTICLE 7. EFFECTIVE DATE, AMENDMENT, MODIFICATION AND TERMINATION
7.1 Effective Date. The Plan shall become effective upon approval by
Parent as the Company's sole stockholder. The Committee may, in its discretion,
authorize the grant of Options, the issuance or exercise of which shall be
expressly subject to the conditions that (a) approval by the Company's
stockholders shall have been obtained, (b) the Shares reserved for issuance
under the Plan shall have been duly listed, upon official notice of issuance,
upon the New York Stock Exchange and (c) a registration statement under the
Securities Act of 1933, as amended, with respect to such Shares shall have
become effective.
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<PAGE>
7.2 Termination Date. The Plan shall terminate on the earliest to occur
of (a) the tenth (10th) anniversary of the Effective Date, (b) the date when all
Shares available under the Plan shall have been acquired pursuant to the
exercise of Awards or (c) such other date as the Board may determine in
accordance with Section 7.3.
7.3 Amendment, Modification and Termination. The Board may, at any time,
amend, modify or terminate the Plan. The Committee may amend the terms of any
Award, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without such Participant's consent.
7.4 Awards Previously Granted. No amendment, modification or termination
of the Plan shall in any manner adversely affect any outstanding Award without
the written consent of the Participant holding such Award.
ARTICLE 8. NO GRANTING OF RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed
as giving any Employee or Board member the right to become a Participant, nor
shall an Option under the Plan be construed as giving a Participant any right
with respect to continuance of employment by the Company or a Subsidiary or
Board membership. The Company expressly reserves the right to terminate,
whether by dismissal, discharge or otherwise, a Participant's employment at any
time, with or without Cause, except as may otherwise be provided by any written
agreement between the Company and the Participant. This Plan is not intended to
alter, amend or modify the terms of any written employment agreement between the
Company and any Participant. In the event of a conflict between the terms of
this Plan and such agreement, the rights of the Participant shall be determined
in accordance with the terms of the employment agreement.
ARTICLE 9. WITHHOLDING
9.1 Tax Withholding. A Participant shall remit to the Company an amount
sufficient to satisfy Federal and state taxes (including the Participant's FICA
obligation) required by law to be withheld with respect to any grant, exercise
or payment made under or as a result of the Plan.
9.2 Share Withholding. With respect to withholding required upon the
exercise of Options, a Participant may, subject to the discretion of the
Committee, make an election (a "Tax Election") to satisfy the withholding
requirement with respect to such Shares, in whole or in part, by having the
Company withhold Shares having a Fair Market Value on the date the withholding
tax is to be determined equal to the amount required to be withheld under
applicable law.
ARTICLE 10. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each and any officer or Employee
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company with respect to any such action,
determination or interpretation.
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<PAGE>
ARTICLE 11. SUCCESSORS
All obligations of the Company with respect to Awards granted under the
Plan shall be binding on any successor to the Company, whether the existence of
such successor is a result of a direct or indirect purchase, merger,
consolidation or otherwise, of all or substantially all of the business and/or
assets of the Company.
ARTICLE 12. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements
under the Plan, shall be governed by, and construed in accordance with, the laws
of the State of Delaware without regard to its conflict of laws rules.
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<PAGE>
EXHIBIT 10.3
PROVIDIAN BANCORP CORPORATION
MANAGEMENT INCENTIVE PLAN
ARTICLE 1. HISTORY AND PURPOSE
1.1 History. This Management Incentive Plan ("Plan") was originally
adopted by Providian Corporation, a Delaware corporation ("Parent"). As of
March 27, 1997, it was adopted by Providian Bancorp, Inc., a Delaware
corporation and wholly owned subsidiary of Parent ("Bancorp"), with such
amendments as were necessary to reflect the change in the identity of the
sponsor of the Plan. The shareholders of Parent approved this Plan, as
originally adopted, at the 1995 annual meeting of the shareholders of Parent.
On April 2, 1997, Parent, as sole shareholder of Bancorp, approved the Plan as
adopted by Bancorp.
1.2 Purpose. The purpose of this Management Incentive Plan ("Plan") is to
advance the interest of Providian Bancorp Corporation, a Delaware corporation
("Company"), and its subsidiaries, by integrating executive compensation with
the Company's business planning and measurement process. Incentives under the
Plan will consist of opportunities to receive monetary payments.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such meanings shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Award" shall mean a monetary payment made in accordance with Article 5
upon the achievement of the pre-established performance objectives.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty, any of which is determined by the Committee to be
directly and materially harmful to the business or reputation of the
Company or its Subsidiaries.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto, together with any regulations
promulgated thereunder.
(e) "Committee" shall mean the committee described in Section 3.1.
(f) "Disability" shall mean when a Participant is considered permanently
disabled under a disability insurance policy carried by the Company, or, if
no such policy is carried by the Company, when a Participant is permanently
and totally disabled within the meaning of section 22(e) of the Code.
(g) "Effective Date" shall mean the date described in Section 6.1.
<PAGE>
(h) "Employee" shall mean an individual who is a full-time or part-time
employee of the Company or a Subsidiary.
(i) "Incentive Fund" shall mean that pool of monies from which incentive awards
may be paid.
(j) "Operating Unit" shall mean any operating entity within the Company
designated by the Committee as a Business Unit for purposes of the Plan.
(k) "Participant" shall mean any Employee selected by the Committee to receive
an Award under the Plan.
(l) "Subsidiary" shall mean, with respect to the Company, any corporation of
which a majority of its voting power, equity securities, or equity interest
is owned directly or indirectly by the Company.
2.2 Gender. Except where otherwise indicated by the context, reference to
the masculine gender shall include the feminine gender.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Human Resources
Committee of the Board, or by any other committee (the "Committee") appointed by
the Board all of whom shall be "outside directors" within the meaning of
Treasury Regulation Section 1.162-27 (or any successor provision) promulgated
under the Code. The members of the Committee shall be appointed from time to
time by, and shall serve at the discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan and
the requirements under section 162(m) of the Code for qualified performance-
based compensation, the Committee shall have full authority to administer the
Plan, including without limitation, the authority to:
(a) select Participants to whom Awards are granted;
(b) determine the size, types and frequency of Awards granted under the
Plan;
(c) determine the terms and conditions of Awards, including any
restrictions or conditions to the Award, which need not be identical
for all Participants;
(d) accelerate the exercisability of, and accelerate or waive any or all
the restrictions and conditions applicable to, any Award, for any
reason;
(e) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(f) establish, amend and rescind rules and regulations for the Plan's
administration; and
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(g) amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee
as provided in the Plan.
The Committee shall have sole discretion to make all other determinations which
may be necessary or advisable for the administration of the Plan. To the extent
permitted by law, the Committee may delegate its authority as identified
hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding on all Persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
3.4 Bifurcation of Plan. Notwithstanding anything in the Plan to the
contrary, the Board or the Committee, in its discretion, may bifurcate the Plan
so as to restrict, limit or condition the use of any provision of the Plan to
Participants who are "covered employees" within the meaning of Section 162(m) of
the Code without restricting, limiting or conditioning the Plan with respect to
other Participants.
ARTICLE 4. ELIGIBILITY AND PARTICIPATION
Persons eligible to receive Awards under this plan shall be those Employees
who are key salaried employees of the Company or its Subsidiaries.
ARTICLE 5. AWARDS
5.1 Awards. An Award may be made by the Company to a Participant as
compensation for services to the Company or a Subsidiary. Payment of an Award
will depend on achievement by the Company (and/or an Operating Unit) and the
Participant of annual performance objectives established by the Committee. Such
performance objectives shall be established annually within 90 days after the
commencement of the year to which the performance objective relates. A
Participant shall only be eligible for an Award if the Company and the
Participant both attain the pre-established performance objectives. The amount
of a Participant's Award shall be determined based on the incentive award level
established by the Committee for such Participant expressed as a percentage of
salary. In no event shall any Award under the Plan exceed $1,200,000. Incentive
award levels may be adjusted downward based on the Employee's performance with
respect to such Employee's individual performance objectives.
5.2 Annual Performance Objectives. The performance objectives with
respect to annual performance periods shall be based upon the Company's and/or
the Operating Unit's earnings, earnings per share, revenue, expenses, margin or
return on equity and shall be calculated in accordance with the formula
established for such annual performance period. The Committee shall certify in
writing before an Award is paid with respect to an annual performance period
that the performance objectives for such period have been satisfied.
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5.3 Incentive Fund. Awards are to be paid from an Incentive Fund
established for the Company or an Operating Unit. The amount of the Incentive
Fund shall be determined based on the salaries of the Company and/or Operating
Unit Participants and the performance of the Company and/or Operating Unit.
5.4 Payment of Awards. A Participant whose employment with the Company
ceases prior to distribution of Awards for the annual performance period for any
reason other than death, Retirement or Disability shall not be eligible for any
Award for such period. A Participant whose active employment with the Company
ceases prior to end of the annual performance period as a result of death,
Retirement or Disability, shall be eligible for a prorated amount of an Award
based upon length of active employment during the annual performance period and
the attainment of the performance objectives for such period. A Participant who
transfers employment from the Company to a Subsidiary, from a Subsidiary to the
Company, among Subsidiaries, or from one position to another within the Company
or within one Subsidiary prior to the end of the annual performance period may
be eligible for an Award if the Committee determines such is appropriate and
that the performance objectives for such period have been satisfied. When a
Participant commences employment or becomes a Participant subsequent to the
commencement of the annual performance period, that Participant shall be
eligible for a prorated amount of an incentive award based upon the length of
employment during the performance Period and subject to the provisions of the
Plan. The individual performance objectives applicable with respect to a
Participant (1) whose active employment terminates due to death, Disability or
Retirement during the annual performance period, (2) who transfers positions
within the Company or a Subsidiary or between or among the Company and its
Subsidiaries during such period, or (3) who commences employment or becomes a
Participant subsequent to the commencement of such period shall be determined by
the Committee subject to the same rules and limitations applicable to the
establishment of all performance objectives under the Plan. Awards shall be
paid or credited as soon as practicable following the end of the annual
performance period.
5.5 Designation of Beneficiary. Each Participant may, from time to time,
name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom the right to receive payments is to be paid in case of the
Participant's death before receiving any or all such payments. Each such
designation shall revoke all prior designations by the Participant, shall be in
a form prescribed by the Company and shall be effective only when filed by the
Participant in writing with the Committee during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 6. EFFECTIVE DATE, AMENDMENT, MODIFICATION AND TERMINATION
6.1 Effective Date. The Plan shall become effective as of [INSERT DATE
OF SPINOFF].
6.2 Termination Date. The Plan shall terminate on the earliest to occur
of (a) the tenth (10th) anniversary of the Effective Date, or (b) such other
date as the Board may determine in accordance with Section 6.3.
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6.3 Amendment, Modification and Termination. The Board may, at any time,
amend, modify or terminate the Plan. However, to the extent required under Code
section 162(m) for qualified performance-based compensation, no such amendment,
modification or termination shall be made without the approval of stockholders
of the Company. The Committee may amend the terms of any Award, prospectively
or retroactively, but no such amendment shall impair the rights of any
Participant without such Participant's consent.
ARTICLE 7. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed
as giving any Employee the right to become a Participant, nor shall an Award
under the Plan be construed as giving a Participant any right with respect to
continuance of employment by the Company or a Subsidiary. The Company expressly
reserves the right to terminate, whether by dismissal, discharge or otherwise, a
Participant's employment at any time, with or without Cause, except as may
otherwise be provided by any written agreement between the Company or a
Subsidiary and the Participant. This Plan is not intended to alter, amend or
modify the terms of any written employment agreement between the Company and any
Participant. In the event of a conflict between the terms of this Plan and such
agreement, the rights of the Participant shall be determined in accordance with
the terms of the employment agreement.
ARTICLE 8. WITHHOLDING
A Participant shall remit to the Company an amount sufficient to satisfy
Federal and state taxes (including the Participant's FICA obligation) required
by law to be withheld with respect to any payment made under or as a result of
the Plan.
ARTICLE 9. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each and any officer or Employee
of the Company acting on their behalf shall, to the extent permitted by law, the
Company's charter, bylaws or other agreements be fully indemnified and protected
by the Company with respect to any such action, determination or interpretation.
ARTICLE 10. SUCCESSORS
All obligations of the Company with respect to Awards granted under the
Plan shall be binding on any successor to the Company, whether the existence of
such successor is a result of a direct or indirect purchase, merger,
consolidation or otherwise, of all or substantially all of the business and/or
assets of the Company.
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ARTICLE 11. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements
under the Plan, shall be governed by, and construed in accordance with, the laws
of the State of Delaware without regard to its conflict of laws rules.
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EXHIBIT 10.4
PROVIDIAN BANCORP
STOCK OWNERSHIP PLAN
1. HISTORY AND PURPOSE OF PLAN. (a) This plan was originally adopted
---------------------------
by Providian Corporation, a Delaware corporation ("Parent"). On March 27, 1997,
it was adopted by Providian Bancorp, Inc. ("Bancorp"), a wholly owned subsidiary
of Parent, with such amendments as were necessary to reflect the change in the
identity of the sponsor of the Plan.
(b) The shareholders of Parent approved this Plan, as originally adopted,
at the 1992 annual meeting of the shareholders of Parent, and as thereafter
amended, at the 1995 annual meeting. On April 2, 1997, Parent, as sole
shareholder of Bancorp, approved the Plan as adopted by Bancorp.
(c) The purpose of this Stock Ownership Plan is to promote the growth and
profitability of Bancorp and its subsidiaries (Bancorp and its subsidiaries are
hereinafter collectively referred to as the "Company") by encouraging selected
key employees of the Company and non-employee directors of Bancorp to acquire
and retain a proprietary interest in Bancorp. Such proprietary interest should
increase the personal interest and special efforts of such persons in providing
for the continued success and progress of the business of the Company and
should enhance the Company's efforts to attract and retain competent key
employees and non-employee directors.
2. DEFINITIONS. The following terms when used herein shall have the
-----------
meaning set forth below, unless a different meaning is plainly required by the
context:
a. "Board of Directors" shall mean the Board of Directors of Bancorp.
b. "Change in Control" shall mean:
i. When any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) who becomes a beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the Outstanding Common Stock or (B) the Outstanding Voting
Securities; provided, however, that beneficial ownership by any of the following
shall not constitute a Change in Control: (1) the Company; (2) any employee
benefit plan (or related trust) sponsored or maintained by the Company; or (3)
any corporation with respect to which, following such acquisition, more than 60%
of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Common Stock and Outstanding Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Common Stock and Outstanding Voting Securities, as the case may be;
or
ii. When individuals who, as of the date hereof, constitute the Incumbent
Board cease for any reason to constitute at least a majority of the Board of
Directors; provided, however, that any individual becoming a director of Bancorp
subsequent to the date hereof
<PAGE>
whose election, or nomination for election by Bancorp's shareholders, was
approved by a vote of a least a majority of the directors of Bancorp then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such term is used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
iii. A reorganization, merger or consolidation, with respect to which, in
each case, all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Common Stock and Outstanding
Voting Securities immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation of the Outstanding Common Stock and Outstanding Voting Securities,
as the case may be; or
iv. (A) approval by the shareholders of Bancorp of a complete liquidation
or dissolution of Bancorp or (B) the sale or other disposition of all or
substantially all of the assets of Bancorp, other than to a corporation, with
respect to which following such sale or other disposition, more than 60% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Common Stock and Outstanding Voting Securities, as the case may be.
c. "Code" shall mean the Internal Revenue Code of 1986, as amended.
d. "Committee" shall mean the committee appointed by the Board of
Directors to administer this Plan which shall include two or more directors of
the Company who are "nonemployee directors" (within the meaning of Rule 16b-3
promulgated under the Exchange Act) and shall include only directors who are
"outside directors" within the meaning of Proposed Treasury Regulation Section
1.162-27 (or any successor provision) promulgated under the Code.
e. "Common Stock" shall mean the shares of Bancorp's common stock, par
value $1.00 per share, and any other shares of common stock from time to time
authorized pursuant to Parent's Certification of Incorporation.
f. "Disability" shall mean when a Participant is considered permanently
disabled under a disability insurance policy carried by the Company, or, if no
such policy is carried by the Company, when a Participant is permanently and
totally disabled within the meaning of Section 22(e)(3) of the Code.
g. "Employee" shall mean an individual who is a key salaried employee of
the Company.
-2-
<PAGE>
h. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
i. "Incumbent Board" shall mean those individuals who, on the date of the
adoption of this Plan by the Board of Directors, constitute the Board of
Directors.
j. "Non-Employee Director" shall mean a member of the Board of Directors
who is not also an Employee.
k. "Nonrestricted Stock" shall mean shares of Common Stock granted to a
Participant pursuant to this Plan which are not Restricted Stock.
l. "Outstanding Common Stock" shall mean the then outstanding shares of
Common Stock.
m. "Outstanding Voting Securities" shall mean the then outstanding voting
securities of Bancorp entitled to vote generally in the election of directors of
Bancorp.
n. "Participants" shall mean (i) Employees who are selected by the
Committee to participate in the Plan and (ii) all Non-Employee Directors.
o. "Plan" shall mean this Stock Ownership Plan as the same may be amended
from time to time.
p. "Restricted Period" shall have the meaning given such term in Section
11.
q. "Restricted Stock" shall mean Common Stock which is subject to the
restrictions provided for in Section 10.
r. "Retirement" shall mean retirement by a Participant in accordance with
the terms of the Company's retirement plans.
s. "Value" shall be the mean between the highest and lowest sale price of
the Common Stock as reflected on the consolidated tape of the New York Stock
Exchange issues on the date of a grant hereunder; provided, however, that if no
shares of Common Stock were sold on such date, the determination shall be made
as of the last immediately preceding date on which the shares of the Common
Stock were sold.
3. ELIGIBILITY AND PARTICIPATION. Persons eligible to receive
-----------------------------
Nonrestricted Stock and Restricted Stock under this Plan shall be (a) those
Employees who are selected by the Committee to participate in the Plan and (b)
those persons who are Non-Employee Directors. In determining the Employees who
shall become Participants, the Committee shall take into account the duties of
the Employees, their present and potential contribution to the success of the
Company, such other factors as it deems relevant in connection with
accomplishing the purposes of this Plan. An Employee who has previously been
granted Nonrestricted Stock and Restricted Stock pursuant to the terms of this
Plan may be granted additional Nonrestricted Stock and Restricted Stock as the
Committee shall determine in its sole discretion.
4. SHARES SUBJECT TO THE PLAN. Subject to the adjustments provided for in
--------------------------
Section 12, the aggregate number of shares of Common Stock which may be granted
under this Plan
-3-
<PAGE>
shall not exceed 4 million shares. Restricted Stock issued under this Plan which
is later forfeited pursuant to Section 10 may again be granted under this Plan.
The Common Stock to be offered under this Plan may be shares held by the Company
in its treasury, shares previously forfeited under the terms of this Plan or
newly issued shares.
5. ADMINISTRATION. This Plan shall be administered by the Committee.
--------------
Subject to the provisions of this Plan and the requirements of Section 162(m) of
the Code and such orders or resolutions not inconsistent with the provisions of
this Plan as made from time to time by the Board of Directors, the Committee
shall have sole and complete authority with respect to the following:
a. Selection of Participants;
b. Determining the number of shares, times, Restricted Periods and other
terms and conditions of grants hereunder;
c. Adopting, amending and rescinding such rules and regulations as, in its
opinion, may be advisable for the administration of this Plan;
d. Construing and interpreting this Plan and any related documents; and
e. Making all other determinations deemed advisable and necessary for the
administration of this Plan such that this Plan operates in the best interest of
the Company for the purposes set forth herein.
All decisions and determinations made by the Committee shall be final and
binding upon all Participants.
6. DISCRETIONARY NONRESTRICTED STOCK GRANTS. From time to time, the
----------------------------------------
Committee shall determine those Participants to whom Nonrestricted Stock shall
be granted and the amount of the Nonrestricted Stock to be granted to each. In
no event, however, shall the aggregate Value of the Nonrestricted Stock granted
to any Employee Participant under this Plan in any year exceed 25% of the
Employee Participants' total incentive award earned for such year by the
Participant under the Corporation's Management Incentive Compensation Plan. In
determining the amount of the Nonrestricted Stock to be granted to Employee
Participants, the Committee shall take into account the past performance of such
Employee Participant and such additional items as it shall deem appropriate,
including, but not limited to, the salary of the Employee, the other benefits
being received by the Employee from the Company (including amounts received or
to be received under any incentive or bonus plans of the Company), the position
of the Employee and the Employee's potential for ongoing contribution to the
success of the Company.
7. RESTRICTED STOCK GRANTS.
-----------------------
a. All Participants who receive Nonrestricted Stock grants in any year
also shall receive a matching Restricted Stock grant at the same time. The
amount of the matching Restricted Stock grant shall be determined by the
Committee and shall be a percentage (which shall be the same for all Employee
Participants) of the corresponding number of shares of Nonrestricted Stock, but
in no event may the number of shares of matching Restricted Stock granted
-4-
<PAGE>
to an Employee Participant exceed 200% of the corresponding number of shares of
Nonrestricted Stock granted to the Employee Participant.
b. The Committee, in its discretion, also may make discretionary
Restricted Stock grants to Employee Participants. Such discretionary grants may
be made only (i) for use as a hiring bonus, (ii) as a reward for extraordinary
performance or (iii) provide additional incentives for future performance. Any
grant of additional Restricted Stock to Employee Participants pursuant to this
Section 8.b will depend on achievement by the Company and/or the Employee
Participant of performance objectives established by the Committee. Such
performance objectives shall be established within 90 days after the
commencement of the period to which the performance objectives relate. The
performance objectives with respect to any performance periods shall be based
upon the Company's earnings, earnings per share, revenue, expenses, margin or
return on equity, as well as any individual performance objectives which the
Committee may establish, and shall be calculated in accordance with the formula
established for such performance period. An Employee Participant shall only be
entitled to receive a grant of additional Restricted Stock pursuant to this
Section 8.b upon attainment by the Company and/or the Employee Participant of
the pre-established performance objectives. The Committee shall certify in
writing before any additional shares of Restricted Stock are issued with respect
to a performance period that the performance objectives for such period have
been satisfied. In no event shall the Committee grant in excess of __________
shares/*/ of Restricted Stock to any Employee Participant in any year under
this Section 8.c. All shares of Restricted Stock granted pursuant to the
provisions of this Section 8.c. shall be subject to all of the provisions of
this Plan applicable to Restricted Stock.
8. PROVISIONS APPLICABLE TO NONRESTRICTED STOCK.
--------------------------------------------
a. At the time Nonrestricted Stock is granted to a Participant,
certificates representing the appropriate number of shares of Nonrestricted
Stock shall be registered in the name of such Participant, but such certificates
shall be held by the Company for the account of such Participant.
b. Notwithstanding the fact that the Company shall retain physical
possession of the certificates representing the Nonrestricted Stock granted to
Participants, the Participants shall have all of the rights of a holder of
Common Stock, including, but not limited to, the right to vote such shares and
to receive all distributions with respect to such shares.
c. Upon the request of a Participant, the Company will deliver the
certificates representing the shares of Nonrestricted Stock granted to such
Participant as soon as reasonably practicable following receipt of such request;
provided however, that the delivery of such certificates shall result in the
forfeiture of such Participant's Restricted Stock to the extent provided in
Section 10. Upon the termination of employment of an Employee Participant, the
certificates representing all of the shares of Nonrestricted Stock granted to
such Employee Participant shall be delivered to such Employee Participant as
soon as reasonably practicable.
- ----------
/*/ Insert a number of shares of Bancorp common stock having the same value as
100,000 shares of Providian common stock.
-5-
<PAGE>
9. PROVISIONS APPLICABLE TO RESTRICTED STOCK.
-----------------------------------------
a. At the time Restricted Stock is granted to a Participant, certificates
representing the appropriate number of shares of Restricted Stock shall be
registered in the name of such Participant, but during the Restricted Period the
certificates representing such shares of Restricted Stock shall be held by the
Company for the account of such Participant. As a condition to the receipt of a
Restricted Stock grant, the Participant shall deliver to the Company stock
powers duly endorsed in blank by the Participant. The certificates representing
the Restricted Stock held by the Company shall bear the following legend: "The
sale or other transfer of the shares represented by this certificate is subject
to certain restrictions on transfer set forth in the Providian Corporation Stock
Ownership Plan and the rules of administration adopted pursuant thereto. A copy
of such Stock Ownership Plan and the rules adopted pursuant thereto may be
obtained from the secretary of Providian Corporation."
b. During the Restricted Period, until such time as the Participant has
forfeited the Participant's rights to the Restricted Stock, notwithstanding the
fact that the Company shall retain physical possession of the certificates
representing the shares of Restricted Stock granted to Participants, the
Participants shall have all of the rights of a holder of Common Stock,
including, but not limited to the right to vote such shares and to receive all
distributions with respect to such shares.
c. The Restricted Stock shall be subject to the following restrictions
during the Restricted Period:
i. None of the Restricted Stock may be sold, exchanged,
transferred, assigned, pledged or otherwise encumbered or disposed of by the
Participant during the Restricted Period.
ii. If an Employee Participant ceases to be an Employee prior to
the expiration or other termination of the Restricted Period, other than by
reason of death, Disability or Retirement, or if a Non-Employee Director is
removed from the Board of Directors for cause (as determined by the
disinterested members of the Board of Directors), any shares of Restricted Stock
granted to such Participant which are still subject to restrictions shall be
forfeited and all rights of the Participant to such Restricted Stock shall
terminate without further obligation on the part of the Company.
iii. If any Nonrestricted Stock certificates are requested and
delivered to a Participant, all or a portion of any corresponding shares of
matching Restricted Stock shall be forfeited, and all rights of such Participant
to such matching Restricted Stock shall terminate without further obligation on
the part of the Company. The number of shares of matching Restricted Stock to
be forfeited shall be designated by the Committee at the time of the grant.
10. RESTRICTED PERIOD.
-----------------
a. The term "Restricted Period" shall mean the period established
by the Committee at the time the Restricted Stock is granted to the Participant.
Such "Restricted Period" may be defined by the passage of time, the achievement
of performance goals or any other criteria deemed appropriate by the Committee.
-6-
<PAGE>
b. Notwithstanding any other provisions of this Plan to the
contrary, the following shall apply:
i. Following the occurrence of a Change in Control, all
restrictions applicable to any Restricted Stock shall terminate as to any shares
of Restricted Stock which are still subject to restriction and all certificates
representing such shares shall be immediately distributed.
ii. If an Employee Participant ceases to be an Employee by
reason of death, Disability or Retirement, or a Non-Employee Director ceases to
be a director for any reason other than for cause (as determined by the
disinterested members of the Board of Directors), then with respect to each
grant of Restricted Stock, the Restricted Period shall terminate only as to
those shares of Restricted Stock with the shortest remaining Restricted Period
and any remaining shares of Restricted Stock with respect to such grant be
forfeited.
c. At the end of the applicable Restricted Period with respect to
any shares of Restricted Stock, or at such earlier time as otherwise provided
for herein, all restrictions with respect to such Restricted Stock shall
terminate, the Participant shall become vested with respect to such shares and
certificates for the appropriate number of shares of Common Stock, free of
restriction and without the legend provided for hereunder, shall be delivered as
soon as practicable to the Participant or the Participant's beneficiary or
estate, as the case may be.
11. CHANGES IN CAPITALIZATION.
-------------------------
a. In the event of any change in corporate capitalization, such as
a stock split or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Company, the Committee or the Board of Directors may
make such substitution or adjustments in the aggregate number and kind of stock
or other securities or property reserved for issuance under the Plan, in the
number and kind of stock or other securities or property subject to outstanding
awards granted under the Plan and/or such other equitable substitution or
adjustments as it may determine to be appropriate in its sole discretion;
provided, however, that the number of shares subject to any award shall always
be a whole number.
b. If any shares of Common Stock are received by a Participant by
reason of the Common Stock owned by such Participant pursuant to the terms of
this Plan, and (i) if the certificates representing the shares of Nonrestricted
Stock with respect to which additional Common Stock was received is then held
by the Company, the certificates representing such additional shares of Common
Stock shall likewise be held by the Company and shall, for all purposes of this
Plan, be considered Nonrestricted Stock, or (ii) if such additional shares of
Common Stock are received with respect to Restricted Stock, such additional
shares of Common Stock shall, for all purposes of this Plan, be considered
Restricted Stock, subject to the same restrictions as the Restricted Stock with
respect to which they were received.
12. DESIGNATION OF BENEFICIARY. A Participant may designate a person or
--------------------------
persons to receive, in the event of the Participant's death, any rights to which
the Participant would be entitled under this Plan. Such a designation shall be
made in writing and filed with the Committee. A beneficiary designation may be
changed or revoked by a Participant at any time by filing
-7-
<PAGE>
a written statement of such change or revocation with the Committee. If a
Participant dies without having filed a beneficiary designation, or if a
Participant's beneficiary does not survive the Participant, then the
Participant's estate shall be deemed to be the Participant's beneficiary.
13. AMENDMENT AND DISCONTINUANCE. The Board of Directors may discontinue,
----------------------------
amend, alter or suspend this Plan. Any amendment or termination of this Plan
shall not apply with respect to shares of Nonrestricted Stock or Restricted
Stock previously granted, which shares shall continue to be subject to the terms
and conditions of this Plan in effect on the date of the grant of the
Nonrestricted Stock or Restricted Stock, unless the affected Participant
consents.
14. NO GRANTING OF RIGHTS. Neither this Plan, nor any action taken
---------------------
hereunder, shall be deemed as giving any Employee or Board member the right to
become a Participant, nor shall a Nonrestricted Stock grant or Restricted Stock
grant be construed as giving a Participant any right with respect to continuance
of employment by the Company or Board membership. The Company expressly
reserves the right to terminate, whether by dismissal, discharge or otherwise,
an Employee's employment at any time, with or without cause, except as may
otherwise be provided by any written agreement between the Company and the
Employee.
15. NONTRANSFERABILITY. A Participant's rights under this Plan may not be
------------------
assigned, pledged or otherwise transferred, except that upon a Participant's
death, a Participant's rights may be transferred to the Participant's designated
beneficiary, or in the absence of such designation, by will or the laws of
descent and distribution.
16. WITHHOLDING. The Company shall have the right to deduct or withhold
-----------
from any payment owed to a Participant by the Company any amount which is
necessary in order to satisfy any withholding requirement which the Company
believes is imposed upon it with respect to any Federal, state or local taxes as
the result of the issuance of, or lapse of restriction on, Nonrestricted Stock
or Restricted Stock, or otherwise require a Participant to make provision for
payment of any such withholding amount. Subject to such conditions as the
Committee may establish from time to time, a Participant may elect to have
Restricted Stock otherwise issuable upon a grant hereunder withheld, or tender
back to the Company Restricted Stock granted hereunder, in order to satisfy all
or a portion of the taxes required to be withheld or otherwise deducted and paid
by the Company.
17. SECURITIES COMPLIANCE. This Plan and its administration is intended
---------------------
to comply with Rule 16b-3 promulgated under the Exchange Act. In the event any
provision or administration of this Plan is deemed not to comply with Rule 16b-
3, such provision or administration shall be deemed to be void ab initio and of
no force and effect. All Common Stock granted under this Plan shall be issued
only in compliance with all applicable securities laws, rules and regulations of
the Securities and Exchange Commission, state Blue Sky laws and applicable
listing requirements of any national securities exchange on which the Common
Stock is listed. The Committee may impose such conditions, restrictions and
limitations as it may deem necessary and appropriate to assure compliance with
the foregoing.
18. GOVERNING LAW. This Plan shall be governed by, and construed in
-------------
accordance with, the laws of the state of Delaware without regard to its
conflict of laws rules.
19. EFFECTIVE DATE. This Plan shall become effective upon [INSERT DATE OF
--------------
SPINOFF].
-8-
<PAGE>
EXHIBIT 10.5
- --------------------------------------------------------------------------------
$800,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 10, 1995
among
FIRST DEPOSIT NATIONAL BANK,
PROVIDIAN NATIONAL BANK,
PROVIDIAN CREDIT CORPORATION
and
PROVIDIAN CREDIT SERVICES, INC.,
as Borrowers,
-------------
PROVIDIAN BANCORP, INC.,
as Guarantor,
-------------
THE LENDERS NAMED HEREIN,
as Lenders
----------
and
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
-- --------------------
and
BANK OF AMERICA NATIONAL TRUST CITICORP USA, INC.
AND SAVINGS ASSOCIATION
CREDIT LYONNAIS, SAN FRANCISCO BRANCH
CREDIT SUISSE NATIONSBANK OF TEXAS, N.A.
as Co-Agents
-- ---------
- --------------------------------------------------------------------------------
[LOGO] CHASE
<PAGE>
Table of Contents
-----------------
This Table of Contents is not part of the Agreement to which it is attached
but is inserted for convenience of reference only.
Page
----
Section 1. Definitions..................................................... 1
1.01 Defined Terms................................................ 2
1.02 Other Definitional Provisions................................ 14
Section 2. Amount and Terms of Commitments................................. 14
2.01 Syndicated Loan Commitments.................................. 14
2.02 Procedure for Syndicated Loan Borrowing...................... 15
2.03 Competitive Bid Option Loans................................. 15
2.04 Swing Line Loans............................................. 19
2.05 Changes of Commitments....................................... 20
2.06 Fees......................................................... 21
2.07 Lending Offices.............................................. 22
2.08 Several Obligations.......................................... 22
2.09 Evidence of Indebtedness..................................... 22
2.10 Optional Prepayments and Conversions or Continuations
of Eurodollar Loans.......................................... 22
2.11 Mandatory Prepayments and Reductions of Commitments.......... 23
2.12 Extension of Termination Date................................ 24
2.13 New Lenders.................................................. 25
2.14 Increases in Commitments..................................... 25
2.15 Transition Provisions........................................ 26
Section 3. Payments of Principal and Interest.............................. 27
3.01 Repayment of Loans........................................... 27
<PAGE>
Page
----
3.02 Interest..................................................... 27
Section 4. Payments; Pro Rata Treatment; Computations; Etc. ............... 28
4.01 Payments..................................................... 28
4.02 Pro Rata Treatment........................................... 28
4.03 Computations................................................. 29
4.04 Minimum Amounts.............................................. 29
4.05 Certain Notices.............................................. 30
4.06 Non-Receipt of Funds by the Agent............................ 30
4.07 Sharing of Payments, Etc. ................................... 31
Section 5. Yield Protection, Etc. ......................................... 32
5.01 Additional Costs............................................. 32
5.02 Limitation on Types of Loans................................. 34
5.03 Illegality................................................... 34
5.04 Treatment of Affected Loans.................................. 34
5.05 Compensation................................................. 35
5.06 U.S. Taxes................................................... 36
Section 6. Conditions Precedent............................................ 37
6.01 Effective Date............................................... 37
6.02 Initial and Subsequent Loans................................. 39
6.03 Initial and Subsequent Loans to PCSI......................... 39
Section 7. Representations and Warranties.................................. 39
7.01 Financial Condition.......................................... 40
7.02 No Change.................................................... 40
7.03 Corporate Existence; Compliance with Law..................... 40
7.04 Corporate Power; Authorization; Enforceable Obligations...... 41
<PAGE>
Page
----
7.05 No Legal Bar................................................. 41
7.06 No Material Litigation....................................... 41
7.07 No Default................................................... 41
7.08 Ownership of Property; Liens................................. 41
7.09 Taxes........................................................ 41
7.10 Federal Regulations.......................................... 42
7.11 ERISA........................................................ 42
7.12 Investment Company Act; Other Regulations.................... 42
7.13 Subsidiaries................................................. 42
7.14 Purpose of Loans............................................. 43
7.15 True and Complete Disclosure................................. 43
7.16 Public Utility Holding Company Act........................... 43
Section 8. Certain Covenants of Each Obligor............................... 43
8.01 Financial Statements, Etc. .................................. 43
8.02 Litigation................................................... 45
8.03 Existence, Etc............................................... 45
8.04 Insurance.................................................... 46
8.05 Notices...................................................... 46
8.06 Limitation on Fundamental Changes............................ 48
8.07 Limitation on Sale of Assets................................. 48
8.08 Limitation on Liens.......................................... 49
8.09 Limitation on Transactions with Affiliates................... 50
Section 9. Additional Obligor-Specific Covenants........................... 50
9.01 Guarantor Covenants.......................................... 50
9.02 Covenants of FDNB, PNB and PCSI.............................. 50
<PAGE>
Page
----
9.03 Covenants of PCC............................................. 51
Section 10. Guarantee....................................................... 51
10.01 Guarantee.................................................... 51
10.02 Right of Set-off............................................. 51
10.03 No Subrogation............................................... 52
10.04 Amendments, etc. re Obligations; Waiver of Rights............ 52
10.05 Guarantee Absolute and Unconditional......................... 53
10.06 Reinstatement................................................ 53
Section 11. Events of Default.............................................. 53
Section 12. The Agent...................................................... 56
12.01 Appointment, Powers and Immunities........................... 56
12.02 Reliance by Agent............................................ 57
12.03 Defaults..................................................... 57
12.04 Rights as a Lender........................................... 57
12.05 Indemnification.............................................. 57
12.06 Non-Reliance on Agent and Other Lenders...................... 58
12.07 Failure to Act............................................... 58
12.08 Resignation or Removal of Agent.............................. 58
12.09 Co-Agents.................................................... 59
Section 13. Miscellaneous.................................................. 59
13.01 Waiver....................................................... 59
13.02 Notices...................................................... 59
13.03 Expenses, Etc. .............................................. 59
13.04 Amendments, Etc. ............................................ 60
13.05 Successors and Assigns....................................... 61
<PAGE>
Page
----
13.06 Assignments and Participations............................... 61
13.07 Survival..................................................... 64
13.08 Captions..................................................... 64
13.09 Counterparts................................................. 64
13.10 Independence of Covenants.................................... 64
13.11 [Reserved]................................................... 64
13.12 Severability................................................. 64
13.13 Integration.................................................. 64
13.14 Governing Law................................................ 65
13.15 Submission to Jurisdiction; Waivers.......................... 65
13.16 Waivers of Jury Trial........................................ 65
SCHEDULE I - Subsidiaries
SCHEDULE II - Section 8.08(c) Existing Liens
EXHIBIT A - Form of Assignment and Acceptance
EXHIBIT B - Form of CBO Quote Request
EXHIBIT C - Form of CBO Quote
EXHIBIT D-1 - Form of Notice of Borrowing of CBO Loans
EXHIBIT D-2 - Form of Notice of Borrowing of Syndicated Loans
EXHIBIT D-3 - Form of Notice of Borrowing of Swing Line Loans
EXHIBIT E - Form of Opinion of Counsel to the Obligors
EXHIBIT F-1 - Form of Syndicated Note
EXHIBIT F-2 - Form of Competitive Bid Note
EXHIBIT G - Form of Additional Lender Addendum
EXHIBIT H - Form of Increased Commitment Addendum
EXHIBIT I - Form of Opinion of Counsel to the Lenders
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 10, 1995, among
FIRST DEPOSIT NATIONAL BANK, a national banking association incorporated,
organized and existing under the laws of the United States of America ("FDNB"),
PROVIDIAN NATIONAL BANK (formerly First Deposit National Credit Card Bank), a
national banking association incorporated, organized and existing under the laws
of the United States of America ("PNB"), PROVIDIAN CREDIT CORPORATION (formerly
Providian National Credit Corporation), a corporation organized and existing
under the laws of the State of Delaware ("PCC"), PROVIDIAN CREDIT SERVICES,
INC., a corporation organized and existing under the laws of the State of Utah
("PCSI"; together with FDNB, PNB and PCC, the "Borrowers"); PROVIDIAN BANCORP,
INC., a corporation organized and existing under the laws of the State of
Delaware (the "Guarantor"; together with the Borrowers, the "Obligors"); the
banks and financial institutions listed on the signature pages hereof under the
caption "LENDERS" or which, pursuant to Section 2.12, 2.13 or 13.06(b) hereof,
shall become a "Lender" hereunder (individually, a "Lender" and, collectively,
the "Lenders"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association, as administrative agent for the Lenders (in such capacity,
together with any successor appointed pursuant to Section 12.08, the "Agent").
RECITALS
A. FDNB, PNB, PCC, the Guarantor, the Agent and the banks and financial
institutions parties thereto (the "Existing Lenders") entered into a
$500,000,000 Credit Agreement, dated as of October 14, 1994 (the "Existing
Agreement").
B. FDNB, PNB, PCC and the Guarantor have requested that the Lenders enter
into this Amended and Restated Credit Agreement for the purpose of extending the
Termination Date, increasing the aggregate principal amount of the commitments,
adding PCSI as a Borrower, adding certain new Lenders, and making certain other
amendments.
AGREEMENT
The parties hereto hereby agree that from and after the Effective Date (as
hereinafter defined):
I. The Dai-Ichi Kangyo Bank, Ltd. and ABN-AMRO Bank N.V. (the "Additional
Lenders") shall be parties to the Agreement, as amended and restated hereby,
with the rights and obligations of Lenders hereunder, including, without
limitation, the obligations to make Loans in an aggregate amount not to exceed
their respective Commitments hereunder;
II. PCSI shall be a party to the Agreement, as amended and restated hereby,
with the rights and obligations of a Borrower hereunder, including, without
limitation, the right to make borrowings under this Agreement in an aggregate
amount not to exceed the PCSI Borrowing Limit; and
III. The Existing Agreement shall be amended and restated in its entirety as
follows:
Section 1. Definitions.
-----------
<PAGE>
1.01 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the following meanings:
"Additional Lender": as defined in paragraph I above.
-----------------
"Additional Lender Addendum": an agreement, substantially in the form
--------------------------
attached hereto as Exhibit G, made by a financial institution becoming a
"Lender" hereunder and accepted by the Borrowers and the Agent in accordance
with Section 2.13.
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either (a) to vote 10% or more of the securities
having ordinary voting power for the election of directors of such Person or (b)
to direct or cause the direction of the management and policies of such Person,
whether by contract or otherwise.
"Agent": as defined in the preamble.
-----
"Agreement": this Amended and Restated Credit Agreement, as amended,
---------
supplemented or otherwise modified from time to time.
"Applicable Lending Office": for each Lender and for each Type of Loan, the
-------------------------
"Lending Office" of such Lender (or of an affiliate of such Lender) designated
for such Type of Loan on the signature pages hereof or such other office of such
Lender (or of an affiliate of such Lender) as such Lender may from time to time
specify to the Agent and each Borrower as the office at which its Loans of such
Type are to be made and maintained.
"Applicable Margin": for each Type of Syndicated Loan, the rate per annum set
-----------------
forth opposite such Type of Loan below:
Base Rate Loan 0.0000%
Eurodollar Loan 0.1750%
"Assignment and Acceptance": an assignment and acceptance, substantially in
-------------------------
the form attached hereto as Exhibit A, made by a Lender and an assignee of such
Lender and accepted by the Guarantor and the Agent in accordance with and to the
extent required by Section 13.06(b).
"Available Commitment": as to any Lender at any time, an amount equal to the
--------------------
excess, if any, of (a) the amount of such Lender's Commitment over (b) the
aggregate principal amount of all Syndicated Loans made by such Lender then
outstanding.
"Bankruptcy Code": the Federal Bankruptcy Code of 1978, as amended from time
---------------
to time.
"Base Rate": for any day, a rate per annum equal to the greater of (a) the
---------
Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on
such day plus 1/2 of 1%. Any change in the Base Rate due to a change in the
Prime Rate or the Federal Funds Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate or the Federal
Funds Rate, respectively.
2
<PAGE>
"Base Rate Loans": Loans the rate of interest applicable to which is based
---------------
upon the Base Rate.
"Borrowing Date": any Business Day specified in a notice pursuant to Section
--------------
2.02, 2.03 or 2.04 as a date on which a Borrower requests the Lenders to make
Loans hereunder.
"Business Day": any day on which (a) commercial banks are not authorized or
------------
required to close in New York City, San Francisco or the State of New Hampshire
and (b) if such day relates to the giving of notices or quotes in connection
with a LIBOR Auction or to a borrowing of, a payment or prepayment of principal
of or interest on, a Conversion of or into, or an Interest Period for, a
Eurodollar Loan or a LIBOR Market Loan or a notice by any Borrower with respect
to any such borrowing, payment, prepayment, Conversion or Interest Period,
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Stock": any and all shares, interests, participations or other
-------------
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"CBO Quote": an offer in accordance with Section 2.03(c) by a Lender to make a
---------
Competitive Bid Option Loan with one single specified interest rate.
"CBO Quote Request": as defined in Section 2.03(b).
-----------------
"Chase": The Chase Manhattan Bank (National Association).
-----
"Class": as to any Loan, its nature as a Competitive Bid Option Loan, a Swing
-----
Line Loan or a Syndicated Loan.
"Co-Agents": Bank of America National Trust and Savings Association, Citicorp
---------
USA, Inc., Credit Lyonnais, San Francisco Branch, Credit Suisse and NationsBank
of Texas, N.A.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
----
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Syndicated Loans in an aggregate amount at any one time outstanding up to but
not exceeding the amount set opposite the name of such Lender on the signature
pages hereof under the caption "Commitment", or if such Lender has entered into
an Increased Commitment Addendum or one or more Assignment and Acceptances, and
with respect to each Lender that becomes a Lender pursuant to an Assignment and
Acceptance or an Additional Lender Addendum, as set forth in such Increased
Commitment Addendum, Assignment and Acceptance or Additional Lender Addendum (as
the same may be reduced from time to time pursuant to Section 2.05). The
original aggregate principal amount of the Commitments is $800,000,000.
"Commitment Percentage": as to any Lender at any time, the percentage which
---------------------
such Lender's Commitment then constitutes of the aggregate Commitments (or, at
any time after the Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Loans then outstanding
(plus, in the case of each Lender other than the Swing Line Lender, such
Lender's participation in Unrefunded Swing
3
<PAGE>
Line Loans and minus, in the case of the Swing Line Lender, the aggregate
participations of the Lenders in the Unrefunded Swing Line Loans) constitutes of
the aggregate principal amount of the Loans then outstanding).
"Commitment Period": the period from and including the date hereof to but not
-----------------
including the Termination Date or such earlier date on which the Commitments
shall terminate as provided herein.
"Commonly Controlled Entity": with respect to any Obligor, an entity, whether
--------------------------
or not incorporated, which is under common control with such Obligor within the
meaning of Section 4001 of ERISA or is part of a group which includes such
Obligor and which is treated as a single employer under Section 414 of the Code.
"Competitive Bid Option Loans": loans provided for in Section 2.03.
-----------------------------
"Consolidated Finance Assets": as of any date of determination, with respect
---------------------------
to any Person, the sum of (a) all cash and cash equivalents; (b) short-term
investment grade securities; and (c) all consumer loan receivables, credit card
receivables, premium finance receivables, residential mortgage receivables and
other consumer receivables arising in the ordinary course of business and any
other assets consented to in writing by the Required Lenders, less any such
receivables which are sixty or more days past due, determined, in each case, on
a gross basis.
"Consolidated Funded Debt": as of any date of determination, with respect to
------------------------
any Person, the consolidated Indebtedness of such Person and its Consolidated
Subsidiaries.
"Consolidated Pre-tax Income": with respect to any period, the net income of
---------------------------
the Guarantor and its Consolidated Subsidiaries plus (or minus) income tax
expense (or benefit) to the extent deducted (or added) in calculating such net
income.
"Consolidated Pre-tax Return on Assets": as of the last day of any Quarterly
-------------------------------------
Period of the Guarantor, the percentage equivalent of a fraction, the numerator
of which is the Consolidated Pre-Tax Income for the twelve months ending on such
date and the denominator of which is the average on a monthly basis of all
assets of the Guarantor and its Consolidated Subsidiaries for such twelve-month
period.
"Consolidated Senior Funded Debt": as of any date of determination, with
-------------------------------
respect to any Person, (A) the Consolidated Funded Debt of such Person and its
Consolidated Subsidiaries less (B) the Consolidated Subordinated Debt of such
Person and its Consolidated Subsidiaries included in (A).
"Consolidated Shareholders' Equity": as of any date of determination, with
---------------------------------
respect to any Person, the consolidated total stockholders' equity of such
Person and its Consolidated Subsidiaries.
"Consolidated Subordinated Debt": as of any date of determination, with
------------------------------
respect to any Person, the Subordinated Debt of such Person and its Consolidated
Subsidiaries.
"Consolidated Subsidiary": as of any date of determination, with respect to
-----------------------
any Person, each Subsidiary of such Person (whether now existing or hereafter
created or
4
<PAGE>
acquired) the financial statements of which shall or should be consolidated with
the financial statements of such Person.
"Consolidated Tangible Capital": as of any date of determination, with respect
-----------------------------
to any Person, (a) Consolidated Shareholders' Equity less goodwill and
identifiable intangibles of such Person (other than identified intangibles
consisting of originated mortgage servicing rights, purchased mortgage servicing
rights and purchased credit card relationships to the extent that such
intangibles are "qualifying intangible assets" under the OCC's risk based
capital guidelines, with any limitations thereunder determined on a consolidated
basis) plus (b) Consolidated Subordinated Debt minus (c) the excess, if any, of
(i) Consolidated Subordinated Debt of such Person over (ii) 25% of the amount
calculated pursuant to clauses (a) and (b) of this definition.
"Continue", "Continuation" and "Continued" shall refer to the continuation
-------- ------------ ---------
pursuant to Section 2.10 of a Eurodollar Loan as a Eurodollar Loan from one
Interest Period to the next Interest Period.
"Contractual Obligation": as to any Person, any provision of any security
----------------------
issued by such Person or of any material agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Convert", "Conversion" and "Converted" shall refer to a conversion pursuant
------- ---------- ---------
to Section 2.10 of one Type of Syndicated Loan into another Type of Syndicated
Loan, which may be accompanied by the transfer by a Lender (at its sole
discretion but subject to the proviso in the first sentence of (S) 5.01(c)) of a
Loan from one Applicable Lending Office to another.
"Credit Documents": this Agreement and the Fee Letter.
----------------
"Default": any of the events specified in Section 11, whether or not any
-------
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Effective Date": as defined in Section 6.01.
--------------
"ERISA": the Employee Retirement Income Security Act of 1974, as amended from
-----
time to time.
"ERISA Affiliate": with respect to any Obligor, any corporation or trade or
---------------
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code and the regulations issued thereunder of which such
Obligor is a member and (ii) solely with respect to potential liability under
Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code or the lien
created under Section 302(f) of ERISA or Section 412(n) of the Code, described
in Section 414(m) or (o) of the Code and the regulations issued thereunder of
which such Obligor is a member.
"ERISA Multiemployer Plan": with respect to any Obligor, a multiemployer plan
------------------------
as defined in Section 3(37) of ERISA to which such Obligor or any of its ERISA
Affiliates has an obligation to contribute.
5
<PAGE>
"ERISA Pension Plan": with respect to any Obligor, an employee pension benefit
------------------
plan as defined in Section 3(2) of ERISA, other than a Multiemployer Plan, which
is maintained by such Obligor or any of its ERISA Affiliates.
"ERISA Plan": an ERISA Pension Plan or an ERISA Welfare Plan.
----------
"ERISA Welfare Plan": with respect to any Obligor, an employee welfare benefit
------------------
plan as defined in Section 3(1) of ERISA, other than a Multiemployer Plan, which
is maintained by such Obligor or any of its ERISA Affiliates.
"Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar
---------------------------------
Loan, the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding (currently referred to
as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such System with deposits exceeding $1 billion in respect of
eurodollar currency funding liabilities.
"Eurodollar Base Rate": with respect to each day during each Interest Period
--------------------
pertaining to a Eurodollar Loan, the rate per annum equal to the arithmetic mean
(rounded upward to the nearest 1/16th of 1%) of the respective rates notified to
the Agent by each of the Reference Lenders as the rate at which such Reference
Lender is offered Dollar deposits at or about 10:00 A.M., New York City time,
two Business Days prior to the beginning of such Interest Period (a) in the
interbank eurodollar market where the eurodollar and foreign currency and
exchange operations in respect of its Eurodollar Loans are then being conducted,
(b) for delivery on the first day of such Interest Period, (c) for the number of
days comprised therein and (d) in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Syndicated Loans the interest rates on which are
----------------
determined on the basis of the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
---------------
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 11, provided that
---------------- --------
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Existing Agreement": as defined in the recitals.
------------------
"Existing Lenders": as defined in the recitals.
----------------
6
<PAGE>
"Extended Termination Date": the fourth (4th) anniversary date of the
-------------------------
Effective Date, provided that if such date is not a Business Day, the Extended
--------
Termination Date shall be the next preceding Business Day.
"Facility Fee": as defined in Section 2.06(a).
------------
"Facility Fee Rate": for each Quarterly Period, the percentage set forth
-----------------
below opposite the Consolidated Tangible Capital of the Guarantor as of the
Quarterly Date immediately preceding such Quarterly Period:
Consolidated Tangible Capital Facility Fee Rate
----------------------------- -----------------
greater than or equal to
$400,000,000 0.1250%
less than $400,000,000 0.1500%
"FDIA": the Federal Deposit Insurance Act, as amended, or any successor
----
statute.
"FDIC": as defined in Section 8.01(h).
----
"FDNB": as defined in the preamble.
----
"Federal Funds Rate": for any day, the rate per annum (rounded upwards, if
------------------
necessary, to the nearest 1/100 of 1%) equal to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers on such day, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
provided that (a) if the day for which such rate is to be determined is not a
- --------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day and (b) if such rate is not so published for any
Business Day, the Federal Funds Rate for such Business Day shall be the
arithmetic mean of three rates quoted by Federal funds brokers to Chase on such
Business Day on such transactions as determined by the Agent.
"Fee Letter": the letter dated August 19, 1994 between the Obligors and the
----------
Agent relating to certain agency and other fees in respect of the credit
facilities provided hereunder.
"Financing Lease": any lease of property, real or personal, the obligations
---------------
of the lessee in respect of which are required in accordance with GAAP to be
capitalized on a balance sheet of the lessee.
"First Scheduled Termination Date": the third (3rd) anniversary date of the
--------------------------------
Effective Date, provided that if such date is not a Business Day, the First
--------
Scheduled Termination Date shall be the preceding Business Day.
"GAAP": generally accepted accounting principles in the United States of
----
America in effect from time to time, except that for purposes of Sections 9.01,
9.02 and 9.03, GAAP shall be determined on the basis of such principles in
effect on the date hereof and
7
<PAGE>
consistent with those used in the preparation of the audited financial
statements referred to in Section 7.01.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"), any
-------------------- -------------------
obligation of the guaranteeing person guaranteeing or intended to guarantee any
Indebtedness (the "primary obligations") of any other Person (the "primary
------------------- -------
obligor") in any manner, whether directly or indirectly, including, without
- -------
limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
- -------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by
such guaranteeing person in good faith.
"Guarantor": as defined in the preamble.
---------
"Increased Commitment Addendum": an agreement, substantially in the form
-----------------------------
attached hereto as Exhibit H, made by a Lender and accepted by the Obligors and
the Agent in accordance with Section 2.14.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
------------
Person for borrowed money (including, without limitation, deposits but excluding
non-interest bearing deposits classified as official checks of such Person) or
for the deferred purchase price of property or services (other than trade
liabilities and other current or accrued liabilities arising in the ordinary
course of business and payable in accordance with customary practices), (b) any
other indebtedness of such Person which is evidenced by a note, bond, debenture,
credit agreement or similar instrument, (c) all obligations of such Person under
Financing Leases, (d) all obligations of such Person in respect of acceptances
issued or created for the account of such Person and (e) all indebtedness for
borrowed money secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment
thereof; provided, however, that the term Indebtedness shall not include any
-------- -------
repurchase obligation of such Person with respect to U.S. Government securities
on a book entry basis for a period of no more than three months where the
repurchase obligation matures no later than the maturity of underlying
government obligation and where such Person owns the corresponding underlying
government obligation.
8
<PAGE>
"Insured Depository Institution": an "insured depository institution" as
------------------------------
defined in the FDIA, 12 U.S.C.A. (S) 1813(c)(2) (or any successor provision of
the FDIA).
"Interest Period":
---------------
(a) with respect to any Eurodollar Loan, each period commencing on the
date such Eurodollar Loan is made or Converted from a Loan of another Type
or the last day of the next preceding Interest Period for such Loan and
ending on (1) the numerically corresponding day in the first, second, third
or sixth calendar month thereafter, as the Borrower may select as provided
in Section 4.05, except that each Interest Period that commences on the
last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar
month or (2) for any period of less than one month or more than six months
selected by the Borrower and acceptable to each Lender as provided in
Section 4.05, the last day of such period;
(b) with respect to any Set Rate Loan, the period commencing on the date
such Set Rate Loan is made and ending on any Business Day at least 7 days
thereafter, as the Borrower may select as provided in Section 2.03(b); and
(c) with respect to any LIBOR Market Loan, the period commencing on the
date such LIBOR Market Loan is made and ending on the numerically
corresponding day in that number of calendar months thereafter as the
Borrower may select as provided in Section 2.03(b), except that each such
Interest Period that commences on the last Business Day of a calendar month
(or any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day
of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period for any Eurodollar
Loan or Competitive Bid Option Loan would otherwise end after the Termination
Date, such Interest Period shall, subject to clause (iii) below, end on the
Termination Date; (ii) subject to clause (i) above, each Interest Period that
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for a Eurodollar
Loan or a LIBOR Market Loan, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
subject to clause (ii) above, except as permitted in Section 4.05, no Interest
Period for any Loan (other than a Set Rate Loan or a Swing Line Loan) shall have
a duration of less than one month (in the case of a Eurodollar Loan or a LIBOR
Market Loan) and, if the Interest Period for any Eurodollar Loan or LIBOR Market
Loan would otherwise be a shorter period, a Eurodollar Loan or LIBOR Market Loan
shall not be available hereunder for such period.
"Lenders": as defined in the preamble.
-------
"LIBO Margin": as defined in Section 2.03(c)(ii)(C).
-----------
"LIBO Rate": for any LIBOR Market Loan, a rate per annum equal to the
---------
Eurodollar Rate for the Interest Period for such Loan.
"LIBOR Auction": a solicitation of CBO Quotes setting forth LIBO Margins based
-------------
on the LIBO Rate pursuant to Section 2.03.
9
<PAGE>
"LIBOR Market Loans": Competitive Bid Option Loans interest rates on which are
------------------
determined on the basis of LIBO Rates pursuant to a LIBOR Auction.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement,
----
encumbrance, lien (statutory or other), charge or other security interest or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement and any Financing Lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Majority Lenders": at any time, Lenders the Commitment Percentages of which
----------------
aggregate more than 50%.
"Material Adverse Effect": with respect to any Obligor, a material adverse
-----------------------
effect on (a) the financial condition of such Obligor and its Subsidiaries taken
as a whole, (b) the ability of such Obligor to perform its material obligations
under any of the Credit Documents to which it is a party, (c) the validity or
enforceability of any material provisions of the Credit Documents or (d) the
rights and remedies of the Lenders and the Agent under any of the Credit
Documents but, in the case of this clause (d), excluding any developments and
events generally applicable to comparable banks and financial institutions.
"Material Subsidiary": as to any Person, a Subsidiary, in which (a) such
-------------------
Person's and its other Subsidiaries' proportionate share of the total assets
(after intercompany eliminations) of such Subsidiary exceeds 10 percent of the
total assets of such Person and its Subsidiaries consolidated as of the end of
the most recently completed fiscal year; or (b) such Person's and its other
Subsidiaries' equity in the income from continuing operations before income
taxes, extraordinary items, and the cumulative effect of a change in accounting
principles of such Subsidiary exceeds 10 percent of such income of such Person
and its Subsidiaries consolidated for the most recently completed fiscal year.
"New Lender": as defined in Section 2.13.
----------
"Obligations": the collective reference to the unpaid principal of and
-----------
interest on the Loans and all other amounts owing by the Borrowers to the Agent
and the Lenders (including, without limitation, interest accruing at the then
applicable rate provided in this Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in this Agreement after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Borrower whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred under this Agreement or any other Credit
Document, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Agent or to the Lenders
that are required to be paid by the Borrowers pursuant to the terms of this
Agreement).
"OCC": the United States Office of the Comptroller of Currency.
---
"Participant": as defined in Section 13.06(c).
-----------
10
<PAGE>
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
----
Subtitle A of Title IV of ERISA, or any successor thereto.
"PCC": as defined in the preamble.
---
"PCSI": as defined in the preamble.
----
"PCSI Borrowing Limit": at any time during any of the periods set forth
--------------------
below, the amount set forth opposite such period:
Period PCSI Borrowing Limit
------ --------------------
From the Effective Date to but excluding the
first anniversary thereof $150,000,000
From the first anniversary of the Effective
Date to but excluding the second anniversary
thereof $250,000,000
From the second anniversary of the Effective
Date to but excluding the third anniversary
thereof $350,000,000
Thereafter The aggregate amount of the
Commitments
"Person": an individual, partnership, corporation, business trust, joint
------
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is covered by
----
ERISA and in respect of which a Borrower or a Commonly Controlled Entity is (or,
if such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PNB": as defined in the preamble.
---
"Post-Default Rate": in respect of any principal of or interest on any Loan
-----------------
or any other amount under this Agreement or any other Credit Document that is
not paid when due, after giving effect to any applicable grace period (whether
at stated maturity, by acceleration, by mandatory prepayment or otherwise), a
rate per annum during the period from and including the due date to but
excluding the date on which such amount is paid in full equal to 2% plus the
----
Base Rate as in effect from time to time (provided that, if the amount so in
--------
default is principal of a Eurodollar Loan or a Competitive Bid Option Loan and
the due date thereof is a day other than the last day of the Interest Period
therefor, the "Post-Default Rate" for such principal shall be, for the period
from and including such due date to but excluding the last day of the Interest
Period, 2% plus the interest rate for such Loan as provided in Section 3.02 and,
----
thereafter, the rate provided for above in this definition).
"Prime Rate": the rate of interest per annum publicly announced from time to
----------
time by Chase as its prime commercial lending rate in effect at its Principal
Office (the Prime Rate not being intended to be the lowest rate of interest
charged by Chase in connection with extensions of credit to debtors).
11
<PAGE>
"Principal Office": the principal office of Chase, located on the date
----------------
hereof at 1 Chase Manhattan Plaza, New York, New York 10081.
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Quarterly Dates": the last day of March, June, September and December
---------------
in each year; provided that if any such day is not a Business Day, then such
--------
Quarterly Date shall be the next preceding Business Day.
"Quarterly Period": each fiscal quarter of the Guarantor or part
----------------
thereof during the period from the date of this Agreement to the Termination
Date.
"Quotation Date": as defined in Section 2.03(b).
--------------
"Receivable": any amount owing, from time to time, with respect to a
----------
credit card, consumer revolving or consumer installment loan account,
residential mortgage loan account or other consumer receivable owned by a
Borrower, including without limitation, amounts owing for payment of goods and
services, cash advances, convenience checks, annual membership fees, finance
charges, late charges, credit insurance premiums and cash advance fees and fees
relating to additional consumer products.
"Reference Lenders": Chase, Credit Suisse and Bank of America National
-----------------
Trust and Savings Association or any successor designated pursuant to Section
2.05(c).
"Register": as defined in Section 13.06(h).
--------
"Regulation U": Regulation U of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Regulatory Change": with respect to any Lender, any change after the
-----------------
date of this Agreement in Federal, state or foreign law or regulations (other
than a voluntary change by such Lender of its status from a national Lender to a
state Lender or thrift or vice versa) or the adoption or making after such date
of any interpretation, directive or request applying to a class of banks or
financial institutions including such Lender of or under any Federal, state or
foreign law or regulations (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Required Lenders": at any time, Lenders the Commitment Percentages of which
----------------
aggregate more than 66-2/3%.
"Requirement of Law": as to any Person, the Certificate of Incorporation and
------------------
By-Laws or other organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": with respect to any Obligor, the chairman of the
-------------------
board, the chief executive officer, president, executive vice president,
chief financial officer, senior financial officer, treasurer, vice president,
finance or any senior vice president of such Obligor
12
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or, with respect to financial matters, the chief financial officer, senior
financial officer, treasurer, controller, vice president, finance or vice
president, corporate development of such Obligor; provided, that the term
--------
Responsible Officer shall also include any officer of such Obligor having a
different title but performing the same or similar functions as the above-
designated officers.
"Set Rate": as defined in Section 2.03(c)(ii)(D).
--------
"Set Rate Auction": a solicitation of CBO Quotes setting forth Set Rates
----------------
pursuant to Section 2.03.
"Set Rate Loans": Competitive Bid Option Loans the interest rates on
--------------
which are determined on the basis of Set Rates pursuant to a Set Rate Auction.
"Subordinated Debt": with respect to any Person, any unsecured
-----------------
Indebtedness of such Person the payment of the principal of and interest on
which and other payment obligations of such Person in respect thereof are
subordinated to the prior payment in full of the principal of and interest
(including post-petition interest) on the Loans and all other payment
obligations and liabilities of such Person to the Agent and the Lenders
hereunder; provided that the terms of such subordination may allow payments on
such Indebtedness if no Default or Event of Default has occurred and is
continuing hereunder.
"Subsidiary": as to any Person, a corporation, partnership or other entity
----------
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
"Swing Line Amount": $50,000,000.
-----------------
"Swing Line Base Rate": for any day, with respect to any Swing Line
--------------------
Base Rate Loan, a rate per annum equal to (x) the Federal Funds Rate for such
day plus (y) 0.3750% per annum.
----
"Swing Line Base Rate Loans": Swing Line Loans that bear interest at rates
--------------------------
based upon the Swing Line Base Rate.
"Swing Line Commitment": the obligation of the Swing Line Lender to
---------------------
make Swing Line Loans in an aggregate amount at any one time outstanding up to
but not exceeding the Swing Line Amount.
"Swing Line Lender": Chase.
-----------------
"Swing Line Loans": as defined in Section 2.04(a).
----------------
"Swing Line Money Market Loans": Swing Line Loans that bear interest
-----------------------------
at rates based upon the Swing Line Money Market Rate.
13
<PAGE>
"Swing Line Money Market Rate": the rate of interest per annum
----------------------------
applicable to a Swing Line Money Market Loan to a Borrower as agreed by the
Swing Line Lender and a Borrower pursuant to Section 2.04(b).
"Syndicated Loans": as defined in Section 2.01.
----------------
"Termination Date": (i) (A) the First Scheduled Termination Date or (B) if
----------------
the Termination Date has been extended pursuant to Section 2.12, the Extended
Termination Date, or (ii) such earlier date as the Commitments shall be
terminated pursuant to Section 2.05(b) or 11.
"Type": as to any Loan, its nature as a Base Rate Loan, a Eurodollar
----
Loan, a Swing Line Base Rate Loan, a Swing Line Money Market Loan, a LIBOR
Market Loan or a Set Rate Loan.
"Unrefunded Eurodollar Loans": as defined in Section 2.15(b).
---------------------------
"Unrefunded Swing Line Loans": as defined in Section 2.04(d).
---------------------------
"Utilization Fee": as defined in Section 2.06(b).
---------------
"Utilization Fee Rate": 0.1250% per annum.
--------------------
1.02 Other Definitional Provisions.
-----------------------------
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto.
(b) As used herein, and any certificate or other document made or
delivered pursuant hereto, accounting terms relating to the Obligors and their
respective Subsidiaries not defined in Section 1.01 and accounting terms partly
defined in Section 1.01, to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
Section 2. Amount and Terms of Commitments.
-------------------------------
2.01 Syndicated Loan Commitments.
---------------------------
(a) Subject to the terms and conditions hereof, each Lender severally
agrees to make Syndicated Loans ("Syndicated Loans") to any and each Borrower
----------------
from time to time during the Commitment Period on any Business Day in an
aggregate principal amount at any one time outstanding not to exceed the amount
of such Lender's Commitment, provided that the aggregate principal amount of all
--------
Syndicated Loans, together with the aggregate principal amount of all
Competitive Bid Option Loans and all Swing Line Loans at
14
<PAGE>
any one time outstanding to all the Borrowers shall not exceed an amount equal
to the aggregate amount of the Commitments in effect at such time, and provided,
--------
further, that the aggregate principal amount of all Loans to PCSI at any one
- -------
time outstanding shall not exceed an amount equal to the PCSI Borrowing Limit at
such time. During the Commitment Period each Borrower may use the Commitments
by borrowing, prepaying the Syndicated Loans in whole or in part, reborrowing,
Converting Syndicated Loans of one Type into Syndicated Loans of another Type or
Continuing Syndicated Loans of one Type as Syndicated Loans of the same Type,
all in accordance with the terms and conditions hereof.
(b) The Syndicated Loans may from time to time be (i) Eurodollar
Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the
applicable Borrower and notified to the Agent in accordance with Sections 2.02
and 2.10, provided that no Syndicated Loan shall be made as a Eurodollar Loan
--------
after the day that is one month prior to the Termination Date.
(c) The Competitive Bid Option Loans and Swing Line Loans made by a
Lender shall not reduce the Commitment of such Lender to make Syndicated Loans,
except to the extent that the aggregate principal amount of all Syndicated
Loans, together with the aggregate principal amount of all Competitive Bid
Option Loans and all Swing Line Loans at any one time outstanding to all the
Borrowers shall exceed an amount equal to the aggregate amount of the
Commitments in effect at such time.
2.02 Procedure for Syndicated Loan Borrowing. Each Borrower may
---------------------------------------
borrow under the Commitments during the Commitment Period on any Business Day,
provided that each Borrower shall give the Agent irrevocable notice prior to
- --------
11:00 A.M., New York City time, (a) three Business Days prior to the requested
Borrowing Date, if all or any part of the requested Syndicated Loans are to be
initially Eurodollar Loans, or (b) on the requested Borrowing Date, otherwise,
specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date,
(iii) whether the borrowing is to be of Eurodollar Loans, Base Rate Loans or a
combination thereof and (iv) if the borrowing is to be entirely or partly of
Eurodollar Loans, the amount of such Type of Loan and the length of the initial
Interest Period therefor. Each borrowing under the Commitments shall be in an
amount equal to (x) in the case of Base Rate Loans, at least $5,000,000 (or, if
the then Available Commitments are less than $5,000,000, such lesser amount) and
(y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from a Borrower,
the Agent shall promptly notify each Lender thereof. Each Lender will make the
amount of its pro rata share of each borrowing available to the Agent for the
account of such Borrower at account number NYAON 900-9-000002 maintained by the
Agent with Chase at the Principal Office prior to 1:00 P.M., New York City time,
on the Borrowing Date requested by such Borrower in funds immediately available
to the Agent. Such borrowing will then be made available to such Borrower by
the Agent by depositing the aggregate of the amounts made available to the Agent
by the Lenders, in like funds as received by the Agent, in the account of such
Borrower at such office, or in another account designated by such Borrower in a
notice to the Agent hereunder.
2.03 Competitive Bid Option Loans.
----------------------------
(a) Subject to the terms and conditions of this Agreement, any
Borrower may request the Lenders to make offers to make Competitive Bid Option
Loans to such Borrower from time to time during the Commitment Period on any
Business Day. The Lenders may, but shall have no obligation to, make such
offers and such Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section 2.03.
15
<PAGE>
Competitive Bid Option Loans may be LIBOR Market Loans or Set Rate Loans,
provided that the aggregate principal amount of all Competitive Bid Option
- --------
Loans, together with the aggregate principal amount of all Syndicated Loans and
all Swing Line Loans, at any one time outstanding to all Borrowers shall not
exceed an amount equal to the aggregate amount of the Commitments at such time,
and, provided, further, that the aggregate principal amount of all Loans to
-------- -------
PCSI at any one time outstanding shall not exceed an amount equal to the PCSI
Borrowing Limit at such time.
(b) When any Borrower wishes to request offers to make Competitive Bid
Option Loans, it shall give the Agent (which shall promptly notify the Lenders)
notice (a "CBO Quote Request") no later than 11:00 a.m. New York City time on
-----------------
(x) the fourth Business Day prior to the date of borrowing proposed therein, in
the case of a LIBOR Auction or (y) the Business Day next preceding the date of
borrowing proposed therein, in the case of a Set Rate Auction (or, in any such
case, such other time and date as such Borrower and the Agent, with the consent
of the Majority Lenders, may agree). Each Borrower may request offers to make
Competitive Bid Option Loans for up to three different Interest Periods in a
single notice (for which purpose Interest Periods in different lettered clauses
of the definition of the term "Interest Period" shall be deemed to be different
Interest Periods even if they are coterminous); provided that the request for
--------
each separate Interest Period shall be deemed to be a separate CBO Quote Request
for a separate borrowing (a "Competitive Bid Option Borrowing"). Each such
--------------------------------
notice shall be substantially in the form of Exhibit B hereto and shall specify
as to each Competitive Bid Option Borrowing:
(i) the proposed date of such borrowing, which shall be a Business
Day;
(ii) the aggregate amount of such Competitive Bid Option Borrowing,
which shall be at least $5,000,000 (or a larger whole multiple of $1,000,000)
but shall not cause the limit specified in Section 2.03(a) to be violated;
(iii) the duration of the Interest Period applicable thereto;
(iv) whether the CBO Quotes requested for a particular Interest
Period are for LIBOR Market Loans or Set Rate Loans; and
(v) if the CBO Quotes requested are for Set Rate Loans, the date on
which the CBO Quotes are to be submitted if it is before the proposed date of
borrowing (the date on which such CBO Quotes are to be submitted is called the
"Quotation Date").
--------------
(c) (i) Each Lender may submit one or more CBO Quotes, each containing an
offer to make a Competitive Bid Option Loan in response to any CBO Quote
Request; provided that, if a Borrower's request under Section 2.03(b) specified
--------
more than one Interest Period, such Lender may make a single submission
containing one or more CBO Quotes for each such Interest Period. Each CBO Quote
must be submitted to the Agent not later than (x) 2:30 p.m. New York City time
on the fourth Business Day prior to the proposed date of borrowing, in the case
of a LIBOR Auction or (y) 9:45 a.m. New York City time on the Quotation Date, in
the case of a Set Rate Auction (or, in any such case, such other time and date
as the Borrower requesting such bids and the Agent, with the consent of the
Majority Lenders, may agree); provided that any CBO Quote may be submitted by
--------
Chase (or its Applicable Lending Office) only if Chase (or such Applicable
Lending Office) notifies the requesting Borrower of the terms of the offer
contained therein not later than (x) 2:15 p.m.
16
<PAGE>
New York City time on the fourth Business Day prior to the proposed date of
borrowing, in the case of a LIBOR Auction or (y) 9:30 a.m. New York City time on
the Quotation Date, in the case of a Set Rate Auction. Subject to Sections 5.03,
6.02 and 11 hereof, any CBO Quote so made shall be irrevocable except with the
consent of the Agent given on the instructions of the requesting Borrower.
(ii) Each CBO Quote shall be substantially in the form of Exhibit C
hereto and shall specify:
(A) the proposed date of borrowing and the Interest Period therefor;
(B) the principal amount of the Competitive Bid Option Loan for
which each such offer is being made, which principal amount shall be at
least $5,000,000 (or a larger whole multiple of $1,000,000); provided that
--------
the aggregate principal amount of all Competitive Bid Option Loans for
which a Lender submits CBO Quotes (x) may be greater or less than the
Available Commitment of such Lender but (y) may not exceed the principal
amount of the Competitive Bid Option Borrowing for a particular Interest
Period for which offers were requested;
(C) in the case of a LIBOR Auction, the margin above or below the
applicable LIBO Rate (the "LIBO Margin") offered for each such Competitive
-----------
Bid Option Loan, expressed as a percentage (rounded, if necessary, to the
nearest 1/10,000th of 1%) to be added to or subtracted from the applicable
LIBO Rate;
(D) in the case of a Set Rate Auction, the rate of interest per annum
(rounded, if necessary, to the nearest 1/10,000th of 1%) offered for each
such Competitive Bid Option Loan (the "Set Rate"); and
--------
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the requesting Borrower, no CBO Quote
shall contain qualifying, conditional or similar language or propose terms other
than or in addition to those set forth in the applicable CBO Quote Request
(other than a condition limiting the aggregate amount of Competitive Bid Option
Loans for which such CBO Quote may be accepted) and, in particular, no CBO Quote
may be conditioned upon acceptance by such Borrower of all (or some specified
minimum other than set forth herein) of the principal amount of the Competitive
Bid Option Loans for which such CBO Quote is being made.
(d) The Agent shall (x) in the case of a Set Rate Auction, as promptly
as practicable after the CBO Quote is submitted (but in any event not later than
10:15 a.m. New York City time on the Quotation Date) or (y) in the case of a
LIBOR Auction, by 4:00 p.m. New York City time on the day a CBO Quote is
submitted, notify the requesting Borrower of the terms (i) of any CBO Quote
submitted by a Lender in accordance with Section 2.03(c) and (ii) of any CBO
Quote that amends, modifies or is otherwise inconsistent with a previous CBO
Quote submitted by such Lender with respect to the same CBO Quote Request. Any
such subsequent CBO Quote shall be disregarded by the Agent unless such
subsequent CBO Quote is submitted solely to correct a manifest error in such
former CBO Quote. The Agent's notice to the requesting Borrower shall specify
(A) the aggregate principal amount of the Competitive Bid Option Borrowing for
which offers have been received and (B) the respective principal amounts and
LIBO Margins or Set Rates, as the case may be, so offered by each Lender
(identifying the Lender that made each CBO Quote).
17
<PAGE>
(e) Not later than (x) 10:00 a.m. New York City time on the third
Business Day prior to the proposed date of borrowing, in the case of a LIBOR
Auction or (y) 11:00 a.m. New York City time on the Quotation Date, in the case
of a Set Rate Auction (or, in any such case, such other time and date as the
requesting Borrower and the Agent, with the consent of the Majority Lenders, may
agree), the requesting Borrower shall notify the Agent of its acceptance or
nonacceptance of the offers so notified to it pursuant to Section 2.03(d) (and
the failure of the requesting Borrower to give such notice by such time shall
constitute nonacceptance) and the Agent shall promptly notify each affected
Lender. In the case of acceptance, such notice shall be in substantially the
form of Exhibit D-1 hereto and shall specify the aggregate principal amount of
offers that are accepted for each Interest Period. The requesting Borrower may
accept any CBO Quote in whole or in part (provided that any CBO Quote accepted
--------
in part shall be at least $5,000,000 or a larger whole multiple of $1,000,000,
but provided, further, that the CBO Quote with the highest LIBO Margin or Set
-------- -------
Rate of the CBO Quotes that are accepted for each Competitive Bid Option
Borrowing may be accepted in part for less than $5,000,000, but shall be for at
least $1,000,000 or a larger whole multiple thereof); provided that:
--------
(i) the aggregate principal amount of each Competitive Bid Option
Borrowing may not exceed the applicable amount set forth in the related CBO
Quote Request;
(ii) the aggregate principal amount of each Competitive Bid Option
Borrowing shall be at least $5,000,000 (or a larger whole multiple of
$1,000,000) but shall not cause the limits specified in Section 2.03(a) to be
violated;
(iii) acceptance of offers may be made only in ascending order of
LIBO Margins or Set Rates, as the case may be, in each case beginning with the
lowest rate so offered; and
(iv) the requesting Borrower may not accept any offer where the
Agent has advised such Borrower that such offer fails to comply with Section
2.03(c)(ii) or otherwise fails in any material respect to comply with the
requirements of this Agreement (including, without limitation, Section 2.03(a)).
If offers are made by two or more Lenders with the same LIBO Margins or Set
Rates, as the case may be, for a greater aggregate principal amount than the
amount in respect of which offers are accepted for the related Interest Period,
the principal amount of Competitive Bid Option Loans in respect of which such
offers are accepted shall be allocated by the requesting Borrower among such
Lenders as nearly as possible (in amounts of at least $5,000,000 or larger
multiples of $1,000,000, except that if such Lenders' LIBO Margins or Set Rates
are the highest of those accepted, such Borrower may allocate Competitive Bid
Option Loans to such Lenders in amounts of less than $5,000,000, but such Loans
shall be for at least $1,000,000 or a larger whole multiple thereof) in
proportion to the aggregate principal amount of such offers. Determinations by
the requesting Borrower of the amounts of Competitive Bid Option Loans shall be
conclusive in the absence of manifest error. Notwithstanding anything else
herein to the contrary, the requesting Borrower shall not be obligated to accept
any CBO Quote unless it shall have delivered a notice of acceptance as provided
in this Section 2.03(e).
(f) Any Lender whose offer to make any Competitive Bid Option Loan has
been accepted shall, not later than 1:00 p.m. New York City time on the date
specified for the making of such Loan, make the amount of such Loan available to
the Agent at account
18
<PAGE>
number NYAON 900-9-000002 maintained by the Agent with Chase at the Principal
Office in immediately available funds, for account of the requesting Borrower.
Such borrowing will then be made available to such Borrower by the Agent by
depositing the aggregate of the amounts made available to the Agent by the
Lenders, in like funds as received by the Agent, in the account of such Borrower
at such office, or in another account designated by such Borrower in a notice to
the Agent hereunder.
(g) Except for the purpose and to the extent expressly stated in
Section 2.05(b), the amount of any Competitive Bid Option Loan made by any
Lender shall not constitute a utilization of such Lender's Commitment.
(h) Promptly following each Competitive Bid Option Borrowing, the
Agent shall notify each Lender of the ranges of bids submitted and the highest
and lowest bids accepted for each Interest Period requested by the requesting
Borrower and the aggregate amount borrowed pursuant to such Competitive Bid
Option Borrowing.
(i) Each Borrower which makes a Competitive Bid Loan request shall pay
to the Agent an administrative fee of $750 (regardless of the number of Interest
Periods in such request).
2.04 Swing Line Loans.
----------------
(a) Each Borrower may request the Swing Line Lender to make, and the
Swing Line Lender agrees, upon the terms and subject to the conditions hereof,
to make, loans (each, a "Swing Line Loan") to such Borrower from time to time
---------------
during the Commitment Period on any Business Day in an aggregate amount not to
exceed at any time outstanding the Swing Line Lender's Swing Line Commitment in
effect at such time; provided, that (i) the aggregate principal amount of all
--------
Swing Line Loans, together with the aggregate principal amount of all
Competitive Bid Option Loans and all Syndicated Loans at the time outstanding to
all Borrowers shall not exceed an amount equal to the aggregate amount of the
Commitments in effect at such time, (ii) the aggregate principal amount of all
Swing Line Loans made by the Swing Line Lender, together with the aggregate
principal amount of all Syndicated Loans made by the Swing Line Lender at the
time outstanding to all Borrowers, shall not exceed the greater of Swing Line
Lender's Commitment or the Swing Line Commitment in effect at such time and
(iii) the aggregate principal amount of all Loans to PCSI at any one time
outstanding shall not exceed an amount equal to the PCSI Borrowing Limit at such
time. Each borrowing of Swing Line Loans shall be in an amount not less than
$2,500,000 and in integral multiples of $500,000 in excess thereof, and shall
bear interest as provided in Section 3.02. On the terms and subject to the
conditions of this Agreement, each Borrower may borrow under this Section 2.04,
repay pursuant to Section 3.01 or prepay and reborrow under this Section 2.04.
(b) Each borrowing of Swing Line Loans shall be made on notice, given
not later than 3:30 p.m. (New York City time) on the date of the proposed
borrowing, by the Borrower requesting such Swing Line Loan to the Agent. The
Agent shall give prompt notice thereof to the Swing Line Lender. Each such
notice of a borrowing of Swing Line Loans shall be substantially in the form of
Exhibit D-3 hereto (a "Notice of Swing Line Borrowing") and shall be by
------------------------------
telephone (promptly confirmed in writing), telefacsimile (promptly confirmed by
telephone) or delivered by hand, specifying therein (i) the requested date of
such borrowing; (ii) the requested amount of such borrowing and (iii) whether
the Swing Line Loans requested by such notice will bear interest at the Swing
Line Money Market Rate (as such rate may be agreed between the requesting
Borrower and the Agent as of the date of the
19
<PAGE>
making of such Swing Line Loan) or the Swing Line Base Rate. The Swing Line
Lender will make such borrowing available to the Agent within two (2) hours
after receipt of such notice of such borrowing at account number NYAON 900-9-
000002 maintained by the Agent with Chase at the Principal Office in immediately
available funds, for account of the requesting Borrower. Such borrowing will
then be made available to such Borrower by the Agent by depositing the aggregate
of the amounts made available to the Agent by the Swing Line Lender, in like
funds as received by the Agent, in the account of such Borrower at such office,
or in another account designated by such Borrower in a notice to the Agent
hereunder.
(c) The amount of each Swing Line Loan shall be payable on the seventh
(7th) Business Day following the making of such Loan and in any event on the
Termination Date. A Borrower may prepay any Swing Line Loan on any Business Day
only upon notice, which shall be irrevocable, to the Agent, received by the
Agent not later than 12:00 noon (New York City time) on such Business Day and
otherwise given in accordance with Section 4.05. Notwithstanding the occurrence
of any Default or Event of Default or noncompliance with the conditions
precedent set forth in Section 6, if any Swing Line Loans shall remain
outstanding at 10:00 A.M., New York City time, on the seventh Business Day
following the Borrowing Date thereof and if by such time on such seventh
Business Day the Agent shall have received neither (i) a notice of borrowing
delivered pursuant to Section 2.02 requesting that Loans be made pursuant to
Section 2.01 on such Business Day in an amount at least equal to the aggregate
principal amount of such Swing Line Loans, nor (ii) any other notice indicating
the related Borrower's intent to repay such Swing Line Loans with funds obtained
from other sources, the Agent shall be deemed to have received a Notice of
Borrowing from such Borrower pursuant to Section 2.02 requesting that Base Rate
Loans be made pursuant to Section 2.01 on such Business Day in an amount equal
to the aggregate amount of such Swing Line Loans, and the procedures set forth
in Section 2.02 shall be followed in making such Base Rate Loans. The proceeds
of such Base Rate Loans shall be applied to repay such Swing Line Loans.
(d) If, for any reason, Base Rate Loans may not be made pursuant to
paragraph (c) of this Section 2.04 to repay Swing Line Loans as required by such
paragraph, effective on the date such Base Rate Loans would otherwise have been
made, each Lender severally agrees that it shall unconditionally and
irrevocably, without regard to the occurrence of any Default or Event of
Default, to the extent of such Lender's Commitment Percentage, purchase a
participating interest in such Swing Line Loans ("Unrefunded Swing Line Loans").
---------------------------
Each Lender will immediately transfer to the Agent, in immediately available
funds, the amount of its participation, and the proceeds of such participation
shall be distributed by the Agent to the Swing Line Lender in such amount as
will reduce the amount of the participating interest retained by the Swing Line
Lender in its Swing Line Loans to its Commitment Percentage of the Base Rate
Loans which were to have been made pursuant to paragraph (c) of this Section
2.04. Each Lender shall share on a pro rata basis (calculated by reference to
--------
its participating interest in such Swing Line Loans) in any interest which
accrues thereon and in all repayments thereof. All payments in respect of
Unrefunded Swing Line Loans and participations therein shall be made in
accordance with Section 4.02.
2.05 Changes of Commitments.
----------------------
(a) The aggregate amount of the Commitments and the Swing Line
Commitment shall be automatically reduced to zero on the Termination Date.
(b) The Borrowers shall have the right at any time or from time to
time (i) so long as no Swing Line Loans, Syndicated Loans or Competitive Bid
Option Loans are
20
<PAGE>
outstanding, to terminate the Commitments and (ii) to reduce the aggregate
unused amount of the Commitments (for which purpose use of the Commitments shall
be deemed to include the aggregate principal amount of all Swing Line Loans,
Competitive Bid Option Loans and Syndicated Loans); provided that (x) the
--------
Borrowers shall give notice of each such termination or reduction as provided in
Section 4.05 and (y) each partial reduction shall be in an aggregate amount at
least equal to $10,000,000 or in whole multiples of $10,000,000 in excess
thereof or, if less, the amount of the Available Commitments.
(c) Provided that no Default or Event of Default shall have occurred
and be continuing, the Borrowers, may, at any time, replace any Lender that has
requested compensation from any Borrower pursuant to Section 5.01 or 5.06 or
whose obligations in respect of Eurodollar Loans or LIBOR Market Loans have been
suspended pursuant to Section 5.03 by giving not less than ten (10) Business
Days' prior notice to the Agent (which shall promptly notify such Lender) that
it intends to replace such Lender with respect to its Commitment with one or
more banks or financial institutions (including, but not limited to, any other
Lender under this Agreement) selected by the Borrowers and acceptable to the
Swing Line Lender and the Agent (which acceptance shall not be unreasonably
withheld). Upon the effective date of any replacement under this Section 2.05(c)
and as a condition to such replacement, (i) the replacement bank or financial
institution shall purchase the Loans of the Lender being replaced and such
Lender's rights hereunder for a purchase price equal to the outstanding
principal amount of the Loans payable to such Lender plus accrued and unpaid
interest on such Loans and accrued and unpaid Facility Fees or Utilization Fees
and any other amounts payable to such Lender hereunder and (ii) an Assignment
and Acceptance shall be executed and delivered by such Lender and replacement
bank at the expense of the Borrowers and accepted by the Agent as provided in
Section 13.06(b), whereupon such replacement bank or financial institution shall
become a "Lender" for all purposes of this Agreement having a Commitment in the
amount of such Lender's Commitment assumed by it, and such Commitment of the
Lender being replaced shall be terminated upon such effective date and all of
such Lender's rights and obligations under this Agreement shall terminate
(provided that the obligations of the Borrowers under Sections 5.01, 5.05, 5.06
and 13.03 to such Lender shall survive such replacement as provided in Section
13.07). If the Commitment of any Lender that is a Reference Lender (or whose
Applicable Lending Office is a Reference Lender, as the case may be) shall
terminate (other than pursuant to Section 11 hereof) such Reference Lender shall
thereupon cease to be a Reference Lender and, if as a result of the foregoing,
there shall only be two Reference Lenders remaining, then the Agent (with the
approval of the Borrowers, such approval not to be unreasonably withheld) shall,
by notice to the Borrowers and the Lenders, designate another Lender as a
Reference Lender, so that there shall at all times be three Reference Lenders.
(d) The Commitments once terminated or reduced may not be reinstated.
2.06 Fees.
----
(a) The Borrowers jointly and severally agree to pay to the Agent for
the account of each Lender a fee (a "Facility Fee") on the daily average amount
------------
of such Lender's Commitment (whether or not such Commitment has been used, in
whole or in part, by the making of Loans hereunder) for the period from and
including the date of this Agreement to but not including the earlier of the
date such Commitment is terminated and the Termination Date, at a rate per annum
equal to the Facility Fee Rate. Accrued Facility Fees shall be payable in
arrears on each Quarterly Date and on the earlier of the date the Commitments
are terminated and the Termination Date.
21
<PAGE>
(b) For each Quarterly Period from the date of this Agreement to and
including the Termination Date during which the daily average aggregate
principal amount of all Syndicated Loans and Swing Line Loans outstanding
exceeds an amount equal to 50% of the daily average of the total Commitments in
effect, each Borrower agrees to pay to the Agent for the account of the Lenders
a fee (a "Utilization Fee") on such Borrower's proportionate share (based on
---------------
the Loans outstanding to all Borrowers) of the excess of (i) the daily average
principal amount of all Syndicated Loans and Swing Line Loans outstanding during
such Quarterly Period over (ii) 50% of the daily average of the total
Commitments in effect during such Quarterly Period, at a rate per annum equal to
the Utilization Fee Rate. Accrued Utilization Fees, if any, shall be payable in
arrears on each Quarterly Date and on the earlier of the date the Commitments
are terminated and the Termination Date.
(c) The Borrowers jointly and severally agree to pay to the Agent an
administrative agency fee pursuant to the terms of the Fee Letter.
2.07 Lending Offices. The Loans of each Type made by each Lender
---------------
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.08 Several Obligations. The failure of any Lender to make any
-------------------
Loan to be made by it on the date specified therefor shall not relieve any other
Lender of its obligation to make its Loan on such date, but neither any Lender
nor the Agent shall be responsible for the failure of any other Lender to make a
Loan to be made by such other Lender, and no Lender shall have any obligation to
the Agent or any other Lender for the failure by such Lender to make any Loan
required to be made by such Lender. The amounts payable by any Borrower at any
time hereunder to each Lender shall be separate and independent debts.
2.09 Evidence of Indebtedness.
------------------------
(a) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrowers to the
Applicable Lending Office of such Lender resulting from each Loan made by such
Applicable Lending Office of such Lender from time to time, including amounts of
principal and interest payable and paid to such Applicable Lending Office of
such Lender from time to time under this Agreement.
(b) The Agent shall maintain the Register pursuant to Section
13.06(h), and a subaccount for each Lender, in which Register and subaccount
(taken together) shall be recorded (i) the amount of each Loan made hereunder,
the Borrower of each Loan, the Type and Class of each Loan made and the Interest
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from each Borrower to each Lender hereunder
and (iii) the amount of any sum received by the Agent hereunder from any
Borrower and any Lender's share thereof.
(c) The entries made in the Register and accounts maintained pursuant
to paragraphs (a) and (b) of this Section 2.09 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrowers therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Agent to maintain such account, such Register or
such subaccount, as applicable, or any error therein, shall not in any manner
affect the obligation of each Borrower to repay (with applicable interest) the
Loans made to such Borrower by such Lender in accordance with the terms of this
Agreement.
2.10 Optional Prepayments and Conversions or Continuations of
--------------------------------------------------------
Eurodollar Loans. Subject to Sections 4.04, 5.01, 5.02 and 5.03, any Borrower
- ----------------
shall have
22
<PAGE>
the right to prepay, in whole or in part, Syndicated Loans, or to Convert
Syndicated Loans of one Type into Syndicated Loans of another Type or Continue
Syndicated Loans of one Type as Syndicated Loans of the same Type, at any time
or from time to time, without premium or penalty (but without limiting the
obligations of such Borrower under Section 5.05), provided that: (a) the
--------
Borrower shall give the Agent notice of each such prepayment, Conversion or
Continuation as provided in Section 4.05 hereof (and, upon the date specified in
any such notice of prepayment, the amount to be prepaid shall become due and
payable hereunder), and (b) upon any prepayment of any Eurodollar Loan prior to
the last day of the Interest Period applicable thereto, the Borrower shall pay
to each Lender, in addition to any other amounts payable by the Borrower
hereunder in connection with such prepayment, any amounts payable to such Lender
pursuant to Section 5.05(a). Notwithstanding the foregoing, and without
limiting the rights and remedies of the Lenders under Section 11 hereof, in the
event that any Event of Default shall have occurred and be continuing, the Agent
may (and at the request of the Majority Lenders shall) suspend the right of any
Borrower to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as
a Eurodollar Loan, in which event all Syndicated Loans shall be Converted (on
the last day(s) of the respective Interest Periods therefor) or Continued, as
the case may be, as Base Rate Loans. No Borrower shall have any right to prepay
Competitive Bid Option Loans.
2.11 Mandatory Prepayments and Reductions of Commitments.
---------------------------------------------------
(a) If, at any time, the aggregate principal amount of Loans
outstanding exceeds the aggregate amount of the Commitments, the Borrowers will,
within one (1) Business Day, prepay an amount of Loans (together with accrued
interest thereon and amounts payable pursuant to Section 5.05) such that, after
giving effect thereto, the aggregate principal amount of Loans outstanding to
all Borrowers does not exceed such aggregate amount of the Commitments.
(b) The Borrowers shall repay the aggregate principal amount of all
Loans to the Borrowers hereunder (together with accrued interest thereon) and
any other amounts owing to any Lender that shall have declined to extend the
Termination Date as set forth in Section 2.12 on the Termination Date in effect
with respect to such Lender without giving effect to such extension.
(c) If, on any Business Day, the aggregate principal amount of Swing
Line Loans outstanding exceeds the Swing Line Commitment in effect on such
Business Day (other than by reason of the application of the proceeds of any
Syndicated Loans made to the Borrower on such Business Day) the Borrowers shall,
within one (1) Business Day after notice thereof delivered by the Agent to the
Borrowers, prepay an amount of Swing Line Loans (together with accrued interest
thereon and amounts payable pursuant to Section 5.05) such that, after giving
effect thereto, the aggregate principal amount of such Swing Line Loans does not
exceed such Swing Line Commitment.
(d) If, on any Business Day on which any Syndicated Loans are made or
are to be made to any Borrower, the effect of the making of any such Loan is or
would be to cause the aggregate amount of the Syndicated Loans and the Swing
Line Loans of the Swing Line Lender to exceed the greater of the Swing Line
Lender's Commitment or the Swing Line Commitment in effect on such Business Day
after giving effect to the making of such Loan, such Borrower shall, on such
Business Day, apply such portion of the proceeds of such Syndicated Loans as is
required to prepay an amount of Swing Line Loans (together with accrued interest
thereon and amounts payable pursuant to Section 5.05) such that, after giving
effect thereto, the aggregate principal amount of the Syndicated Loans and Swing
Line Loans
23
<PAGE>
of the Swing Line Lender does not exceed the greater of the Swing Line Lender's
Commitment or the Swing Line Commitment in effect at such time. Each Borrower
hereby irrevocably authorizes and directs the Agent to apply such portion of the
proceeds of such Syndicated Loans, otherwise payable to such Borrower's account
pursuant to Section 2.02, to the Swing Line Lender in satisfaction of such
Borrower's prepayment obligation under this Section 2.11(d).
2.12 Extension of Termination Date.
-----------------------------
(a) The Borrowers may, by notice given to the Agent (which shall
promptly deliver a copy thereof to the Lenders) not less than sixty (60) days
prior to the first, second or third anniversaries of the Effective Date request
that the Termination Date for all Lenders be extended for one additional year;
provided that the Borrowers may obtain only one such extension. Not later
- --------
than thirty (30) days after the Borrowers shall have made such request, each
Lender, acting in its sole discretion, shall notify the Agent of its response to
such request;
provided that any Lender which fails to respond to any such request shall be
- --------
deemed to have denied such request. Such extension shall be effective as to
each Lender agreeing to such extension when (i) each Borrower shall have
delivered a certificate to the Agent to the effect that no Default or Event of
Default shall have occurred and be continuing with respect to such Borrower
either on the date of the notice requesting such extension or the last date for
the Lenders' responses, (ii) each Obligor shall have delivered a certificate to
the Agent to the effect that each of the representations and warranties of such
Obligor set forth herein or in any Credit Document shall be true and complete in
all material respects on and as of each of the date of such notice and the last
date for the Lenders' responses with the same force and effect as if made on and
as of each such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date) and
(iii) Lenders having not less than 50% of the Commitments as in effect at such
time shall have agreed to such extension. Each Lender shall make its own
independent decision upon a request for extension of the Termination Date and no
Lender shall be bound by the decision of any other Lender. The Agent shall give
each Lender notice of the responses of all of the Lenders within 45 days of
receipt of such request from the Borrowers. In connection with any extension of
the Termination Date, the aggregate amount of the Commitments shall be
permanently reduced on the First Scheduled Termination Date by the aggregate
amount of the Commitments of all Lenders electing not to extend the Termination
Date for an additional year from such date which have not been replaced pursuant
to paragraph (b).
(b) If the Borrowers shall have requested an extension of the
Termination Date pursuant to paragraph (a) and Lenders having not less than 50%
of the Commitments shall agree to such extension pursuant thereto, the Borrowers
shall have the right on or before the First Scheduled Termination Date to
replace any Lender which has not agreed to extend the Termination Date beyond
such date with, and otherwise add to this Agreement, one or more other banks or
financial institutions (which may include any Lender) with the approval of the
Agent (which approval shall not be unreasonably withheld), each of which
additional banks or financial institutions shall have entered into an Assignment
and Acceptance pursuant to which such additional bank or financial institution
shall accept an assignment of such replaced Lender's Loans and shall undertake a
Commitment (and, if any such additional bank or financial institution is a
Lender, the Commitment so undertaken shall be in addition to such Lender's
existing Commitment hereunder on such date), provided that the Commitments so
undertaken shall not exceed the aggregate Commitments of all non-extending
Lenders. If the Termination Date has been extended to the Extended Termination
Date pursuant to this Section 2.12, on the First Scheduled Termination Date, (i)
the Borrowers shall repay in full all Loans outstanding on such date made by any
Lender which has not agreed to extend the
24
<PAGE>
Termination Date beyond such date and all other amounts owed to such Lender, and
(ii) each Lender that has increased its Commitment and each additional bank or
financial institution undertaking a Commitment shall make Loans hereunder to the
Borrowers in such amounts as shall be necessary to cause the outstanding amount
of such existing Lender's or additional bank's or financial institution's share
of the Syndicated Loans of all Lenders, expressed as a percentage, to be equal
to such existing Lender's or such additional bank's or financial institution's
Commitment Percentage (after giving effect to such increase in any such existing
Lender's Commitment). The proceeds of such Loans shall be applied by the Agent
on behalf of the Borrowers to the partial repayment of the other Lenders' Loans
(including Loans of existing Lenders that have increased their Commitments) to
the extent necessary to effect such proration (and the pro-rata and sharing
provisions of Section 4.02 shall not be applicable to such payment).
2.13 New Lenders. During the period from the first anniversary of
-----------
the Effective Date to the Termination Date with the consent of the Borrowers and
upon notification to the Agent, one or more additional banks or financial
institutions may become a party to this Agreement by executing an addendum
hereto with the Obligors and the Agent, substantially in the form of Exhibit G,
whereupon such bank or financial institution (each, a "New Lender") shall become
----------
a Lender for all purposes and to the same extent as if originally a party
hereto and shall be bound by and entitled to the benefits of this Agreement,
provided that, after giving effect to such addition, (i) the aggregate
- --------
Commitments shall not exceed $1,000,000,000 and (ii) no Lender shall have a
Commitment which equals or exceeds 25% of the aggregate Commitments. Effective
as of the date on which any such New Lender becomes a Lender pursuant to the
provisions of this Section 2.13, the aggregate Commitments shall be increased by
the amount of such New Lender's Commitment. Each New Lender undertaking a
Commitment shall make Loans hereunder to the Borrowers in such amounts as shall
be necessary to cause the outstanding amount of such New Lender's share of the
Syndicated Loans of all Lenders, expressed as a percentage, to be equal to such
New Lender's Commitment Percentage. The proceeds of such Loans shall be applied
by the Agent on behalf of the Borrowers to the partial repayment of the other
Lenders' Loans to the extent necessary to effect such proration (and the pro-
rata and sharing provisions of Section 4.02 shall not be applicable to such
payment). Notwithstanding anything herein to the contrary, if there are
Eurodollar Loans outstanding to any Borrower, a financial institution that
becomes a New Lender will make Eurodollar Loans to such Borrower (pro rata
--------
according to its Commitment Percentage) having Interest Periods corresponding to
the then unexpired portions of the respective Interest Periods of such
Eurodollar Loans and bearing interest at a rate equal to the respective interest
rates then applicable to such Eurodollar Loans. Promptly following the addition
of a New Lender hereunder, the Agent shall advise the Lenders of such addition,
of the amount of its Commitment and of the amount of any borrowing from it
hereunder made simultaneously upon its addition.
2.14 Increases in Commitments. During the period from the first
------------------------
anniversary of the Effective Date to the Termination Date at the request of the
Borrowers and upon notification to the Agent, any Lender may increase the amount
of its Commitment by executing an addendum hereto with the Obligors and the
Agent, substantially in the form of Exhibit H, whereupon such Lender shall be
bound by and entitled to the benefits of this Agreement with respect to the full
amount of its Commitment as so increased, provided that, after giving effect to
--------
any such increase, (i) the aggregate Commitments shall not exceed $1,000,000,000
and (ii) no Lender shall have a Commitment which equals or exceeds 25% of the
aggregate Commitments. Effective as of the date on which any such Lender
increases its Commitment pursuant to the provisions of this Section 2.14, the
aggregate Commitments shall be increased by the amount of such Lender's
additional Commitment. If on the date
25
<PAGE>
upon which such Lender increases its Commitment pursuant to this Section 2.14
there is an unpaid principal amount of Syndicated Loans under Section 2.01, each
Borrower to whom Syndicated Loans are outstanding shall borrow from such Lender
through the Agent, subject to Section 6, an amount determined by multiplying the
amount of the increase in such Lender's Commitment by a fraction, the numerator
of which shall be the then unpaid principal amount of the Syndicated Loans
outstanding under Section 2.01 and the denominator of which shall be the
aggregate Commitments of the Lenders other than the amount of the additional
Commitment of such Lender. Notwithstanding anything herein to the contrary, if
there are Eurodollar Loans outstanding to any Borrower, such Lender may increase
its Commitment and make Eurodollar Loans to such Borrower having Interest
Periods corresponding to the then unexpired portions of the respective Interest
Periods of such Eurodollar Loans and bearing interest at a rate equal to the
respective interest rates then applicable to such Eurodollar Loans. The Agent
shall advise the Lenders of such increase in the Commitment of a Lender and of
the amount of any borrowing from it hereunder made simultaneously upon such
increase.
2.15 Transition Provisions. (a) If on the Effective Date there is
---------------------
an unpaid principal amount of Syndicated Loans which are Base Rate Loans, each
Additional Lender and each Lender whose Commitment has increased pursuant to the
amendment and restatement of the Existing Agreement shall make Loans hereunder
to the Borrowers in such amounts as shall be necessary to cause the outstanding
amount of each such Lender's share of the Base Rate Loans of all Lenders,
expressed as a percentage, to be equal to such Lender's Commitment Percentage.
The proceeds of such Loans shall be applied by the Agent on behalf of the
Borrowers to the partial repayment of the other Lenders' Base Rate Loans to the
extent necessary to cause the outstanding amount of each such other Lender's
share of the Base Rate Loans of all Lenders, expressed as a percentage, to be
equal to such other Lender's Commitment Percentage (and the pro-rata and sharing
provisions of Section 4.02 shall not be applicable to such payment).
(b) If on the Effective Date there is an unpaid principal amount of
Syndicated Loans which are Eurodollar Loans or Competitive Bid Option Loans, the
Additional Lenders and the Lenders whose Commitments have increased pursuant to
the amendment and restatement of the Existing Agreement shall not be required to
make any advances in respect thereof, provided that, in the case of Syndicated
--------
Loans which are Eurodollar Loans, if such Eurodollar Loans are converted or
continued on the last day of the Interest Period therefor, such conversion or
continuation shall be pro rata according to the Commitments of the Lenders after
--- ----
giving effect to the amendment and restatement of the Existing Agreement, and
provided, further, that if, for any reason any such Eurodollar Loans are not
- -------- -------
repaid on the last day of the Interest Period therefor, effective on such last
day, each Additional Lender and each Lender whose Commitment has increased
pursuant to the amendment and restatement of this Agreement severally agrees
that it shall unconditionally and irrevocably, without regard to the occurrence
of any Default or Event of Default, purchase a participating interest in such
Eurodollar Loans ("Unrefunded Eurodollar Loans") in an amount equal to, in the
---------------------------
case of an Additional Lender, such Lender's Commitment Percentage of such
Eurodollar Loans, and, in the case of a Lender whose Commitment shall have
increased, the product of the principal amount of such Eurodollar Loans and a
fraction the numerator of which is the amount of the increase in such Lender's
Commitment and the denominator of which is the aggregate amount of the
Commitments. Each such Lender will immediately transfer to the Agent, in
immediately available funds, the amount of its participation, and the proceeds
of such participations shall be distributed by the Agent to the other Lenders in
such amounts as will reduce the amount of the participating interest retained by
each such other Lender in such Eurodollar Loans to their respective Commitment
Percentages of such Eurodollar Loans.
26
<PAGE>
Each Lender shall share on a pro rata basis (calculated by reference to its
--------
participating interest in such Eurodollar Loans) in any interest which accrues
thereon and in all repayments thereof. All payments in respect of Unrefunded
Eurodollar Loans and participations therein shall be made in accordance with
Section 4.02.
Section 3. Payments of Principal and Interest.
----------------------------------
3.01 Repayment of Loans.
------------------
(a) Each Borrower hereby promises to pay to the Agent for the account
of each Lender the entire outstanding principal amount of such Lender's
Syndicated Loans to such Borrower, and each such Syndicated Loan shall mature
and be payable in full, on the Termination Date.
(b) Each Borrower hereby promises to pay to the Agent for the account
of each Lender that makes any Competitive Bid Option Loan to such Borrower the
entire principal amount of such Competitive Bid Option Loan, and such
Competitive Bid Option Loan shall mature and be payable in full, on the last day
of the Interest Period for such Competitive Bid Option Loan.
(c) Each Borrower hereby promises to pay to the Agent for the account
of the Swing Line Lender the entire outstanding principal amount of the Swing
Line Lender's Swing Line Loans, and such Swing Line Loans shall mature and be
payable in full, on the seventh (7th) Business Day following the date each such
Loan is made and in any event on the Termination Date.
3.02 Interest. Each Borrower hereby promises to pay to the Agent
--------
for account of each Lender interest on the unpaid principal amount of each Loan
made by such Lender to the Borrower for the period from and including the date
of the Loan to but excluding the date such Loan shall be paid or prepaid in
full, at the following rates per annum:
(a) during such periods as such Loan is a Base Rate Loan, the Base Rate
(as in effect from time to time);
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for
such Interest Period plus the Applicable Margin;
----
(c) if such Loan is a LIBOR Market Loan, the LIBO Rate for such Loan for
the Interest Period therefor plus (or minus) the LIBO Margin quoted by the
---- -----
Lender making such Loan in accordance with Section 2.03;
(d) if such Loan is a Set Rate Loan, the Set Rate for such Loan for the
Interest Period therefor quoted by the Lender making such Loan in
accordance with Section 2.03;
(e) if such Loan is a Swing Line Money Market Loan, the Swing Line Money
Market Rate agreed by the Swing Line Lender and the Borrower with respect
to such Loan; and
(f) if such Loan is a Swing Line Base Rate Loan, the Swing Line Base
Rate (as in effect from time to time).
27
<PAGE>
Notwithstanding the foregoing, so long as any Event of Default shall have
occurred and be continuing with respect to a Borrower, such Borrower hereby
promises to pay to the Agent for the account of each Lender interest at the
applicable Post-Default Rate (but not in excess of that permitted by applicable
law) on any principal of and interest on any Loan made by such Lender to such
Borrower and on any other amount owing by such Borrower hereunder or under any
other Credit Document. Accrued interest on each Loan shall be payable (i) in
the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case
of a Eurodollar Loan or a Competitive Bid Option Loan, on the last day of the
Interest Period therefor and, in addition, if such Interest Period is longer
than three months, on each Quarterly Date, and (iii) in the case of any Loan,
upon the payment or prepayment thereof or the Conversion of such Loan to a Loan
of another Type (but only on the principal amount so paid, prepaid or
Converted), except that interest payable at the Post-Default Rate shall be
payable from time to time on demand. Promptly after the determination of any
interest rate provided for herein or any change therein, the Agent shall give
notice thereof to the Lenders to which such interest is payable and to the
Borrowers.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
-----------------------------------------------
4.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by any Obligor under this
Agreement, and, except to the extent otherwise provided therein, all payments to
be made by any Obligor under any other Credit Document, shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Agent at account number NYAON 900-9-000002 maintained by
the Agent with Chase at the Principal Office, not later than 2:00 p.m. New York
City time on the date on which such payment shall become due (each such payment
made after such time on such due date to be deemed to have been made on the next
succeeding Business Day).
(b) Each Obligor shall, at the time of making each payment under this
Agreement, specify to the Agent (which shall so notify the intended recipient(s)
thereof) the Loans or other amounts payable by such Obligor hereunder to which
such payment is to be applied (and in the event that such Obligor fails to so
specify, or if an Event of Default has occurred and is continuing, the Agent may
distribute such payment to the Lenders for application in accordance with
Section 4.02 or in such manner as the Majority Lenders may determine to be
appropriate).
(c) Each payment received by the Agent under this Agreement for
account of any Lender shall be paid by the Agent promptly to such Lender, in
immediately available funds, for account of such Lender's Applicable Lending
Office for the Loan or other obligation in respect of which such payment is
made.
(d) If the due date of any payment under this Agreement would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
------------------
herein: (a) each borrowing of Syndicated Loans from the Lenders under Section
2.01 shall be made from the Lenders, each payment of a Facility Fee under
Section 2.06 and each payment of a Utilization Fee under Section 2.06 in respect
of Commitments and Loans, respectively, shall
28
<PAGE>
be made for account of the Lenders, and each termination or reduction of
the amount of the Commitments under Section 2.05 shall be applied to the
respective Commitments of the Lenders, pro rata according to the amounts of
their respective Commitments; (b) the making, Conversion and Continuation of
Syndicated Loans of a particular Type (other than Conversions provided for by
Section 5.04) shall be made pro rata among the Lenders according to the amounts
of their Commitments (in the case of making of Syndicated Loans) or their
respective Syndicated Loans (in the case of Conversions and Continuations of
Loans) and the Interest Period for each Loan of such Type at the time of the
making, Conversion or Confirmation thereof shall be coterminous with the
Interest Period of each other Loan of such Type made, Converted or Continued at
such time (other than Loans of such Type for which a different Interest Period
has been chosen in accordance with the terms of this Agreement); (c) each
payment or prepayment of principal of Syndicated Loans by any Borrower shall be
made for account of the Lenders pro rata in accordance with the respective
unpaid principal amounts of the Syndicated Loans held by them, provided that if
--------
immediately prior to giving effect to any such payment in respect of any
Syndicated Loans the outstanding principal amount of the Syndicated Loans shall
not be held by the Lenders pro rata in accordance with their respective
Commitments in effect at the time such Loans were made (by reason of a failure
of a Lender to make a Loan hereunder in the circumstances described in the last
paragraph of Section 13.04), then such payment shall be applied to the
Syndicated Loans in such manner as shall result, as nearly as is practicable, in
the outstanding principal amount of the Syndicated Loans being held by the
Lenders pro rata in accordance with their respective Commitments; (d) each
payment of interest on Syndicated Loans by any Borrower shall be made for
account of the Lenders pro rata in accordance with the amounts of interest on
such Loans then due and payable to the respective Lenders; and (e) each payment
or prepayment of principal of Loans by any Borrower shall be made for account of
the Lenders pro rata in accordance with the respective unpaid principal amounts
of each Loan then due and payable.
4.03 Computations. Facility Fees and interest on Competitive Bid
------------
Option Loans, Swing Line Base Rate Loans and Eurodollar Loans shall be computed
on the basis of a year of 360 days and actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable and
Utilization Fees and interest on Base Rate Loans shall be computed on the basis
of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable. Notwithstanding the foregoing, (i) for each day that the Base
Rate is calculated by reference to the Federal Funds Rate, interest on Base Rate
Loans shall be computed on the basis of a year of 360 days and actual days
elapsed and (ii) interest on Set Rate Loans with an Interest Period of 270 days
or more shall be computed on the basis of a 360-day year consisting of twelve
30-day months.
4.04 Minimum Amounts. Except as provided in Section 2.02 and
---------------
2.04(a) and except for mandatory prepayments made pursuant to Section 2.11 and
Conversions or prepayments made pursuant to Section 5.04 and except for any
Loans required to be made pursuant to Section 2.15, each borrowing, Conversion
and partial prepayment of principal of Loans shall be in an aggregate amount at
least equal to $5,000,000 or in multiples of $1,000,000 in excess thereof
(borrowings, Conversions or prepayments of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period). Anything in
this Agreement to the contrary notwithstanding, the aggregate principal amount
of Eurodollar Loans having the same Interest Period shall be in an amount at
least equal to $5,000,000 or in multiples of $1,000,000 in excess thereof.
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<PAGE>
4.05 Certain Notices. Except as otherwise provided in Section
---------------
2.03 with respect to the borrowing of Competitive Bid Option Loans and in
Section 2.04 with respect to the borrowing of Swing Line Loans, notices by any
Borrower to the Agent of terminations or reductions of the Commitments, of
borrowings, Conversions, Continuations and optional prepayments of Loans and of
Classes and Types of Loans and of the duration of Interest Periods shall be
irrevocable and shall be effective only if received by the Agent not later than
11:00 a.m. New York City time on the number of Business Days prior to the date
of the relevant termination, reduction, borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified below:
Number of
Business
Notice Days Prior
------ ----------
Termination or reduction of Commitments 3
Borrowing or prepayment of, or Conversions
into, Base Rate Loans 0
Borrowing or prepayment of, Conversions into,
Continuations as, or duration of Interest Period
for, Eurodollar Loans 3
Duration of Interest Period for Eurodollar Loans
of less than one month or more than six months 4
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing of
Syndicated Loans shall be in substantially the form of Exhibit D-2 hereto,
specifying the amount (subject to Section 4.04) and Type of each Loan to be
borrowed and the date of borrowing. Each such notice of Conversion,
Continuation or optional prepayment shall specify the Type of Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
4.04) (and, in the case of a Conversion, the Type of Loan to result from such
Conversion) and the date of Conversion, Continuation or optional prepayment
(which shall be a Business Day). Each such notice of the duration of an
Interest Period shall specify the Loans to which such Interest Period is to
relate. The Agent shall promptly notify the Lenders of the contents of each
such notice. In the event that such notice from the Borrower requests a
borrowing or Continuation of, or a Conversion into, a Eurodollar Loan specifying
an Interest Period of less than one month or more than six months, each Lender
shall notify the Agent not later than 11:00 a.m. (New York City time) one
Business Day after receipt of such notice as to whether funds are available to
such Lender in the amount and for the Interest Period requested. Unless such
funds are so available to each Lender, such notice from the Borrower shall be
deemed to be canceled. In the event that the Borrower fails to select the Type
of Loan, or the duration of any Interest Period for any Eurodollar Loan, within
the time period and otherwise as provided in this Section 4.05, such Loan (if
outstanding as a Eurodollar Loan) will be automatically Converted into a Base
Rate Loan on the last day of the then current Interest Period for such Loan or
(if outstanding as a Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have
---------------------------------
been notified by a Lender or any Borrower (the "Payor") prior to the date on
-----
which the Payor is to make payment to the Agent of (in the case of a Lender)
the proceeds of a Loan to be made by
30
<PAGE>
such Lender hereunder or (in the case of a Borrower) a payment to the Agent for
account of one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
----------------
that the Payor does not intend to make the Required Payment to the Agent, the
Agent may assume that the Required Payment has been made and may, in reliance
upon such assumption (but shall not be required to), make the amount thereof
available to the intended recipient(s) on such date and, if the Payor has not in
fact made the Required Payment to the Agent, the recipient(s) of such payment
shall, on demand, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to, for each of the first three days
following the date such amount was made available by the Agent, the Federal
Funds Rate for such day, and following such three day period, the interest rate
applicable to the Loans corresponding to such amount, and, if such recipient(s)
shall fail promptly to make such payment, the Agent shall be entitled to recover
such amount, on demand, from the Payor, together with interest as aforesaid.
4.07 Sharing of Payments, Etc.
------------------------
(a) Each Borrower agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim the Agent or a Lender
may otherwise have, the Agent and each Lender shall be entitled, at its option,
to offset balances held by it for account of such Borrower at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on any of such Lender's Loans or any other amount payable to such
Lender or to the Agent hereunder, that is not paid when due (regardless of
whether the balances are then due to such Borrower), in which case it shall
promptly notify such Borrower and the Agent thereof, provided that the Agent's
--------
or Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain from any Borrower payment of any
principal of or interest on any Loan owing to it or payment of any other amount
under this Agreement or any other Credit Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Agent as provided herein), and, as a result of such
payment, such Lender shall have received a greater percentage of the principal
of or interest on the Loans or such other amounts then due hereunder or
thereunder by such Borrower to such Lender than the percentage received by any
other Lender except as permitted hereunder, it shall promptly purchase from such
other Lenders participations in (or, if and to the extent specified by such
Lender, direct interests in) the Loans or such other amounts, respectively,
owing to such other Lenders (or in interest due thereon, as the case may be) in
such amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
excess payment (net of any expenses that may be incurred by such Lender in
obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal of and/or interest on the Loans or such other amounts,
respectively, owing to each of the Lenders, provided that if at the time of such
--------
payment the outstanding principal amount of the Syndicated Loans shall not be
held by the Lenders pro rata in accordance with their respective Commitments in
effect at the time such Loans were made (by reason of a failure of a Lender to
make a Loan hereunder in the circumstances described in the last paragraph of
Section 13.04), then such purchases of participations and/or direct interests
shall be made in such manner as will result, as nearly as is practicable, in the
outstanding principal amount of the Syndicated Loans being held by the Lenders
pro rata according to the amounts of such Commitments. To such end all the
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
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<PAGE>
(c) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of any Borrower. If, under any applicable bankruptcy, insolvency or
other similar law any Lender receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
---------------------
5.01 Additional Costs.
----------------
(a) Each Borrower agrees to pay directly to each Lender from time to
time within 15 days after request is made by such Lender and receipt by such
Borrower of the certificate of such Lender described in Section 5.01(c) such
amounts as such Lender may reasonably determine to be necessary to compensate
such Lender for any increase in the costs that such Lender reasonably determines
are attributable to its making or maintaining any Eurodollar Loans to such
Borrower or its obligation to make any Eurodollar Loans hereunder to such
Borrower by an amount such Lender deems to be material, or any reduction in any
amount receivable by such Lender hereunder in respect of any of such Loans or
such obligation (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any Regulatory Change
----------------
that:
(i) changes the basis of taxation of any amounts payable to such
Lender under this Agreement in respect of any of such Loans (other than
taxes imposed on or measured by the overall net income of such Lender or
of its Applicable Lending Office for any of such Loans by any jurisdiction
in which such Lender has its principal office or such Applicable Lending
Office or is subject to taxation other than as a result of the
transactions contemplated by this Agreement); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than Eurocurrency Reserve Requirements) relating to
any extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender or any commitment of such Lender (including,
without limitation, the Commitment of such Lender hereunder).
If any Lender requests compensation from any Borrower under this Section
5.01(a), such Borrower may, by notice to such Lender (with a copy to the Agent),
suspend the obligation of such Lender thereafter to make or Continue Loans to
such Borrower of the Type with respect to which such compensation is requested,
or to Convert Loans of any other Type into Loans of such Type, until the
Regulatory Change giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 shall be applicable), provided that such
--------
suspension shall not affect the right of such Lender to receive the compensation
so requested.
(b) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), each Borrower agrees to pay directly to
each Lender from time to time on request such amounts as such Lender may
reasonably determine to be necessary to compensate such Lender (or, without
duplication, the bank holding company of which such Lender is a subsidiary) for
any increase in such costs that it reasonably determines to be material which
are attributable to the maintenance by such Lender (or any Applicable Lending
Office or such bank holding company), pursuant to any law or regulation or any
32
<PAGE>
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or (ii)
changing after the date hereof the interpretation or administration of any risk-
based capital guideline or other requirement (whether or not having the force of
law and whether or not the failure to comply therewith would be unlawful)
heretofore or hereafter issued by any government or governmental or supervisory
authority implementing at the national level the Basle Accord (including,
without limitation, the Final Risk-Based Capital Guidelines of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12
C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the
Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of
capital in respect of its Commitment or Loans to such Borrower (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on equity of such Lender (or any Applicable Lending Office or
such bank holding company) to a level below that which such Lender (or any
Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request). For purposes of
this Section 5.01(b), "Basle Accord" shall mean the proposals for risk-based
------------
capital framework described by the Basle Committee on Lending Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
(c) Each Lender shall notify each Borrower of any event occurring
after the date of this Agreement entitling such Lender to compensation under
paragraph (a) or (b) of this Section 5.01 as promptly as practicable, but in any
event within 30 days, after such Lender obtains actual knowledge thereof;
provided that each Lender will designate a different Applicable Lending Office
- --------
for the Loans of such Lender affected by such event if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Lender, be disadvantageous to such Lender, except that
such Lender shall have no obligation to designate an Applicable Lending Office
located in the United States of America. Each Lender will furnish to each
Borrower a certificate setting forth the basis and amount of each request by
such Lender for compensation under paragraph (a) or (b) of this Section 5.01.
Determinations and allocations by any Lender for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to paragraph (a) of this Section
5.01, or of the effect of capital maintained pursuant to paragraph (b) of this
Section 5.01, on its costs or rate of return of maintaining Loans or its
obligation to make Loans, or on amounts receivable by it in respect of Loans,
and of the amounts required to compensate such Lender under this Section 5.01,
shall be prima facie evidence of such determinations and allocations.
(d) Notwithstanding the foregoing, no Lender shall be entitled to any
compensation described in Section 5.01(a) or (b) unless, at the time it requests
such compensation, it is the policy or general practice of such Lender to
request compensation for comparable costs in similar circumstances under
comparable provisions of other credit agreements for comparable customers unless
specific facts or circumstances applicable to any Obligor or the transactions
contemplated by this Agreement would alter such policy or general practice,
provided that nothing in this Section 5.01(d) shall preclude a Lender from
- --------
waiving the collection of similar costs from one or more of its other customers.
(e) If any Lender fails to give the notice described in Section
5.01(c) within 30 days after it obtains actual knowledge of the event required
to be described in such notice, such Lender shall, with respect to any
compensation that would otherwise be owing to
33
<PAGE>
such Lender under paragraph (a) or (b) of this Section 5.01, only be entitled to
payment for increased costs incurred from after the date that such Lender does
give such notice.
5.02 Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if, on or prior to the determination of any Eurodollar Rate for
any Interest Period:
(a) the Agent is advised by the Reference Banks, that quotations of
interest rates for the relevant deposits referred to in the definition of
"Eurodollar Rate" in Section 1.01 hereof are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining
rates of interest for any Eurodollar Loans or LIBOR Market Loans as
provided herein; or
(b) if the related Loans are Syndicated Loans, the Majority Lenders
notify the Agent that the relevant rates of interest referred to in the
definition of "Eurodollar Rate" in Section 1.01 hereof upon the basis of
which the rate of interest for Eurodollar Loans for such Interest Period is
to be determined are not likely adequately to cover the cost to such
Lenders of making or maintaining such Type of Loans for such Interest
Period (which determination by the Majority Lenders, shall be conclusive);
then the Agent shall give each affected Borrower and each Lender prompt notice
thereof and, so long as such condition remains in effect, the Lenders shall be
under no obligation to make additional Loans of such Type, to Continue Loans of
such Type or to Convert Loans of any other Type into Loans of such Type, and the
Borrowers shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Loans of such Type, either prepay such Loans or Convert such
Loans into another Type of Loan in accordance with Section 2.10.
5.03 Illegality. Notwithstanding any other provision of this Agreement,
----------
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to honor its obligation to make or maintain Eurodollar Loans or LIBOR
Market Loans hereunder, then such Lender shall promptly notify the Borrowers
thereof (with a copy to the Agent) and such Lender's obligation to make or
Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be
suspended until such time as such Lender may again make and maintain Eurodollar
Loans (in which case the provisions of Section 5.04 shall be applicable), and
such Lender shall no longer be obligated to make any LIBOR Market Loan that it
offered to make prior to such event.
5.04 Treatment of Affected Loans. If the obligation of any Lender to make
---------------------------
a Eurodollar Loan or to Continue, or to Convert Loans of any other Type into,
Loans of a particular Type shall be suspended pursuant to Section 5.01 or 5.03
(Loans of such Type being herein called "Affected Loans" and such Type being
--------------
herein called the "Affected Type"), such Lender's Affected Loans shall be
-------------
automatically Converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) for Affected Loans (or, in the case of a Conversion
required by Section 5.03, on such earlier date as required by law) and, unless
and until such Lender gives notice as provided below that the circumstances
specified in Section 5.01 or 5.03 that gave rise to such Conversion no longer
exist:
(a) to the extent that such Lender's Affected Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Lender's Affected Loans shall be applied instead to its
Base Rate Loans; and
34
<PAGE>
(b) all Loans that would otherwise be made or Continued by such Lender
as Loans of the Affected Type shall be made or Continued instead as Base
Rate Loans, and all Loans of such Lender that would otherwise be Converted
into Loans of the Affected Type shall be Converted instead into (or shall
remain as) Base Rate Loans.
If such Lender gives notice to the Borrowers with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 that gave rise to the Conversion
of such Lender's Affected Loans pursuant to this Section 5.04 no longer exist
(which such Lender agrees to do promptly upon such circumstances ceasing to
exist) at a time when Loans of the Affected Type made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Loans of the Affected Type, to the extent necessary so that, after giving effect
thereto, all Syndicated Loans held by the Lenders holding Loans of the Affected
Type and by such Lender are held pro rata (as to principal amounts, Types and
Interest Periods) in accordance with their respective Commitments.
5.05 Compensation. Each Borrower shall pay to the Agent for account of
------------
each Lender, upon the request of such Lender through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such Lender) to
compensate it for any loss, cost or expense that such Lender reasonably
determines is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan, LIBOR Market Loan or a Set Rate Loan made by such Lender
to such Borrower for any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 11 hereof) on a date other
than the last day of the Interest Period for such Loan; or
(b) any failure by such Borrower for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 6 hereof to be satisfied but excluding any failure by such Borrower
due to an event or circumstance described in Section 5.02 or 5.03) to
borrow a Eurodollar Loan or a Competitive Bid Option Loan (with respect to
which, in the case of a Competitive Bid Option Loan, such Borrower has
accepted a CBO Quote) from such Lender on the date for such borrowing
specified in the relevant notice of borrowing given pursuant to Section
2.02 or 2.03(e).
Without limiting the effect of the preceding sentence, such compensation shall
be an amount equal to the excess, if any, of (i) the amount of interest that
otherwise would have accrued on the principal amount so paid, prepaid or
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein less the Applicable Margin (and less any LIBO Margin above the
applicable LIBO Rate in the case of any LIBOR Market Loans) over (ii) the amount
of interest that otherwise would have accrued on such principal amount at a rate
per annum equal to the interest component of the amount such Lender would have
bid in the London interbank market (if such Loan is a Eurodollar Loan or a LIBOR
Market Loan) or the United States secondary certificate of deposit market (or
other comparable United States market agreeable to such Lender and such
Borrower, if such amount cannot be determined for the United States secondary
certificate of deposit market) (if such Loan is a Set Rate Loan or a Swing Line
Money Market Loan) for Dollar deposits of
35
<PAGE>
leading banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Lender).
5.06 U.S. Taxes.
----------
(a) Each Borrower agrees to pay to each Lender that is not a U.S.
Person such additional amounts as are necessary in order that the net payment of
any amount due to such non-U.S. Person by such Borrower hereunder after
deduction for or withholding in respect of any U.S. Tax imposed with respect to
such payment (or in lieu thereof, payment of such U.S. Tax by such non-U.S.
Person), will not be less than the amount stated herein to be then due and
payable, provided that the foregoing obligation to pay such additional amounts
--------
shall not apply:
(i) to any payment to a Lender hereunder unless such Lender is, on
the date hereof (or on the date it becomes a Lender as provided in Section
2.12, 2.13 or 13.06(b) hereof) and on the date of any change in the
Applicable Lending Office of such Lender, entitled to submit either a Form
1001 (relating to such Lender and entitling it to a complete exemption from
withholding on all payments to be received by it hereunder in respect of
the Loans) or Form 4224 (relating to all payments to be received by such
Lender hereunder in respect of the Loans); or
(ii) to any U.S. Tax that would not have been imposed but for the
failure by such non-U.S. Person to comply with applicable certification,
information, documentation or other reporting requirements concerning the
nationality, residence, identity or connections with the United States of
America of such non-U.S. Person if such compliance is required by statute
or regulation of the United States of America as a precondition to relief
or exemption from such U.S. Tax.
For the purposes of this Section 5.06(a), (w) "Form 1001" shall mean Form 1001
---------
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (x) "Form 4224" shall mean Form 4224
---------
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates), (y) "U.S. Person" shall mean a citizen, national or
-----------
resident of the United States of America, a corporation, partnership or other
entity created or organized in or under any laws of the United States of
America, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income and (z) "U.S. Taxes" shall mean any
----------
present or future tax, assessment or other charge or levy imposed by or on
behalf of the United States of America or any taxing authority thereof or
therein.
(b) Within 30 days after paying any amount to the Agent or any Lender
from which it is required by law to make any deduction or withholding, and
within 30 days after it is required by law to remit such deduction or
withholding to any relevant taxing or other authority, each Borrower shall
deliver to the Agent for delivery to such non-U.S. Person evidence in the
control of such Borrower and reasonably satisfactory to such Person of such
deduction, withholding or payment (as the case may be).
(c) Each Lender which is not a U.S. Person agrees that:
36
<PAGE>
(i) it shall, no later than the date of this Agreement (or, in the
case of a Lender which becomes a party hereto pursuant to Section 2.12,
2.13 or 13.06(b) after the date hereof, the date upon which the Lender
becomes a party hereto) deliver to the Borrowers and the Agent two accurate
and complete signed originals of Form 4224 or Form 1001, as appropriate, in
each case indicating that the Lender is on the date of delivery thereof
entitled to receive payments under this Agreement free from withholding of
U.S. Taxes;
(ii) if at any time the Lender makes any changes necessitating a new
Form 4224 or Form 1001 or at any time any Borrower shall not be able to
continue to rely on any Form 4224 or 1001 previously submitted by such
Lender, such Lender shall, to the extent legally entitled to do so at such
time, promptly deliver to the Borrowers and the Agent in replacement for,
or in addition to, the forms previously delivered by it hereunder, two
accurate and complete signed originals of Form 4224 or two accurate and
complete signed originals of Form 1001, as appropriate, in each case
indicating that the Lender is on the date of delivery thereof entitled to
receive payments under this Agreement free from withholding of U.S. Taxes;
(iii) it shall, promptly upon any Borrower's reasonable request to
that effect, deliver to such Borrower and the Agent such other forms or
similar documentation as may be required from time to time by any
applicable law, treaty, rule or regulation in order to establish such
Lender's tax status for withholding purposes.
(d) Notwithstanding anything herein to the contrary, no Borrower will
be required to pay any additional amounts in respect of U.S. Taxes:
(i) if the obligation to pay such additional amounts would not have
arisen but for a failure by such Lender to comply with its obligations
under Section 5.06(c);
(ii) if such Lender shall have delivered to the Borrowers and the
Agent a Form 4224 or a Form 1001 in respect of such Applicable Lending
Office pursuant to Section 5.06(c), and such Lender shall not on the date
of delivery thereof or at any time thereafter be entitled to exemption from
deduction or withholding of U.S. Taxes in respect of payments by such
Borrower hereunder for the account of such Applicable Lending Office for
any reason other than as a result of a change in United States law or
regulations or in the official interpretation of such law or regulations by
any governmental authority charged with the interpretation or
administration thereof after the Effective Date (or, in the case of a
Lender which becomes a party hereto pursuant to Section 2.12, 2.13 or
13.06(b) after the date hereof, the date upon which such Lender becomes a
party hereto);
(iii) with respect to each Lender, if such additional amounts
represent taxes imposed on its income, or franchise taxes imposed on it, by
the jurisdiction of its Applicable Lending Office, or by the jurisdiction
under the laws of which the Lender is organized, or, in either such case,
any political subdivision or taxing authority thereof or therein.
Section 6. Conditions Precedent.
--------------------
6.01 Effective Date. This amendment and restatement of the Existing
--------------
Agreement shall become effective on the first date (the "Effective Date") that
each of the
37
<PAGE>
following conditions shall have been satisfied or fulfilled (or waived in
accordance with Section 13.04):
(a) Documents. The receipt by the Agent of the following documents,
---------
each of which shall be satisfactory to the Agent in form and substance:
(i) Corporate Documents. The following documents, each certified
-------------------
as indicated below:
(1) a copy of the charter, as amended and in effect, of each
Obligor certified as of a recent date by the secretary or assistant
secretary of such Obligor, and a certificate from the Comptroller of the
Currency or the Secretary of State of its jurisdiction of incorporation, as
the case may be, dated as of a recent date, as to the good standing of such
Obligor; and
(2) a certificate of the secretary or an assistant secretary of
each Obligor, dated the Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of such Obligor as
amended and in effect at all times from the date on which the resolutions
referred to in clause (B) were adopted to and including the date of such
certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors of such Obligor
authorizing the execution, delivery and performance of such of the Credit
Documents to which such Obligor is or is intended to be a party and the
extensions of credit hereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and effect, (C) that
the charter of such Obligor has not been amended since the date of the
certification thereto furnished pursuant to clause (1) above, and (D) as to
the incumbency and specimen signature of each officer of such Obligor
executing the Credit Documents and each other document to be delivered by
such Obligor in connection therewith (and the Agent and each Lender may
conclusively rely on such certificate until it receives notice in writing
from such Obligor).
(ii) Status and Officer's Certificates. Each of the conditions set
---------------------------------
forth in Section 6.02(a) and (b) shall be true and the Agent shall have received
a certificate of a senior officer of each Borrower, dated the Effective Date, to
the effect set forth in Section 6.02(a) and(b).
(iii) Opinion of Counsel to the Obligors. An opinion, dated the
----------------------------------
Effective Date, of in-house counsel to the Obligors, substantially in the form
of Exhibit E hereto and covering such other matters as the Agent may reasonably
request.
(iv) Opinion of Counsel to the Agent. An opinion, dated the
-------------------------------
Effective Date, of Gibson, Dunn & Crutcher, counsel to the Agent, substantially
in the form of Exhibit I hereto.
(v) Credit Agreement. Counterparts of this Agreement duly executed
----------------
on behalf of each Obligor and each of the Agent and the Lenders.
(vi) Other Documents. Such other documents as the Agent may
---------------
reasonably request.
38
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(b) Payment of Accrued Interest. The Obligors shall have paid to
---------------------------
the Agent, for the account of the Existing Lenders, all Facility Fees and all
interest accrued on outstanding Loans, to the extent such fees or interest was
due and payable on or before the Effective Date.
(c) Amendment Fee. The Obligors shall have paid the Agent the
-------------
amendment fee due pursuant to the letter agreement dated September 5, 1995 among
the Agent and the Obligors.
The Agent shall promptly give the Borrowers and each Lender notice of the
Effective Date.
6.02 Initial and Subsequent Loans. The obligation of any Lender to
----------------------------
make to any Borrower its initial Loan (including any Swing Line Loan,
Competitive Bid Option Loan or Syndicated Loan), any subsequent Swing Line Loan
or Competitive Bid Option Loan and any subsequent Syndicated Loan (other than
Syndicated Loans made pursuant to Section 2.04(c)) that increases the principal
amount of outstanding Syndicated Loans, upon the occasion of each borrowing, is
subject to the conditions precedent that, both immediately prior to the making
of such Loan and also after giving effect thereto and to the intended use
thereof:
(a) No Default. No Default or Event of Default with respect to such
----------
Borrower or the Guarantor shall have occurred and be continuing;
(b) Representations and Warranties True. The representations and
-----------------------------------
warranties made by such Borrower and the Guarantor in Section 7 hereof and
in each of the other Credit Documents, shall be true and complete on and as
of the date of the making of such Loan or other extension of credit with
the same force and effect as if made on and as of such date (or, if any
such representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date); and
(c) Notice. All notices of such borrowing shall have been properly
------
and timely given in accordance with the requirements of this Agreement.
Each notice of borrowing by any Borrower hereunder shall constitute a
certification by such Borrower to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless such Borrower otherwise notifies
the Agent prior to the date of such borrowing, as of the date of such
borrowing).
6.03 Initial and Subsequent Loans To PCSI. The obligation of any
------------------------------------
Lender to make to PCSI its initial Loan (including any Swing Line Loan,
Competitive Bid Option Loan or Syndicated Loan), any subsequent Swing Line Loan
or Competitive Bid Option Loan and any subsequent Syndicated Loan (other than
Syndicated Loans made pursuant to Section 2.04(c)) that increases the principal
amount of outstanding Syndicated Loans, upon the occasion of each borrowing, is
subject to the additional condition precedent that PCSI shall have become, and
shall continue to be, an Insured Depository Institution. Each notice of
borrowing by PCSI hereunder shall constitute a certification by PCSI to the
effect set forth in the preceding sentence (both as of the date of such notice
and, unless PCSI otherwise notifies the Agent prior to the date of such
borrowing, as of the date of such borrowing).
Section 7. Representations and Warranties.
------------------------------
39
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To induce the Agent and the Lenders to enter into this Agreement and to
make the Loans, each Obligor (but in the case of Section 7.01, only the
Guarantor) hereby represents and warrants to the Agent and each Lender that:
7.01 Financial Condition. The consolidated balance sheet of the Guarantor
-------------------
and its Consolidated Subsidiaries as at December 31, 1994 and the related
consolidated statements of income and of cash flows for the fiscal year ended on
such date, reported on by Ernst & Young, copies of which have heretofore been
furnished to each Lender, present fairly the consolidated financial condition of
the Guarantor and its Consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the fiscal year then ended. The unaudited consolidated balance sheet of the
Guarantor and its Consolidated Subsidiaries as at June 30, 1995 and the related
unaudited consolidated statements of income and of cash flows for the six-month
period ended on such date, certified by a Responsible Officer, copies of which
have heretofore been furnished to each Lender, present fairly the consolidated
financial condition of the Guarantor and its Consolidated Subsidiaries as at
such date, and the consolidated results of their operations and their
consolidated cash flows for the six-month period then ended (subject to normal
year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). Neither the Guarantor nor any of its Consolidated Subsidiaries had,
at the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
which are required to be, but which are not, reflected in the foregoing
statements or in the notes thereto. During the period from December 31, 1994 to
and including the date hereof there has been no sale, transfer or other
disposition by the Guarantor or any of its Consolidated Subsidiaries of any
material part of its business or property, other than assets securitized in the
ordinary course of business or assets transferred from one Consolidated
Subsidiary to another, and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the consolidated financial condition of the Guarantor and its Consolidated
Subsidiaries at December 31, 1994.
7.02 No Change. From December 31, 1994 to the Effective Date, there has
---------
been no development or event in or relating to the business and affairs of such
Obligor (other than developments and events generally applicable to similarly
situated businesses) which has had or would reasonably be expected to have a
Material Adverse Effect on such Obligor.
7.03 Corporate Existence; Compliance with Law. Each of such Obligor and
----------------------------------------
its Material Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except to the extent that the failure to so qualify
would not, in the aggregate, reasonably be expected to have a Material Adverse
Effect on such Obligor, and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect on such
Obligor.
40
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7.04 Corporate Power; Authorization; Enforceable Obligations. Such
-------------------------------------------------------
Obligor has the corporate power and authority, and the legal right, to make,
deliver and perform the Credit Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and to authorize the
execution, delivery and performance of the Credit Documents to which it is a
party. No consent or authorization of, filing with, notice to or other act by
or in respect of, any Governmental Authority is required for the borrowings by
such Obligor hereunder or with the execution, delivery, performance, validity or
enforceability by such Obligor of the Credit Documents to which such Obligor is
a party, except such as have been obtained or will be obtained as and when
required or if the failure to obtain such consent or take such other action
would not reasonably be expected to have a Material Adverse Effect on such
Obligor. This Agreement has been, and each other Credit Document to which it is
a party will be, duly executed and delivered on behalf of such Obligor. This
Agreement constitutes, and each other Credit Document to which it is a party
when executed and delivered will constitute, a legal, valid and binding
obligation of such Obligor enforceable against such Obligor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
7.05 No Legal Bar. The execution, delivery and performance of the Credit
------------
Documents to which such Obligor is a party, the borrowings hereunder and the use
of the proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of such Obligor or of any of its Material Subsidiaries and will not
result in, or require, the creation or imposition of any Lien on any of its or
their respective properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation, except to the extent such violation or Lien would not
reasonably be expected to have a Material Adverse Effect on such Obligor.
7.06 No Material Litigation. No litigation, investigation or proceeding
----------------------
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of such Obligor, threatened by or against such Obligor or any of its
Material Subsidiaries or against any of its or their respective properties or
revenues (a) with respect to any of the Credit Documents or any of the
transactions contemplated hereby or thereby, or (b) which would reasonably be
expected to have a Material Adverse Effect on such Obligor.
7.07 No Default. Neither such Obligor nor any of its Material
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which would reasonably be expected to have a Material
Adverse Effect on such Obligor. No Default or Event of Default has occurred and
is continuing with respect to such Obligor.
7.08 Ownership of Property; Liens. As of the Effective Date (i) each of
----------------------------
such Obligor and its Material Subsidiaries has valid record title in fee simple
to, or a valid leasehold interest in, all its real property, and valid title to,
or a valid leasehold interest in, all its other property, and (ii) none of such
property is subject to any Lien except as permitted by Section 8.08.
7.09 Taxes. Each of such Obligor and its Material Subsidiaries has filed
-----
or caused to be filed all tax returns which, to the knowledge of such Obligor,
are required to be filed and has paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any amount the validity of which is
currently being contested in good faith by appropriate proceedings and with
respect
41
<PAGE>
to which reserves in conformity with GAAP have been provided on the books of
such Obligor or such Material Subsidiary, as the case may be); as of the
Effective Date no tax Lien has been filed, and, to the knowledge of such
Obligor, no claim is being asserted, with respect to any such tax, fee or other
charge.
7.10 Federal Regulations. No part of the proceeds of any Loans to
-------------------
such Obligor will be used for "purchasing" or "carrying" any "margin stock"
within the respective meanings of each of the quoted terms under Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of such Board of Governors. The value of all
margin stock owned directly or indirectly by such Obligor does not and will not
constitute more than 25% of the total assets of such Obligor.
7.11 ERISA. With respect to such Obligor's ERISA Plans:
-----
(a) each such ERISA Plan is in compliance in all material respects
with, and has been administered in all material respects in compliance
with, the terms of such plan, the applicable provisions of ERISA (to the
extent said plan is an ERISA Plan), the Code (to the extent said plan is
intended to comply with the Code) and any other Federal or state law;
(b) a favorable determination of qualification under Section 401(a) or
Section 403(a) of the Code of each ERISA Pension Plan of such Obligor which
is intended to be so qualified and each amendment thereto, and a
recognition of exemption from federal income taxation under Section 501(a)
of each funded ERISA Welfare Plan of such Obligor, has been received from
the Internal Revenue Service, and nothing has occurred since the date of
each such determination or recognition that would affect adversely such
qualification or exemption;
(c) the amount for which such Obligor or any ERISA Affiliate would be
liable pursuant to the provisions of Section 4062 or 4064 of ERISA with
respect to each ERISA Pension Plan would be not greater than $20,000,000 if
such plan had terminated as of the date of this representation; and
(d) as of the most recent valuation date of each ERISA Pension Plan of
such Obligor, the market value of plan assets of each such ERISA Pension
Plan subject to Section 302 of ERISA or to Section 412 of the Code is not
less than (i) the greater of (1) the plan's accrued liability as determined
under Section 302(c)(7)(A)(i)(II) of ERISA and Section 412(c)(7)(A)(i)(II)
of the Code and (2) the present value of vested benefits of the plan as
determined on the basis of PBGC Form 1 less (ii) $20,000,000.
7.12 Investment Company Act; Other Regulations. Such Obligor is not
-----------------------------------------
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. Such
Obligor is not subject to regulation under any Federal or state statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness other than, in
the case of FDNB, PNB and PCSI, statutes and regulations generally applicable to
national banks and FDIC-insured institutions and, in the case of PCSI, statutes
and regulations generally applicable to Utah industrial loan corporations.
7.13 Subsidiaries. All the Subsidiaries of such Obligor at the date
------------
hereof are listed on Schedule I.
42
<PAGE>
7.14 Purpose of Loans. The proceeds of any Loans to such Obligor
----------------
shall be used by such Obligor to finance such Obligor's consumer asset programs
and for other general corporate purposes, including, without limitation,
commercial paper backup.
7.15 True and Complete Disclosure. All factual information, when
----------------------------
taken as a whole, furnished in writing by such Obligor to the Agent pursuant to
or in connection with this Agreement is accurate in all material respects on the
date as of which such information is dated or certified and is not incomplete by
reason of omitting to state a material fact respecting such Obligor and
necessary to make such information, when taken as a whole, not misleading in any
material respect, in light of the circumstances under which such information was
provided.
7.16 Public Utility Holding Company Act. Neither such Obligor nor
----------------------------------
any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 8. Certain Covenants of Each Obligor.
---------------------------------
Each Obligor, as applicable, covenants and agrees with the Lenders and
the Agent that, so long as any Commitment or Loan is outstanding and until
payment in full of all amounts payable by any Obligor hereunder:
8.01 Financial Statements, Etc. Each Borrower, in the case of
-------------------------
clauses (a), (d), (f), (g) and (h), and the Guarantor, in the case of clauses
(b), (c), (e), (f) and (g), shall deliver to each of the Agent and the Lenders:
(a) as soon as available and in any event within forty-five (45) days
after the end of each of the first three (3) quarterly fiscal periods of
each fiscal year of such Borrower, consolidated statements of income of
such Borrower and its Consolidated Subsidiaries for the period from the
beginning of the respective fiscal year to the end of such period, and the
related consolidated balance sheets of such Borrower and its Consolidated
Subsidiaries as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial or accounting officer of such Borrower
stating that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of such Borrower
and its Consolidated Subsidiaries in accordance with GAAP, as at the end
of, and for, such period (subject to normal year-end audit adjustments),
provided, that PCSI shall not be obligated to deliver any such statements
--------
until such time as PCSI becomes an Insured Depository Institution;
(b) as soon as available and in any event within forty-five (45) days
after the end of each of the first three (3) quarterly fiscal periods of
each fiscal year of the Guarantor, consolidated statements of income,
retained earnings and cash flows of the Guarantor and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related
consolidated balance sheets of the Guarantor and its Consolidated
Subsidiaries as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial or accounting officer of the Guarantor
stating that said consolidated financial statements fairly present the
43
<PAGE>
consolidated financial condition and results of operations of the Guarantor
and its Consolidated Subsidiaries at the end of, and for, such period
(subject to normal year-end audit adjustments);
(c) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Guarantor, (i) consolidated
statements of income, retained earnings and cash flows of the Guarantor and
its Consolidated Subsidiaries for such fiscal year and the related
consolidated balance sheets of the Guarantor and its Consolidated
Subsidiaries as at the end of such fiscal year, setting forth in each case
in comparative form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which opinion
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of the Guarantor
and its Consolidated Subsidiaries as at the end of, and for, such fiscal
years in accordance with GAAP and (ii) supplemental consolidating
statements of financial condition and supplemental consolidating statements
of income of the Guarantor and its Consolidated Subsidiaries as of the end
of such fiscal year and including the results of operations during such
fiscal year (separately disclosing balance sheet and income statement
information for each Borrower), accompanied by an opinion thereon of
independent certified public accountants of recognized national standing,
which opinion shall state that said consolidating financial statements are
fairly stated in all material respects in relation to the consolidated
financial statements of the Guarantor and its Consolidated Subsidiaries
taken as a whole;
(d) at the time each Borrower furnishes each set of financial
statements pursuant to paragraph (a) above and at the time the Guarantor
furnishes each set of financial statements pursuant to paragraph (c) above,
a certificate of a senior financial or accounting officer of each Borrower
(i) to the effect that to such officer's knowledge no Default or Event of
Default has occurred and is continuing (or, if any Default or Event of
Default has occurred and is continuing, describing the same in reasonable
detail and describing the action, if any, that such Borrower has taken or
proposes to take with respect thereto) and (ii) setting forth in reasonable
detail the computations necessary to determine whether such Borrower is in
compliance with Section 9.02 or 9.03, as the case may be, as of the end of
the respective quarterly fiscal period or fiscal year;
(e) at the time it furnishes each set of financial statements pursuant
to paragraph (b) or (c) above, a certificate of a senior financial or
accounting officer of the Guarantor (i) to the effect that to such
officer's knowledge no Default or Event of Default has occurred and is
continuing (or, if any Default or Event of Default has occurred and is
continuing, describing the same in reasonable detail and describing the
action, if any, that the Guarantor has taken or proposes to take with
respect thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine Consolidated Tangible Capital of the
Guarantor and to determine whether the Guarantor is in compliance with
Section 9.01 as of the end of the respective quarterly fiscal period or
fiscal year;
(f) promptly upon receipt thereof, copies of any reports and
management letters submitted to such Obligor by such accountants in
connection with any annual or interim audit of the books of such Obligor
and its Subsidiaries, together with such Obligor's responses thereto, if
any;
44
<PAGE>
(g) from time to time such other information regarding the financial
condition, operations, business or prospects of such Obligor (including,
without limitation, any Plan or Multiemployer Plan and any reports or other
information required to be filed under ERISA) as the Agent may reasonably
request; and
(h) with respect only to FDNB and PNB, promptly after their filing
with, or release by, the OCC, copies of the publicly available portion of
such Borrower's quarterly Call Reports (or successors) to the OCC and, if
permitted by applicable law, copies of any reports of examination by the
OCC, and with respect only to PCSI after PCSI becomes an Insured Depository
Institution, promptly after their filing with, or release by, the Federal
Deposit Insurance Corporation (the "FDIC") or any other applicable
Governmental Authority, copies of the publicly available portion of PCSI's
quarterly Call Reports (or successors) to the FDIC or such other
Governmental Authority and, if permitted by applicable law, copies of any
reports of examination by the FDIC or such other Governmental Authority.
8.02 Litigation. Each Obligor will promptly give to the Agent
----------
notice of all legal or arbitral proceedings, and of all proceedings by or before
any Governmental Authority, and any material development in respect of such
legal or other proceedings, against such Obligor or any of its Subsidiaries,
which have a reasonable likelihood of being adversely determined and which, if
adversely determined, would reasonably be expected to result in a Material
Adverse Effect.
8.03 Existence, Etc. Each Obligor will, and will cause each of its
--------------
Material Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises if failure to maintain such
rights, privileges, licenses and franchises would reasonably be expected to
have a Material Adverse Effect on such Obligor; provided that nothing in
--------
this Section 8.03 shall prohibit any transaction expressly permitted under
Section 8.06 hereof;
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities if failure to comply
with such requirements would reasonably be expected to have a Material
Adverse Effect on such Obligor;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
significant Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied; and
(e) upon at least five Business Days' prior notice, permit officers
and employees of the Agent or, with the consent of such Obligor, a Lender,
to visit and inspect any of the properties of such Obligor and to examine
and audit the minute books, books of account and other records of such
Obligor and make copies thereof or extracts therefrom, and discuss its
affairs, finances and accounts with its officers and, at the request of the
Agent and the consent of such Obligor, with such Obligor's
45
<PAGE>
independent accountants, during normal business hours as often as the Agent
may reasonably desire.
8.04 Insurance. Each Obligor will, and will cause each of its
---------
Material Subsidiaries to, maintain insurance in full force and effect with
responsible insurance companies having, in the case of an insurer which is the
issuer of any of such Obligor's major policies, at the time any such policy is
issued or renewed, a rating of at least A- by Standard & Poor's Corporation or
A3 by Moody's Investors Service, Inc. or A by A. M. Best Company (or, if such an
insurer is not rated by any of the foregoing agencies, a policyholder surplus of
at least $100,000,000), against such risks, on such properties and in such
amounts as is customarily maintained by similar businesses; and file with the
Agent upon its request a detailed list of the insurance companies, the amounts
and rates of the insurance, the dates of the expiration thereof and the
properties and risks covered thereby; provided, however, to the extent that it
-------- --------
would be consistent with prudent business practice and customary among
corporations engaged in similar businesses, such Obligor may self-insure for
damage or loss.
8.05 Notices. Each Obligor will promptly give notice to the Agent
-------
of:
(a) the occurrence of any Default or Event of Default;
(b) as soon as possible, and in any event within ten days after such
Obligor knows or has reason to believe that any of the events or conditions
specified below with respect to any ERISA Plan or ERISA Multiemployer Plan
of such Obligor has occurred or exists, a statement signed by a Responsible
Officer setting forth details respecting such event or condition and the
action, if any, that such Obligor or ERISA Affiliate thereof proposes to
take with respect thereto (and a copy of any report or notice required to
be filed with or given to PBGC by such Obligor or ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder (other than any event the
reporting requirement with respect to which has been waived by PBGC),
with respect to an ERISA Pension Plan of such Obligor, (provided that
--------
a failure to meet the minimum funding standard of Section 302 of ERISA
or Section 412 of the Code, including, without limitation, the failure
to make on or before its due date a required installment under Section
302(e) of ERISA or Section 412(m) of the Code, shall be treated as a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request for a
waiver under Section 412(d) of the Code for any ERISA Pension Plan of
such Obligor;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any ERISA Pension Plan of such Obligor or any
action taken by such Obligor or any ERISA Affiliate to terminate any
ERISA Pension Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any ERISA Pension Plan of such Obligor, any event or
condition which might constitute grounds for the institution of such
proceedings, or the receipt by such Obligor or any ERISA Affiliate of
a notice that such a proceeding has been instituted by PBGC with
respect to an ERISA Multiemployer Plan of such Obligor;
46
<PAGE>
(iv) the complete or partial withdrawal from an ERISA Multiemployer
Plan by such Obligor or any ERISA Affiliate that results in liability under
Section 4204 of ERISA (including the obligation to satisfy secondary
liability as a result of a purchaser default) or Section 4201 of ERISA (in
either case without regard to reduction or waiver of such liability under
Section 4207 or 4208 of ERISA) or the receipt by such Obligor or any ERISA
Affiliate of notice from an ERISA Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or
that it intends to terminate or has terminated under Section 4041A of
ERISA;
(v) the institution of a proceeding on behalf of any ERISA
Multiemployer Plan against such Obligor or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
(vi) the cessation of operations at a facility which would subject
such Obligor or any ERISA Affiliate to the provisions of Section 4062(e) of
ERISA;
(vii) the withdrawal from an ERISA Pension Plan by such Obligor or any
ERISA Affiliate that results in liability in accordance with the provisions
of Section 4063 of ERISA;
(viii) the termination of an ERISA Pension Plan to which such Obligor or
any ERISA Affiliate contributed, or was required to contribute, at any time
within the five plan years preceding the date of termination so as to
become subject to the provisions of Section 4064 of ERISA;
(ix) the adoption of an amendment to any ERISA Pension Plan that,
pursuant to Section 307 of ERISA or Section 401(a)(29) the Code, would
require such Obligor or any ERISA Affiliate timely to provide security to
the plan in accordance with the provisions of said Section or would result
in the loss of tax-exempt status of the trust of which such plan is a part
if such security is not timely provided;
(x) the funded current liability percentage, within the meaning of
Section 302(d)(8) of ERISA and Section 412(l)(8) of the Code, of each ERISA
Pension Plan of such Obligor is less than 60%.
(xi) the aggregate amount of accumulated benefit obligations,
determined in accordance with Statement of Accounting Standards No. 87, of
all ERISA Plans of such Obligor which are ERISA Pension Plans exceeds the
aggregate fair market value of plan assets of all such plans by more than
$20,000,000;
(xii) the aggregate amount of transition obligations, determined in
accordance with Statement of Financial Accounting Standards No. 106 (or,
before such Statement is applicable to such Obligor or any ERISA Affiliate,
a good faith estimate of such transition obligation), of all ERISA Welfare
Plans of such Obligor (other than ERISA Pension Plans) which has not been
recognized as an income expense in the income statement of such Obligor and
its subsidiaries exceeds $20,000,000;
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(xiii) any transaction or occurrence proscribed by Section 406 of ERISA,
or subject to tax under Section 4975 of the Code, for which a statutory
exemption is not available;
(xiv) the payment under any ERISA Plan of such Obligor (including but
not limited to individual employment and severance agreements) which is not
deductible for federal income tax purposes by virtue of Section 280G of the
Code;
(xv) the filing or overt threat of any action, suit or claim (other
than a routine claim for benefits), including but not limited to a civil or
criminal action or civil penalty pursuant to the provisions of Title I,
Subtitle B, Part 5 of ERISA, in respect of any ERISA Plan of such Obligor
against such plan, such Obligor or any ERISA Affiliate, or any other person
which could result in liability of such Obligor or any ERISA Affiliate; and
(xvi) from time to time such other information regarding any ERISA Plan
of, and any reports or other information required to be filed under ERISA
by, such Obligor or any of its Subsidiaries as any Lender or the Agent may
reasonably request.
Each notice pursuant to this Section shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Obligor proposes to take with respect
thereto. Notice of any event described in this Section 8.05 which relates to
more than one Obligor need only be given by one Obligor, provided such notice
--------
specifies all Obligors to which such event applies.
8.06 Limitation on Fundamental Changes. Each Obligor shall not,
---------------------------------
and shall not permit its Material Subsidiaries to, enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in the character of its present business,
except:
(a) any Subsidiary of such Obligor may be merged or consolidated with
or into any Person (provided that the surviving entity shall be a wholly
--------
owned direct or indirect Subsidiary of the Guarantor);
(b) any Subsidiary of such Obligor may convey, sell, lease, assign,
transfer or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to such Obligor or to any other wholly owned
direct or indirect Subsidiary of the Guarantor; and
(c) changes in the character of its present business if after giving
effect to such change such Obligor and its Material Subsidiaries will be
principally engaged in the business of offering, selling, servicing or
owning consumer products and services (including, without limitation,
consumer financial products and services).
8.07 Limitation on Sale of Assets. Each Obligor shall not, and
----------------------------
shall not permit its Material Subsidiaries to, convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Material
48
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Subsidiary, issue or sell any shares of such Material Subsidiary's Capital Stock
to any Person other than such Obligor or any wholly owned direct or indirect
Subsidiary of the Guarantor, except:
(a) the sale or other disposition of property which is obsolete, worn
out or no longer used or useful in the ordinary course of business;
(b) as permitted under Section 8.09 hereof;
(c) the sale of Receivables if (A) such sale is intended to be without
recourse and (B) after giving effect to such sale such Obligor will be in
compliance with all of the applicable covenants contained in Sections 8 and
9, and no Default or Event of Default will occur by reason of such sale;
(d) sales, leases and dispositions of assets other than Receivables in
the ordinary course of its business in arm's length transactions for full
and fair value;
(e) as permitted by Section 8.06(b); and
(f) any sale of assets to any Person not covered by (a) through (e)
above, if after giving effect to such sale such Obligor will be in
compliance with all of the applicable covenants contained in Sections 8 and
9 and no Default or Event of Default will occur by reason of such sale.
8.08 Limitation on Liens. Each Obligor shall not, and shall not
-------------------
permit its Material Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens incidental to the conduct of the business of such Obligor or
its Material Subsidiaries or the ownership of its assets or properties and
not incurred in connection with the borrowing of money or the acquisition
of any asset and which in the aggregate do not materially detract from the
business, properties, condition (financial or otherwise) or operations,
present or prospective, of such Obligor;
(b) Liens securing purchase money debt, so long as each such Lien
secures only the Indebtedness incurred to purchase the property subject to
such Lien;
(c) Liens in existence on the date hereof as set forth in Schedule II,
provided that, unless permitted under Section 8.08(a), no such Lien is
--------
spread to cover any additional property after the date hereof and that the
amount of Indebtedness secured thereby is not increased;
(d) in the case of FDNB and PNB, Liens granted to the Federal Reserve
Bank of Boston to secure advances or other transactions incidental to the
conduct of the business of such Borrower, including loans to meet liquidity
requirements;
(e) Liens resulting from the recharacterization of any transaction
intended to be a non-recourse sale as Indebtedness for borrowed money; and
(f) other Liens consented to in writing by the Agent and the
Majority Lenders; provided that the Agent and the Lenders shall not
--------
unreasonably withhold such consent.
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8.09 Limitation on Transactions with Affiliates. Each Obligor shall
------------------------------------------
not enter into any transaction, including, without limitation, any purchase,
sale, lease or exchange of property or the rendering of any service, with any
Affiliate unless such transaction is (a) in the ordinary course of the Obligor's
or such Affiliate's business, or is upon fair and reasonable terms no less
favorable to such Obligor than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate and (b) in compliance with
all applicable law.
Section 9. Additional Obligor-Specific Covenants.
-------------------------------------
9.01 Guarantor Covenants. The Guarantor further covenants and
-------------------
agrees with the Lenders that, so long as any Commitment or Loan is outstanding,
the Guarantor will not:
(a) Maintenance of Consolidated Tangible Capital. Permit Consolidated
--------------------------------------------
Tangible Capital at any time during any of the calendar years set forth below to
be less than the amount set forth below opposite such year:
Year Amount
---- ------
1995 $275,000,000
1996 $300,000,000
1997 $325,000,000
1998 and thereafter $350,000,000
(b) Maintenance of Consolidated Pre-tax Return on Assets. Permit the
----------------------------------------------------
Consolidated Pre-tax Return on Assets as of the end of any Quarterly Period to
be less than 1.0%, provided that the Guarantor will not be deemed to be in
--------
breach of this covenant if Consolidated Pre-tax Return on Assets as of the end
of a particular Quarterly Period is less than 1.0% so long as within 60 days
after the end of such Quarterly Period the Guarantor provides a certificate to
the Agent certifying that it has obtained cash, cash equivalents or short-term
investment grade securities as a capital contribution in an aggregate amount
greater than or equal to the difference between (i) the amount of Consolidated
Pre-tax Income for the preceding four Quarterly Periods which would have caused
the Consolidated Pre-tax Return on Assets as of the end of such Quarterly Period
to be equal to 1.0% and (ii) the actual Consolidated Pre-tax Income for such
four preceding Quarterly Periods.
9.02 Covenants of FDNB, PNB and PCSI. Each of FDNB and PNB further
-------------------------------
covenants and agrees with the Lenders that, so long as any Commitment or Loan is
outstanding, FDNB and PNB will, and PCSI further covenants and agrees with the
Lenders that, so long as any Loan is outstanding to PCSI, PCSI will:
(a) Maintenance of Ratio of Funded Debt to Equity. Not permit the
---------------------------------------------
ratio of (i) the Consolidated Funded Debt of such Borrower to (ii) the
Consolidated Shareholders' Equity of such Borrower to exceed 10 to 1.
(b) Maintenance of Capital. (i) Maintain at all times such amount of
----------------------
capital as may be prescribed by the Board of Governors of the Federal Reserve
System from time to time, whether by regulation, agreement or order and (ii) be
"well capitalized" (as defined in 12 U.S.C. 1831o, as amended, reenacted or
redesignated from time to time).
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9.03 Covenants of PCC. PCC further covenants and agrees with the
----------------
Lenders that, so long as any Loan is outstanding to PCC, PCC will:
(a) Maintenance of Ratio of Senior Funded Debt to Consolidated
----------------------------------------------------------
Tangible Capital. Not permit the ratio of (i) the Consolidated Senior Funded
- ----------------
Debt of PCC to (ii) Consolidated Tangible Capital of PCC to exceed 8 to 1.
(b) Maintenance of Ratio of Finance Assets to Senior Funded Debt.
------------------------------------------------------------
Not permit the ratio of (i) Consolidated Finance Assets of PCC to (ii) the
Consolidated Senior Funded Debt of PCC to be less than 1.10 to 1.
Section 10. Guarantee.
---------
10.01 Guarantee.
---------
(a) The Guarantor hereby unconditionally and irrevocably guarantees to
the Lenders and their respective successors, indorsees, transferees and assigns,
the prompt and complete payment by the Borrowers to the Agent on behalf of the
Lenders when due (whether at the stated maturity, by acceleration or otherwise)
of the Obligations (including, without limitation, any Obligations resulting
from increases in the aggregate Commitments pursuant to Section 2.13 or 2.14)
without set-off or counterclaim in Dollars at the Principal Office of the Agent
in accordance with the terms of this Agreement.
(b) The Guarantor further agrees to pay all reasonable out-of-pocket
costs and expenses of the Lenders and the Agent (including, without limitation,
reasonable counsels' fees) in connection with any Event of Default and any
enforcement or collection proceedings resulting therefrom or in connection with
the protection or preservation of rights or interests following an Event of
Default or the negotiation of any restructuring or "work-out" (whether or not
consummated) of the obligations of the Guarantor under this Section 10 following
an Event of Default.
(c) No payment or payments made by any Borrower or any other Person or
received or collected by the Agent or any Lender from any Borrower or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of the Guarantor hereunder which shall, notwithstanding any such
payment or payments, continue to be effective until the Obligations are paid in
full and the Commitments are terminated.
(d) The Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Agent or any Lender on account of its
liability under this Section 10, it will notify the Agent and such Lender in
writing that such payment is made under this Section 10 for such purpose.
10.02 Right of Set-off. The Agent and each Lender is hereby
----------------
irrevocably authorized at any time and from time to time after the occurrence
and during the continuation of an Event of Default, without notice to the
Guarantor, any such notice being expressly waived by the Guarantor, to set off
and appropriate and apply any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Agent or such Lender or any bank controlled by such Lender to or
for the credit or the account of the Guarantor, or
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any part thereof in such amounts as the Agent or such Lender may elect, against
or on account of the obligations and liabilities of the Guarantor to the Agent
or such Lender hereunder as the Agent or such Lender may elect, whether or not
the Agent or such Lender has made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured. The Agent
and each Lender shall notify the Guarantor promptly of any such set-off and the
application made by the Agent or such Lender, as the case may be, of the
proceeds thereof; provided that the failure to give such notice shall not affect
--------
the validity of such set-off and application. The rights of the Agent and each
Lender under this paragraph are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Agent or such
Lender may have.
10.03 No Subrogation. Notwithstanding anything to the contrary in
--------------
this Agreement, the Guarantor hereby irrevocably waives all rights which may
have arisen in connection with this Agreement to be subrogated to any of the
rights (whether contractual, under the Bankruptcy Code, including Section 509
thereof, under common law or otherwise) of the Lenders against the Borrowers or
against any collateral security or guarantee or right of offset held by the
Lenders for the payment of the Obligations to the extent that any such right
would constitute the Guarantor a "creditor" of the Borrowers within the meaning
of Section 547 of the Bankruptcy Code. So long as the Obligations remain
outstanding, if any amount shall be paid by or on behalf of the Borrowers to the
Guarantor on account of any of the rights waived in this paragraph, such amount
shall be held by the Guarantor in trust, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the Agent in the form received by the Guarantor (duly indorsed by the
Guarantor to the Lender, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Agent may determine. The
provisions of this paragraph shall survive the termination of this Agreement and
the payment in full of the Obligations and the termination of the Commitments.
10.04 Amendments, etc. re Obligations; Waiver of Rights. The Guarantor
-------------------------------------------------
shall remain obligated hereunder notwithstanding that, without any reservation
of rights against the Guarantor, and without notice to or further assent by the
Guarantor (except as provided in Section 13.04), any demand for payment of any
of the Obligations made by the Agent or any Lender may be rescinded by the Agent
or such Lender, and any of the Obligations continued, and the Obligations, or
the liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Agent or any
Lender, and this Agreement and any other documents executed and delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Agent (or the Majority Lenders, as the case may be) may
deem advisable from time to time, and any collateral security, guarantee or
right of offset at any time held by the Agent or any Lender for the payment of
the Obligations may be sold, exchanged, waived, surrendered or released.
Neither the Agent nor any Lender shall have any obligation to protect, secure,
perfect or insure any Lien at any time held by it as security for the
Obligations or for this Agreement or any property subject thereto. When making
any demand hereunder against the Guarantor, the Agent or any Lender may, but
shall be under no obligation to, make a similar demand on the related Borrower
or any other guarantor, and any failure by the Agent or any Lender to make any
such demand or to collect any payments from the Borrowers or any such other
guarantor or any release of the Borrowers or such other guarantor shall not
relieve the Guarantor of its obligations or liabilities hereunder, and shall not
impair or affect the rights and remedies, express or implied, or as a matter of
law, of the Agent or any Lender against
52
<PAGE>
the Guarantor. For the purposes hereof "demand" shall include the commencement
and continuance of any legal proceedings.
10.05 Guarantee Absolute and Unconditional. The Guarantor waives any and
------------------------------------
all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by the Agent or any Lender upon
the obligations of the Guarantor under this Agreement or acceptance of this
guarantee; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or
waived, in reliance upon the obligations of the Guarantor under this Agreement;
and all dealings between the Borrowers or the Guarantor, on the one hand, and
the Agent and the Lenders, on the other, shall likewise be conclusively presumed
to have been had or consummated in reliance upon the obligations of the
Guarantor under this Agreement. The Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon any
Borrower or the Guarantor with respect to the Obligations. The obligations of
the Guarantor under this Section 10 shall be construed as a continuing, absolute
and unconditional guarantee of payment without regard to (a) the validity, or
enforceability of this Agreement, any of the Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Agent or any Lender, (b) any defense, set-
off or counterclaim (other than a defense of payment or performance) which may
at any time be available to or be asserted by any Borrower against the Agent or
any Lender, or (c) any other circumstance whatsoever (with or without notice to
or knowledge of the Borrowers or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of any Borrower for the
Obligations, or of the Guarantor under this Agreement, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against the
Guarantor, the Agent and any Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against any Borrower or any other
Person or against any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by the Agent or any
Lender to pursue such other rights or remedies or to collect any payments from
any Borrower or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
any Borrower or any such other Person or of any such collateral security,
guarantee or right of offset, shall not relieve the Guarantor of any liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Agent or any Lender
against the Guarantor. The obligations of the Guarantor under this Agreement
shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Guarantor and its successors and assigns
thereof, and shall inure to the benefit of the Agent and the Lenders, and their
respective successors, indorsees, transferees and assigns, until all the
Obligations and the obligations of the Guarantor under this Guarantee shall have
been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrowers may be free from any Obligations.
10.06 Reinstatement. The obligations of the Guarantor under this
-------------
Agreement shall continue to be effective, or be reinstated, as the case may be,
if at any time payment, or any part thereof, of any of the Obligations is
rescinded or must otherwise be restored or returned by the Agent or any Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
any Borrower or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, any Borrower or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
Section 11. Events of Default.
-----------------
53
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If any of the following events ("Events of Default") shall occur and
-----------------
be continuing:
(a) Any Borrower shall fail to pay any principal of any Loan when due in
accordance with the terms thereof or hereof; or any Borrower shall fail to
pay any interest on any Loan, any Facility Fee, any Utilization Fee or any
other amount payable by such Borrower hereunder, within three Business Days
after any such interest, fee or other amount becomes due in accordance with
the terms thereof or hereof; or
(b) The Guarantor shall fail to pay any amount pursuant to Section 10
hereof within seven Business Days after such amount becomes due in
accordance with the terms thereof; or
(c) Any representation or warranty made or deemed made by any Obligor
herein or which is contained in any certificate furnished by it at any time
under this Agreement shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(d) Any Obligor shall default in the observance or performance of any
agreement contained in Section 8.06, 8.07, 9.01 (subject to the cure right
provided therein), 9.02 or 9.03; or
(e) Any Obligor shall default in the observance or performance of any
other agreement contained in this Agreement (other than as provided in
paragraphs (a) through (d) of this Section), and such default shall
continue unremedied for a period of 30 days after the Agent has given
notice of such default to such Obligor; or
(f) Any Borrower or any of its Material Subsidiaries or the Guarantor
shall (i) default in any payment of principal of or interest of any
Indebtedness (other than the Loans) or in the payment of any Guarantee
Obligation in an aggregate amount in excess of $10,000,000 in the case of
any Borrower and its Material Subsidiaries and $20,000,000 in the case of
the Guarantor, and such default shall remain uncured or unwaived within the
cure period or grace period, if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or such Guarantee Obligation to become payable and such
default shall remain uncured or unwaived within the cure period or grace
period, if any, provided therein; or
(g) (i) Any Borrower or any of its Material Subsidiaries or the
Guarantor shall commence any case, proceeding or other action (A) under any
existing or future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
54
<PAGE>
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or any
Borrower or any of its Material Subsidiaries or the Guarantor shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against any Borrower or any of its Material Subsidiaries or the
Guarantor any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against any Borrower or any of its Material Subsidiaries or the
Guarantor any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) any Borrower or any of its Material Subsidiaries or the Guarantor
shall take any corporate action for the purpose of effecting any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) any Borrower or
any of its Material Subsidiaries or the Guarantor shall admit in writing
its inability to, pay its debts as they become due; or
(h) An event or condition specified in Section 8.05(b) hereof shall
occur or exist with respect to any ERISA Plan and, as a result of such
event or condition, together with all other such events or conditions, any
Obligor or any ERISA Affiliate shall incur or in the opinion of the
Majority Lenders shall be reasonably likely to incur a liability to or in
respect of an ERISA Plan or to PBGC (or any combination of the foregoing)
which would constitute, in the determination of the Majority Lenders, a
Material Adverse Effect with respect to such Obligor; or
(i) One or more judgments or decrees shall be entered against any
Obligor or any of its Material Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of, in the case of a
Borrower and its Material Subsidiaries, $10,000,000 or more, and in the
case of the Guarantor and its Material Subsidiaries, $20,000,000 or more,
and shall remain unvacated, undischarged, unstayed or unbonded pending
appeal within 30 days from the entry thereof; or
(j) Providian Corporation, a Delaware corporation, shall cease to own,
directly or indirectly, at least 66-2/3% of the voting stock of the
Guarantor;
(k) The Guarantor shall cease to own directly 100% of the voting stock
of each Borrower; or
(l) Any Borrower or any Material Subsidiary of such Borrower which is an
Insured Depository Institution shall enter into a capital maintenance
agreement or be required to submit a capital restoration plan of the type
referred to in 12 U.S.C. 1831o(b)(2)(c).
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) above with respect to the Guarantor
(other than an Event of Default caused solely by a case, proceeding or other
action with respect to a Borrower), automatically the Commitments and the Swing
Line Commitment to lend to all Borrowers shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing by
any Obligor under this Agreement shall immediately become due and payable, (B)
if such event is an Event of Default specified in clause (i) or (ii) of
paragraph (g) above with
55
<PAGE>
respect to a Borrower, automatically the Commitments and the Swing Line
Commitment to lend to such Borrower shall immediately terminate and the Loans to
such Borrower hereunder (with accrued interest thereon) and all other amounts
owing by such Borrower under this Agreement shall immediately become due and
payable, (C) if such event is any other Event of Default with respect to the
Guarantor or any Event of Default specified in paragraph (b), (j) or (k), either
or both of the following actions may be taken: (i) with the consent of the
Majority Lenders, the Agent may, or upon the request of the Majority Lenders,
the Agent shall, by notice to the Guarantor and the Borrowers declare the
Commitments and the Swing Line Commitment to lend to all Borrowers to be
terminated forthwith, whereupon the Commitments and the Swing Line Commitment
shall immediately terminate; and (ii) with the consent of the Majority Lenders,
the Agent may, or upon the request of the Majority Lenders, the Agent shall, by
notice to the Guarantor and the Borrowers, declare the Loans to all Borrowers
hereunder (with accrued interest thereon) and all other amounts owing by any
Obligor under this Agreement to be due and payable forthwith, whereupon the same
shall immediately become due and payable and (D) if such event is any other
Event of Default with respect to any Borrower, either or both of the following
actions may be taken: (i) with the consent of the Majority Lenders, the Agent
may, or upon the request of the Majority Lenders, the Agent shall, by notice to
such Borrower declare the Commitments and the Swing Line Commitment to lend to
such Borrower to be terminated forthwith, whereupon the Commitments and the
Swing Line Commitment to lend to such Borrower shall immediately terminate; and
(ii) with the consent of the Majority Lenders, the Agent may, or upon the
request of the Majority Lenders, the Agent shall, by notice to such Borrower,
declare the Loans to such Borrower hereunder (with accrued interest thereon) and
all other amounts owing by such Borrower under this Agreement to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived.
Section 12. The Agent.
---------
12.01 Appointment, Powers and Immunities. Each Lender hereby appoints
----------------------------------
and authorizes the Agent to act as its agent hereunder with such powers as are
specifically delegated to the Agent by the terms of this Agreement, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 12.05 and the first sentence of
Section 12.06 shall include reference to its affiliates and its own and its
affiliates' officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Credit Documents, and shall not by reason of this Agreement or
any other Credit Document be a trustee for any Lender; (b) shall not be
responsible to the Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any other Credit Document, or in
any certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Credit Document, or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Credit Document or any other document referred to or
provided for herein or therein or for any failure by any Borrower or any other
Person to perform any of its obligations hereunder or thereunder; (c) shall not
be required to initiate or conduct any litigation or collection proceedings
hereunder or under any other Credit Document; (d) shall not be responsible for
any action taken or omitted to be taken by it hereunder or under any other
Credit Document or under any other document or instrument referred to or
provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected
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by it in good faith. The Agent may deem and treat the Lender specified in the
Register with respect to any amount owing hereunder as the owner thereof for all
purposes hereof unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent, together with the consent of the Borrowers
and the Agent to such assignment or transfer (to the extent provided in Section
13.06(b) hereof).
12.02 Reliance by Agent. The Agent shall be entitled to rely upon any
-----------------
certification, notice or other communication (including, without limitation, any
thereof by telephone, telecopy, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement or any other Credit
Document, the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or thereunder in accordance with instructions
given by the Majority Lenders or, if provided herein, in accordance with the
instructions given by the Majority Lenders or all of the Lenders as is required
in such circumstance, and such instructions of such Lenders and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders.
12.03 Defaults. The Agent shall not be deemed to have knowledge or notice of
--------
the occurrence of a Default or Event of Default (other than the non-payment of
principal of or interest on Loans or of Facility Fee or Utilization Fee) unless
the Agent has received notice from a Lender or an Obligor specifying such
Default or Event of Default and stating that such notice is a "Notice of
Default". In the event that the Agent receives such a notice of the occurrence
of a Default or Event of Default, the Agent shall give prompt notice thereof to
the Lenders (and shall give each Lender prompt notice of each such non-payment).
The Agent shall (subject to Sections 12.01, 12.07 and 13.04 hereof) take such
action with respect to such Default or Event of Default as shall be directed by
the Majority Lenders, provided that, unless and until the Agent shall have
--------
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Lenders
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Majority Lenders or all of the Lenders.
12.04 Rights as a Lender. With respect to its Commitment and the Loans made
------------------
by it, Chase (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Chase (and any successor acting
as Agent) and its affiliates may (without having to account therefor to any
Lender) accept deposits from, lend money to, make investments in and generally
engage in any kind of banking, trust or other business with the Obligors (and
any of their respective Subsidiaries or Affiliates) as if it were not acting as
the Agent, and Chase and its affiliates may accept fees and other consideration
from the Obligors for services in connection with this Agreement or otherwise
without having to account for the same to the Lenders.
12.05 Indemnification. The Lenders agree to indemnify the Agent (to the
---------------
extent not reimbursed under Section 13.03 or otherwise on behalf of the
Borrowers, but without limiting the obligations of the Borrowers under Section
13.03) ratably in accordance with their respective Commitments, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Agent (in its capacity as Agent)
(including by any Lender) arising out of or by reason of any investigation in or
in
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any way relating to or arising out of this Agreement or any other Credit
Document or any other documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses that any Borrower is obligated to pay under
Section 13.03 hereof, but excluding, unless a Default or Event of Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of the
terms hereof or thereof or of any such other documents, provided that no Lender
--------
shall be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
12.06 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
---------------------------------------
has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Obligors and the decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any other Credit Document.
The Agent shall not be required to keep itself informed as to the performance or
observance by the Obligors of this Agreement or any of the other Credit
Documents or any other document referred to or provided for herein or therein or
to inspect the Properties or books of the Obligors. Except for notices, reports
and other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of any Obligor or any
Subsidiary of any Obligor (or any of their affiliates) that may come into the
possession of the Agent or any of its affiliates.
12.07 Failure to Act. Except for action expressly required of the Agent
--------------
hereunder, the Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its reasonable satisfaction from the Lenders of their
indemnification obligations under Section 12.05 against any and all liability
and expense that may be incurred by it by reason of taking or continuing to take
any such action.
12.08 Resignation or Removal of Agent. Subject to the appointment and
-------------------------------
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Lenders and the Borrowers, and the Agent
may be removed at any time with or without cause by the Majority Lenders. If
the Agent also then serves in the capacity of the Swing Line Lender, such
resignation or removal of the Agent shall not constitute resignation or removal
of the Swing Line Lender. Upon any such resignation or removal, the Majority
Lenders shall with the consent of the Borrowers which consent shall not be
unreasonably withheld have the right to appoint a successor Agent, which shall
be a Lender; provided that if upon the date of such appointment an Event of
--------
Default shall exist, such consent of the Borrowers shall not be required. If no
successor Agent shall have been so appointed by the Majority Lenders and shall
have accepted such appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Majority Lenders' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
with the consent of the Borrowers (such consent not to be unreasonably
withheld), that shall be a Lender with a combined capital and surplus of at
least $2,000,000,000. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent (with the consent of the Borrowers as may be provided
above), such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any
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retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Section 12 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 the Agent.
12.09 Co-Agents. The Co-Agents shall have no duties or responsibilities or
---------
be entitled to any of the rights of the Agent under this Agreement or under any
other Credit Document.
Section 13. Miscellaneous.
-------------
13.01 Waiver. No failure on the part of the Agent or any Lender to exercise
------
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under this Agreement or other Credit Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege under this Agreement or other Credit Document preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.
13.02 Notices. All notices, requests and other communications provided for
-------
herein and under the other Credit Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telex or telecopy), or,
with respect to notices given pursuant to Section 2.03 or 2.04, by telephone,
confirmed in writing by telecopier by the close of business on the day the
notice is given, delivered (or telephoned, as the case may be) to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telex or telecopier or personally delivered or, in the case
of a mailed notice, upon receipt, in each case given or addressed as aforesaid.
13.03 Expenses, Etc. Each Borrower severally agrees to pay or reimburse each
-------------
of the Lenders and the Agent, as the case may be, within 15 days after receipt
of written demand for such Borrower's Allocable Portion (as hereinafter defined)
of: (a) all reasonable out-of-pocket costs and expenses of the Agent
(including, without limitation, the reasonable fees and expenses of Gibson, Dunn
& Crutcher, special New York counsel to the Agent and the Lenders), in
connection with (i) the negotiation, preparation, execution and delivery of this
Agreement and the other Credit Documents and the extension of credit hereunder
and (ii) any modification, supplement or waiver of any of the terms of this
Agreement or any of the other Credit Documents; (b) all reasonable out-of-pocket
costs and expenses of the Lenders and the Agent (including, without limitation,
reasonable counsels' fees) in connection with (i) any Event of Default and any
enforcement or collection proceedings resulting therefrom or in connection with
the protection or preservation of rights or interests following an Event of
Default or the negotiation of any restructuring or "work-out" (whether or not
consummated) of the obligations of the Obligors hereunder and under the other
Credit Documents following an Event of Default and (ii) the enforcement of this
Section 13.03; and (c) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the other Credit Documents or any other
document referred to herein or therein, provided, that the fees and expenses of
--------
the Agent and of counsel to the Agent and the Lenders in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
Credit Documents shall be payable by the Borrowers only to the extent specified
in the letter
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agreement dated September 5, 1995 among the Agent and the Obligors, and
provided, further, that the fees and expenses of counsel to the Agent in
- -------- -------
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Credit Documents shall not be payable by the Lenders.
Each Borrower hereby severally agrees (i) to indemnify the Agent and each
Lender and their respective directors, officers, employees, attorneys and agents
from, and hold each of them harmless against such Borrower's Allocable Portion
(as hereinafter defined) of any and all losses, liabilities, claims, damages or
expenses incurred by any of them (including, without limitation, any and all
losses, liabilities, claims, damages or expenses incurred by the Agent to any
Lender) arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings, but excluding any investigation, litigation or proceeding solely
between Lenders or between the Agent and any Lender or Lenders) (whether or not
the Agent or any Lender or such other indemnified Person is a party thereto)
relating to the extensions of credit hereunder or any actual or proposed use by
the Borrowers or any of their Subsidiaries of the proceeds of any of the
extensions of credit hereunder, including, without limitation, the reasonable
fees and disbursements of counsel incurred in connection with any such
investigation or litigation or other proceedings (but excluding any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified) and (ii) not
to assert any claim against the Agent, any Lender, any of their affiliates, or
any of their respective directors, officers, employees, attorneys and agents, on
any theory of liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to any of the transactions
contemplated herein or in any other Credit Document, other than claims arising
by reason of the gross negligence or willful misconduct of any such Person.
As used in this Section 13.03, a Borrower's "Allocable Portion" of any cost,
expense or other amount payable under this Section 13.03 shall mean (a) if such
cost, expense or other amount is directly attributable to the Loans made to such
Borrower or any action taken or omitted to be taken by such Borrower, 100% of
such amount and (b) if such cost, expense or other amount is not directly
attributable to one or more specific Borrowers, such amount multiplied by (i) if
Loans are outstanding, the percentage equivalent of a fraction the numerator of
which is the principal amount of Loans outstanding to such Borrower and the
denominator of which is the aggregate amount of Loans outstanding to all
Borrowers and (ii) if no Loans are outstanding, 25%.
13.04 Amendments, Etc. Except as otherwise expressly provided in this
---------------
Agreement, any provision of any Credit Document may be modified or supplemented
only by an instrument in writing signed by the Guarantor, the Borrowers and the
Majority Lenders, or by the Guarantor, the Borrowers and the Agent acting with
the consent of the Majority Lenders, and any provision of any Credit Document
may be waived by the Majority Lenders or by the Agent acting with the consent of
the Majority Lenders; provided that: (a) no modification, supplement or waiver
--------
shall, unless by an instrument signed by all of the Lenders or by the Agent
acting with the consent of all of the Lenders: (i) increase, or extend the term
of any of the Commitments (other than as contemplated by Section 2.12, 2.13 or
2.14), or extend the time or waive any requirement for the reduction or
termination of any of the Commitments (other than as contemplated by Section
2.12, 2.13 or 2.14), (ii) extend the date fixed for the payment of principal of
or interest on any Loan (other than Swing Line Loans) or any fee hereunder,
(iii) reduce the amount of any such payment of principal, (iv) reduce the rate
at which interest is payable thereon or any fee is payable hereunder, (v) alter
the rights or obligations of the Borrowers to prepay Loans, (vi) alter the terms
of this Section 13.04,
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(vii) modify the definition of either of the terms "Majority Lenders" or
"Required Lenders" or modify in any other manner the number or percentage of the
Lenders required to make any determinations or waive any rights hereunder or to
modify any provision hereof, (viii) alter the terms of Section 10, or (ix) alter
the terms of Section 4.02; (b) any modification or supplement of Section 12 or
the imposition of any additional duties or obligations upon the Agent shall
require the consent of the Agent; and (c) no term or condition relating to the
Swing Line Loans or affecting the rights or duties of the Swing Line Lender may
be amended or waived unless in writing and signed by the Swing Line Lender;
provided that the consent of all of the Lenders shall be required to extend
- --------
the date of payment of any Swing Line Loan beyond the Termination Date.
Any such waiver and any such amendment, supplement or modification shall
apply equally to each of the Lenders and shall be binding upon the Borrowers,
the Lenders, the Agent and all future holders of the obligations owing
hereunder. In the case of any waiver, the Borrowers, the Lenders and the Agent
shall be restored to their former position and rights hereunder and under any
other Credit Documents, and any Default or Event of Default waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
Anything in this Agreement to the contrary notwithstanding, if at a time when
the conditions precedent set forth in Section 6 to any Syndicated Loan hereunder
are, in the opinion of the Majority Lenders, satisfied, any Lender shall fail to
fulfill its obligations to make such Loan, then, for so long as such failure
shall continue, such Lender shall be deemed for all purposes relating to
amendments, modifications, waivers or consents under this Agreement or any of
the other Credit Documents (including, without limitation, under this Section
13.04 and under Section 12.08) to have no Loans or Commitments, shall not be
treated as a "Lender" hereunder when performing the computation of Majority
Lenders, and shall have no rights under the first paragraph of this Section
13.04; provided that any action taken by the other Lenders with respect to the
matters referred to in clause (a) of the first paragraph of this Section 13.04
shall not be effective as against such Lender unless consented to by such
Lender.
13.05 Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the parties hereto and their respective successors and
permitted assigns.
13.06 Assignments and Participations.
------------------------------
(a) No Obligor may assign any of its rights or obligations hereunder or under
any other Credit Document without the prior consent of all of the Lenders and
the Agent.
(b) Each Lender may assign any of its Loans, and its Commitment (but only with
the consent of the Borrowers and the Agent, each such consent not to be
unreasonably withheld or delayed), provided that (i) no such consent by the
--------
Borrowers or the Agent shall be required in the case of any assignment to
another Lender or if the assignee is an affiliate of the assigning Lender; (ii)
any partial assignment shall be in an amount at least equal to $10,000,000;
(iii) each such assignment by a Lender of its Syndicated Loans or Commitment
shall be made in such manner so that the same portion of its Syndicated Loans
and Commitment is assigned to the respective assignee and, if Syndicated Loans
held by such Lender are outstanding to more than one Borrower, such Syndicated
Loans shall be assigned to such assignee pro rata in accordance with the amount
thereof outstanding to each such
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Borrower and (iv) the parties to each such assignment shall execute and deliver
to the Guarantor, the Borrowers and the Agent an Assignment and Acceptance. Upon
such execution and delivery of the Assignment and Acceptance, and upon consent
thereto by the Guarantor and the Agent, to the extent required above, the
assignee shall have, to the extent of such assignment (unless otherwise provided
in such assignment with the consent of the Guarantor and the Agent), the
obligations, rights and benefits of a Lender hereunder holding the Commitment
and Loans (or portions thereof) assigned to it (in addition to the Commitment
and Loans, if any, theretofore held by such assignee) provided that, with
--------
respect to any Regulatory Change or other event entitling such assignee to
receive any amount pursuant to Section 5.01, 5.05 or 5.06 which Regulatory
Change or event has occurred prior to the date of such assignment, such assignee
shall not be entitled to receive any greater amount with respect to such
Regulatory Change or other event pursuant to Section 5.01, 5.05 or 5.06 than the
assigning Lender would have been entitled to receive in respect of the amount of
Loans assigned to such assignee if such assignment had not occurred. The
assigning Lender shall, to the extent of such assignment, be released from the
Commitment (or portion thereof) so assigned. Upon each such assignment the
assignee Lender or the assignor Lender shall pay the Agent an assignment fee of
$2,500; provided that no fee shall be payable upon an assignment by a Lender
--------
to an affiliate of such Lender or an assignment or pledge by a Lender to a
Federal Reserve Bank pursuant to Section 13.06(d).
(c) Any Lender may, in the ordinary course of its commercial banking business
and in accordance with applicable law, at any time sell to one or more banks or
other entities ("Participants") participating interests in any Loan owing to
------------
such Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Credit Documents, after giving at least 10 days'
prior written notice of such proposed participation (other than a participation
to be sold to an affiliate of such Lender) to the Obligors. In the event of any
such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such obligation
owing to it under this Agreement for all purposes under this Agreement and the
other Credit Documents, and the Borrowers, the Guarantor and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Credit
Documents. Each Obligor agrees that if amounts outstanding under this Agreement
are due and payable, or shall have been declared or shall have become due and
payable by such Obligor upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 4.07 as fully as if it were a Lender
hereunder. The Borrowers also agree that each Participant shall be entitled to
the benefits of Sections 5.01, 5.05 and 5.06 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 5.06, such Participant shall have
--------
complied with the requirements of said Section and provided, further, that no
-------- -------
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred. In no event shall a Lender
that sells a participation agree with the Participant to take or refrain from
taking any action hereunder or under any other Credit Document except that such
Lender may agree with the Participant that it will not, without the consent of
the Participant, agree to
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(i) increase or extend the term, or extend the time or waive any requirement for
the reduction or termination, of such Lender's related Commitment, (ii) extend
the date fixed for the payment of principal of or interest on the related Loan
or Loans or any portion of any fee hereunder payable to the Participant, (iii)
reduce the amount of any such payment of principal, (iv) reduce the rate at
which interest is payable thereon, or any fee hereunder payable to the
Participant, to a level below the rate at which the Participant is entitled to
receive such interest or fee, (v) alter the rights or obligations of the
Borrowers to prepay the related Loans, (vi) release the Guarantor from its
obligations under Section 10 or (vii) change the terms of Section 4.02.
(d) In addition to the assignments and participations permitted under the
foregoing provisions of this Section 13.06, any Lender may assign and pledge all
or any portion of its Loans to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Lender from its
obligations hereunder. In order to facilitate such pledge or assignment, each
Borrower hereby agrees that, upon request of any Lender at any time and from
time to time after such Borrower has made its initial borrowing hereunder, such
Borrower shall provide to such Lender, at such Borrower's own expense, a
promissory note, substantially in the form of Exhibit F-1 or F-2, as the case
may be, evidencing the Loans owing to such Lender.
(e) A Lender may furnish any information concerning the Guarantor and any of
the Borrowers or any of their respective Subsidiaries in the possession of such
Lender from time to time to assignees and Participants (including prospective
assignees and Participants), subject, however, to the provisions of Section
13.06(g).
(f) Anything in this Section 13.06 to the contrary notwithstanding, no Lender
may assign or participate any interest in any Loan held by it hereunder to a
Borrower or any of its Affiliates or Subsidiaries without the prior written
consent of each Lender.
(g) Each of the Lenders and the Agent agrees (on behalf of itself and each of
its affiliates, directors, officers, employees and representatives) to use
reasonable precautions to keep confidential, in accordance with their customary
procedures for handling confidential information of this nature and in
accordance with safe and sound Lending practices and not to disclose to any
third party or any department or personnel of such Lender or the Agent engaged
in a consumer finance business competitive with any Borrower, any non-public
information supplied to it by the Guarantor or any Borrower pursuant to this
Agreement which is identified by the Guarantor or such Borrower as being
confidential at the time the same is delivered to the Lenders or the Agent,
provided that nothing herein shall limit the disclosure of any such information
- --------
(i) to the extent required by statute, rule, regulation or judicial process,
(ii) to counsel for any of the Lenders or the Agent, (iii) to bank examiners,
auditors or accountants, (iv) to the Agent or any other Lender, (v) in
connection with any litigation to which any one or more of the Lenders or the
Agent is a party, (vi) to any assignee or Participant (or prospective assignee
or Participant) so long as such assignee or Participant (or prospective assignee
or Participant) consents to the terms of this Section 13.06(g), (vii) which was
in the possession of such Lender or its affiliates as shown by clear and
convincing evidence prior to the Borrowers furnishing it to such Lender, or
(viii) which is received by such Lender, without restriction as to its
disclosure or use, from a Person who, to such Lender's knowledge or reasonable
belief, was not prohibited from disclosing it by any duty of confidentiality.
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(h) The Agent shall maintain at its address referred to in Section 13.02 a
copy of each Assignment and Acceptance delivered to it and a register (the
"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 from
time to time. The entries in the Register shall be prima facie evidence of the
existence and amounts of the obligations of the Borrowers therein recorded, and
the Guarantor, the Borrowers, the Agent and the Lenders may treat each Person
whose name is recorded in the Register as the owner of the Loan recorded therein
for all purposes of this Agreement. The Register shall be available for
inspection and copying by the Guarantor, the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
13.07 Survival. The obligations of the Borrowers (and of the Guarantor as
--------
guarantor) under Sections 5.01, 5.05, 5.06 and 13.03 (subject to the provisions
of Section 2.04(c)) and the obligations of the Lenders under Section 12.05 shall
survive the repayment of the Loans and the termination of the Commitments. In
addition, each representation and warranty made, or deemed to be made by a
notice of any extension of credit, herein or pursuant hereto shall survive the
making of such representation and warranty, and no Lender shall be deemed to
have waived, by reason of making any extension of credit hereunder, any Default
which may arise by reason of such representation or warranty proving to have
been false or misleading, notwithstanding that such Lender or the Agent may have
had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such extension of credit was made.
13.08 Captions. The table of contents and captions and section headings
--------
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
13.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.10 Independence of Covenants. All covenants under this Agreement shall
-------------------------
each be given independent effect so that if a particular action or condition is
not permitted by any such covenant or any exception thereto, the fact that it
would be permitted by another covenant, by an exception thereto, or be otherwise
within the limitations thereof, shall not avoid the occurrence of a Default or
an Event of Default if such action is taken or condition exists.
13.11 [Reserved].
---------
13.12 Severability Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13.13 Integration This Agreement and the other Credit Documents represent
-----------
the agreement of the Guarantor, the Borrowers, the Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to the subject
matter hereof not expressly set forth or referred to herein or in the other
Credit Documents.
64
<PAGE>
13.14 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
13.15 Submission to Jurisdiction; Waivers. Each of the Obligors hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such Obligor
at its address set forth below or at such other address of which the Agent
shall have been notified pursuant thereto; and
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to
sue in any other jurisdiction.
13.16 Waivers of Jury Trial. THE BORROWERS, THE GUARANTOR, THE AGENT AND
---------------------
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
65
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
FIRST DEPOSIT NATIONAL BANK
/s/ David J. Petrini
By _________________________________
Name: David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President and
Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
PROVIDIAN NATIONAL BANK
(formerly First Deposit National
Credit Card Bank)
/s/ David J. Petrini
By _________________________________
Name: David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President and
Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
66
<PAGE>
PROVIDIAN CREDIT CORPORATION
(formerly Providian National
Credit Corporation)
/s/ David J. Petrini
By ________________________________
Name: David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President and
Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
PROVIDIAN CREDIT SERVICES, INC.
/s/ David J. Petrini
By ________________________________
Name: David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President and
Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
67
<PAGE>
PROVIDIAN BANCORP, INC.,
as Guarantor
/s/ David J. Petrini
By ________________________________
Name: David J. Petrini
Title: Vice President and
Senior Financial
Officer
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Vice President and
Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
68
<PAGE>
LENDERS:
- --------
Commitment ABN AMRO Bank N.V.
- ----------
$25,000,000
/s/ J.M. Janovsky
By _________________________
Name: J.M. Janovsky
Title: Group V.P.
/s/ Kathryn C. Toth
By _________________________
Name: Kathryn C. Toth
Title: Vice President
Lending Office for Base Rate Loans:
ABN AMRO Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Lending Office for Loans other than
Base Rate Loans:
ABN AMRO Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Address for Notices:
ABN AMRO Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Attention: James M. Janovsky
Telex No.: 6734601 ABNAMRO UT
Telecopier No.: 412-566-2266
Telephone No.: 412-566-2269
69
<PAGE>
Commitment BANK OF AMERICA NATIONAL TRUST
- ---------- AND SAVINGS ASSOCIATION
$60,000,000
/s/ M. Kathleen McVay
By ________________________________
Name: M. Kathleen McVay
Title: Senior Vice President
Lending Office for Base Rate Loans:
Bank of America National Trust
and Savings Association
1850 Gaterway Blvd., 4th floor
Concord, CA 94520
Lending Office for Loans other than
Base Rate Loans:
Bank of America National Trust
and Savings Association
1850 Gaterway Blvd., 4th floor
Concord, CA 94520
Address for Notices:
Bank of America National Trust
and Savings Association
1850 Gaterway Blvd., 4th floor
Concord, CA 94520
Attention: Marianne Runyon
Telecopier No.: 510-675-7531
Telephone No.: 510-675-7719
70
<PAGE>
Commitment THE FIRST NATIONAL BANK OF BOSTON
- ----------
$20,000,000
/s/ John B. Sinclair
By _________________________________
Name: John B. Sinclair
Title: Vice President
Lending Office for Base Rate Loans:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Lending Office for Loans other than
Base Rate Loans:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Address for Notices:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: William B. Langille
Telex No.: 4996527 BOSTONBKBSN
Telecopier No.: 617-434-1096
Telephone No.: 617-434-8244
71
<PAGE>
Commitment THE BANK OF NEW YORK
- ----------
$35,000,000
/s/ Elizabeth T. Ying
By _________________________________
Name: Elizabeth T. Ying
Title: Assistant Vice President
Lending Office for Base Rate Loans:
The Bank of New York
1 Wall Street, 22nd Floor
New York, New York 10286
Lending Office for Loans other than
Base Rate Loans:
The Bank of New York
1 Wall Street, 22nd Boor
New York, New York 10286
Address for Notices:
The Bank of New York
1 Wall Street, 22nd Floor
New York, New York 10286
Attention: Lorna Alleyne/
Sandra Morgan
Telecopier No.: 212-635-6877/6399
Telephone No.: 212-635-6743/6737
72
<PAGE>
Commitment BANQUE NATIONAL DE PARIS
- ----------
$20,000,000
/s/ Rafael C. Lumanian
By _________________________________
Name: Rafael C. Lumanian
Title: Vice President
/s/ William J. La Herran
By _________________________________
Name: William J. La Herran
Title: Assistant Vice President
Lending Office for Base Rate Loans:
Banque Nationale de Paris
180 Montgomery Street
San Francisco, CA 94104
Lending Office for Loans other than
Base Rate Loans:
Banque Nationale de Paris
180 Montgomery Street
San Francisco, CA 94104
Address for Notices:
Banque National de Paris
180 Montgomery Street
San Francisco, CA 94104
Attention: William J. La Herran
Telex No.: RCA278900 (BNPSUR)
Telecopier No.: 415-296-8954
Telephone No.: 415-956-0707
73
<PAGE>
Commitment THE CHASE MANHATTAN BANK
- ---------- (NATIONAL ASSOCIATION)
$60,000,000
/s/ Dennis L. Cogan
By _________________________________
Name: Dennis L. Cogan
Title: Vice President
Lending Office for all Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Monique Parker
Telecopier No.: 212-552-1368
Telephone No.: 212-552-5920
74
<PAGE>
Commitment CITICORP USA, INC.
- ----------
$60,000,000
By /s/ Stephen P. Zwick
-----------------------------
Name: Stephen P. Zwick
Title: Vice President
Lending Office for Base Rate Loans:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Lending Office for Loans other than Base Rate
Loans:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Address for Notices:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Attention: Brenda Killian
Telex No.:
Telecopier No.: 212-371-6309
Telephone No.: 212-559-3883
<PAGE>
Commitment COMMERZBANK AG, LOS ANGELES
- ---------- BRANCH
$30,000,000
By /s/ Steven F. Larsen
___________________________________________
Name: Steven F. Larsen
Title: Vice President
By /s/ Karla Wirth
___________________________________________
Name: Karla Wirth
Title: Assistant Treasurer
Lending Office for Base Rate Loans:
Commerzbank AG, Los Angeles Branch
660 So. Figueroa, Suite 1450
Los Angeles, CA 90017
Lending Office for Loans other than Base Rate
Loans:
Commerzbank AG, Los Angeles Branch
660 So. Figueroa, Suite 1450
Los Angeles, CA 90017
Address for Notices:
Commerzbank AG, Los Angeles Branch
660 So. Figueroa, Suite 1450
Los Angeles, CA 90017
Attention: Werner Schmidbauer
Telex No.: 678338 CBKLA UI
Telecopier No.: 213-623-0039
Telephone No.: 213-623-8223
<PAGE>
Commitment CAISSE NATIONALE DE
- ---------- CREDIT AGRICOLE
$40,000,000
By /s/ David Bouhl
--------------------------------
Name: DAVID BOUHL, F.V.P
TITLE: HEAD OF CORPORATE BANKING
CHICAGO
Lending Office for Base Rate Loans:
Caisse Nationale de Credit Agricole
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Lending Office for Loans other than Base Rate
Loans:
Caisse Nationale de Credit Agricole
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Address for Notices:
Caisse Nationale de Credit Agricole
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Attention: Roger Weis
Telex No.: 190063 AGRICOUT
Telecopier No.: 312-372-4421
Telephone No.: 312-917-7440
<PAGE>
Commitment CREDIT LYONNAIS, SAN FRANCISCO
- ---------- BRANCH AND/OR CREDIT LYONNAIS,
$60,000,000 CAYMAN ISLAND BRANCH
By /s/ William J. Fischer
------------------------------
Name: WILLIAM J. FISCHER
Title: VICE PRESIDENT
Lending Office for Base Rate Loans:
Credit Lyonnais, San Francisco Branch
c/o 3 Embarcadero Center, Suite 1640
San Francisco, California 94111
Lending Office for Loans other than Base Rate
Loans:
Credit Lyonnais, Cayman Island Branch
c/o Credit Lyonnais, San Francisco Branch
3 Embarcadero Center, Suite 1640
San Francisco, California 94111
Address for Notices:
Credit Lyonnais, San Francisco Branch
c/o 3 Embarcadero Center, Suite 1640
San Francisco, California 94111
Attention.: William J. Fischer
Telex No.: 6771535 CLSFO UI
Telecopier No.: 415-956-7008
Telephone No.: 415-956-7002
<PAGE>
Commitment CREDIT SUISSE
- ----------
$60,000,000
By /s/ Stephen M. Flynn
-----------------------------------
Name: Stephen M. Flynn
Title: Member of Senior Management
By /s/ Marilou Palenzuela
--------------------------------------
Name: Marilou Palenzuela
Title: Member of Senior Management
Lending Office for Base Rate Loans:
Credit Suisse
633 West Fifth Street, 64th Floor
Los Angeles, CA 90071
Lending Office for Loans other than Base Rate
Loans:
Credit Suisse
633 Fifth Street, 64th Floor
Los Angeles, CA 90071
Address for Notices:
Credit Suisse
633 West Fifth Street, 64th Floor
Los Angeles, CA 90071
Attention: Rita Asa
Telex No.: 67227 (CREDSUIS)
Telecopier No.: 213-955-8245
Telephone No.: 213-955-8284
<PAGE>
Commitment THE DAI-ICHI KANGYO BANK, LTD.,
- ---------- CHICAGO BRANCH
$25,000,000
By /s/ Takeshi Hemmi
---------------------------------
Name: Takeshi Hemmi
TITLE: Vice President
Lending Office for Base Rate Loans:
The Dai-Ichi Kangyo Bank, Ltd., Chicago
Branch
10 South Wacker Drive, 26th floor
Chicago, Il 60606
Lending Office for Loans other than Base Rate
Loans:
The Dai-Ichi Kangyo Bank, Ltd., Chicago
Branch
10 South Wacker Drive, 26th floor
Chicago, Il 60606
Address for Notices:
The Dai-Ichi Kangyo Bank, Ltd., Chicago
Branch
10 South Wacker Drive, 26th floor
Chicago, Il 60606
Attention: Credit Adminstration Department
Telex No.: 25-4515 BANKDAIKAN
Telecopier No.: 312-876-2011
Telephone No.: 312-715-6362
<PAGE>
Commitment DEUTSCHE BANK AG,
- ---------- NEW YORK AND/OR CAYMAN ISLANDS
$25,000,000 BRANCHES
By /s/ Gayma Z. Shivnarain
----------------------------
Name: Gayma Z. Shivnarain
Title: Vice President
By /s/ Alexander Cellarius
-----------------------------
Name: Alexander Cellarius
Title: Vice President
Lending Office for Base Rate Loans:
Deutsche Bank AG,
New York Branch
31 West 52nd Street
New York, New York 10019
Lending Office for Loans other than
Base Rate
Loans:
Deutsche Bank AG
Cayman Islands Branch
31 West 52nd Street
New York, New York 10019
Address for Notices:
Deutsche Bank AG
New York and/or Cayman Islands Branches
31 West 52nd Street
New York, New York 10019
Attention: CFS, Cheryl Mandelbaum
Telex No.: 429166/DEUT BK NY
Telecopier No.: 212-474-7880
Telephone No.: 212-474-8426
<PAGE>
Commitment THE FUJI BANK, LIMIIED,
- ---------- SAN FRANCISCO AGENCY
$50,000,000
By /s/ Keiichi Ozawa
---------------------------
Name: Keiichi Ozawa
Title: Joint General Manager
Lending Office for Base Rate Loans:
The Fuji Bank, Limited,
San Francisco Agency
601 California, Suite 500
San Francisco, CA 94108
Lending Office for Loans other than
Base Rate
Loans:
The Fuji Bank, Limited,
San Francisco Agency
601 California, Suite 500
San Francisco, CA 94108
Address for Notices:
The Fuji Bank, Limited,
San Francisco Agency
601 California, Suite 500
San Francisco, CA 94108
Attention: Derick T. Sutton
Telex No.: 176087 FUJIBK SFO
Telecopier No.: 415/362-4613
Telephone No.: 415/296-5444
<PAGE>
Commitment THE INDUSTRIAL BANK OF JAPAN,
- ---------- LIMITED, LOS ANGELES AGENCY
$40,000,000
By /s/ Toshinari Iyoda
--------------------------
Name: Toshinari Iyoda
Title: Senior Vice President
Lending Office for Base Rate Loans:
The Industrial Bank of Japan, Limited,
Los Angeles Agency
350 South Grand Avenue, Suite #1500
Los Angeles, CA 90071
Lending Office for Loans other than
Base Rate Loans:
The Industrial Bank of Japan, Limited,
Los Angeles Agency
350 South Grand Avenue, Suite #1500
Los Angeles, CA 90071
Address for Notices:
The Industrial Bank of Japan, Limited,
Los Angeles Agency
350 South Grand Avenue, Suite #1500
Los Angeles, CA 90071
Attention: Charles Lilygren
Telex No.: 673562 KOGIN LSA
Telecopier No.: 213-488-9840
Telephone No.: 213-893-6444
<PAGE>
Commitment NATIONSBANK OF TEXAS, N.A.
- ----------
$60,000,000
By /s/ Greg Venker
----------------------------
Name: GREG VENKER
Title: SENIOR VICE PRESIDENT
Lending Office for Base Rate Loans:
NationsBank of Texas, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75201
Lending Office for Loans other than
Base Rate
Loans:
NationsBank of Texas, N.A.
901 Main Street, 66th Floor
Dallas, Texas 75201
Address for Notices:
NationsBank of Texas, N.A.
901 Main Street 66th Floor
Dallas, Texas 75201
Attention: Greg Venker
Telex No.:
Telecopier No.: 214-508-0944
Telephone No.: 214-508-0584
<PAGE>
Commitment NATWEST BANK N.A.
- ----------
$35,000,000
By /s/ Stephanie Wilson-Flaherty
-------------------------------
Name: Stephanie Wilson-Flaherty
Title: Vice President
Lending Office for Base Rate Loans:
NatWest Bank N.A.
175 Water Street
New York, New York 10038
Lending Office for Loans other than
Base Rate Loans:
NatWest Bank N.A.
175 Water Street
New York, New York 10038
Address for Notices:
NatWest Bank N.A.
175 Water Street
New York, New York 10038
Attention: Andrea H. Lee
Telex No.: 12-7933
Telecopier No.: 212-602-3323/2158
Telephone No.: 212-602-2127
<PAGE>
Commitment PNC BANK, National Association
- ----------
$50,000,000
By /s/ Anthony L. Trunzo
-----------------------------
Name: Anthony L. Trunzo
Title: Vice President and Manager
Lending Office for Base Rate Loans:
PNC Bank, N.K
55 S. Lake Avenue, Suite 650
Pasadena, California 91101
Lending Office for Loans other than Base
Loans:
PNC Bank, N.A.
55 S. Lake Avenue, Suite 650
Pasadena, California 91101
Address for Notices:
PNC Bank, N.A.
55 S. Lake Avenue, Suite 650
Pasadena, California 91101
Attention: Pamela J. Fox
Telecopier No.: 818-568-0653
Telephone No.: 818-568-9423
<PAGE>
Commitment SANWA BANK, LIMITED
- ---------- ATHANTA AGENCY
$30,000,000
By /s/ Virginia C. Mahoney
-----------------------------
Name: Virginia C. Mahoney
Title: Vice President
Lending Office for Base Rate Loans:
The Sanwa Bank Limited
Atlanta Agency
133 Peachtree Street NE, Suite 4750
Atlanta, Georgia 30303
Lending Office for Loans other than
Base Rate Loans:
The Sanwa Bank Limited
Atlanta Agency
133 Peachtree Street NE, Suite 4750
Atlanta, Georgia 30303
Address for Notices:
The Sanwa Bank Limited
Atlanta Agency
133 Peachtree Street NE, Suite 4750
Atlanta, Georgia 30303
Attention: Operations Department/Kristie
Hartrampf
Telex No.: 4611830 SANWATL
Telecopier No.: 404-589-1629
Telephone No.: 404-586-6880
<PAGE>
Commitment SHAWMUT BANK CONNECTICUT, N.A.
- -----------
$15,000,000
By /s/ [signature illegible]
-------------------------------
Name: [illegible]
Title: [illegible]
Lending Office for Base Rate Loans:
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, Connecticut 06115
Lending Office for Loans other than Base Rate
Loans:
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, Connecticut 06115
Address for Notices:
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, Connecticut 06115
Attention: Frances Wojcik
Telex No.:
Telecopier No.: 203-240-1264
Telephone No.: 203-728-4462
NA952770.090/5
<PAGE>
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By /s/ Dennis L. Cogan
-----------------------------------
Name: Dennis L. Cogan
Title: Vice President
Address for Notices to Chase as Agent:
The Chase Manhattan Bank
(National Association)
4 Chase Metro Tech Center
13th floor
Brooklyn, New York 11245
Attention: New York Agency
Telex No.: 6720516 (Answerback:
CMBNYAUW)
Telecopier No.: (718) 242-6909/6910
Telephone No.: (718) 242-7945
<PAGE>
SCHEDULE I
Subsidiaries
------------
Subsidiaries of Providian Bancorp, Inc.
- ---------------------------------------
First Deposit National Bank
Providian National Bank
Providian Credit Corporation
Providian National Bancorp
First Deposit Service Corporation
First Deposit Life Insurance Company
Providian Credit Services, Inc.
Subsidiary of First Deposit National Bank
- -----------------------------------------
Winnisquam Community Development Corporation
Subsidiary of Providian National Bancorp
- ----------------------------------------
Commonwealth Premium Finance
<PAGE>
SCHEDULE II
Existing Liens
--------------
None except as permitted by Section 8.08
<PAGE>
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated ________, 19__
Reference is made to the Amended and Restated Credit Agreement dated as of
____________, 1995 (as amended or modified from time to time, the "Credit
Agreement") among FIRST DEPOSIT NATIONAL BANK, a national banking association
incorporated, organized and existing under the laws of the United States of
America ("FDNB"), PROVIDIAN NATIONAL BANK, a national banking association
incorporated, organized and existing under the laws of the United States of
America ("PNB"), PROVIDIAN CREDIT CORPORATION, a corporation organized and
existing under the laws of the State of Delaware ("PCC"), PROVIDIAN CREDIT
SERVICES, INC, a corporation organized and existing under the laws of the State
of Utah ("PCSI"; together with FDNB, PNB and PCC, the "Borrowers"); PROVIDIAN
BANCORP, INC., a corporation organized and existing under the laws of the State
of Delaware (the "Guarantor"; together with the Borrowers, the "Obligors"); the
banks and financial institutions listed on the signature pages thereof under the
caption "LENDERS" or which, pursuant to Section 2.12, 2.13 or 13.06(b) thereof,
shall become a "Lender" thereunder (individually, a "Lender" and, collectively,
the "Lenders"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association, as administrative agent for the Lenders (in such capacity,
together with any successor appointed pursuant to Section 12.08 thereof, the
"Agent").
Terms defined in the Credit Agreement and not otherwise defined herein are
used herein as therein defined.
________________ (the "Assignor") and _______________ (the "Assignee") agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without recourse
and the Assignee hereby purchases and assumes from the Assignor, that portion of
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof (other than in respect of Competitive Bid Option Loans) specified in
Section 1 of Schedule 1 hereto. Such portion of the Assignor's Commitment and of
outstanding Syndicated Loans owing to the Assignor being purchased and assumed
by Assignee constitutes the percentage interest specified in Section 2 of
Schedule 1 hereto in and to the aggregate Commitments of all of the Lenders and
the aggregate principal amount of all of the Syndicated Loans outstanding.
2. The Assignor (i) represents and warrants that as of the date hereof its
Commitment (after giving effect to any assignments thereof made prior to the
date hereof, whether or not such assignments have become effective, but without
giving effect hereto or to any other assignments thereof also made on the date
hereof) is in the dollar amount specified as the Assignor's Commitment in
Section 3 of Schedule 1 hereto and the aggregate outstanding principal amount of
Syndicated Loans owing to it (after giving effect to any assignments thereof
made prior to the date hereof, whether or not such assignments have become
effective, but without giving effect hereto or to any other assignments thereof
also made on the date hereof) is in the dollar amount specified as the aggregate
outstanding principal amount of such Loans owing to the Assignor in Section 3 of
Schedule l hereto; (ii) represents and warrants that as of the date hereof its
Commitment and the aggregate outstanding principal amount of Syndicated Loans
owing to Assignor (after giving effect to
Assignment and Acceptance
-------------------------
<PAGE>
any assignments thereof made prior to the date hereof, whether or not such
assignments have become effective, and giving effect hereto or to any other
assignments thereof also made on the date hereof) constitutes the percentage
interest specified in Section 4 of Schedule 1 hereto in and to the aggregate
Commitments of all of the Lenders and the aggregate principal amount of all
Syndicated Loans outstanding and its Commitment (after giving effect to any
assignments thereof made prior to the date hereof, whether or not such
assignments have become effective, and giving effect hereto or to any other
assignments thereof also made on the date hereof) is in the dollar amount
specified as the Assignor's Commitment in Section 4 of Schedule 1 hereto and the
aggregate outstanding principal amount of Syndicated Loans owing to it (after
giving effect to any assignments thereof made prior to the date hereof, whether
or not such assignments have become effective, and giving effect hereto or to
any other assignments thereof also made on the date hereof) is in the dollar
amount specified as the aggregate outstanding principal amount of such Loans
owing to the Assignor in Section 4 of Schedule 1 hereto; (iii) represents and
warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse
claim; (iv) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with any Credit Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any of the Credit Documents
or any other instrument or document furnished pursuant thereto; and (v) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any of the Borrowers or any other Obligor or the
performance or observance by any of the Borrowers or any other Obligor of any of
its obligations under any Credit Document to which it is a party or any other
instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 7.01 thereof or the financial statements most recently delivered by the
Borrowers and the Guarantor pursuant to Section 8.01 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (ii) agrees
that it will, independently and without reliance upon the Agent, the Assignor 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 the Credit Documents; (iii) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Credit Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto; (iv) agrees to
be bound by the provisions of the Credit Agreement and agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Credit Documents are required to be performed by it as a Lender; (v)
specifies as its Applicable Lending Offices (and address for notices) the
office(s) set forth beneath its name on the signature page hereof; and (vi)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the Assignee's status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to the Assignee under the Credit Documents or such other documents as
are necessary to indicate that all such payments are subject to such rates at a
rate reduced by an applicable tax treaty./1/
- ----------------------
/1/ If the Assignee is organized under the laws of a jurisdiction outside the
United States.
Assignment and Acceptance
-------------------------
2
<PAGE>
4. Following the execution of this Assignment and Acceptance by the Assignor
and the Assignee, it will be delivered to the Borrowers and the Agent for
acceptance, together with payment to the Agent of the $2,500 assignment fee;
provided that no fee shall be payable upon an assignment by a Lender to an
- --------
Affiliate of such Lender or upon an assignment or pledge by a Lender to a
Federal Reserve Bank pursuant to Section 13.06(d) of the Credit Agreement. The
effective date of this Assignment and Acceptance shall be the date of acceptance
thereof by the Agent and the Borrowers or such later date specified on Schedule
1 hereto (the "Effective Date").
5. Upon such acceptance and recording by the Agent, as of the Effective Date,
(i) the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Acceptance, have the rights and obligations of a
Lender thereunder and under the Credit Documents and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Documents.
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Documents in
respect of the interest assigned hereby (including, without limitation, all
payments of principal, interest and commitment fees with respect thereto) to the
Assignee. The Assignor and Assignee shall make all appropriate adjustments in
payments under the Credit Documents for periods prior to the Effective Date
directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
Assignment and Acceptance
-------------------------
3
<PAGE>
EXHIBIT A
Schedule 1
to
Assignment and Acceptance
Dated _______________, 199___
Section 1.
- ----------
Assignee's purchased portion of
Assignor's (i) Commitment and
(ii) outstanding Syndicated Loans
owing to the Assignor: (i) $___
(ii) $___
Section 2.
- ----------
Assignee's percentage interest in
aggregate Commitments of all Lenders
and in aggregate principal amount
of Syndicated Loans outstanding
(after giving effect hereto): ____%
Section 3.
- ----------
Assignor's Commitment
(before giving effect hereto): $___
Aggregate outstanding principal
amount of Syndicated Loans
owing to the Assignor
(before giving effect hereto): $___
Section 4.
- ----------
Assignor's percentage interest in
aggregate Commitments of all
Lenders and in aggregate
principal amount of Syndicated
Loans outstanding (after
giving effect hereto): ____%
Assignor's Commitment
(after giving effect hereto): $___
Aggregate outstanding principal amount
of Syndicated Loans owing to
the Assignor (after giving effect hereto): $___
Schedule 1 to
Assignment and Acceptance
-------------------------
<PAGE>
Section 5.
- ----------
Effective Date/1/: ___________________, 199_
[NAME OF ASSIGNOR]
By:_____________________________
Title:
[NAME OF ASSIGNEE]
By:______________________________
Title:
Accepted this day Lending Office for Base Rate Loans:
of ___________, 199__ [Address]
THE CHASE MANHATTAN BANK Lending Office for other
(National Association), Types of Loans:
as Administrative Agent [Address]
By:__________________________ Address for Notices
Title: [Address]
Accepted this ___________ day of _________, 199__/2/:
PROVIDIAN BANCORP, INC.,
as Guarantor
By:__________________________
Title:
- --------------------
/1/ This date should be no earlier than the date of acceptance by the Agent,
and the Guarantor (to the extent required by the Credit Agreement).
/2/ Acceptance required only to the extent provided in the Credit Agreement.
Schedule 1 to
Assignment and Acceptance
-------------------------
2
<PAGE>
FIRST DEPOSIT NATIONAL BANK
By:__________________________
Title:
PROVIDIAN NATIONAL BANK
By:__________________________
Title:
PROVIDIAN CREDIT CORPORATION
By:__________________________
Title:
PROVIDIAN CREDIT SERVICES, INC.
By:__________________________
Title:
Schedule 1 to
Assignment and Acceptance
-------------------------
3
<PAGE>
EXHIBIT B
FORM OF CBO QUOTE REQUEST
[Date]
To: The Chase Manhattan Bank (National Association), as Agent
From: [Borrower]
Re: CBO Quote Request
Pursuant to Section 2.03 (b) of the Amended and Restated Credit Agreement
dated as of ____________, 1995 (the "Credit Agreement") among the undersigned,
----------------
the other Borrowers party thereto, Providian Bancorp, Inc., as Guarantor, the
Lenders named therein, and The Chase Manhattan Bank (National Association), as
Administrative Agent, we hereby give notice that we request CBO Quotes for the
following proposed Competitive Bid Option Borrowing(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date[/*1/] Amount[/*2/] Type[/*3/] Period[/*4/]
- --------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------------
/*/ All numbered footnotes appear on the last page of this Exhibit.
CBO Quote Request
-----------------
<PAGE>
[Pursuant to Section 4.03 of the Credit Agreement, interest on a Set Rate Loan
with an Interest Period of 270 days or more shall be computed on the basis of a
360-day year consisting of twelve 30-day months.] [*5]
Terms used herein have the meanings assigned to them in the Credit Agreement.
[NAME OF BORROWER]
By:____________________________
Name:
Title:
____________________
[1] For use if a Set Rate in a Set Rate Auction is requested to be submitted
before the proposed date of borrowing.
[2] Each amount must be $5,000,000 or a larger multiple of $1,000,000.
[3] Insert either "LIBO Margin" (in the case of LIBOR Market Loans) or "Set
Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market Loan or, in the
case of a Set Rate Loan, a period of at least 7 days after the making of such
Set Rate Loan and ending on a Business Day.
[5] Insert if Set Rate Loans with an Interest Period of 270 days or more are
requested.
CBO Quote Request
-----------------
2
<PAGE>
EXHIBIT C
FORM OF CBO QUOTE
To: The Chase Manhattan Bank (National Association), as Agent
Attention:
Re: CBO Quote to
[Borrower] (the "Borrower")
This CBO Quote is given in accordance with Section 2.03(c) of the Amended and
Restated Credit Agreement dated as of ___________, 1995 (the "Credit Agreement")
among [Name of Borrower], the other Borrowers party thereto, Providian Bancorp,
Inc., as Guarantor, the Lenders named therein and The Chase Manhattan Bank
(National Association), as Administrative Agent. Terms defined in the Credit
Agreement are used herein as defined therein.
In response to the Borrower's invitation dated __________, 199__ ,we hereby
make the following CBO Quote(s) on the following terms:
l. Quoting Lender:
2. Person to contact at Quoting Lender:
3. We hereby offer to make Competitive Bid Option Loan(s) in the
following principal amount[s], for the following Interest Period(s) and at the
following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date[/*/1] Amount[*2] Type[*3] Period[*4] Rate[*5]
- --------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
/*/ All numbered footnotes appear on the last page of this Exhibit.
CBO Quote
---------
<PAGE>
[Pursuant to Section 4.03 of the Credit Agreement, interest on a Set
Rate Loan with an Interest Period of 270 days or more shall be computed on the
basis of a 360-day year consisting of twelve 30-day months.] [*6]
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate[s] us to make the Competitive Bid Option Loan(s) for which
any offer(s) (is/are) accepted, in whole or in part (subject to Section 2.03 of
the Credit Agreement).
Very truly yours,
[NAME OF LENDER]
By:
----------------------------
Authorized Officer
Dated:
----------------------
- -----------------------------
[1] As specified in the related CBO Quote Request.
[2] The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000 or a
larger multiple of $1,000,000.
[3] Indicate "LIBO Margin" (in the case of LIBOR Market Loans) or "Set Rate"
(in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market Loan or, in the
case of a Set Rate Loan, a period of at least 7 days after the making of
such Set Rate Loan and ending on a Business Day, as specified in the
related CBO Quote Request.
[5] For a LIBOR Market Loan, specify margin over or under the LIBO Rate
determined for the applicable Interest Period. Specify percentage (rounded,
if necessary, to the nearest 1/10,000th of 1%) and specify whether "PLUS"
or "MINUS". For a Set Rate Loan, specify rate of interest per annum
(rounded, if necessary, to the nearest 1/10,000th of 1%).
[6] Insert if Set Rate Loans with an Interest Period of 270 days or more were
requested.
CBO Quote
---------
2
<PAGE>
EXHIBIT D-1
FORM OF NOTICE OF BORROWING
OF COMPETITIVE BID OPTION LOANS
[Date]
TO: The Chase Manhattan Bank (National Association), as Administrative Agent
FROM: [Name of Borrower]
RE: Notice of Borrowing of Competitive Bid Option Loans
The undersigned refers to the Amended and Restated Credit Agreement, dated
as of ___________, 1995 (the "Credit Agreement"; terms defined therein being
used herein as therein defined) among [Name of Borrower], the other Borrowers
party thereto, Providian Bancorp, Inc., as Guarantor, the Lenders party thereto
and The Chase Manhattan Bank (National Association), as Administrative Agent;
and hereby gives you notice, irrevocably, pursuant to and in accordance with
Section 2.03(e) of the Credit Agreement, that the undersigned hereby accepts the
following offers notified to the undersigned pursuant to Section 2.03(d), in an
aggregate principal amount of $____________, in respect of the CBO Quote Request
dated _________, 199__ delivered by the undersigned to the Agent pursuant to
Section 2.03(b):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Lender Date Date Amount Type Rate
- -------- --------- --------- ------ -------- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
[Pursuant to Section 4.03 of the Credit Agreement, interest on a Set
Rate Loan with an Interest Period of 270 days or more shall be computed on the
basis of a 360-day year consisting of twelve 30-day months.] [/*/1]
- ---------------
/*/ Insert if Set Rate Loans with an Interest Period of 270 days or more are
accepted.
<PAGE>
The undersigned hereby certifies that the following statements will be
true on the date[s] set forth under the caption "Borrowing Date" above:
(A) the representations and warranties made by the undersigned and the
Guarantor in Section 7 of the Credit Agreement and in each of the other Credit
Documents to which it is a party are true and complete before and after giving
effect to the Competitive Bid Option Loans specified above, with the same
force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date); and
(B) no Default or Event of Default with respect to the undersigned or the
Guarantor has occurred and is continuing, or would result from the making of
such Competitive Bid Option Loans.
Very truly yours,
[NAME OF BORROWER]
By:____________________________
Title:
Notice of Borrowing of Competitive Bid Option Loans
---------------------------------------------------
2
<PAGE>
EXHIBIT D-2
FORM OF NOTICE OF BORROWING
OF SYNDICATED LOANS
[Date]
TO: The Chase Manhattan Bank (National Association), as Administrative Agent
FROM: [Name of Borrower] (the "Borrower")
RE: Notice of Borrowing of Syndicated Loans
The undersigned refers to the Amended and Restated Credit Agreement, dated
as of ________________, 1995 (the "Credit Agreement"; terms defined therein
being used herein as therein defined) among the undersigned, the other Borrowers
party thereto, Providian Bancorp, Inc., as Guarantor, the Lenders party thereto,
and The Chase Manhattan Bank (National Association), as Administrative Agent;
and hereby gives you notice, irrevocably, pursuant to Section 4.05 of the Credit
Agreement, that the undersigned hereby requests a borrowing or borrowings of
Syndicated Loans under the Credit Agreement, and in connection therewith sets
forth below the information relating to such borrowing or borrowings (the
"Proposed Borrowing") as required by Section 4.05 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is __________, 199__.
(ii) The aggregate amount of the Proposed Borrowing is $_______/1/ [which
shall be comprised of Loans of $________ ("Borrowing 1") and
$________ ("Borrowing 2")]./2/
(iii) The Loans comprising the Proposed Borrowing are [Base Rate Loans]
[Eurodollar Loans].
- ---------------
/1/ To be used if different Interest Periods are selected with respect to
different borrowings of Eurodollar Loans included in the Proposed Borrowing.
/2/ To be expanded to "Borrowing 3" etc., if necessary.
Notice of Borrowing of Syndicated Loans
---------------------------------------
<PAGE>
/3/(iv) The Interest Period for each Eurodollar Loan made as part of the
Proposed Borrowing is _____ month[s]/4/ [with respect to Borrowing 1 and _____
month[s] with respect to Borrowing 2].
The undersigned hereby certifies that the following statements will be
true on the date of the Proposed Borrowing:
(A) the representations and warranties made by the undersigned and the
Guarantor in Section 7 of the Credit Agreement and in each of the other Credit
Documents to which it is a party are true and complete before and after giving
effect to the Proposed Borrowing, with the same force and effect as if made on
and as of such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date);
(B) no Default or Event of Default with respect to the undersigned or the
Guarantor has occurred and is continuing, or would result from such Proposed
Borrowing.
Very truly yours,
[NAME OF BORROWER]
By:
---------------------------------
Title:
- ---------------
/3/ To be included for a Proposed Borrowing comprised, in whole or in part,
of Eurodollar Loans.
/4/ To be used if the Proposed Borrowing is comprised of more than one
borrowing of Eurodollar Loans and different Interest Periods are selected with
respect to different borrowings of Eurodollar Loans.
Notice of Borrowing of Syndicated Loans
---------------------------------------
2
<PAGE>
EXHIBIT D-3
FORM OF NOTICE OF BORROWING
OF SWING LINE LOANS
[Date]
TO: The Chase Manhattan Bank (National Association), as Administrative Agent
FROM: [Name of Borrower]
RE: Notice of Borrowing of Swing Line Loans
The undersigned refers to the Amended and Restated Credit Agreement,
dated as of __, 1995 (the "Credit Agreement"; terms defined therein being used
herein as therein defined) among the undersigned, the other Borrowers party
thereto, Providian Bancorp, Inc., as Guarantor, the Lenders party thereto, and
The Chase Manhattan Bank (National Association), as Administrative Agent; and
hereby gives you notice, irrevocably, pursuant to Section 2.04 of the Credit
Agreement, that the undersigned hereby requests a borrowing of Swing Line Loans
under the Credit Agreement, and in connection therewith sets forth below the
information relating to such borrowing (the "Proposed Borrowing") as required by
Section 2.04 of the Credit Agreement:
(i) The Proposed Borrowing is requested from The Chase Manhattan Bank
(National Association).
(ii) The Business Day of the Proposed Borrowing is ______ 199__.
(ii) The aggregate amount of the Proposed Borrowing is $_____.
(iii) The Loans comprising the Proposed Borrowing will bear interest at
the [Swing Line Base Rate] [Swing Line Money Market Rate].
The undersigned hereby certifies that the following statements will be
true on the date of the Proposed Borrowing:
(A) the representations and warranties made by the undersigned and the
Guarantor in Section 7 of the Credit Agreement and in each of the other Credit
Documents to which it is a party are true and complete before and after giving
effect to the Proposed Borrowing, with the same force and effect as if made on
and as of such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date);
Notice of Borrowing of Swing Line Loans
---------------------------------------
<PAGE>
(B) no Default or Event of Default with respect to the undersigned or
the Guarantor has occurred and is continuing, or would result from such
Proposed Borrowing.
Very truly yours,
[NAME OF BORROWER]
By: _____________________________
Name:
Title:
Notice of Borrowing of Swing Line Loans
---------------------------------------
2
<PAGE>
EXHIBIT E
October 10, 1995
The Chase Manhattan Bank (National
Association), as Administrative Agent,
and the Lenders party to the Credit
Agreement (as hereinafter defined)
Re: AMENDED AND RESTATED CREDIT AGREEMENT
Ladies and Gentlemen:
I have acted as in-house counsel for Providian Bancorp, Inc., a Delaware
corporation ("PBI"), First Deposit National Bank, a national banking association
("FDNB"), Providian National Bank, a national banking association ("PNB"),
Providian Credit Corporation, a Delaware corporation ("PCC"), and Providian
Credit Services, Inc., a Utah corporation ("PCSI"), in connection with the
Amended and Restated Credit Agreement dated as of October 10, 1995 (the "Credit
Agreement") among FDNB, PNB, PCC and PCSI, as borrowers (collectively, the
"Borrowers"), PBI, as guarantor (the "Guarantor" and, together with the
Borrowers, the "Obligors"), the lenders party thereto from time to time (the
"Lenders") and The Chase Manhattan Bank (National Association), as
administrative agent for the Lenders (in such capacity, the "Agent"). All
capitalized terms used but not defined herein have the respective meanings given
to such terms in the Credit Agreement.
This opinion is being furnished to you pursuant to Section 6.01(a)(iii)
of the Credit Agreement.
For purposes of rendering this opinion, I have examined originals or
copies identified to my satisfaction of the following documents:
(a) the Credit Agreement, including the Exhibits and
Schedules thereto;
(b) the Fee Letter; and
(c) the articles of association, articles of incorporation or
certificate of incorporation, as the case may be, and
by-laws, each as amended to the date hereof, of each of
the Obligors.
<PAGE>
The Chase Manhattan Bank (National Association)
as Administrative Agent, and the Lenders party to
the Credit Agreement (as hereinafter defined)
October 10, 1995
Page 2
The documents referred to in items (a) and (b) above are sometimes
referred to herein as the "Credit Documents."
In addition, I have made such inquiries and investigations and examined
such corporate records of the Obligors as I have deemed necessary to render the
opinions set forth herein.
As used herein, the phrase "to my knowledge" refers to my actual
knowledge based on my review of the documents listed above and the information,
inquiries and investigations described herein and no others.
For purposes of this opinion, I have assumed (i) the due authorization,
execution and delivery of the Credit Documents by each of the Lenders and the
Agent, as applicable; (ii) that each such Lender and the Agent have the legal
power to act in the capacities in which they are to act under the Credit
Documents; (iii) the conformity to the original documents of any documents
submitted to me as certified or photostatic copies, the authenticity of such
documents and the genuineness of all signatures on such documents; (iv) that
each of the Credit Documents is the legal, valid and binding obligation of each
of the Lenders and the Agent, as applicable, enforceable against each such party
in accordance with its terms; and (v) that each of the Lenders and the Agent has
performed and will perform its obligations thereunder.
Based upon the foregoing, and subject to the qualifications, limitations
and assumptions hereinafter set forth, I am of the opinion that:
1. Each of the Guarantor and PCC is a corporation validly existing and
in good standing under the laws of the State of Delaware. PCSI is a corporation
validly existing and in good standing under the laws of the State of Utah. Each
of FDNB and PNB is a national banking association validly existing and in good
standing under the laws of the United States of America.
2. Each of the Obligors has all requisite corporate power and authority
to own and operate its properties, to conduct its business in the manner in
which it presently is conducted and to execute, deliver and perform its
obligations under each of the Credit Documents to which it is a party.
3. Each of the Credit Documents to which an Obligor is a party has been
duly authorized by all necessary corporate action on the part of such Obligor.
4. Neither the execution and delivery by any Obligor of the Credit
Documents to which it is a party nor the performance by such Obligor of its
obligations thereunder constitutes
<PAGE>
The Chase Manhattan Bank (National Association)
as Administrative Agent, and the Lenders party to
the Credit Agreement (as hereinafter defined)
October 10, 1995
Page 3
or will result in a breach of such Obligor's charter or by-laws or, to my
knowledge, any order of any court or governmental authority having jurisdiction
over such Obligor or constitutes a violation of any applicable federal law, law
of the State of California or the General Corporation Law of the State of
Delaware. Neither the execution and delivery by any Obligor of the Credit
Documents to which it is a party nor the performance by such Obligor of its
obligations thereunder will conflict with, or result in any material breach of,
or constitute a default under, or result in the creation or imposition of any
lien upon any property or assets of such Obligor pursuant to, or require any
consent not obtained under, any indenture, mortgage, deed of trust, agreement or
other instrument to which such Obligor is a party or by which it or any of its
property or assets are bound or to which it is subject, which conflict, breach
or default, or lien created or imposed, or the failure to obtain such consent,
would have a material adverse effect on the financial condition of such Obligor
and its Subsidiaries taken as a whole or the ability of such Obligor to perform
its obligations under the Credit Documents to which it is a party.
5. Except as disclosed in the Credit Agreement or in any Schedule or
Exhibit thereto, to my knowledge there is pending or threatened no action, suit
or proceeding or governmental investigation, or any order, writ, injunction or
decree, against any Obligor before or by any court, arbitrator or governmental
or administrative body that challenges the validity or enforceability of any of
the Credit Documents or the transactions contemplated thereby or that restrains,
prevents or imposes material adverse conditions upon, or seeks to restrain,
prevent or impose material adverse conditions upon, any such transaction or in
which there is a reasonable probability of an adverse decision against such
Obligor and which, if adversely determined, would reasonably be expected to have
a material adverse effect on the financial condition of such Obligor and its
Subsidiaries taken as a whole or the ability of such Obligor to perform its
obligations under the Credit Documents to which it is a party.
6. None of the Obligors is an "investment company" or a person directly
or indirectly controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. None of the Obligors is a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
7. Neither the making of any Loans pursuant to, nor application of the
proceeds thereof in accordance with, the Credit Agreement will violate
Regulation U or X promulgated by the Board of Governors of the Federal Reserve
System.
The foregoing opinions are subject to the following qualifications,
limitations and assumptions:
<PAGE>
The Chase Manhattan Bank (National Association)
as Administrative Agent, and the Lenders party to
the Credit Agreement (as hereinafter defined)
October 10, 1995
Page 4
A. I render no opinion herein as to matters involving the laws of any
jurisdiction other than the State of California, the General Corporation Law of
the State of Delaware, the United States of America and, subject to the
limitations set forth in paragraph B below, the Business Corporation Law of the
State of Utah. This opinion is limited to the effect of the present state of
such laws, as applied to the facts on which I have relied (as set forth above),
in existence on the date hereof. I express no opinion as to the laws of any
other time or jurisdiction or the applicability of the laws of any particular
jurisdiction. I assume no obligation to revise or supplement this opinion in the
event of future changes in such laws or the interpretations thereof or such
facts, and I assume no responsibility to advise you of any such changes.
B. Insofar as the opinions regarding PCSI expressed in paragraphs 1, 2
and 3 above involve the laws of the State of Utah, I have relied, with your
consent, solely on the opinion of Van Cott, Bagley, Cornwall & McCarthy dated
the date hereof, a copy of which is being concurrently delivered to you, and I
have made no independent examination of the laws of such jurisdiction. In
connection with the above opinions regarding PCSI, I note that PCSI, which has
an application for deposit insurance pending before the Federal Deposit
Insurance Corporation, is not currently an Insured Depository Institution, and
that PCSI will not have authority to accept insured deposits and conduct certain
lending activities until such time as it becomes an Insured Depository
Institution.
C. This opinion is delivered solely for your benefit in connection with
the Credit Agreement and may not be relied upon by any person other than the
Agent and the Lenders (including any Lender becoming a party to the Credit
Agreement after the date hereof pursuant to the terms of the Credit Agreement)
or by the Agent or the Lenders in any other context, nor may this opinion be
used, circulated, published, communicated or otherwise referred to or made
available to any other Person except that the Agent and the Lenders may provide
this opinion (i) to bank examiners and other regulatory authorities should they
so request or in connection with their normal examinations, (ii) to the
independent auditors and attorneys of the Agent and the Lenders, (iii) pursuant
to order or legal process of any court or governmental agency, (iv) in
connection with any legal action to which the Agent or any Lender is a party
arising out of the transactions contemplated by the Credit Agreement or (v) to
any permitted prospective transferee (including any prospective Participant) of
the Loans or Commitments. This opinion may not be quoted without my prior
written consent.
Very truly yours,
Mary Ellen Richey
General Counsel
<PAGE>
EXHIBIT F-1
[FORM OF SYNDICATED NOTE]
PROMISSORY NOTE
$______________ [_____________, 1995]
New York, New York
FOR VALUE RECEIVED, [NAME OF BORROWER], [a national banking association
incorporated, organized and existing under the laws of the United States of
America] [a Delaware corporation ] [a Utah corporation] (the "Borrower"), hereby
--------
promises to pay to the order of _____________ (the "Lender"), for the account of
------
its respective Applicable Lending Offices provided for in the Credit Agreement
referred to below, at the principal office of The Chase Manhattan Bank (National
Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the principal
sum of __________________ Dollars (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Syndicated Loans made by the Lender to
the Borrower under the Credit Agreement), in lawful money of the United States
of America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Syndicated Loan, at such office, in like money and
funds, for the period commencing on the date of such Syndicated Loan until such
Syndicated Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each Syndicated Loan made by the Lender to the Borrower, and
each payment made on account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of this Note, endorsed by the
Lender on the schedule attached hereto or any continuation thereof, each of
which recordations or endorsements shall constitute prima facie evidence of the
matters set forth therein; provided that the failure of the Lender to make any
--------
such recordation or endorsement shall not affect the obligations of the Borrower
to make a payment when due of any amount owing under the Credit Agreement or
hereunder in respect of the Syndicated Loans made by the Lender.
This Note is one of the promissory notes referred to in Section 13.06(d)
of the Amended and Restated Credit Agreement dated as of ______________ __, 1995
(as modified and supplemented and in effect from time to time, the "Credit
------
Agreement") among the Borrower, the other Borrowers party thereto, Providian
- ---------
Bancorp, Inc., as Guarantor, the Lenders named therein and The Chase Manhattan
Bank (National Association), as Administrative Agent, and evidences Syndicated
Loans made by the Lender thereunder. Terms used but not defined in this Note
have the respective meanings assigned to them in the Credit Agreement.
Syndicated Note
---------------
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 13.06 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
The Borrower hereby waives diligence, presentment, protest, demand and
notice of every kind.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
[NAME OF BORROWER]
By_______________________
Title:
Syndicated Note
---------------
2
<PAGE>
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made, Continued or Converted under
the within-described Credit Agreement to the Borrower, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments, Continuations, Conversions and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Amount
Paid,
Date Made, Duration Prepaid,
Continued Principal of Continued Unpaid
or Amount of Type of Interest Interest or Principal Notation
Converted Loan Loan Rate Period Converted Amount Made by
- ----------- -------- ------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Syndicated Note
---------------
3
<PAGE>
EXHIBIT F-2
[FORM OF COMPETITIVE BID OPTION NOTE]
PROMISSORY NOTE
[_____________, 1995]
New York, New York
FOR VALUE RECEIVED, [NAME OF BORROWER], [a national banking association
incorporated, organized and existing under the laws of the United States of
America] [a Delaware corporation] [a Utah corporation] (the "Borrower"), hereby
--------
promises to pay to the order of_____________ (the "Lender"), for the account of
its respective Applicable Lending Offices provided for in the Credit Agreement
referred to below, at the principal office of The Chase Manhattan Bank (National
Association) at 1 Chase Manhattan Plaza, New York, New York 10081, the aggregate
unpaid principal amount of the Competitive Bid Option Loans made by the Lender
to the Borrower under the Credit Agreement, in lawful money of the United States
of America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Competitive Bid Option Loan, at such office, in
like money and funds, for the period commencing on the date of such Competitive
Bid Option Loan until such Competitive Bid Option Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of each
Competitive Bid Option Loan made by the Lender to the Borrower, and each payment
made on account of the principal thereof, shall be recorded by the Lender on its
books and, prior to any transfer of this Note, endorsed by the Lender on the
schedule attached hereto or any continuation thereof, each of which recordations
or endorsements shall constitute prima facie evidence of the matters set forth
therein; provided that the failure of the Lender to make any such recordation or
--------
endorsement shall not affect the obligations of the Borrower to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Competitive Bid Option Loans made by the Lender.
This Note is one of the promissory notes referred to in Section 13.06(d) of
the Amended and Restated Credit Agreement dated as of __, 1995 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") among the
----------------
Borrower, the other Borrowers party thereto, Providian Bancorp, Inc., as
Guarantor, the Lenders named therein (including the Lender) and The Chase
Manhattan Bank (National Association), as Administrative Agent, and evidences
Competitive Bid Option Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the Credit
Agreement.
Competitive Bid Option Note
---------------------------
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 13.06 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
The Borrower hereby waives diligence, presentment, protest, demand and
notice of every kind.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
[NAME OF BORROWER]
By_______________________
Title:
Competitive Bid Option Note
---------------------------
5
<PAGE>
SCHEDULE OF LOANS
This Note evidences Competitive Bid Option Loans made under the within-
described Credit Agreement to the Borrower, on the dates, in the principal
amounts, of the Types, bearing interest at the rates and maturing on the dates
set forth below, subject to the payments and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Principal Maturity Amount Unpaid
Date of Amount of Type of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- -------- ---------- ------- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Competitive Bid Option Note
--------------------------
<PAGE>
EXHIBIT G
ADDITIONAL LENDER ADDENDUM
ADDENDUM, dated _____________________, to the Amended and Restated
Credit Agreement dated as of ____________, 1995 (as amended or modified from
time to time, the "Credit Agreement") among FIRST DEPOSIT NATIONAL BANK, a
national banking association incorporated, organized and existing under the laws
of the United States of America ("FDNB"), PROVIDIAN NATIONAL BANK, a national
banking association incorporated, organized and existing under the laws of the
United States of America ("PNB"), PROVIDIAN CREDIT CORPORATION, a corporation
organized and existing under the laws of the State of Delaware ("PCC"),
PROVIDIAN CREDIT SERVICES, INC., a corporation organized and existing under the
laws of the State of Utah ("PCSI"; together with FDNB, PNB and PCC, the
"Borrowers"); PROVIDIAN BANCORP, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Guarantor"; together with the
Borrowers, the "Obligors"); the banks and financial institutions listed on the
signature pages thereof under the caption "LENDERS" or which, pursuant to
Section 2.12, 2.13 or 13.06(b) thereof, shall become a "Lender" thereunder
(individually, a "Lender" and, collectively, the "Lenders"); and THE CHASE
MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association, as
administrative agent for the Company (in such capacity, together with any
successor appointed pursuant to Section 12.08 thereof, the "Agent").
W I T N E S S E T H :
WHEREAS, the Credit Agreement provides that a financial institution;
although not originally a party thereto, may become a party to the Credit
Agreement with the consent of the Borrowers by executing and delivering to the
Obligors and the Agent an addendum to the Credit Agreement in substantially the
form of this Addendum; and
WHEREAS, the undersigned was not an original party to the Credit
Agreement but now desires to become a party thereto;
NOW, THEREFORE, the undersigned hereby agrees as follows:
1. The undersigned (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 7.01 thereof or the financial statements most recently delivered by
the Borrowers and the Guarantor pursuant to Section 8.01 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to become a Lender; (ii) agrees that it will,
independently and without reliance upon the Agent 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
the Credit Documents; (iii) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise
Additional Lender Addendum
--------------------------
<PAGE>
such powers under the Credit Documents as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(iv) agrees to be bound by the provisions of the Credit Agreement and agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of the Credit Documents are required to be performed by it as a
Lender; (v) specifies as its Applicable Lending Offices (and address for
notices) the office(s) set forth beneath its name on the signature page hereof;
(vi) attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the status of the undersigned for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to it under the Credit Documents or such other documents as
are necessary to indicate that all such payments are subject to such rates at a
rate reduced by an applicable tax treaty; and (vii) and agrees that it shall on
the date this Addendum is accepted by the Borrowers and the Agent become a
Lender for all purposes of the Credit Agreement to the same extent as if
originally a party thereto.
2. The amount of the Commitment of the undersigned shall be _______.
-
3. Terms defined in the Credit Agreement and not otherwise defined
herein are used herein as therein defined.
Additional Lender Addendum
--------------------------
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Addendum to be
executed and delivered by a duly authorized officer on the date first above
written
[NAME OF LENDER]
By: ___________________________
Name: [Printed]____________
___________________________
Lending Office for Base Rate Loans:
Lending Office for Loans other than
Base Rate Loans:
Address for Notices:
Attention:
Telex No.:
Telecopier No.:
Telephone No.:
Accepted this ___ day of
____________, 199__.
THE CHASE MANHATTAN BANK
(National Association), as Administrative Agent
By: _______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN BANCORP, INC.
As Guarantor
By: _______________________________
Title:
Additional Lender Addendum
--------------------------
3
<PAGE>
Accepted this ___ day of
____________, 199__.
FIRST DEPOSIT NATIONAL BANK
By: _______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN NATIONAL BANK
By: _______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN CREDIT CORPORATION
By: _______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN CREDIT SERVICES, INC.
By: _______________________________
Title:
Additional Lender Addendum
--------------------------
4
<PAGE>
EXHIBIT H
INCREASED COMMITMENT ADDENDUM
ADDENDUM, dated _____________________, to the Amended and Restated
Credit Agreement dated as of ____________, 1995 (as amended or modified form
time to time, the "Credit Agreement") among FIRST DEPOSIT NATIONAL BANK, a
national banking association incorporated, organized and existing under the laws
of the United States of America ("FDNB"), PROVIDIAN NATIONAL BANK, a national
banking association incorporated, organized and existing under the laws of the
United States of America ("PNB"), PROVIDIAN CREDIT CORPORATION, a corporation
organized and existing under the laws of the State of Delaware ("PCC"),
PROVIDIAN CREDIT SERVICES, INC., a corporation organized and existing under the
laws of the State of Utah ("PCSI"; together with FDNB, PNB and PCC, the
"Borrowers"); PROVIDIAN BANCORP, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Guarantor"; together with the
Borrowers, the "Obligors"); the banks and financial institutions listed on the
signature pages thereof under the caption "LENDERS" or which, pursuant to
Section 2.12, 2.13 or 13.06(b) thereof, shall become a "Lender" thereunder
(individually, a "Lender" and, collectively, the "Lenders"); and THE CHASE
MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association, as
administrative agent for the Company (in such capacity, together with any
successor appointed pursuant to Section 12.08 thereof, the "Agent").
W I T N E S S E T H :
WHEREAS, the Credit Agreement provides in subsection 2.14 thereof that
any Lender with the consent of the Borrowers may increase the amount of its
Commitment by executing and delivering to the Obligors and the Agent an addendum
to the Credit Agreement in substantially the form of this Addendum; and
WHEREAS, the undersigned now desires to increase the amount of its
Commitment under the Credit Agreement;
NOW, THEREFORE, the undersigned hereby agrees as follows:
1. The undersigned agrees, subject to the terms and conditions of
the Credit Agreement, that it shall on the date this Addendum is accepted by the
Obligors and the Agent have its Commitment increased $____________, thereby
making the amount of its Commitment $_______________.
2. Terms defined in the Credit Agreement and not otherwise defined
herein are used herein as therein defined.
Increased Commitment Addendum
-----------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Addendum to be
executed and delivered by a duly authorized officer on the date first above
written
[NAME OF LENDER]
By: _____________________________
Title:
Accepted this ___ day of
____________, 199__.
THE CHASE MANHATTAN BANK
(National Association), as Administrative Agent
By: ______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN BANCORP, INC.,
as Guarantor
By: ______________________________
Title:
Accepted this ___ day of
____________, 199__.
FIRST DEPOSIT NATIONAL BANK
By: ______________________________
Title:
Increased Commitment Addendum
-----------------------------
2
<PAGE>
Accepted this ___ day of
____________, 199__.
PROVIDIAN NATIONAL BANK
By: ______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN CREDIT CORPORATION
By: ______________________________
Title:
Accepted this ___ day of
____________, 199__.
PROVIDIAN CREDIT SERVICES, INC.
By: ______________________________
Title:
Increased Commitment Addendum
-----------------------------
3
<PAGE>
EXHIBIT I
October 10, 1995
(212) 351-3951 C 14073-00164
To: The Chase Manhattan Bank (National Association),
as Administrative Agent, and the Lenders party to the
Credit Agreement (as hereinafter defined)
Ladies and Gentlemen:
We have acted as special counsel to The Chase Manhattan Bank (National
Association) as Agent and the Lenders (as hereinafter defined) in connection
with the Amended and Restated Credit Agreement dated as of October 10, 1995 (the
"Credit Agreement") among (i) First Deposit National Bank, a national banking
association incorporated, organized and existing under the laws of the United
States of America ("FNDB"), Providian National Bank, a national banking
association incorporated, organized and existing under the laws of the United
States of America ("PNB"), Providian Credit Corporation, a corporation organized
and existing under the laws of the State of Delaware ("PCC"), Providian Credit
Services, Inc., a corporation organized and existing under the laws of the State
of Utah ("PCSI"); together with FDNB, PNB and PCC, the "Borrowers"), (ii)
Providian Bancorp, a corporation organized existing under the laws of the State
of Delaware (the "Guarantor"; together with the Borrowers, the "Obligors"),
(iii) the lenders party thereto from time to time (the "Lenders") and (iv) The
Chase Manhattan Bank (National Association) as administrative agent for Lenders
(in such capacity, the "Agent"). This opinion is being rendered to you pursuant
to Section 6.01(a)(iv) of the Credit Agreement. All capitalized terms used but
not defined herein have the respective meanings given to such terms in the
Credit Agreement.
In rendering this opinion, we have examined an executed copy of each
of the Credit Documents.
We have, with your permission, assumed, without independent
investigation or inquiry with respect to any such matter, that:
(a) each of the Obligors is a corporation, partnership or other entity
validly existing and in good standing under the laws of the jurisdiction of its
organization, with all requisite corporate or other power and authority to
execute, deliver and delivery of obligations under each Credit Document to which
it is a party; the execution and delivery of each such Credit Document by each
such Obligor, and the performance of the obligations of each such Obligor, have
been duly authorized by all necessary corporate action on the part of each such
Obligor, and each such Credit
Opinion of Special Counsel to the Agent
---------------------------------------
<PAGE>
The Chase Manhattan Bank (National Association)
as Administrative Agent, and the Lenders party to the
Credit Agreement
October 10, 1995
Page 2
Document has been duly executed and delivered by or on behalf of each such
Obligor or by a person or persons thereunto duly authorized;
(b) to the extent that the obligations of the Obligors may be
dependent upon such matters, each of the Agent and the Lenders has all requisite
corporate power and authority to execute, deliver and perform its
respective obligations under each Credit Document to which it is a party; the
execution and delivery of each such Credit Document and performance of such
obligations have been duly authorized by all necessary corporate action on the
part of the Agent and the Lenders; each such Credit Document has been duly
executed and delivered by or on behalf of each of the Agent and the Lenders; and
each such Credit Document is a legal, valid and binding obligation of each of
the Agent and the Lenders, enforceable against each of term with its terms;
(c) the documents submitted to us as originals are authentic and the
documents submitted to us as certified or reproduction copies conform to the
originals; and
(d) there are no agreements or understandings between or among the
Agent, the Lenders, the Obligors or third parties that would expand, modify or
otherwise affect the terms of the Credit Documents of the respective rights or
obligations of the parties thereunder, and the Credit Documents or the
respective rights or obligations of the parties thereunder, and the Credit
Documents correctly set forth the intent of all parties thereto.
Based upon the foregoing and subject to the qualifications,
limitations and assumptions set forth below, we are of the opinion that each of
the Credit Documents to which an Obligor is party constitutes the legal, valid
and binding obligation of such Obligor, enforceable against each such Obligor in
accordance with its terms.
The foregoing opinion is subject to the following qualifications,
limitations and assumptions.
A. We render no opinion herein as to matters involving the laws of
any jurisdiction other than the State of New York and the United States of
America. This opinion is limited to the effect of the present state of the laws
of the State of New York and of the United States of America and the facts as
they presently exist. We assume no obligation to revise or supplement this
opinion in the event of future changes in such laws or the interpretations
thereof or such facts.
B. Our opinions are subject to (i) the effect of bankruptcy,
insolvency, reorganization, moratorium, arrangement or other similar laws
affecting enforcement of creditors' rights generally (including, without
limitation, the effect of statutory or other laws regarding fraudulent transfers
or conveyances or preferential transfers); (ii) the application of general
principles of equity, whether considered in a case or proceeding at law or in
equity, including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing and the possible unavailability of specific
performance or other equitable relief (whether sought in a proceeding at law or
in equity); and (iii) the qualification that indemnification provisions in the
Credit Documents may be unenforceable to the extent that such indemnification
relates to claims made under any federal or state securities laws or is
otherwise limited by public policy.
<PAGE>
The Chase Manhattan Bank (National Association)
as Administrative Agent, and the Lenders party to the
Credit Agreement
October 10, 1995
Page 3
C. We express no opinion as to the legality, validity, binding effect
or enforceability (whether according to its terms or otherwise) of: (i) any
provision of any Credit Document to the effect that rights or remedies are not
exclusive, that every right or remedy is cumulative and may be exercised in
addition to any other right or remedy, that the election of some particular
remedy does not preclude recourse to one or more other remedies or that failure
to exercise or delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy; (ii) any waiver or any consent relating to
the rights of Obligors under any Credit Document or applicable law or duties
owing to the Obligors existing as a matter of law to the extent such waivers or
consents are found by a court to be against public policy or are ineffective
pursuant to applicable law; (iii) any waiver or consent contained in any Credit
Document relating to such rights or duties that is broadly or vaguely stated or
unknown future rights; (iv) any provision of any Credit Document requiring
written amendments or waivers of such documents insofar as it suggests that oral
or other modifications, amendments or waivers could not effectively be agreed
upon by the parties or that the doctrine of promissory estoppel might not apply;
(v) Section 10.02 of the Credit Agreement; (vi) any provision in any Credit
Document waiving the right to object to venue or with respect to the
jurisdiction of the United States District Court for the Southern District of
New York; and (vii) the effect of the laws of any jurisdiction in which any Bank
is located (other than New York) that limit the interest, fees or other charges
such Bank may impose.
This opinion is rendered to the Agent and the Lenders in connection
with the Credit Agreement and may not be relied upon by any person other than
the Agent and the Lenders (including any Lender becoming a party to the Credit
Agreement after the date hereof pursuant to the terms of the Credit Agreement)
or by the Agent or the Lenders in any other context, nor may any copies of this
opinion be provided to any other Person except that the Agent and the Lenders
may provide this opinion (i) to bank examiners and other regulatory authorities
should they so request or in connection with their normal examinations, (ii) to
the independent auditors and attorneys of the Agent and the Lenders, (iii)
pursuant to order or legal process of any court or governmental agency, (iv) in
connection with any legal action to which the Agent or any Lender is a party
arising out of the transactions contemplated by the Credit Agreement or (v) to
any permitted prospective transferee of the Loans or Commitments. This opinion
may not be quoted without the prior written consent of this Firm.
Very truly yours,
GIBSON, DUNN & CRUTCHER
<PAGE>
================================================================================
$1,200,000,000
TERMINATION, REPLACEMENT AND
RESTATEMENT AGREEMENT
DATED AS OF MAY 14, 1996
AMONG
FIRST DEPOSIT NATIONAL BANK,
PROVIDIAN NATIONAL BANK,
PROVIDIAN CREDIT CORPORATION
AND
PROVIDIAN CREDIT SERVICES, INC.,
AS BORROWERS,
PROVIDIAN BANCORP, INC.,
AS GUARANTOR,
THE LENDERS NAMED HEREIN,
AS LENDERS
AND
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
AS ADMINISTRATIVE AGENT
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION THE BANK OF NEW YORK
CITICORP USA, INC. COMMERZBANK AG
CREDIT LYONNAIS, SAN FRANCISCO BRANCH CREDIT SUISSE
DEUTSCHE BANK AG NATIONSBANK OF TEXAS, N.A.
AS CO-AGENTS
================================================================================
[LOGO] CHASE
<PAGE>
CONTENTS
Page
----
1. TERMINATION, REPLACEMENT AND RESTATEMENT 1
2. REPRESENTATIONS AND WARRANTIES 6
3. CONDITIONS TO EFFECTIVENESS 7
4. APPLICABLE LAW 8
5. EXISTING CREDIT AGREEMENT 8
6. NEW CREDIT AGREEMENT 8
7. TRANSITION PROVISIONS 8
8. COUNTERPARTS 9
i
<PAGE>
TERMINATION, REPLACEMENT AND RESTATEMENT AGREEMENT
TERMINATION, REPLACEMENT AND RESTATEMENT AGREEMENT, dated as of
May 14, 1996 (this "TRR Agreement"), among FIRST DEPOSIT NATIONAL BANK, a
national banking association incorporated, organized and existing under the laws
of the United States of America ("FDNB"), PROVIDIAN NATIONAL BANK, a national
banking association incorporated, organized and existing under the laws of the
United States of America ("PNB"), PROVIDIAN CREDIT CORPORATION, a corporation
organized and existing under the laws of the State of Delaware ("PCC"), and
PROVIDIAN CREDIT SERVICES, INC., a corporation organized and existing under the
laws of the State of Utah ("PCSI"; together with FDNB, PNB and PCC, the
"Borrowers"); PROVIDIAN BANCORP, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Guarantor"; together with the
Borrowers, the "Obligors"); the banks and financial institutions (individually,
a "Lender" and, collectively, the "Lenders") listed on the signature pages
hereof under the captions "Continuing Lenders" (the "Continuing Lenders") and
"Additional Lenders" (the "Additional Lenders"); and THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), a national banking association, as administrative agent
for the Lenders (in such capacity, the "Agent"). Terms used but not defined in
this TRR Agreement shall have the respective meanings assigned to them in the
New Credit Agreement (as defined below).
RECITALS
A. The Borrowers, the Guarantor, the Continuing Lenders and the Agent are
parties to an $800,000,000 Amended and Restated Credit Agreement, dated as of
October 10, 1995 (the "Existing Credit Agreement").
B. The Borrowers, the Guarantor, the Continuing Lenders and the Agent are
willing, subject to the terms and conditions of this TRR Agreement, to terminate
the Existing Credit Agreement.
C. The Borrowers, the Guarantor, the Continuing Lenders, the Additional
Lenders and the Agent are willing, subject to the terms and conditions of this
TRR Agreement, to replace and restate the Existing Credit Agreement to increase
the aggregate Commitments thereunder, to extend the maturity date thereof and to
effect certain other changes thereto.
AGREEMENT
The parties hereto agree as follows:
1. Termination, Replacement and Restatement. Subject to the conditions set
----------------------------------------
forth in Section 3 hereof:
<PAGE>
(a) the Existing Credit Agreement, including all schedules and exhibits
thereto, is hereby terminated, subject to Section 13.07 thereof as to the
survival of certain rights and obligations, and simultaneously replaced by a new
credit agreement (the "New Credit Agreement") identical in form and substance to
the Existing Credit Agreement except as expressly modified below.
(b) The preamble of the New Credit Agreement shall read as follows:
CREDIT AGREEMENT, dated as of May 14, 1996, among FIRST DEPOSIT NATIONAL
BANK, a national banking association incorporated, organized and existing under
the laws of the United States of America ("FDNB"), PROVIDIAN NATIONAL BANK, a
national banking association incorporated, organized and existing under the laws
of the United States of America ("PNB"), PROVIDIAN CREDIT CORPORATION, a
corporation organized and existing under the laws of the State of Delaware
("PCC"), and PROVIDIAN CREDIT SERVICES, INC., a corporation organized and
existing under the laws of the State of Utah ("PCSI"; together with FDNB, PNB
and PCC, the "Borrowers"); PROVIDIAN BANCORP, INC., a corporation organized and
existing under the laws of the State of Delaware (the "Guarantor"; together with
the Borrowers, the "Obligors"); the banks and financial institutions listed on
the signature pages to the TRR Agreement (as defined herein) as Continuing
Lenders and Additional Lenders (each as defined in the TRR Agreement) or which,
pursuant to Section 2.12, 2.13 or 13.06(b) hereof, shall become a "Lender"
hereunder (individually, a "Lender" and, collectively, the "Lenders"); and THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association, as
administrative agent for the Lenders (in such capacity, together with any
successor appointed pursuant to Section 12.08, the "Agent").
(c) The New Credit Agreement shall not contain (i) the recitals set
forth in the Existing Credit Agreement or (ii) Paragraphs (I), (II) or (III) set
forth under the heading "Agreement" and the first sentence under the heading
"Agreement" shall read as follows:
"The parties hereto agree as follows:".
(d)(i) The definition of the term "Agreement" in Section 1.01 of the New
Credit Agreement shall read as follows:
"Agreement": this Credit Agreement, as amended,
---------
supplemented or otherwise modified from time to time.
(ii) The definition of the term "Applicable Lending Office" in Section
1.01 of the New Credit Agreement shall read as follows:
"Applicable Lending Office": for each Lender and for each
-------------------------
Type of Loan, the "Lending Office" of such Lender (or of an affiliate of
such
2
<PAGE>
Lender) designated for such Type of Loan on the signature pages of the
TRR Agreement or such other office of such Lender (or of an affiliate of
such Lender) as such Lender may from time to time specify to the Agent
and each Borrower as the office at which its Loans of such Type are to
be made and maintained.
(iii) The definition of the term "Co-Agents" in Section 1.01 of the New
Credit Agreement shall read as follows:
"Co-Agents": Bank of America National Trust and Savings
---------
Association, The Bank of New York, Citicorp USA, Inc., Commerzbank AG,
Credit Lyonnais, San Francisco Branch, Credit Suisse, Deutsche Bank AG
and NationsBank of Texas, N.A.
(iv) The definition of the term "Commitment" in Section 1.01 of the New
Credit Agreement shall read as follows:
"Commitment": as to any Lender, the obligation of such
----------
Lender to make Syndicated Loans in an aggregate amount at any one time
outstanding up to but not exceeding the amount set opposite the name of
such Lender on the signature pages to the TRR Agreement under the
caption "Commitment", or if such Lender has entered into an Increased
Commitment Addendum or one or more Assignment and Acceptances, and with
respect to each Lender that becomes a Lender pursuant to an Assignment
and Acceptance or an Additional Lender Addendum, as set forth in such
Increased Commitment Addendum, Assignment and Acceptance or Additional
Lender Addendum (as the same may be reduced from time to time pursuant
to Section 2.05). The original aggregate principal amount of the
Commitments is $1,200,000,000.
(v) The definition of the term "Effective Date" in Section 1.01 of the
New Credit Agreement shall read as follows:
"Effective Date": the Effective Date as defined in the TRR
--------------
Agreement.
(vi) The definitions of the terms "Existing Agreement" and "Existing
Lenders" shall be deleted from Section 1.01 of the New Credit Agreement.
(vii) The definition of the term "Facility Fee Rate" in Section 1.01 of
the New Credit Agreement shall read as follows:
"Facility Fee Rate": for each Quarterly Period commencing
-----------------
before the later of (i) the first anniversary of the Effective Date and
(ii) the second consecutive Quarterly Date on which the Consolidated
Tangible Capital of the Guarantor is greater than or equal to
$550,000,000, 0.1250%; and for each Quarterly Period thereafter, the
percentage set forth below
3
<PAGE>
opposite the Consolidated Tangible Capital of the Guarantor as of the
Quarterly Date immediately preceding such Quarterly Period:
Consolidated Tangible Capital Facility Fee Rate
----------------------------- -----------------
greater than or equal to
$550,000,000 0.1000%
less than $550,000,000 0.1250%
(viii) The definition of the term "Fee Letter" in Section 1.01 of the
New Credit Agreement shall read as follows:
"Fee Letter": the letter dated April 3, 1996 between the
----------
Obligors and the Agent relating to certain agency and other fees in
respect of the credit facilities provided hereunder.
(ix) The definition of the term "Swing Line Amount" in Section 1.01 of
the New Credit Agreement shall read as follows:
"Swing Line Amount": $75,000,000.
-----------------
(e) Section 1.01 of the New Credit Agreement shall contain the following
additional definition:
"TRR Agreement": the Termination, Replacement and
-------------
Restatement Agreement, dated as of May 14, 1996, among the Borrowers,
the Guarantor, the banks and other financial institutions listed on the
signature pages thereof as Continuing Lenders and Additional Lenders
(each as defined therein) and the Agent.
(f) The amount set forth in Section 2.03(i) of the New Credit Agreement
shall be "$1,000" rather than "$750".
(g) The first sentence of Section 2.13 of the New Credit Agreement shall
read as follows:
During the period from January 1, 1997 to the Termination Date with the
consent of the Borrowers and upon notification to the Agent, one or more
additional banks or financial institutions may become a party to this
Agreement by executing an addendum hereto with the Obligors and the
Agent, substantially in the form of Exhibit G, whereupon such bank or
financial institution (each, a "New Lender") shall become a Lender for
all purposes and to the same extent as if originally a party hereto and
shall be bound by and entitled to the benefits of this Agreement,
provided that, after giving effect to such addition, (i) the aggregate
Commitments shall not exceed $1,600,000,000
4
<PAGE>
and (ii) no Lender shall have a Commitment which equals or exceeds 25%
of the aggregate Commitments.
(h) The first sentence of Section 2.14 of the New Credit Agreement shall
read as follows:
During the period from January 1, 1997 to the Termination Date at the
request of the Borrowers and upon notification to the Agent, any Lender
may increase the amount of its Commitment by executing an addendum
hereto with the Obligors and the Agent, substantially in the form of
Exhibit H, whereupon such Lender shall be bound by and entitled to the
benefits of this Agreement with respect to the full amount of its
Commitment as so increased, provided that, after giving effect to any
such increase, (i) the aggregate Commitments shall not exceed
$1,600,000,000 and (ii) no Lender shall have a Commitment which equals
or exceeds 25% of the aggregate Commitments.
(i) Section 2.15 of the Existing Credit Agreement shall be deleted from
the New Credit Agreement.
(j) Section 6.01 of the New Credit Agreement shall read as follows:
"6.01 RESERVED".
--------
(k) The dates set forth in the first and last sentences of Section 7.01
of the New Credit Agreement shall be "December 31, 1995" rather than "December
31, 1994" and the second sentence of Section 7.01 of the Existing Credit
Agreement shall be deleted from the New Credit Agreement.
(l) The date set forth in Section 7.02 of the New Credit Agreement shall
be "December 31, 1995" rather than "December 31, 1994".
(m) Section 9.01(a) of the New Credit Agreement shall read as follows:
(a) Maintenance of Consolidated Tangible Capital. Permit
--------------------------------------------
Consolidated Tangible Capital at any time during any of the calendar
years set forth below to be less than the amount set forth below
opposite such year:
Year Amount
- ---- ------
1996 $300,000,000
1997 $350,000,000
1998 and thereafter $400,000,000
(n) Section 13.02 of the New Credit Agreement shall read as follows:
13.02 NOTICES. All notices, requests and other
-------
communications provided for herein and under the other Credit Documents
(including, without
5
<PAGE>
limitation, any modifications of, or waivers or consents under, this
Agreement) shall be given or made in writing (including, without
limitation, by telex or telecopy), or, with respect to notices given
pursuant to Section 2.03 or 2.04, by telephone, confirmed in writing by
telecopier by the close of business on the day the notice is given,
delivered (or telephoned, as the case may be) to the intended recipient
at the "Address for Notices" specified below its name on the signature
pages of the TRR Agreement or the applicable Assignment and Acceptance
or Additional Lender Addendum; or, as to any party, at such other
address as shall be designated by such party in a notice to each other
party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted
by telex or telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as
aforesaid.
(o) The first proviso in Section 13.03 of the New Credit Agreement shall
read as follows:
provided that the fees and expenses of the Agent and of counsel to the
--------
Agent and the Lenders in connection with the negotiation, preparation,
execution and delivery of this Agreement and the other Credit Documents
shall be payable by the Borrowers only to the extent set forth in the
letter agreement dated April 3, 1996 among the Agent and the Obligors.
2. Representations and Warranties. Each Obligor represents and warrants
------------------------------
to each of the Lenders that:
(a) This TRR Agreement, and the New Credit Agreement, have been duly
authorized, and, in the case of this TRR Agreement, executed and
delivered by it and constitute its legal, valid and binding obligations
enforceable in accordance with their terms except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally, or
by general equity principles, including but not limited to principles
governing the availability of the remedies of specific performance and
injunctive relief.
(b) The representations and warranties made by it under Section 7 of the
New Credit Agreement, after giving effect to this TRR Agreement, are
true and correct in all material respects on the date hereof with the
same effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) Before and after giving effect to this TRR Agreement, no Default or
Event of Default has occurred and is continuing.
6
<PAGE>
3. Conditions to Effectiveness. This TRR Agreement shall become
---------------------------
effective on the first date (the "Effective Date") on which each of the
following conditions precedent is satisfied in full:
(a) The Agent shall have received counterparts of this TRR Agreement
which, when taken together, bear the signatures of all the parties hereto.
(b) The representations and warranties set forth in Section 7 of the New
Credit Agreement, once the Existing Credit Agreement is replaced thereby, shall
be true and correct in all material respects on and as of the Effective Date,
with the same effect as though made on and as of the Effective Date, except to
the extent such representations and warranties expressly relate to an earlier
date.
(c) Each Obligor shall be in compliance with all the terms and
provisions set forth in the Existing Credit Agreement and in the New Credit
Agreement, once the Existing Credit Agreement is replaced thereby, and in each
other document relating thereto on its part to be observed or performed, and no
Default or Event of Default shall have occurred and be continuing.
(d) The Agent shall have received the following documents, each
certified as indicated below:
(1) a copy of the charter, as amended and in effect, of each
Obligor certified as of a recent date by the secretary or assistant
secretary of such Obligor, and a certificate from the Comptroller of the
Currency or the Secretary of State of its jurisdiction of incorporation,
as the case may be, dated as of a recent date, as to the good standing
of such Obligor; and
(2) a certificate of the secretary or an assistant secretary of
each Obligor, dated the Effective Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of such Obligor as
amended and in effect at all times from the date on which the
resolutions referred to in clause (B) were adopted to and including the
date of such certificate, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the board of directors of
such Obligor authorizing the execution, delivery and performance of this
TRR Agreement and such of the Credit Documents to which such Obligor is
or is intended to be a party and the extensions of credit hereunder, and
that such resolutions have not been modified, rescinded or amended and
are in full force and effect, (C) that the charter of such Obligor has
not been amended since the date of the certification thereto furnished
pursuant to clause (1) above, and (D) as to the incumbency and specimen
signature of each officer of such Obligor executing this TRR Agreement
and the Credit Documents and each other document to be delivered by such
Obligor in connection therewith (and the Agent and each Lender may
conclusively rely on such certificate until it receives notice in
writing from such Obligor).
7
<PAGE>
(e) The Agent shall have received (i) a favorable opinion, dated the
Effective Date, of in-house counsel to the Obligors, substantially in the form
of Exhibit A hereto and covering such other matters as the Agent may reasonably
request and (ii) a favorable opinion, dated the Effective Date, of Gibson, Dunn
& Crutcher, counsel to the Agent, substantially in the form of Exhibit B hereto
and covering such other matters as the Agent may reasonably request.
(f) All legal matters in connection with this TRR Agreement shall be
satisfactory to the Agent, in its reasonable discretion.
The Agent shall promptly give the Obligors and each Lender notice of the
Effective Date.
4. Applicable Law. THIS TRR AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
--------------
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
5. Existing Credit Agreement. Until the occurrence of the Effective Date
-------------------------
as provided in Section 3 hereof, the Existing Credit Agreement shall continue in
full force and effect in accordance with the provisions thereof and the rights
and obligations of the parties thereto shall not be affected hereby.
6. New Credit Agreement. Any reference in the New Credit Agreement, or
--------------------
in any documents or instruments required thereunder or annexes, exhibits or
schedules thereto, referring to the Existing Credit Agreement, shall be deemed
to refer to the New Credit Agreement which shall be deemed dated as of the date
hereof. As used in the New Credit Agreement, the terms "Agreement", "this
Agreement", "herein", "hereinafter", "hereto", "hereof" and words of similar
import shall, unless the context otherwise requires, mean the New Credit
Agreement. Except as expressly modified by this TRR Agreement, the terms and
provisions of the Existing Credit Agreement are hereby confirmed and ratified in
all respects and shall be in full force and effect as the terms and provisions
of the New Credit Agreement.
7. Transition Provisions. (a) Transition Provisions (a) On the Effective
---------------------
Date all Loans outstanding under the Existing Credit Agreement shall
automatically be deemed to be Loans outstanding under the New Credit Agreement
and all amounts and rights accrued under the Existing Credit Agreement shall be
deemed accrued under the New Credit Agreement.
(b) If on the Effective Date there is an unpaid principal amount of
Syndicated Loans under the Existing Credit Agreement which are Base Rate Loans,
each Additional Lender and each Lender whose Commitment has increased under the
New Credit Agreement shall make Loans under the New Credit Agreement to the
Borrowers in such amounts as shall be necessary to cause the outstanding amount
of each such Lender's share of the Base Rate Loans of all Lenders (after giving
effect to the application of proceeds described in the last sentence of this
paragraph), expressed as a percentage, to be equal to such Lender's Commitment
Percentage. The Agent will notify each such Lender in writing of the amount of
any such Loan it shall be required to make, and on the Effective Date each such
Lender will transfer to the Agent, in immediately available funds, the amount of
its Loan. The proceeds of
8
<PAGE>
such Loans shall be applied by the Agent on behalf of the Borrowers to the
partial repayment of the other Lenders' Base Rate Loans to the extent necessary
to cause the outstanding amount of each such other Lender's share of the Base
Rate Loans of all Lenders under the New Credit Agreement, expressed as a
percentage, to be equal to such other Lender's Commitment Percentage (and the
pro-rata and sharing provisions of Section 4.02 shall not be applicable to such
payment).
(b) If on the Effective Date there is an unpaid principal amount of
Syndicated Loans which are Eurodollar Loans or Competitive Bid Option Loans
under the Existing Credit Agreement, the Additional Lenders and the Lenders
whose Commitments have increased under the New Credit Agreement shall not be
required to make any advances on the Effective Date in respect thereof and
Lenders whose Commitments have decreased under the New Credit Agreement shall
not receive any repayment on the Effective Date in respect thereof, provided
that, in the case of Syndicated Loans which are Eurodollar Loans, if such
Eurodollar Loans are converted or continued on the last day of the Interest
Period therefor, such conversion or continuation shall be pro rata according to
the Commitments of the Lenders after giving effect to the New Credit Agreement,
and provided, further, that if, for any reason, any such Eurodollar Loans are
not repaid, converted or continued on the last day of the Interest Period
therefor, effective on such last day, each Additional Lender and each Lender
whose Commitment has increased pursuant to the New Credit Agreement severally
agrees that it shall unconditionally and irrevocably, without regard to the
occurrence of any Default or Event of Default, purchase a participating interest
in such Eurodollar Loans ("Unrefunded Eurodollar Loans") in an amount equal to,
in the case of an Additional Lender, such Lender's Commitment Percentage of such
Eurodollar Loans, and, in the case of a Lender whose Commitment shall have
increased, the product of the principal amount of such Eurodollar Loans and a
fraction the numerator of which is the amount of the increase in such Lender's
Commitment and the denominator of which is the aggregate amount of the
Commitments. Each such Lender will immediately transfer to the Agent, in
immediately available funds, the amount of its participation, and the proceeds
of such participations shall be distributed by the Agent to the other Lenders in
such amounts as will reduce the amount of the participating interest retained by
each such other Lender in such Eurodollar Loans to their respective Commitment
Percentages of such Eurodollar Loans. Each Lender shall share on a pro rata
basis (calculated by reference to its participating interest in such Eurodollar
Loans) in any interest which accrues thereon and in all repayments thereof. All
payments in respect of Unrefunded Eurodollar Loans and participations therein
shall be made in accordance with Section 4.02.
8. Counterparts. This TRR 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.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above written.
FIRST DEPOSIT NATIONAL BANK
By /s/ David J. Petrini
---------------------------------
Name: David J. Petrini
Title: Senior Vice President
and Senior
Financial Officer
Address for Notices:
1) Before June 10, 1996:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
2) From and after June 10, 1996:
c/o Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 278-6028
Telephone No.: (415) 543-0404
10
<PAGE>
PROVIDIAN NATIONAL BANK
By /s/ David J. Petrini
----------------------------------
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial
Officer
Address for Notices:
1) Before June 10, 1996:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
2) From and after June 10, 1996:
c/o Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 278-6028
Telephone No.: (415) 543-0404
11
<PAGE>
PROVIDIAN CREDIT CORPORATION
By /s/ David J. Petrini
----------------------------------
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial
Officer
Address for Notices:
1) Before June 10, 1996:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
2) From and after June 10, 1996:
c/o Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 278-6028
Telephone No.: (415) 543-0404
12
<PAGE>
PROVIDIAN CREDIT SERVICES, INC.
By /s/ David J. Petrini
----------------------------------
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial
Officer
1) Before June 10, 1996:
Address for Notices:
c/o Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
2) From and after June 10, 1996:
c/o Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 278-6028
Telephone No.: (415) 543-0404
13
<PAGE>
PROVIDIAN BANCORP, INC., as
Guarantor
By /s/ David J. Petrini
----------------------------------
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial
Officer
Address for Notices:
1) Before June 10, 1996:
Providian Bancorp, Inc.
88 Kearny Street, Suite 1900
San Francisco, CA 94108
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 398-0731
Telephone No.: (415) 398-2893
2) From and after June 10, 1996:
Providian Bancorp, Inc.
201 Mission Street
San Francisco, CA 94105
Attention: Senior Vice President
and Senior Financial
Officer
Telecopier No.: (415) 278-6028
Telephone No.: (415) 543-0404
14
<PAGE>
LENDERS
- -------
CONTINUING LENDERS
- ------------------
Commitment ABN AMRO BANK N.V. - PITTSBURGH BRANCH
- ----------
$30,000,000
By /s/ James M. Janovsky
--------------------------------
Name: James M. Janovsky
Title: Group Vice President
By /s/ Kathryn C. Toth
--------------------------------
Name: Kathryn C. Toth
Title: Vice President
Lending Office for Base Rate Loans:
ABN AMRO Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Lending Office for Loans other than
Base Rate Loans:
ABN AMRO Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Address for Notices:
ABN AMRO Bank N.V.
One PPG Place, Suite 2950
Pittsburgh, PA 15222-5400
Attention: James M. Janovsky
Telex No.: 6734601 ABNAMRO UT
Telecopier No.: 412-566-2266
Telephone No.: 412-566-2269
<PAGE>
Commitment BANK OF AMERICA ILLINOIS
- ----------
$70,000,000
By /s/ Raju N. Patel
--------------------------------
Name: Raju N. Patel
Title: Vice President
Lending Office for Base Rate Loans:
Bank of America Illinois
1850 Gaterway Blvd., 4th floor
Concord, CA 94520
Lending Office for Loans other than
Base Rate Loans:
Bank of America Illinois
1850 Gaterway Blvd., 4th floor
Concord, CA 94520
Address for Notices:
Bank of America Illinois
1850 Gaterway Blvd., 4th floor
Concord, CA 94520
Attention: Marianne Runyen
Telecopier No.: 510-675-8218
Telephone No.: 510-675-7719
<PAGE>
Commitment THE BANK OF NEW YORK
- ----------
$70,000,000
By /s/ Elizabeth Ying
--------------------------------
Name: Elizabeth Ying
Title: Vice President
Lending Office for Base Rate Loans:
The Bank of New York
1 Wall Street, 22nd Floor
New York, New York 10286
Lending Office for Loans other
than Base Rate
The Bank of New York
1 Wall Street, 22nd Floor
New York, New York 10286
Address for Notices:
The Bank of New York
1 Wall Street, 22nd Floor
New York, New York 10286
and
10990 Wilshire Boulevard
Suite 1125
Los Angeles, California 90024
Attention: Lorna Alleyne/Elizabeth
T. Ying
Telecopier No.: 212-635-6399
310-996-8667
Telephone No.: 212-635-6737
310-996-8661
<PAGE>
Commitment BANQUE NATIONAL DE PARIS
- ----------
$25,000,000
By /s/ Jennifer Y. Cho
--------------------------------
Name: Jennifer Y. Cho
Title: Vice President
By /s/ William J. La Herran
--------------------------------
Name: William J. La Herran
Title: Assistan Vice President
Lending Office for Base Rate Loans:
Banque Nationale de Paris
180 Montgomery Street
San Francisco, CA 94104
Lending Office for Loans other
than Base Rate Loans:
Banque Nationale de Paris
180 Montgomery Street
San Francisco, CA 94104
Address for Notices:
Banque Nationale de Paris
180 Montgomery Street
San Francisco, CA 94104
Attention: William J. La Herran
Telex No.: RCA278900 (BNPSUR)
Telecopier No.: 415-296-8954
Telephone No.: 415-956-0707
<PAGE>
Commitment CAISSE NATIONALE DE
- ---------- CREDIT AGRICOLE
$30,000,000
By /s/ Katherine L. Abbott
--------------------------------
Name: Katherine L. Abbott
Title: First Vice President
Lending Office for Base Rate Loans:
Caisse Nationale de Credit
Agricole
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Lending Office for Loans other than
Base Rate Loans:
Caisse Nationale de Credit
Agricole
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Address for Notices:
Caisse Nationale de Credit
Agricole
55 East Monroe Street, Suite 4700
Chicago, Illinois 60603
Attention: Kathleen Martens
Telex No.: 190063 AGRICOUT
Telecopier No.: 312-372-4421
Telephone No.: 312-917-7444/7420
<PAGE>
Commitment THE CHASE MANHATTAN BANK
- ---------- (NATIONAL ASSOCIATION)
$70,000,000
By /s/ Heather Lindstrom
---------------------------------
Name: Heather Lindstrom
Title: Vice President
Lending Office for all Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Monique Parker
Telecopier No.: 212-552-1368
Telephone No.: 212-552-5920
<PAGE>
Commitment CITICORP USA, INC.
- ----------
$60,000,000
By /s/ Stephen P. Zwick
---------------------------------
Name: Stephen P. Zwick
Title: Vice President
Lending Office for Base Rate Loans:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Lending Office for Loans other than
Base Rate Loans:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Address for Notices:
Citicorp USA, Inc.
399 Park Avenue
New York, New York 10043
Attention: James Lee/
Peter C. Bickford
Telecopier No.: 212-371-6309
Telephone No.: 212-559-8146/4412
<PAGE>
Commitment COMMERZBANK AG, LOS ANGELES BRANCH
- ----------
$70,000,000
By /s/ Christian Jagenberg
_________________________________
Name: Christian Jagenberg
Title: Senior Vice President and
Manager
By /s/ Werner Schmidbauer
_________________________________
Name: Werner Schmidbauer
Title: Vice President
Lending Office for Base Rate Loans:
Commerzbank AG, Los Angeles Branch
660 So. Figueroa, Suite 1450
Los Angeles, CA 90017
Lending Office for Loans other than
Base Rate Loans:
Commerzbank AG, Los Angeles Branch
660 So. Figueroa, Suite 1450
Los Angeles, CA 90017
Address for Notices:
Commerzbank AG, Los Angeles Branch
660 So. Figueroa, Suite 1450
Los Angeles, CA 90017
Attention: Werner Schmidbauer/
Edna Youna
Telex No.: 678338 CBKLA UI
Telecopier No.: 213-623-0039
Telephone No.: 213-623-8223/5419
<PAGE>
Commitment CREDIT LYONNAIS, SAN FRANCISCO
- ---------- BRANCH AND/OR CREDIT LYONNAIS,
$70,000,000 CAYMAN ISLAND BRANCH
By /s/ William J. Fischer
_________________________________
Name: William J. Fischer
Title: Vice President and Manager
Lending Office for Base Rate Loans:
Credit Lyonnais, San Francisco
Branch
c/o 3 Embarcadero Center,
Suite 1640
San Francisco, California 94111
Lending Office for Loans other than
Base Rate Loans:
Credit Lyonnais, San Francisco
Branch
3 Embarcadero Center,
Suite 1640
San Francisco, California 94111
Address for Notices:
Credit Lyonnais, San Francisco
Branch
3 Embarcadero Center,
Suite 1640
San Francisco, California 94111
Attention: William J. Fischer/
Christiane Balouny
Telecopier No.: 415-956-7008
Telephone No.: 415-956-7002
<PAGE>
Commitment CREDIT SUISSE
- ----------
$70,000,000
By /s/ Worthington
_________________________________
Name: David J. Worthington
Title: Member of Senior Management
By [illegible]
_________________________________
Name: [illegible]
Title:
Lending Office for Base Rate Loans:
Credit Suisse
633 West Fifth Street, 64th Floor
Los Angeles, CA 90071
Lending Office for Loans other than
Base Rate Loans:
Credit Suisse
633 West Fifth Street, 64th Floor
Los Angeles, CA 90071
Address for Notices:
Credit Suisse
633 West Fifth Street, 64th Floor
Los Angeles, CA 90071
Attention: Rita Asa
Telex No.: 67227 (CREDSUIS)
Telecopier No.: 213-955-8245
Telephone No.: 213-955-8284
<PAGE>
Commitment THE DAI-ICHI KANGYO BANK, LTD.,
- ---------- CHICAGO BRANCH
$20,000,000
By /s/ T. Hemmi
_________________________________
Name: Takeshi Hemmi
Title: Vice President
Lending Office for Base Rate Loans:
The Dai-Ichi Kangyo Bank, Ltd.,
Chicago Branch
10 South Wacker Drive, 26th Floor
Chicago, IL 60606
Lending Office for Loans other than
Base Rate Loans:
The Dai-Ichi Kangyo Bank, Ltd.,
Chicago Branch
10 South Wacker Drive, 26th Floor
Chicago, IL 60606
Address for Notices:
The Dai-Ichi Kangyo Bank, Ltd.,
Chicago Branch
10 South Wacker Drive, 26th Floor
Chicago, IL 60606
Attention: John Sneed,
Kathy Oczko: Corporate
Banking
Telecopier No.: 312-876-2011
Telephone No.: 312-715-6362
<PAGE>
Commitment DEUTSCHE BANK AG,
- ---------- NEW YORK AND/OR CAYMAN ISLANDS
$70,000,000 BRANCHES
By /s/ Cynthia A. Gavenda
_________________________________
Name: Cynthia A. Gavenda
Title: Associate
By /s/ Louis Caltavuturo
_________________________________
Name: Louis Caltavuturo
Title: Associate
Lending Office for Base Rate Loans:
Deutsche Bank AG,
New York Branch
31 West 52nd Street
New York, New York 10019
Lending Office for Loans other than
Base Rate Loans:
Deutsche Bank AG
Cayman Islands Branch
31 West 52nd Street
New York, New York 10019
Address for Notices:
Deutsche Bank AG
New York and/or Cayman Islands
Branches
31 West 52nd Street
New York, New York 10019
Attention: CFS, Cheryl Mandelbaum
Telex No.: 429166/DEUT BK NY
Telecopier No.: 212-474-7880
Telephone No.: 212-474-8426
<PAGE>
Commitment THE FIRST NATIONAL BANK OF BOSTON
- ----------
$25,000,000
By /s/ John B. Sinclair
_________________________________
Name: John B. Sinclair
Title: Vice President
Lending Office for Base Rate Loans:
The First National Bank of Boston
100 Rustcraft Rd. Mail Stop
74-02-05
Dedham, Massachusetts 02026
Attention: Mary Kucharski
Lending Office for Loans other than
Base Rate Loans:
The First National Bank of Boston
100 Rustcraft Rd. Mail Stop
74-02-05
Dedham, Massachusetts 02026
Address for Competitive Bid Notices:
The First National Bank of Boston
100 Federal Street, Mail Stop
01-10-08
Boston, Massachusetts 02110
Attention: John B. Sinclair
Telecopier No.: 617-434-1096
Telephone No.: 617-434-5045
<PAGE>
Commitment FLEET BANK N.A.
- ----------
$25,000,000
By /s/ Stephanie Wilson-Flaherty
_________________________________
Name: Stephanie Wilson-Flaherty
Title: Vice President
Lending Office for Base Rate Loans:
Fleet Bank N.A.
175 Water Street - 28th Floor
New York, New York 10038
Lending Office for Loans other than
Base Rate Loans:
Fleet Bank N.A.
175 Water Street - 28th Floor
New York, New York 10038
Address for Notices:
Fleet Bank N.A.
175 Water Street - 28th Floor
New York, New York 10038
Attention: Stephanie Wilson-Flaherty
Madeline Sargon
Telex No.: 12-7933
Telecopier No.: 212-602-3323
Telephone No.: 212-602-2448
<PAGE>
Commitment FLEET NATIONAL BANK
- ----------
$15,000,000
By /s/ P.J. Kane
_________________________________
Name: P.J. Kane
Title: Vice President
Lending Office for Base Rate Loans:
Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Lending Office for Loans other than
Base Rate Loans:
Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Address for Notices:
Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: David Albanesi/
Robert Meditz
Insurance Industry Dept.
Telecopier No.: 860-986-1094
Telephone No.: 860-986-5600
<PAGE>
Commitment THE FUJI BANK, LIMITED,
- ---------- SAN FRANCISCO AGENCY
$55,000,000
By /s/ Keiichi Ozawa
_________________________________
Name: Keiichi Ozawa
Title: Joint General Manager
Lending Office for Base Rate Loans:
The Fuji Bank, Limited
San Francisco Agency
601 California, Suite 500
San Francisco, CA 94108
Lending Office for Loans other than
Base Rate Loans:
The Fuji Bank, Limited
San Francisco Agency
601 California, Suite 500
San Francisco, CA 94108
Address for Notices:
The Fuji Bank, Limited
San Francisco Agency
601 California, Suite 500
San Francisco, CA 94108
Attention: Suzanne Stitt
Telex No.: 176087 FUJIBK SFO
Telecopier No.: 415-362-4613
Telephone No.: 415-296-5443
<PAGE>
Commitment THE INDUSTRIAL BANK OF JAPAN,
- ---------- LIMITED, LOS ANGELES AGENCY
$50,000,000
By /s/ T. Iyoda
_________________________________
Name: Toshinari Iyoda
Title: Senior Vice President
Lending Office for Base Rate Loans:
The Industrial Bank of Japan,
Limited,
Los Angeles Agency
350 South Grand Avenue, Suite 1500
Los Angeles, CA 90071
Lending Office for Loans other than
Base Rate Loans:
The Industrial Bank of Japan,
Limited,
Los Angeles Agency
350 South Grand Avenue, Suite 1500
Los Angeles, CA 90071
Address for Notices:
The Industrial Bank of Japan,
Limited,
Los Angeles Agency
350 South Grand Avenue, Suite 1500
Los Angeles, CA 90071
Attention: Charles Lilygren
Telex No.: 6831123 COGIN LSA
Telecopier No.: 213-488-9840
Telephone No.: 213-893-6444
<PAGE>
Commitment NATIONSBANK OF TEXAS, N.A.
- ----------
$70,000,000
By /s/ Kate Galletty
_________________________________
Name: Kate Galletty
Title: Senior Vice President
Lending Office for Base Rate Loans:
NationsBank of Texas, N.A.
901 Main Street, 14th Floor
Dallas, Texas 75202
Lending Office for Loans other than
Base Rate Loans:
NationsBank of Texas, N.A.
901 Main Street, 14th Floor
Dallas, Texas 75202
Address for Notices:
NationsBank of Texas, N.A.
901 Main Street, 14th Floor
Dallas, Texas 75202
Attention: Greg Venker/Traci Vinson
Telecopier No.: 214-508-0944
Telephone No.: 214-508-0584
<PAGE>
Commitment PNC BANK, NATIONAL ASSOCIATION
- ----------
$55,000,000
By /s/ Jeffrey P. White
_________________________________
Name: Jeffrey P. White
Title: Commercial Banking Officer
Lending Office for Base Rate Loans:
PNC Bank, N.A.
55 S. Lake Avenue, Suite 650
Pasadena, California 91101
Lending Office for Loans other than
Base Rate Loans:
PNC Bank, N.A.
55 S. Lake Avenue, Suite 650
Pasadena, California 91101
Address for Notices:
PNC Bank, N.A.
55 S. Lake Avenue, Suite 650
Pasadena, California 91101
Attention: Jeffry P. White
Pamela J. Fox
Telecopier No.: 818-568-0653
Telephone No.: 818-568-9326
<PAGE>
Commitment SANWA BANK, LIMITED
- ---------- ATLANTA AGENCY
$20,000,000
By /s/ Raymond F. [illegible]
_________________________________
Name: Raymond F. [illegible]
Title: Vice President
Lending Office for Base Rate Loans:
The Sanwa Bank, Limited
Atlanta Agency
133 Peachtree Street NE, Suite 4950
Atlanta, Georgia 30303
Lending Office for Loans other than
Base Rate Loans:
The Sanwa Bank, Limited
Atlanta Agency
133 Peachtree Street NE, Suite 4950
Atlanta, Georgia 30303
Address for Notices:
The Sanwa Bank, Limited
Atlanta Agency
133 Peachtree Street NE, Suite 4950
Atlanta, Georgia 30303
Attention: Raymond Hamilton
Kristy Mayo
Telex No.: 4611830 SANWALT
Telecopier No.: 404-589-1629
Telephone No.: 404-586-8805
<PAGE>
ADDITIONAL LENDERS
- ------------------
Commitment BANK OF NOVA SCOTIA
- ----------
$20,000,000
By /s/ F.C.H. Ashby
_________________________________
Name: F.C.H. Ashby
Title: Senior Manager Loan
Operations
Lending Office for Base Rate and
LIBOR Loans:
Bank of Nova Scotia
600 Peachtree St., NE
Suite 2700
Atlanta, GA 30308
Lending Office for Competitive Bid
Loans:
Bank of Nova Scotia
1 Liberty Plaza
New York, NY 10006
Address for Notices:
Bank of Nova Scotia
600 Peachtree St., NE
Suite 2700
Atlanta, GA 30308
and
Chicago Representative Office
Suite 3700
181 W. Madison St.
Chicago, IL 60602
Attention: J.T. Legista
Barbara Siatczynski
Telex: ITT 241791
Telecopier No.: 312-201-4108
404-888-8998
Telephone No.: 312-201-4113
404-877-1562
<PAGE>
Commitment BANKERS TRUST COMPANY
- ----------
$35,000,000
By /s/ Cynthia Berge-O'Keefe
_________________________________
Name: Cynthia Berge-O'Keefe
Title: Managing Director
Lending Office for Base Rate Loans:
Bankers Trust Company
130 Liberty St. - 14th Fl.
New York, N.Y. 10017
Lending Office for Loans other than
Base Rate Loans:
Bankers Trust Company
130 Liberty St. - 14th Fl.
New York, N.Y. 10017
Address for Notices:
Bankers Trust Company
130 Liberty St. - 14th Fl.
New York, N.Y. 10017
Attention: James Morgan/
Cindy Berge O'Keefe
Telecopier No.: 212-250-7351
Telephone No.: 212-250-7466
<PAGE>
Commitment THE FIRST NATIONAL BANK OF CHICAGO
- ----------
$35,000,000
By /s/ Philip H. Britt
_________________________________
Name: Philip H. Britt
Title: Senior Vice President
Lending Office for Base Rate Loans:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0085, 1-16
Chicago, IL 60670-00085
Lending Office for Loans other than
Base Rate Loans:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0085, 1-16
Chicago, IL 60670-00085
Address for Notices:
The First National Bank of Chicago
One First National Plaza
Mail Suite 0085, 1-16
Chicago, IL 60670-00085
Attention: Paul T. Schultz/
Lillian A. Arroyo
Telecopier No.: 312-732-4033
Telephone No.: 312-732-7074/2279
<PAGE>
Commitment MELLON BANK, N.A.
- ----------
$35,000,000
By /s/ Richard A. Spelke
_________________________________
Name: Richard A. Spelke
Title: First Vice President
Lending Office for Base Rate Loans:
Mellon Bank, N.A.
Three Mellon Bank Center
23rd Floor/Loan Administration
Pittsburgh, PA 15259
Lending Office for Loans other than
Base Rate Loans:
Mellon Bank, N.A.
Three Mellon Bank Center
23rd Floor/Loan Administration
Pittsburgh, PA 15259
Address for Notices:
Mellon Bank, N.A.
Three Mellon Bank Center
23rd Floor/Loan Administration
Pittsburgh, PA 15259
and:
300 South Grand Ave., Suite 3800
Los Angeles, CA 90071
Attention: Sean C. Gannon/
Damon Carr
Telecopier No.: 412-236-2028
Telephone No.: 213-680-7280
412-234-1872
<PAGE>
Commitment MORGAN GUARANTY TRUST COMPANY
- ---------- OF NEW YORK
$35,000,000
By /s/ Anthony R. Malloy
_________________________________
Name: Anthony R. Malloy
Title: Vice President
Lending Office for Base Rate Loans:
Morgan Guaranty Trust Company
of New York
60 Wall St.
New York, NY 10260
Lending Office for Loans other than
Base Rate Loans:
Morgan Guaranty Trust Company
of New York
60 Wall St.
New York, NY 10260
Address for Notices:
Morgan Guaranty Trust Company
of New York
60 Wall St.
New York, NY 10260
Attention: Anthony Malloy
Telex No.: 177615 (MGTUT)
Telecopier No.: 212-648-5249
Telephone No.: 212-648-8087
<PAGE>
Commitment ROYAL BANK OF CANADA
- ----------
$20,000,000
By /s/ Yvonne J. Barnett
_________________________________
Name: Yvonne J. Barnett
Title: Manager
Lending Office for Base Rate Loans:
Royal Bank of Canada
Financial Square, 23rd Floor
New York, NY 10005-3531
Lending Office for Loans other than
Base Rate Loans:
Royal Bank of Canada
Financial Square, 23rd Floor
New York, NY 10005-3531
Address for Notices:
Royal Bank of Canada
Financial Square, 23rd Floor
New York, NY 10005-3531
Attention: Manager, Credit
Administration
Telex No.: MCI-62519 (Royal Bank)
Telecopier No.: 212-809-6459
212-428-2372
Telephone No.: 212-428-6277
212-428-6311
<PAGE>
Commitment THE SAKURA BANK, LIMITED
- ----------
$20,000,000
By /s/ Masahiro Nakajo
_________________________________
Name: Masahiro Nakajo
Title: Senior Vice President and
Manager
Lending Office for Base Rate Loans:
The Sakura Bank, Limited
277 Park Ave., 45th Floor
New York, NY 10172
Lending Office for Loans other than
Base Rate Loans:
The Sakura Bank, Limited
277 Park Ave., 45th Floor
New York, NY 10172
Address for Notices:
The Sakura Bank, Limited
277 Park Ave., 45th Floor
New York, NY 10172
Attention: Rebecca Sell
Telecopier No.: 212-888-7651
Telephone No.: 212-756-6817
<PAGE>
Commitment SWISS BANK CORPORATION
- ---------- NEW YORK BRANCH
$20,000,000
By /s/ Darryl Mansebein
_________________________________
Name: Darryl Mansebein
Title: Director
By /s/ Susan N. Esquith
_________________________________
Name: Susan N. Esquith
Title: Director, Credit Risk
Management
Lending Office for Base Rate Loans:
Swiss Bank Corporation
New York Branch
P.O. Box 395
Church St. Station
New York, NY 10008
Lending Office for Loans other than
Base Rate Loans:
Swiss Bank Corporation
New York Branch
P.O. Box 395
Church St. Station
New York, NY 10008
Address for Notices:
Swiss Bank Corporation
New York Branch
P.O. Box 395
Church St. Station
New York, NY 10008
Attention: Dominick Schiavo
Telecopier No.: 212-574-3888
Telephone No.: 212-574-3072
<PAGE>
EXHIBIT A
May ___, 1996
The Chase Manhattan Bank (National
Association), as Administrative Agent,
and the Lenders party to the TRR
Agreement (as hereinafter defined)
Re: Termination, Replacement and Restatement Agreement
Ladies and Gentlemen:
I have acted as in-house counsel for Providian Bancorp, Inc., a Delaware
corporation ("PBI"), First Deposit National Bank, a national banking association
("FDNB"), Providian National Bank, a national banking association ("PNB"),
Providian Credit Corporation, a Delaware corporation ("PCC"), and Providian
Credit Services, Inc., a Utah corporation ("PCSI"), in connection with the
Termination, Replacement and Restatement Agreement dated as of May ___, 1996
(the "TRR Agreement") among FDNB, PNB, PCC and PCSI, as borrowers (collectively,
the "Borrowers"), PBI, as guarantor (the "Guarantor" and, together with the
Borrowers, the "Obligors"), the lenders party thereto (the "Lenders") and The
Chase Manhattan Bank (National Association), as administrative agent for the
Lenders (in such capacity, the "Agent"). All capitalized terms used but not
defined herein have the respective meanings given to such terms in the TRR
Agreement.
This opinion is being furnished to you pursuant to Section 3(e) of the
TRR Agreement.
For purposes of rendering this opinion, I have examined originals or
copies identified to my satisfaction of the following documents:
(a) the TRR Agreement, including the Exhibits and Schedules
thereto and the terms thereof incorporated by reference to the Amended and
Restated Credit Agreement dated as of October 10, 1995;
(b) the Fee Letter dated April 3, 1996; and
<PAGE>
(c) the articles of association, articles of incorporation or
certificate of incorporation, as the case may be, and by-laws, each as amended
to the date hereof, of each of the Obligors.
The documents referred to in items (a) and (b) above are sometimes
referred to herein as the "Restated Credit Documents."
In addition, I have made such inquiries and investigations and examined
such corporate records of the Obligors as I have deemed necessary to render the
opinions set forth herein.
As used herein, the phrase "to my knowledge" refers to my actual
knowledge based on my review of the documents listed above and the information,
inquiries and investigations described herein and no others.
For purposes of this opinion, I have assumed (i) the due authorization,
execution and delivery of the Restated Credit Documents by each of the Lenders
and the Agent, as applicable; (ii) that each Lender and the Agent have the legal
power to act in the capacities in which they are to act under the Restated
Credit Documents; (iii) the conformity to the original documents of any
documents submitted to me as certified or photostatic copies, the authenticity
of such documents and the genuineness of all signatures on such documents; (iv)
that each of the Restated Credit Documents is the legal, valid and binding
obligation of each of the Lenders and the Agent, as applicable, enforceable
against each such party in accordance with its terms; and (v) that each of the
Lenders and the Agent has performed and will perform its obligations thereunder.
Based upon the foregoing, and subject to the qualifications, limitations
and assumptions hereinafter set forth, I am of the opinion that:
1. Each of the Guarantor and PCC is a corporation validly existing and
in good standing under the laws of the State of Delaware. PCSI is a corporation
validly existing and in good standing under the laws of the State of Utah. Each
of FDNB and PNB is a national banking association validly existing and in good
standing under the laws of the United States of America.
2. Each of the Obligors has all requisite corporate power and authority
to own and operate its properties, to conduct its business in the manner in
which it presently is conducted and to execute, deliver and perform its
obligations under each of the Restated Credit Documents to which it is a party.
3. Each of the Restated Credit Documents to which an Obligor is a party
has been duly authorized by all necessary corporate action on the part of such
Obligor.
2
<PAGE>
4. Neither the execution and delivery by any Obligor of the Restated
Credit Documents to which it is a party nor the performance by such Obligor of
its obligations thereunder constitutes or will result in a breach of such
Obligor's charter or by-laws or, to my knowledge, any order of any court or
governmental authority having jurisdiction over such Obligor or constitutes a
violation of applicable law. Neither the execution and delivery by any Obligor
of the Restated Credit Documents to which it is a party nor the performance by
such Obligor of its obligations thereunder will conflict with, or result in any
material breach of, or constitute a default under, or result in the creation or
imposition of any lien upon any property or assets of such Obligor pursuant to,
or require any consent not obtained under, any indenture, mortgage, deed of
trust, agreement or other instrument to which such Obligor is a party or by
which it or any of its property or assets are bound or to which it is subject,
which conflict, breach or default, or lien created or imposed, or the failure to
obtain such consent, would have a material adverse effect on the financial
condition of such Obligor and its Subsidiaries taken as a whole or the ability
of such Obligor to perform its obligations under the Restated Credit Documents
to which it is a party.
5. Except as disclosed in the TRR Agreement or in any Schedule or
Exhibit thereto or any terms incorporated therein by reference, to my knowledge
there is pending or threatened no action, suit or proceeding or governmental
investigation, or any order, writ, injunction or decree, against any Obligor
before or by any court, arbitrator or governmental or administrative body that
challenges the validity or enforceability of any of the Restated Credit
Documents or the transactions contemplated thereby or that restrains, prevents
or imposes material adverse conditions upon, or seeks to restrain, prevent or
impose material adverse conditions upon, any such transaction or in which there
is a reasonable probability of an adverse decision against such Obligor and
which, if adversely determined, would reasonably be expected to have a material
adverse effect on the financial condition of such Obligor and its Subsidiaries
taken as a whole or the ability of such Obligor to perform its obligations under
the Credit Documents to which it is a party.
6. None of the Obligors is an "investment company" or a person directly
or indirectly controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. None of the Obligors is a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
7. Neither the making of any Loans pursuant to, nor application of the
proceeds thereof in accordance with, the Restated Credit Documents will violate
Regulation U or X promulgated by the Board of Governors of the Federal Reserve
System.
The foregoing opinions are subject to the following qualifications,
limitations and assumptions:
3
<PAGE>
A. I render no opinion herein as to matters involving the laws of any
jurisdiction other than the laws of the State of California, the General
Corporation Law of the State of Delaware, the Revised Business Corporation Act
of the State of Utah and the federal law of the United States of America. This
opinion is limited to the effect of the present state of such laws, as applied
to the facts on which I have relied (as set forth above), in existence on the
date hereof. I express no opinion as to the laws of any other time or
jurisdiction or the applicability of the laws of any particular jurisdiction. I
assume no obligation to revise or supplement this opinion in the event of future
changes in such laws or the interpretations thereof or such facts, and I assume
no responsibility to advise you of any such changes.
B. This opinion is delivered solely for your benefit in connection with
the TRR Agreement and may not be relied upon by any person other than the Agent
and the Lenders (including any Lender becoming a party to the New Credit
Agreement after the date hereof pursuant to the terms of the New Credit
Agreement) or by the Agent or the Lenders in any other context, nor may this
opinion be used, circulated, published, communicated or otherwise referred to or
made available to any other Person except that the Agent and the Lenders may
provide this opinion (i) to bank examiners and other regulatory authorities
should they so request or in connection with their normal examinations, (ii) to
the independent auditors and attorneys of the Agent and the Lenders, (iii)
pursuant to order or legal process of any court or governmental agency, (iv) in
connection with any legal action to which the Agent or any Lender is a party
arising out of the transactions contemplated by the TRR Agreement or (v) to any
permitted prospective transferee (including any prospective Participant) of the
Loans or Commitments. This opinion may not be quoted without my prior written
consent.
Very truly yours,
Mary Ellen Richey
General Counsel
info filenameNA960990.112[_]
<PAGE>
EXHIBIT B
May 14, 1996
(212) 351-4000 C 14073-00164
To: The Chase Manhattan Bank (National Association),
as Administrative Agent, and the Lenders party to the
TRR Agreement (as hereinafter defined)
Ladies and Gentlemen:
We have acted as special counsel to The Chase Manhattan Bank
(National Association) as Agent and the Lenders (as hereinafter defined) in
connection with the Termination, Replacement and Restatement Agreement dated as
of May 14, 1996 (the TRR Agreement") among (i) First Deposit National
Bank, a national banking association incorporated, organized and existing under
the laws of the United States of America ("FDNB"), Providian National Bank, a
national banking association incorporated, organized and existing under the laws
of the United States of America ("PNB"), Providian Credit Corporation, a
corporation organized and existing under the laws of the State of Delaware
("PCC"), and Providian Credit Services, Inc., a corporation organized and
existing under the laws of the State of Utah ("PCSI"; together with FDNB, PNB
and PCC, the "Borrowers"), (ii) Providian Bancorp, a corporation organized
existing under the laws of the State of Delaware (the "Guarantor"; together with
the Borrowers, the "Obligors"), (iii) the lenders party thereto from time to
time (the "Lenders") and (IV) The Chase Manhattan Bank (National Association)
as administrative agent for Lenders (in such capacity, the "Agent"). This
opinion is being rendered to you pursuant to Section 3(e) of the TRR
Agreement. All capitalized terms used but not defined herein have the respective
meanings given to such terms in the New Credit Agreement (as defined in the TRR
Agreement.)
In rendering this opinion, we have examined an executed copy
of each of the TRR Agreement and the Existing Credit Agreement (as defined in
the TRR Agreement).
We have, with your permission, assumed, without independent
investigation or inquiry with respect to any such matter, that:
<PAGE>
The Chase Manhattan Bank (National Association),
as Administrative Agent, and the Lenders party to the
TRR Agreement
May 14, 1996
Page 2
(a) each of the Obligors is a corporation, partnership or other entity
validly existing and in good standing under the laws of the jurisdiction of
its organization, with all requisite corporate or other power and authority to
execute, deliver and perform its obligations under the TRR Agreement and to
perform its obligations under the New Credit Agreement; the execution and
delivery of the TRR Agreement by each Obligor, and the performance of the
obligations of each Obligor thereunder and under the New Credit Agreement, have
been duly authorized by all necessary corporate action on the part of each
Obligor; and the TRR Agreement has been duly executed and delivered by or on
behalf of each Obligor or by a person or persons thereunto duly authorized;
(b) to the extent that the obligations of the Obligors may be
dependent upon such matters, each of the Agent and the Lenders has all requisite
corporate power and authority to execute, deliver and perform its respective
obligations under the TRR Agreement and to perform its obligations under the New
Credit Agreement; the execution and delivery of the TRR Agreement and
performance of the obligations thereunder and under the New Credit Agreement
have been duly authorized by all necessary corporate action on the part of the
Agent and the Lenders; the TRR Agreement has been duly executed and delivered by
or on behalf of each of the Agent and the Lenders; and each of the TRR Agreement
and the New Credit Agreement is a legal, valid and binding obligation of each of
the Agent and the Lenders, enforceable against each of them its accordance with
its terms;
(c) the documents submitted to us as originals are authentic and the
documents submitted to us as certified or reproduction copies conform to the
originals; and
(d) there are no agreements or understandings between or among the
Agent, the Lenders, the Obligors or third parties that would expand, modify or
otherwise affect the terms of the TRR Agreement or the New Credit Agreement or
the respective rights or obligations of the parties thereunder, and the TRR
Agreement and the New Credit Agreement correctly and completely sets forth the
intent of all parties thereto.
Based upon the foregoing and subject to the qualifications,
limitations and assumptions set forth below, we are of the opinion that each of
the TRR Agreement and the New Credit Agreement constitutes the legal, valid and
binding obligation of each Obligor, enforceable against such obligor in
accordance with its terms.
The foregoing opinion is subject to the following qualifications,
limitations and assumptions:
A. We render no opinion herein as to matters involving the laws of
any jurisdiction other than the State of New York and the United States of
America. This opinion is limited to the effect of the present state of the laws
of the State of New York and of the United States of America and the facts as
they presently exist. We assume no obligation to revise or supplement this
opinion in the event of future changes in such laws or the interpretations
thereof or such facts.
<PAGE>
The Chase Manhattan Bank (National Association),
as Administrative Agent, and the Lenders party to the
TRR Agreement
May 14, 1996
Page 3
B. Our opinions are subject to (i) the effect of bankruptcy,
insolvency reorganization, moratorium, arrangement or other similar laws
affecting enforcement of creditors' rights generally (including, without
limitation, the effect of statutory or other laws regarding fraudulent transfers
or conveyances or preferential transfers); (ii) the application of general
principles of equity, whether considered in a case or proceeding at law or in
equity, including, without limitation, concepts of materiality, reasonableness,
good faith and fair dealing and the possible unavailability of specific
performance or other equitable relief (whether sought in a proceeding at law or
in equity); and (iii) the qualification that indemnification provisions in the
New Credit Agreement may be unenforceable to the extent that such
indemnification relates to claims made under any federal or state securities
laws or is otherwise limited by public policy.
C. We express no opinion as to the legality, validity, binding effect
or enforceability (whether according to its terms or otherwise) of: (i) any
provision of the New Credit Agreement to the effect that rights or remedies are
not exclusive, that every right or remedy is cumulative and may be exercised in
addition to any other right or remedy, that the election of some particular
remedy does not preclude recourse to one or more other remedies or that failure
to exercise or delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy; (ii) any waiver or any consent relating to
the rights of the Obligors under the New Credit Agreement or applicable law or
duties owing to the Obligors existing as a matter of law to the extent such
waivers or consents are found by a court to be against public policy or are
ineffective pursuant to applicable law; (iii) any waiver or consent contained in
the New Credit Agreement relating to such rights or duties that is broadly or
vaguely stated or unknown fixture rights; (iv) any provision of the New Credit
Agreement requiring written amendments or waivers of such documents insofar as
it suggests that oral or other modifications, amendments or waivers could not
effectively be agreed upon by the parties or that the doctrine of promissory
estoppel might not apply; (v) Section 10.02 of the New Credit Agreement (except
for rights of setoff provided by Section 151 of the Debtor and Creditor Law of
the State of New York, as interpreted by applicable judicial decisions); (vi)
any provision in the New Credit Agreement waiving the right to object to venue
or with respect to the jurisdiction of the United States District Court for the
Southern District of New York; and (vii) the effect of the laws of any
jurisdiction in which any Lender is located (other than New York) that limit the
interest, fees or other charges such Lender may impose.
This opinion is rendered to the Agent and the Lenders in connection
with the TRR Agreement and the New Credit Agreement and may not be relied upon
by any person other than the Agent and the Lenders (including any Lender
becoming a party to the New Credit Agreement after the date hereof pursuant to
the terms of the New Credit Agreement) or by the Agent or the Lenders in any
other context, nor may any copies of this opinion be provided to any other
Person except that the Agent and the Lenders may provide this opinion (i) to
bank examiners and other regulatory authorities should they so request or in
connection with their normal examinations, (ii) to the independent auditors and
attorneys of the Agent and the Lenders, (iii) pursuant to order or legal process
of any court or governmental agency, (iv) in connection with any legal action to
which the Agent or any Lender is a party arising out of the transactions
contemplated by the New Credit Agreement or (v) to any permitted
<PAGE>
The Chase Manhattan Bank (National Association),
as Administrative Agent, and the Lenders party to the
TRR Agreement
May 14, 1996
Page 4
prospective transferee of the Loans or Commitments. This opinion may not be
quoted without the prior written consent of this Firm.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
NA961270.I 115/4+
<PAGE>
- --------------------------------------------------------------------------------
FIRST AMENDMENT
Dated as of April 4, 1997
to
CREDIT AGREEMENT
Dated as of May 14, 1996
among
FIRST DEPOSIT NATIONAL BANK,
PROVIDIAN NATIONAL BANK,
PROVIDIAN CREDIT CORPORATION
and
PROVIDIAN CREDIT SERVICES, INC.,
as Borrowers,
-- ----------
PROVIDIAN BANCORP, INC.,
as Guarantor,
-- ----------
THE LENDERS NAMED HEREIN,
as Lenders
-- -------
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
-- -------------- -----
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION THE BANK OF NEW YORK
CITICORP USA, INC. COMMERZBANK AG
CREDIT LYONNAIS, SAN FRANCISCO BRANCH CREDIT SUISSE
DEUTSCHE BANK AG NATIONSBANK OF TEXAS, N.A.
as Co-Agents
-- ---------
- --------------------------------------------------------------------------------
[LOGO] CHASE
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of April 4, 1997 (this "Amendment"), to the
CREDIT AGREEMENT, dated as of May 14, 1996 (the "Credit Agreement"), among FIRST
DEPOSIT NATIONAL BANK, a national banking association incorporated, organized
and existing under the laws of the United States of America ("FDNB"), PROVIDIAN
NATIONAL BANK, a national banking association incorporated, organized and
existing under the laws of the United States of America ("PNB"), PROVIDIAN
CREDIT CORPORATION, a corporation organized and existing under the laws of the
State of Delaware ("PCC"), and PROVIDIAN CREDIT SERVICES, INC., a corporation
organized and existing under the laws of the State of Utah ("PCSI"; together
with FDNB, PNB and PCC, the "Borrowers"); PROVIDIAN BANCORP, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Guarantor";
together with the Borrowers, the "Obligors"); the banks and financial
institutions (individually, a "Lender" and, collectively, the "Lenders") listed
on the signature pages hereof or which, pursuant to the terms of the Credit
Agreement shall become a "Lender" thereunder; and THE CHASE MANHATTAN BANK, as
administrative agent for the Lenders (in such capacity, the "Agent"). Terms used
but not defined in this Amendment shall have the respective meanings assigned to
them in the Credit Agreement.
The parties hereto agree as follows:
1. AMENDMENTS. (a) Section 1.01 of the Credit Agreement is hereby amended
----------
by inserting the following after the definition of Competitive Bid Option Loans:
"Consolidated Non-Performing Asset Percentage": as of any day, the
percentage equivalent of a fraction, the numerator of which is the amount of
unsecured credit card Receivables owned or managed by the Guarantor or any
of its Consolidated Subsidiaries on such day (including credit card
Receivables that have been securitized by the Guarantor or any such
Consolidated Subsidiary) which are either, without duplication, (i)
contractually 91 or more days past due or (ii) otherwise on a non-accrual
basis and the denominator of which is the amount of unsecured credit card
Receivables owned or managed by the Guarantor or any of its Consolidated
Subsidiaries on such day (including credit card Receivables that have been
securitized by the Guarantor or any such Consolidated Subsidiary)
(excluding, in the case of both the numerator and the denominator,
Receivables arising from any credit card accounts that were originated as
secured card accounts).
(b) The definition of the term "Subordinated Debt" in Section 1.01 of the
Credit Agreement is hereby amended by inserting the following at the end
thereof:
; and provided, further, that, without duplication, the 9.525% junior
-------- -------
subordinated deferrable interest debentures issued by the Guarantor and the
<PAGE>
related $160,000,000 of trust preferred securities issued by Providian
Capital I shall constitute Subordinated Debt for all purposes hereof.
(c) Section 9.01 of the Credit Agreement is hereby amended by inserting the
following as paragraph (c) at the end thereof:
(c) Non-Performing Asset Percentage. Permit the Consolidated
-------------------------------
Non-Performing Asset Percentage to be greater than 6% as of the end of any
calendar month.
(d) Section 11(j) of the Credit Agreement is hereby amended by deleting
such Section in its entirety and substituting, in lieu thereof, "Reserved".
2. REPRESENTATIONS AND WARRANTIES. After giving effect to this Amendment,
------------------------------
each Obligor represents and warrants to each of the Lenders that (a) the
representations and warranties made by it under Section 7 of the Credit
Agreement are true and correct in all material respects on the date hereof with
the same effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date and (b) no
Default or Event of Default has occurred and is continuing.
3. NO OTHER AMENDMENTS. Except as expressly amended hereby, the Credit
-------------------
Agreement is and shall remain in full force and effect.
4. EFFECTIVE DATE. This Amendment shall become effective on the first date
--------------
(the "Effective Date") that the Agent shall receive counterparts of this
Amendment duly executed on behalf of each of the Obligors, the Agent and the
Majority Lenders. The Agent shall promptly give the Obligors and each Lender
notice of the Effective Date and shall furnish the Obligors and each Lender with
an executed copy of this Amendment.
5. GOVERNING LAW; COUNTERPARTS. (a) THIS AMENDMENT SHALL BE CONSTRUED IN
---------------------------
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(b) This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Amendment by signing any such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered as of the day and year first above written.
FIRST DEPOSIT NATIONAL BANK
By /s/ David J. Petrini
__________________________________
Name: David J. Petrini
Title: Senior Vice President
and Chief Financial
Officer
PROVIDIAN NATIONAL BANK
By /s/ David J. Petrini
__________________________________
Name: David J. Petrini
Title: Senior Vice President
and Chief Financial
Officer
PROVIDIAN CREDIT CORPORATION
By /s/ David J. Petrini
__________________________________
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial
Officer
PROVIDIAN CREDIT SERVICES, INC.
By /s/ David J. Petrini
__________________________________
Name: David J. Petrini
Title: Senior Vice President
and Chief Financial
Officer
<PAGE>
PROVIDIAN BANCORP, INC., as Guarantor
By /s/ David J. Petrini
__________________________________
Name: David J. Petrini
Title: Senior Vice President
and Senior Financial
Officer
THE CHASE MANHATTAN BANK, as Agent
By __________________________________
Name: Dennis L. Cogan
Title: Vice President
<PAGE>
ABN AMRO BANK N.V.
By /s/J.M. Janovsky
---------------------------------------
Name: J.M. Janovsky
Title: Group V.P.
By /s/Kathryn C. Toth
--------------------------------------
Name: Kathryn C. Toth
Title: Group V.P. and Operational Manager
<PAGE>
BANK OF AMERICA ILLINOIS
By /s/Raju N. Patel
---------------------------------------
Name: Raju N. Patel
Title: Vice President
<PAGE>
THE BANK OF NEW YORK
By /s/Elizabeth T. Ying
---------------------------------------
Name: Elizabeth T. Ying
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA
By /s/F.C.H. Ashby
---------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By /s/John B. Sinclair
---------------------------------------
Name: John B. Sinclair
Title: Vice President
<PAGE>
THE CHASE MANHATTAN BANK
By /s/Peter Platten
---------------------------------------
Name: Peter Platten
Title: Vice President
<PAGE>
CITICORP USA, INC.
By /s/Stephen P. Zwick
---------------------------------------
Name: Stephen P. Zwick
Title: Vice President
<PAGE>
COMMERZBANK AG, LOS ANGELES BRANCH
By /s/Christian Jagenberg
---------------------------------------
Name: Christian Jagenberg
Title: SVP and Manager
By /s/Werner Schmidbauer
---------------------------------------
Name: Werner Schmidbauer
Title: Vice President
<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE
By /s/Katherine L. Abbott
---------------------------------------
Name: Katherine L. Abbott
Title: First Vice President
<PAGE>
CREDIT LYONNAIS, SAN FRANCISCO
BRANCH AND/OR CREDIT LYONNAIS,
CAYMAN ISLAND BRANCH
By /s/Edward W. Leong
---------------------------------------
Name: Edward W. Leong
Title: Vice President & Manager
<PAGE>
CREDIT SUISSE
By /s/F. Byrne
---------------------------------------
Name: F. Byrne
Title: Director
By /s/Jay Chall
----------------------------------------
Name: Jay Chall
Title: Director
<PAGE>
DEUTSCHE BANK AG,
NEW YORK AND/OR CAYMAN ISLANDS
BRANCHES
By /s/Louis Caltavuturo
---------------------------------------
Name: Louis Caltavuturo
Title: Assistant Vice President
By /s/John S. McGill
---------------------------------------
Name: John S. McGill
Title: Vice President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/R.C. English
---------------------------------------
Name: Robert C. English
Title: Authorized Agent
<PAGE>
FLEET BANK, N.A.
By /s/Stephanie Wilson-Flaherty
---------------------------------------
Name: Stephanie Wilson-Flaherty
Title: Vice President
<PAGE>
THE FUJI BANK, LIMITED
SAN FRANCISCO AGENCY
By /s/Keiichi Ozawa
---------------------------------------
Name: Keiichi Ozawa
Title: Joint General Manager
<PAGE>
THE INDUSTRIAL BANK OF JAPAN
LIMITED, LOS ANGELES AGENCY
By /s/Toru Uozu
----------------------------------------
Name: Toru Uozu
Title: Vice President
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/Anthony R. Malloy
---------------------------------------
Name: Anthony R. Malloy
Title: Vice President
<PAGE>
MELLON BANK, N.A.
By /s/Dean G. Pace
---------------------------------------
Name: Dean G. Pace
Title: Vice President
<PAGE>
NATIONSBANK OF TEXAS
By /s/Kate Galletly
---------------------------------------
Name: Kate Galletly
Title: Senior Vice President
<PAGE>
THE SAKURA BANK, LIMITED
By /s/Yasumasa Kikuchi
---------------------------------------
Name: Yasumasa Kikuchi
Title: Senior Vice President
<PAGE>
Exhibit 21.1
Subsidiaries of Providian Bancorp, Inc.
First Deposit Life Insurance Company
First Deposit National Bank
Winnisquam Community Development Corporation
(96% owned by First Deposit National Bank)
First Deposit Service Corporation
Providian Credit Corporation
Providian Credit Services, Inc.
Providian Mauritius Investment Ltd.
Providian National Bancorp
Commonwealth Premium Finance
(100% owned by Providian National Bancorp)
Providian National Bank
