SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________.
1-12897
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(Commission File Number)
PROVIDIAN FINANCIAL CORPORATION
-------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-2933952
- ------------------------------- -------------------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
201 Mission Street, San Francisco, California 94105
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(415) 543-0404
--------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
As of July 31, 1997, there were 95,377,167 shares of the registrant's
Common Stock, par value $0.01 per share, outstanding.
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
FORM 10-Q
INDEX
June 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Statements of Financial
Condition
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Changes in
Shareholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
PROVIDIAN FINANCIAL CORPORATION
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data) (unaudited)
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------------------ ----------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 189,616 $ 82,946
Federal funds sold 279,800 172,350
Investment securities at cost (which approximates market value) 154,613 7,173
Loans held for sale 148,333 739,706
Loans receivable, less allowance for possible credit losses of $129,743
in 1997 and $114,540 in 1996 2,586,706 2,835,388
Due from securitizations 426,852 252,899
Interest receivable 66,056 56,864
Premises and equipment, less accumulated
depreciation and amortization 55,103 49,870
Other assets 145,530 154,546
------------------ ----------------
Total assets $ 4,052,609 $ 4,351,742
================== ================
LIABILITIES:
Deposits $ 2,842,822 $ 3,390,112
Term federal funds purchased 179,000 51,000
Notes payable to banks 148,000 115,000
Note payable to affiliates - 42,500
Long term notes payable - 50,000
Accrued expenses and other liabilities 208,187 219,986
------------------ -----------------
Total liabilities 3,378,009 3,868,598
Company obligated mandatorily redeemable capital securities of
subsidiary trust holding solely junior subordinated deferrable
interest debentures of the Company (Capital Securities) 160,000 -
SHAREHOLDERS' EQUITY:
Preferred Stock
1996- 7.25% Cumulative Preferred Stock,
nonparticipating, nonvoting, par value $1.00 per share--authorized
63,269 shares, issued and outstanding 63,269 shares - 63
Common Stock
1997- par value $.01 per share, authorized 400,000,000 shares,
issued and outstanding 95,425,320 shares as of June 30, 1997;
1996- par value $1.00 per share, authorized 5,000 shares,
issued and outstanding 5,000 shares 954 5
Additional paid-in capital 6,845 63,706
Retained earnings 506,801 419,370
------------------ -----------------
Total shareholders' equity 514,600 483,144
------------------ -----------------
Total liabilities and shareholders' equity $ 4,052,609 $ 4,351,742
================== =================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 132,216 $ 138,423 $ 278,541 $ 271,534
Investment securities 7,483 2,893 13,329 5,476
------------ ------------- ------------ ------------
Total Interest Income 139,699 141,316 291,870 277,010
Interest expense:
Deposits 37,955 35,086 81,967 66,102
Borrowings 6,366 14,421 12,452 28,528
------------ ------------- ------------ ------------
Total Interest Expense 44,321 49,507 94,419 94,630
Net Interest Income 95,378 91,809 197,451 182,380
Provision for possible credit losses 38,950 23,831 72,752 52,182
------------ ------------- ------------ ------------
Net Interest Income After Provision
for Possible Credit Losses 56,428 67,978 124,699 130,198
Other income:
Loan servicing income 90,478 57,188 184,826 126,632
Credit product fee income 44,242 29,224 82,752 52,851
Other 362 6,369 501 6,523
------------ ------------- ------------ ------------
135,082 92,781 268,079 186,006
Other expenses:
Salaries and employee benefits 37,814 34,612 88,438 68,005
Solicitation 39,890 26,445 68,013 59,856
Occupancy, furniture and equipment 9,554 5,994 17,799 11,131
Data processing and communication 12,053 8,766 23,786 16,543
Other 19,817 22,248 53,879 41,147
------------ ------------- ------------ ------------
119,128 98,065 251,915 196,682
------------ ------------- ------------ ------------
Income Before Income Taxes 72,382 62,694 140,863 119,522
Income tax expense 26,658 23,810 51,977 45,230
------------ ------------ ------------ ------------
Net Income $ 45,724 $ 38,884 $ 88,886 $ 74,292
============ ============ ============ ============
Earnings per share N/A N/A N/A N/A
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding N/A N/A N/A N/A
============ ============ ============ ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Dollars in thousands, except share data) (unaudited)
<TABLE>
<CAPTION>
Special 7.25% Cumulative Additional Total
Preferred Stock Preferred Stock Common Stock Paid - In Retained Shareholders'
---------------- ------------------ ---------------
Shares Amount Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------- ------- ------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,290 $1,290 63 $ 63 5 $ 5 $ 63,706 $284,191 $ 349,255
Net Income 74,292 74,292
Cash dividend on preferred stock (2,294) (2,294)
===== ====== ====== ====== ====== ====== ========== ========= ===========
Balance at June 30, 1996 1,290 $1,290 63 $ 63 5 $ 5 $ 63,706 $356,189 $ 421,253
===== ====== ====== ====== ====== ====== ========== ========= ===========
Balance at December 31, 1996 - $ - 63 $ 63 5 $ 5 $ 63,706 $419,370 $ 483,144
Net Income 88,886 88,886
Cash dividend on preferred stock (1,006) (1,006)
Redemption of preferred stock (63) (63) (63,207) (63,270)
Net issuance of shares pursuant
to the Distribution Agreement 95,248 948 (499) (449) -
Reimbursement relating to the
conversion of stock options 6,846 6,846
Issuance of restricted and
unrestricted stock 173 1 5,115 5,116
Deferred compensation related to
grant of restricted and unrestricted
stock (5,116) (5,116)
===== ====== ====== ====== ====== ====== ========= ========= ============
Balance at June 30, 1997 - $ - - $ - 95,426 $ 954 $ 6,845 $506,801 $ 514,600
===== ====== ====== ====== ====== ====== ========= ========= ============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands) (unaudited )
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------------------
1997 1996
----------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 88,886 $ 74,292
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible credit losses 72,752 52,182
Depreciation and leasehold amortization 7,189 4,600
Amortization of net loan acquisition costs 19,507 12,022
Decrease in deferred income tax benefit 18,353 2,428
(Increase) decrease in interest receivable (9,192) 32
Change in other operating activities (90,778) (50,394)
----------------- ---------------
Net Cash Provided by Operating Activities 106,717 95,162
INVESTING ACTIVITIES:
Adjustments to reconcile net income to net cash used by investing activities:
Net increase in money market instruments (1,050) -
Net issuance and repayment of receivables (624,557) (1,569,819)
Net proceeds from sales of receivables 1,391,618 1,420,000
Increase in due from securitizations (123,515) (30,371)
Purchases of investment securities (366,050) (4,077)
Proceeds from sales/maturities of investment securities 219,660 90
Increase in federal funds sold (107,450) (23,600)
Net purchase of premises and equipment (12,483) (11,255)
----------------- ---------------
Net Cash Provided (Used) by Investing Activities 376,173 (219,032)
FINANCING ACTIVITIES:
Adjustments to reconcile net income to net cash provided by financing activities:
Net (decrease) increase in deposits (547,290) 144,861
Increase in net borrowings under line of credit agreements 33,000 345,000
Decrease in note payable to affiliates (42,500) (45,000)
Net decrease in other short-term borrowings - (112,880)
Proceeds from issuance of term federal funds 244,000 -
Repayment of term federal funds (116,000) (270,500)
(Decrease) increase in long-term borrowing (50,000) 50,000
Redemption of preferred stock (63,270) -
Reimbursement relating to conversion of stock options 6,846 -
Preferred stock dividend paid to shareholder (1,006) (2,294)
Proceeds from the issuance of trust capital securities 160,000 -
----------------- ---------------
Net Cash Provided (Used) by Financing Activities (376,220) 109,187
----------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 106,670 (14,683)
Cash and Cash Equivalents at beginning of year 82,946 104,083
----------------- ---------------
Cash and Cash Equivalents at End of Period $ 189,616 $ 89,400
================= ===============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
PROVIDIAN FINANCIAL CORPORATION
Notes to Condensed Consolidated Financial Statements
June 30, 1997 (unaudited)
Note A - Basis of Presentation
The condensed consolidated financial statements include the accounts of
Providian Financial Corporation and its wholly owned subsidiaries (collectively
referred to as the "Company"). The Company's subsidiaries offer a range of
consumer lending products, deposit products and fee-based products and services.
The principal operating subsidiaries of the Company are First Deposit National
Bank, Providian National Bank and Providian Bank (formerly known as Providian
Credit Services, Inc.), all of which are financial institutions principally
engaged in consumer lending activities. Providian Financial Corporation also has
a subsidiary, Providian Bancorp Services, which provides administrative and
customer services to its consumer lending affiliates.
Providian Bancorp, Inc. changed its name to Providian Financial Corporation
effective May 30, 1997.
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Operating
results for the six months ended June 30, 1997 are not necessarily indicative of
the results for the year ended December 31, 1997. The notes to the financial
statements contained in the Company's registration statement on Form 10 (filed
with the Securities and Exchange Commission on April 17, 1997) should be read in
conjunction with these consolidated financial statements. All significant
intercompany balances and transactions have been eliminated. Certain prior
period amounts have been reclassified to conform to the 1997 presentation.
Note B - Significant Accounting Policies
Earnings per Common Share: Historical earnings per share have not been
presented because prior to June 10, 1997 all of the Company's shares of common
stock were held by its former parent, Providian Corporation, and such
information would not be meaningful. Pro forma earnings per share for the three
and six month periods ended June 30, 1997 and 1996 are listed below and have
been computed by dividing net income or pro forma net income for those periods
by the weighted average number of common shares outstanding for the applicable
period. In determining the pro forma number of common shares outstanding prior
to the spinoff from Providian Corporation, the number of shares of Providian
Corporation common stock was used, since shareholders of Providian Corporation
received one share of Providian Financial Corporation common stock for each
share of Providian Corporation common stock held on the record date for the
spinoff. In addition, the effects of a February 1997 transaction in which the
Company issued mandatorily redeemable capital securities and used the proceeds
to repay borrowings under notes payable to affiliates and to redeem preferred
stock has been included in the calculation of pro forma earnings per common
share.
(Dollar amounts in thousands, For the three months ended
except per share data) June 30
--------------------------
1997 1996
----------- ----------
Net Income (1) $ 45,724
Pro Forma Net Income $ 37,100
Pro Forma weighted average number of shares outstanding 94,991 93,489
Pro forma earnings per share $0.48 $0.40
(Dollar amounts in thousands, For the six months ended
except per share data) June 30
--------------------------
1997 1996
----------- ----------
Net Income (1) $ 88,886
Pro Forma Net Income $ 70,722
Pro Forma weighted average number of shares outstanding 94,580 93,689
Pro forma earnings per share $0.94 $0.76
(1) Impact of pro forma adjustments not considered material.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" ("SFAS No. 128"), which establishes new computation,
presentation and disclosure guidance for earnings per share. SFAS No. 128
replaces primary and fully diluted earnings per share, under Accounting
Principles Board Opinion No. 15, "Earnings per Share," with basic and diluted
earnings per share, respectively. The Company will be required to adopt the new
SFAS No. 128 standards in the fourth quarter of 1997 and to restate prior
periods for comparative purposes. The adoption of SFAS No. 128 is not expected
to have a material effect on the Company's earnings per share.
Note C - Stock Option, Stock Purchase and Stock Ownership Plans
In June 1997, the Company adopted the Providian Financial Corporation 1997
Stock Option Plan (the "Option Plan") which authorizes grants of incentive and
nonqualified stock options to officers, key employees and non-employee
Directors. All stock options granted under the Option Plan have an exercise
price equal to the market value of the Company's common stock and a maximum term
of ten years. In connection with the spinoff from Providian Corporation, the
Company converted stock options held by employees and certain Directors into
1,937,524 Providian Financial Corporation stock options ("Rollover Options").
The conversion maintained the converted options' vesting provisions, option
periods and ratio of exercise price per option to market value per share. No
additional compensation expense was recorded as a result of the stock option
conversions. Additionally, in June 1997, the Company issued 3,238,598
nonqualified stock options to employees and 70,000 nonqualified stock options to
non-employee Directors.
The Option Plan permits the issuance of a total of 10,000,000 shares of
common stock in addition to the shares issuable as a result of Rollover Options,
resulting in a maximum number of 11,937,524 shares of common stock issuable in
connection with the exercise of stock options. As of June 30, 1997, the number
of common shares available for future grants under the Option Plan was 6,782,144
shares. Activity under the Option Plan during the quarter ended June 30, 1997
was as follows:
<TABLE>
<CAPTION>
Number of
Number of Option Price Shares
Shares per Share Exercisable
--------- ------------- -----------
<S> <C> <C> <C>
Outstanding:
June 10, 1997
Rollover Options 1,937,524 $ 11.12-23.33 1,074,182
Granted 3,308,598 $ 32.11 -
Exercised - - -
Forfeitures 90,742 $ 19.64-32.11 -
--------- ------------- -----------
Outstanding at
June 30, 1997 5,155,380 $ 11.12-32.11 1,074,182
========= ============= ===========
</TABLE>
In June 1997, the Company adopted the Providian Financial Corporation Stock
Ownership Plan (the "Stock Ownership Plan") which provides for three forms of
awards to key officers, employees and Directors: nonrestricted stock, matching
restricted stock and discretionary restricted stock. A maximum of 4,000,000
shares of common stock are permitted to be issued under the Stock Ownership
Plan. Restricted stock is subject to forfeiture during the vesting period.
Matching restricted stock is granted in conjunction with nonrestricted stock and
may be forfeited in the event the nonrestricted stock is not maintained on
deposit with the Company's transfer agent. On June 11, 1997, the Company granted
to officers 180,000 shares of restricted stock which vest over a period of five
years. Also, on June 11, 1997, certain Directors elected to take a total of
9,020 shares of common stock in lieu of cash compensation related to their
annual retainers. Also, at that time, a related grant was made to Directors of
3,691 matching restricted shares which vest one-half in three years and fully in
six years, if vesting requirements are met. The market value of approximately
$5.1 million of restricted stock was recorded as deferred compensation at the
time of grant and will be amortized over the vesting period.
Note D - Asset Securitization
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS No. 125"), effective for financial
asset sales occurring after December 31, 1996. Under SFAS No. 125, gains are
recognized at the time of initial sale and each subsequent sale of loan
receivables in a securitization. As a result, the Company now recognizes gains
from such loan sales as "loan servicing income" on its statement of income and
the related asset as "due from securitizations" on its statement of financial
condition. As a result of the adoption of SFAS No. 125, loan servicing income
increased $16.2 million and $50.4 million during the three and six months,
respectively, ended June 30, 1997. This increase in loan servicing income is not
expected to be representative of future periods. Any future gains that will be
recognized by the Company in accordance with SFAS No. 125 will be dependent on
the timing, performance and amount of future securitizations. The increase in
loan servicing income is non-recurring because, for the first nine months of
1997, the Company will recognize both excess servicing income generated by
securitized balances existing at December 31, 1996 and gains on additional loan
sales made during that period. In accordance with SFAS No. 125, prior years have
not been restated.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
Providian Financial Corporation and its subsidiaries (collectively referred
to as the "Company") offer a range of consumer loan products, deposit products
and fee-based products and services to customers throughout the United States.
The Company utilizes primarily direct mail and telemarketing account origination
channels and the Company is one of the fifteen largest issuers of unsecured
credit cards in the United States with over $7.6 billion of managed unsecured
credit card loans outstanding as of June 30, 1997. The Company also offers
secured credit card loans and home equity loans. As of June 30, 1997 secured
credit card loans and managed home equity loans outstanding were $608 million
and $982 million, respectively. The primary factors affecting the profitability
of the Company's consumer credit products are the number of customer accounts
and outstanding loan balances, net interest margins, credit usage, level of fee
income, credit quality, and the level of solicitation, marketing, servicing and
other administrative expenses.
Forward-Looking Statements
Certain statements contained herein include forward-looking information
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
to the "safe harbor" created by those sections. These forward-looking statements
are based on management's beliefs and assumptions and on information currently
available to management. Forward-looking statements include information
concerning possible or future results of operations of Providian Financial
Corporation. Forward-looking statements are not guarantees of future
performance. Such forward-looking statements involve certain risks,
uncertainties and assumptions that could cause actual results to differ
materially from those in the forward-looking statements. For additional
information concerning such risks, uncertainties, and assumptions, see "Risk
Factors" in the registration statement on Form 10 filed by the Company with the
Securities and Exchange Commission on April 17, 1997.
Earnings Summary
Net income for the quarter ended June 30, 1997 was $45.7 million, or $.48
pro forma per share, compared to pro forma net income of $37.1 million, or $.40
pro forma per share, for the quarter ended June 30, 1996. Net income for the six
months ended June 30, 1997 was $ 88.9 million, or $.94 pro forma per share,
compared to pro forma net income of $70.7 million, or $.76 pro forma per share,
for the first six months of 1996. As described in Note B to the Company's
condensed consolidated financial statements, the Company's historical earnings
per share have not been presented because prior to June 10, 1997 all of the
Company's common stock was held by its former parent, Providan Corporation, and
such information would not be meaningful.
The overall growth in earnings for the quarter was primarily attributable
to the growth in managed outstandings, higher net interest margins and increases
in non-interest fee income. Managed loan outstandings increased from $7.9
billion at June 30, 1996 to $9.2 billion as of June 30, 1997, which reflects the
impact of the Company's solicitation and marketing efforts. On-balance sheet
loans decreased from $3.3 billion at June 30, 1996 to $2.9 billion as of June
30, 1997 as loan growth was offset by the completion of loan securitizations,
net of related amortization, totaling $1.7 billion. Managed loans outstanding
increased from $8.9 billion as of December 31, 1996 to $9.2 billion as of June
30, 1997, a moderate increase of 3% that is consistent with the industry and
reflects tightening of the Company's credit standards and general economic
conditions.
Return on average total assets for the three months ended June 30, 1997,
was 1.71% compared to 1.86% for the same period during 1996. This lower return
is primarily a result of a higher proportion of investment security assets
maintained for liquidity purposes. Return on average shareholders' equity for
the three months ended June 30, 1997 was 37.60% compared to 43.92% pro forma for
the same period last year. This lower return on average shareholder's equity
resulted from the increase in earnings for the quarter being offset by an even
greater increase in average shareholders' equity for the quarter.
Managed Loan Portfolio
The Company's consumer loan products include unsecured and secured credit
cards, unsecured revolving lines of credit, and secured home equity lines of
credit. Since 1989, the Company has securitized unsecured credit card 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 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
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 three months ended June 30, 1997 and
1996, the net interest income was reduced by $159.6 million and $101.2 mllion,
respectively; the provision for credit losses was reduced by $123.3 million and
$65.1 million, respectively; and other income was increased by $36.3 million and
$36.1 million, respectively. For the six months ended June 30, 1997 and 1996,
the net interest income was reduced by $300.5 million and $206.8 million,
respectively; the provision for credit losses was reduced by $232.8 million and
$114.9 million, respectively; and other income was increased by $67.7 million
and $91.9 million, respectively.
The following summarizes selected data on the Company's managed loan
portfolio:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE 1 - MANAGED CONSUMER LOAN PORTFOLIO INFORMATION
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------------
(Dollars in thousands) 1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Period-End Balances:
On-balance sheet consumer loans $ 2,864,782 $ 3,293,823 $ 2,864,782 $ 3,293,823
Securitized consumer loans 6,379,953 4,571,762 6,379,953 4,571,762
------------- ------------- ------------- -------------
Total managed consumer loan portfolio $ 9,244,735 $ 7,865,585 $ 9,244,735 $ 7,865,585
============= ============= ============= =============
Average Balances:
On-balance sheet consumer loans $ 2,906,059 $ 3,613,933 $ 3,215,173 $ 3,488,951
Securitized consumer loans 6,296,037 3,921,337 5,962,948 3,736,104
------------- ------------- ------------- -------------
Total average managed consumer loan portfolio $ 9,202,096 $ 7,535,270 $ 9,178,121 $ 7,225,055
============= ============= ============= =============
Pro Forma Pro Forma
--------- ---------
Operating Data and Ratios: (1)
Reported:
Average earning assets $ 3,443,945 $ 3,902,248 $ 3,708,683 $ 3,771,852
Return on average assets 4.51% 3.67% 4.21% 3.63%
Net interest margin (2) 11.08% 9.08% 10.65% 9.33%
Managed:
Average earning assets $ 9,739,982 $ 7,823,585 $ 9,671,631 $ 7,507,956
Return on average assets 1.71% 1.86% 1.71% 1.85%
Net interest margin (2) 10.47% 9.70% 10.30% 10.19%
(1) 1996 operating results are shown on a pro forma basis.
(2) Net interest margin is equal to net interest income divided by average earning assets.
</TABLE>
Net Interest Income
Net interest income represents the interest earned from the Company's
on-balance sheet consumer loans less the related interest expense related to
deposits and borrowings. As a result of securitizations of consumer loans, the
volume of on-balance sheet loans, deposits and borrowings will vary over time.
Net interest income for the second quarter of 1997 totaled $95.4 million
compared to $91.8 million for the same period of 1996. This increase is
primarily attributable to higher net interest margins earned, offset by lower
average on-balance sheet consumer loans. The annualized net interest margin on
average earning assets during the six months ended June 30, 1997 was 10.65%
compared to 9.33% pro forma, for the same period in the prior year. Higher
yields on earning assets and lower overall funding costs contributed to the
increase in average margins.
Statement of Average Balances, Income and Expense, Yields and Rates
The following table provides an analysis of interest income, interest
expense, net interest margin and average balance sheet data for the three and
six month periods ended June 30, 1997 and 1996, as prepared from historical
financial information:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
TABLE 2 - STATEMENTS OF AVERAGE BALANCES, INCOME AND EXPENSE, YIELDS AND RATES
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended June 30
-------------------------------------------------------------------------------
1997 1996
-------------------------------------- --------------------------------------
(Dollars in Thousands) Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------- ------------ -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Earning assets
Consumer loans $ 2,906,059 $ 132,216 18.20% $ 3,613,933 $ 138,423 15.32%
Interest-earning cash 108,836 1,482 5.45% 104,591 635 2.43%
Federal funds sold 294,670 4,106 5.57% 90,492 1,123 4.96%
Investment securities 134,380 1,895 5.64% 93,224 1,135 4.87%
------------- ------------ -------- ------------- ------------ ---------
Total interest-earning assets 3,443,945 $ 139,699 16.23% 3,902,240 $ 141,316 14.49%
Allowance for loan losses (124,973) (98,400)
Other assets 738,040 234,633
------------- -------------
Total assets $ 4,057,012 $ 4,038,473
============= =============
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Deposits $ 2,825,265 $ 37,955 5.37% $ 2,540,270 $ 35,086 5.52%
Borrowings 381,540 6,366 6.67% 880,375 14,421 6.55%
------------- ------------- -------- ------------- ------------ ---------
Total interest-bearing liabilities 3,206,805 $ 44,321 5.53% 3,420,645 $ 49,507 5.79%
Other liabilities 203,803 214,596
------------- -------------
Total liabilities 3,410,608 3,635,241
Capital securities 160,000 -
Equity 486,404 403,232
------------- -------------
Total liabilities and equity $ 4,057,012 $ 4,038,473
============= =============
NET INTEREST SPREAD: 10.70% 8.70%
======== =========
Interest income to
average interest-earning assets 16.23% 14.49%
Interest expense to
average interest-earning assets 5.15% 5.07%
-------- ---------
Net interest margin 11.08% 9.42%
======== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------------------------------------------------------------
1997 1996
---------------------------------------- -----------------------------------------
(Dollars in Thousands) Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ ------------ -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Earning assets
Consumer loans $ 3,215,173 $ 278,541 17.33% $ 3,488,951 $ 271,534 15.57%
Interest-earning cash 104,205 2,771 5.32% 117,057 1,424 2.43%
Federal funds sold 302,192 8,167 5.41% 71,747 1,803 5.03%
Investment securities 87,113 2,391 5.49% 94,100 2,249 4.78%
------------- ----------- -------- ------------- ---------- -------
Total interest earning assets 3,708,683 $ 291,870 15.74% 3,771,855 $ 277,010 14.69%
Allowance for loan losses (121,142) (97,403)
Other assets 633,102 223,468
------------ -------------
Total assets $ 4,220,643 $ 3,897,920
============ =============
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Deposits $ 3,040,706 81,967 5.39% $ 2,417,245 66,102 5.47%
Borrowings 391,213 12,452 6.37% 858,306 28,528 6.65%
------------ ----------- -------- ------------- ---------- -------
Total interest-bearing liabilities 3,431,919 94,419 5.50% 3,275,551 94,630 5.78%
Other liabilities 167,566 236,985
------------ -------------
Total liabilities 3,599,485 3,512,536
Capital securities 129,945 -
Equity 491,213 385,384
------------ -------------
Total liabilities and equity $ 4,220,643 $ 3,897,920
============ =============
NET INTEREST SPREAD: 10.24% 8.91%
======== =======
Interest income to
average interest earning assets 15.74% 14.69%
Interest expense to
average interest earning assets 5.09% 5.02%
-------- -------
Net interest margin 10.65% 9.67%
======== =======
</TABLE>
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 quarter ended June 30, 1997 compared to the prior year quarter
reflects increased securitization activity in 1997 which has reduced on-balance
sheet loans. This securitization activity has the effect of removing unsecured
loans from the balance sheet, leaving a higher proportion of secured credit card
loans, which are higher yielding assets, on-balance sheet. 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>
- --------------------------------------------------------------------------------------------------------------------------------
TABLE 3 - INTEREST VARIANCE ANALYSIS
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 1997 vs. 1996 June 30, 1997 vs. 1996
-----------------------------------------------------------------------------------------------
Increase Change due to (1) Increase Change due to (1)
(Dollars in thousands) (Decrease) Volume Rate (Decrease) Volume Rate
--------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Consumer loans $ (6,207) $ (109,346) $ 103,139 $ 7,007 $ (47,459) $ 54,466
Federal funds sold 2,983 2,829 154 6,364 6,218 146
Other securities 1,607 586 1,021 1,489 (856) 2,345
------------- ------------- ------------- ------------ ------------ ------------
Total interest income (1,617) (105,931) 104,314 14,860 (42,097) 56,957
Interest Expense:
Deposits 2,869 8,478 (5,609) 15,865 18,603 (2,738)
Borrowings (8,055) (9,880) 1,825 (16,076) (14,915) (1,161)
------------- ------------- ------------- ------------ ------------ ------------
Total interest expense (5,186) (1,402) (3,784) (211) 3,688 (3,899)
------------- ------------- ------------- ------------ ------------ ------------
Net interest income (1) $ 3,569 $ (104,529) $ 108,098 $ 15,071 $ (45,785) $ 60,856
============= ============= ============= ============ ============ ============
(1) The change in interest due to both volume and rate has been allocated in
proportion to the relationship of the absolute dollar amounts of the change in
each. The changes in income and expense are calculated independently for each
line in the table.
</TABLE>
Non-interest Income
Other income consists primarily of loan servicing income and credit product
fee income, and represented approximately 48% of on-balance sheet revenues
during the six months ended June 30, 1997 compared to approximately 40% for the
six months ended June 30, 1996. This increase results from increased credit
product fee revenue and higher average securitized assets as a percentage of
average earning assets.
Loan Servicing Income
Average securitized loans, which exclude principal collections accumulated
in principal funding accounts prior to being paid to investors, were $6.3
billion and $3.9 billion in the three months ended June 30, 1997 and 1996,
respectively. Loan servicing income increased 58% to $90.5 million for the
quarter ended June 30, 1997 compared to $57.2 million for the same period in
1996.
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS No. 125"), effective for financial
asset sales occurring after December 31, 1996. Under SFAS No. 125, gains are
recognized at the time of initial sale and each subsequent sale of loan
receivables in a securitization. As a result, the Company now recognizes gains
from such loan sales as "loan servicing income" on its statement of income and
the related asset as "due from securitizations" on its statement of financial
condition. As a result of the adoption of SFAS No. 125, loan servicing income
increased $16.2 million and $50.4 million during the three and six months,
respectively, ended June 30, 1997. The increase in loan servicing income
resulting from the adoption of SFAS No. 125 was largely offset by incremental
business development investments and increases in provisions for possible future
credit losses. This increase in loan servicing income is not expected to be
representative of future periods. Any future gains that will be recognized by
the Company in accordance with SFAS No. 125 will be dependent on the timing,
performance and amount of future securitizations. The increase in loan servicing
income is non-recurring because, for the first nine months of 1997, the Company
will recognize both excess servicing income generated by securitized balances
existing at December 31, 1996, and gains on additional loan sales made during
that period. In accordance with SFAS No. 125, prior years have not been
restated.
Credit Product Fee Income
Credit product fee income totaled $44.2 million for the quarter ended June
30, 1997 compared to $29.2 million for the prior year quarter. This increase of
51% resulted from increased membership fees on secured credit cards, increased
late and overlimit fees received from unsecured and secured loan customers and
increased income from fee-based products.
Non-interest Expense
Non-interest expense for the three months ended June 30, 1997 was $119.1
million, an increase of 21% over $98.1 million for the same period in the prior
year. Salaries and benefits increased $3.2 million, or 9%, to $37.8 million for
the three months ended June 30, 1997, compared to $34.6 million for the same
period in the prior year. This increase reflects the hiring of additional
employees to support increased customer volume and the development of additional
marketing channels by the Company. Solicitation costs include direct mail,
postage, telemarketing and package materials for both new and existing customers
and totaled $39.9 million for the quarter ended June 30, 1997, a 51% increase
over the prior year quarter total of $26.4 million. This increase in
solicitation costs resulted from continued investment in business development
including telemarketing capabilities and other initiatives designed to improve
customer activation and retention.
Income Taxes
The Company's income tax expense was $26.7 million for the three months
ended June 30, 1997 compared to $23.8 million for the three months ended June
30, 1996. The overall effective income tax rate declined due to a net reduction
in the state tax rate for the quarter. The net reduction in the state tax
expense was a result of a decrease in the state tax rate during April and May
and an increase in June associated with the spinoff from Providian Corporation.
As a result of the spinoff, the Company anticipates higher combined state and
federal tax rates in future periods.
Asset Quality
Delinquencies and net credit losses experienced on the Company's consumer
loan portfolio reflect, among other factors, the creditworthiness of the
borrowers, the average age of accounts (generally referred to as "seasoning"),
the success of the Company's collection efforts and general economic conditions.
Delinquencies
An account is contractually delinquent if the minimum payment is not
received by the next billing date. Interest and fee income continue to accrue on
an account after the account becomes delinquent (unless the customer is in
bankruptcy or is deceased) until the loan is either repaid or recognized as a
credit loss. The following table presents delinquency information as of June 30,
1997 and 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TABLE 4 - DELINQUENCIES
- -----------------------------------------------------------------------------------------------------
June 30
---------------------------------------------------------------------
1997 1996
-------------------------------- ---------------------------------
% of % of
(Dollars in thousands) Loans Total Loans Loans Total Loans
--------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Reported: (1)
Loans outstanding $ 2,864,782 100.00% $ 3,293,823 100.00%
Loans delinquent:
30 - 60 days 53,282 1.86 47,225 1.43
61 - 90 days 30,320 1.06 23,315 0.71
91 or more days 61,124 2.13 41,569 1.26
--------------- ------------ ---------------- --------------
Total $ 144,726 5.05% $ 112,109 3.40%
=============== ============ ================ ==============
Managed:
Loans outstanding $ 9,244,735 100.00% $ 7,865,585 100.00%
Loans delinquent:
30 - 60 days 153,938 1.67 118,692 1.51
61 - 90 days 86,473 0.94 61,616 0.78
91 or more days 163,606 1.77 100,470 1.28
--------------- ------------ ---------------- --------------
Total $ 404,017 4.37% $ 280,778 3.57%
=============== ============ ================ ==============
(1) Includes consumer loans held for securitization.
</TABLE>
The managed loan delinquency rate as of June 30, 1997 was 4.37% compared to
4.52% as of March 31, 1997 and 3.57% as of June 30, 1996. The decrease in the
managed delinquency rate over the prior quarter reflects recent improvement in
delinquent unsecured loans, which was partially offset by increased rates of
delinquency on secured credit card outstandings. The delinquency rate for
on-balance sheet loans was 5.05% as of June 30, 1997 compared to 4.86% at March
31, 1997 and 3.40% at June 30, 1996. This increase in the on-balance sheet
delinquency rate reflects the Company's secured credit card outstandings which
are increasing as a percentage of total on-balance sheet loans and experience a
higher delinquency rate than the Company's unsecured loans. Secured credit card
outstandings are collateralized in whole or in part by customer savings
accounts, which mitigates the increased risk associated with higher
delinquencies for this product.
Net Credit Losses
Net credit losses for consumer loans consist of the principal amount of
charge-offs resulting when customers who are unwilling or unable to pay their
existing loan balances, including bankrupt and deceased customers, less current
period recoveries on previously charged-off accounts. Net credit losses exclude
accrued finance charge and fee income which is charged against the related
income at the time of credit loss recognition. Losses from cardholder accounts
related to fraudulent activity are included in non-interest expenses.
The following table presents the Company's net credit losses for consumer
loans for the three and six month periods ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
TABLE 5 - NET CREDIT LOSSES
- -------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1997 1996
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Reported: (1)
Average loans outstanding $ 2,906,059 $ 3,613,934 $ 3,215,173 $ 3,488,951
Net charge-offs 28,465 30,173 57,549 50,141
Net charge-offs as a percentage
of average loans outstanding 3.92% 3.34% 3.58% 2.87%
Managed:
Average loans outstanding $ 9,202,096 $ 7,535,270 $ 9,178,121 $ 7,225,055
Net charge-offs 151,711 90,922 290,307 168,000
Net charge-offs as a percentage
of average loans outstanding 6.59% 4.83% 6.33% 4.65%
(1) Includes consumer loans held for securitization.
</TABLE>
Managed net credit loss rates for the three months ended June 30, 1997 were
6.59% compared to 6.06% for the quarter ended March 31, 1997 and 4.83% for the
quarter ended June 30, 1996. Credit loss rates for the quarter ended June 30,
1997 compared to quarter ended June 30, 1996 are consistent with general
economic trends and industrywide consumer credit performance including rising
bankruptcy rates.
Allowance and Provision for Possible Credit Losses
The allowance for possible credit losses is maintained for on-balance sheet
loans. The Company maintains the allowance at a level believed to be adequate to
absorb future credit losses, net of recoveries, arising from the existing loans
outstanding. In evaluating the adequacy of the allowance, the Company considers
several factors including general economic conditions, asset quality, seasoning,
security and historical trends in credit losses and delinquencies. The Company's
policy is to recognize principal credit losses on unsecured loans and secured
credit card loans which become 180 days delinquent, except that bankruptcy
accounts are charged-off upon determination of post-bankruptcy collectability
(generally upon appropriate verification) and accounts for deceased
accountholders are charged-off upon determination of collectability (generally
upon verification of no estate). Home equity loans are reviewed for
collectibility upon becoming 60 days delinquent and credit losses recognized for
the amount by which the book value of the loan exceeds the estimated net
realizable value of the underlying security.
The following table sets forth the activity in the allowance for possible
credit losses for the three and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE 6 - SUMMARY OF ALLOWANCE FOR LOAN LOSSES
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1997 1996
---------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 119,258 $ 101,812 $ 114,540 $ 93,429
Provision for loan losses 38,950 23,831 72,752 52,182
Charge-offs (32,140) (33,208) (62,733) (56,034)
Recoveries 3,675 3,035 5,184 5,893
---------------- ----------------- ---------------- --------------
Net charge-offs (28,465) (30,173) (57,549) (50,141)
---------------- ----------------- ---------------- --------------
Balance at end of period $ 129,743 $ 95,470 $ 129,743 $ 95,470
================ ================= ================ ==============
Allowance for loan losses to loans
at period-end (1) 4.78% 3.65% 4.78% 3.65%
(1) Excludes consumer loans held for securitization.
</TABLE>
Funding and Liquidity
The Company maintains diversified funding sources including direct and
broker retail deposits, institutional deposits, term Federal funds, public and
private asset securitizations and a committed revolving credit facility. Funding
is further diversified by product types, industry and geographical location. The
Company offers maturity terms on its funding products ranging from one week to
seven years. Maturity distributions are dependent on several factors, including
expected asset duration, investor demand, shape of the yield curve and
anticipated issuance in the securitization and capital markets.
Deposits decreased from $3.4 billion as of December 31, 1996 to $2.8
billion as of June 30, 1997. This decrease is the result of increased asset
securitization during the period and increases in Federal funds purchased and
borrowings under the Company's revolving credit facility. The following table
summarizes the contractual maturity of large denomination certificates of
deposit as of June 30, 1997:
- --------------------------------------------------------------------------------
TABLE 7 - MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
- --------------------------------------------------------------------------------
June 30
---------------------------------------
(Dollars in thousands) 1997 1996
------------------ ------------------
Less than three months $ 238,155 $ 426,810
Three to six months 224,377 169,578
Six to twelve months 262,367 185,436
More than twelve months 543,738 315,578
------------------ ------------------
Total $ 1,268,637 $ 1,097,402
================== ==================
Interest expense on borrowings for the quarter ended June 30, 1997 was $6.4
million compared to $14.4 million in the quarter ended June 30, 1996. This
decrease was the result of lower average funding from Federal funds purchased
and notes payable to banks.
The Company maintains a $1.2 billion committed revolving credit facility
from a syndicate of domestic and international banks which is scheduled to
expire in May 1999. Borrowings under this credit facility are available to four
of the Company's subsidiaries, First Deposit National Bank, Providian National
Bank, Providian Bank and Providian Credit Corporation ( the "Borrowers"), and
the credit facility is guaranteed by Providian Financial Corporation. As of June
30, 1997 borrowings under the credit facility totaled $148 million. Among other
covenants, the credit facility contains certain financial covenants applicable
to the Company, including consolidated asset return and capital requirements and
a loan delinquency test. In addition, certain financial ratios are required to
be maintained by the Borrowers. The unused commitment is available to the
Borrowers as funding needs may arise.
During the quarter ended June 30, 1997, the Company entered into a $100
million, 364-day credit facility under which short-term borrowings are available
to Providian Financial Corporation for general corporate purposes. This facility
contains financial covenants generally similar to those contained in the
Company's revolving credit facility described in the preceding paragraph.
The securitization of consumer loans is a significant source of the
Company's funding. Commercial paper-based conduit facilities are used to
securitize unsecured credit card and home equity line of credit receivables. As
of June 30, 1997, the Company had securitized $1,530 million of loans through
such conduit facilities. Term securitizations through the Company's master trust
totaled $4,950 million as of June 30, 1997. Included in this total is a $700
million, 47 month securitization the Company completed during the three months
ended June 30, 1997. Amortization of previously securitized loans totaled $717.5
million during the three months ended June 30, 1997 and amortization of
securitized loans is expected to continue through 2004. As securitized loans are
paid or reduced by the amount of credit losses during the amortization period of
a securitization, the Company's funding requirements will correspondingly
increase. Term securitizations typically have principal accumulation periods
during which principal payments are aggregated for repayment to investors. As
payments on the loans accumulate and new loans are not securitized, the new
loans are funded by the Company through alternate sources.
In February 1997, Providian Capital I, a subsidiary trust of the Company,
issued $160 million aggregate amount of mandatorily redeemable capital
securities bearing interest at 9.525% which mature in February 2027. The
proceeds of the offering were used by the Company to redeem preferred stock of
$63.2 million and to repay notes payable to affiliates of $42.5 million; the
remainder was available for general corporate purposes.
The Company's goal for liquidity management is to ensure that funding will
be available to support Company operations in varying business environments. In
addition to the committed revolving credit facility, the Company maintains a
portfolio of high-quality securities such as U.S. government obligations,
commercial paper, interest bearing deposits with other banks, Federal funds sold
and other cash equivalents in order to provide additional liquidity. Investment
securities have increased from $7.2 million as of December 31, 1996 to $154.6
million as of June 30, 1997. Federal funds sold increased from $172.3 million to
$279.8 million over the same time period.
Capital Adequacy
Each of the Company's banking subsidiaries, First Deposit National Bank,
Providian National Bank and Providian Bank, is subject to risk-based capital
adequacy guidelines as defined by its primary federal regulator. Failure to meet
minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that could have a material effect
on the consolidated financial statements of the Company. Under the guidelines,
capital is defined as either Tier 1 (core), which consists principally of
shareholders' equity less goodwill, or Tier 2 (supplementary), which also
includes a portion of the allowance 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 achieves "well
capitalized" or "adequately capitalized" status. A bank is considered
"adequately capitalized" if the Total Risk-Based, Tier 1 and Leverage capital
ratios are at least 8%, 4% and 4%, respectively. In order to be considered "well
capitalized" a bank must maintain Total Risk-Based, Tier 1, and Leverage capital
ratios of 10%, 6% and 5%, respectively. As of June 30, 1997, the Company's
banking subsidiaries maintained "well capitalized" status in all risk-based
capital ratio categories as set forth below:
First Deposit Providian
National National Providian
Capital Ratio Bank Bank Bank
- --------------------------------------- ------------- --------- ---------
Total Risk-Based (Tier 1 + Tier 2/
Total risk-based assets) 11.23% 14.62% 24.23%
Tier 1 (Tier 1/Total risk-based assets) 9.97% 13.35% 22.94%
Leverage (Tier 1/Average total assets
less intangibles) 14.37% 21.69% 25.21%
On August 7, 1997, the Board of Directors of the Company approved a third
quarter dividend of $.05 per share payable on September 15, 1997 to shareholders
of record on September 1, 1997, totaling $4.8 million for all outstanding
shares. The payment of common stock dividends by the Company may in the future
be limited by certain factors including regulatory capital requirements and
financial covenants relating to the maintenance of capital under the Company's
revolving credit facility. In addition, if the Company defers interest payments
on the junior subordinated debentures supporting dividend payments to holders of
Providian Capital I's manditorily redeemable capital securities, dividends on
the Company's common stock may not be declared.
The primary source of funds for payment of shareholder dividends by the
Company is dividends from the Company's banking subsidiaries. The amount of
dividends a bank may declare in any year is subject to certain regulatory
restrictions. Dividends are generally limited to current year net profits, as
defined by regulatory agencies, combined with retained net income for the
preceding two years, provided that following the declaration of such dividends,
the bank remains well capitalized. As of June 30, 1997, the amount available to
be paid as dividends to the Company by its banking subsidiaries totaled $100.6
million.
Off-Balance Sheet Risk
The Company is subject to off-balance sheet risk in the normal course of
business, including risks associated with commitments to extend credit, excess
servicing income from securitizations and interest rate swap and cap agreements
("swaps" and "caps"). The Company actively manages interest rate risk, seeking
to maintain a relatively interest rate neutral position, by generally matching
repricing characteristics of assets and liabilities. In doing so, the Company
has selectively entered into swaps and caps which involve elements of credit
and/or interest rate risk in excess of the amount recognized on the statement of
financial condition. All swap and cap transactions are over-the-counter
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 following tables present a summary of swap activity as well as notional
value of caps for the three and six months ended June 30, 1997 and 1996 and
their respective maturities as of June 30, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABLE 8 - SUMMARY OF INTEREST RATE SWAPS
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1997 1996
----------------- ----------------- ----------------- ------------------
Notional Amount
<S> <C> <C> <C> <C>
Pay Fixed/Receive Variable:
Beginning $ 120,000 $ 327,000 $ 120,000 $ 550,000
Additions - 21,000 - 43,500
Maturities - 160,250 - 405,750
----------------- ----------------- ----------------- ------------------
Ending $ 120,000 $ 187,750 $ 120,000 $ 187,750
================= ================= ================= ==================
Receive Fixed/Pay Variable:
Beginning $ 970,500 $ 456,823 $ 970,500 $ 654,556
Additions 30,000 520,000 63,333 570,000
Maturities 165,000 2,872 198,333 250,605
----------------- ----------------- ----------------- ------------------
Ending $ 835,500 $ 973,951 $ 835,500 $ 973,951
================= ================= ================= ==================
Receive Variable/Pay Variable:
Beginning $ - $ 200,000 $ 200,000 $ 200,000
Additions - - - -
Maturities - - 200,000 -
----------------- ----------------- ----------------- ------------------
Ending $ - $ 200,000 $ - $ 200,000
================= ================= ================= ==================
Total Notional Amount
Beginning $ 1,090,500 $ 983,823 $ 1,290,500 $ 1,404,556
Additions 30,000 541,000 63,333 613,500
Maturities 165,000 163,122 398,333 656,355
----------------- ----------------- ----------------- ------------------
Ending $ 955,500 $ 1,361,701 $ 955,500 $ 1,361,701
================= ================= ================= ==================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
TABLE 9 - MATURITY OF INTEREST RATE SWAPS AND CAPS
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Balance at Balances maturing in:
--------------------------------------------------------
June 30, 1997 1997 1998 1999 Thereafter
-------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Pay Fixed/Receive Variable:
Notional Value $ 120,000 $ - $ 120,000 $ - $ -
Weighted Average Pay Rate 6.24% - % 6.24% - % - %
Weighted Average Receive Rate (1) 5.81% - % 5.81% - % - %
Receive Fixed/Pay Variable:
Notional Value $ 835,500 $ 166,667 $ 533,333 $ 85,500 $ 50,000
Weighted Average Pay Rate (1) 5.74% 5.69% 5.74% 5.82% 5.77%
Weighted Average Receive Rate 6.35% 6.18% 6.14% 7.73% 6.84%
Receive Variable/Pay Variable:
Notional Value $ - $ - $ - $ - $ -
Weighted Average Pay Rate - % - % - % - % - %
Weighted Average Receive Rate - % - % - % - % - %
Total Notional Value $ 955,500 $ 166,667 $ 653,333 $ 85,500 $ 50,000
Weighted Average Pay Rate (1) 5.80% 5.69% 5.85% 5.82% 5.77%
Weighted Average Receive Rate (1) 6.28% 6.18% 6.07% 7.73% 6.84%
(1) Variable rates are held constant for future periods at their effective rates
as of their most recent reset prior to June 30, 1997.
- --------------------------------------------------------------------------------------------------------------
Caps:
Notional Value $ 1,347,200 $ 84,000 $ 457,700 $ 800,000 $ 5,500
Weighted Average Strike Rate 11.08% 9.00% 9.90% 12.00% 6.75%
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Various legal actions arising in the ordinary course of business are
pending against the Company. None of the litigation pending against the Company,
individually or collectively, is expected to have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 30, 1997, the Company's then sole shareholder, Providian
Corporation, in a written consent of shareholder, approved changes to the
Company's Certificate of Incorporation, including the change of the Company's
name to Providian Financial Corporation.
Item 5. Other Information.
On May 30, 1997, the name of the Company was changed from Providian
Bancorp, Inc. to Providian Financial Corporation.
On June 10, 1997, Providian Corporation (the "Former Parent"), then the
sole shareholder of the Company, distributed to the shareholders of record of
the common stock of the Former Parent as of such date, on a one-for-one basis,
all of the outstanding shares of Common Stock, $.01 par value, of the Company,
pursuant to the Distribution Agreement dated as of December 28, 1997 between the
Former Parent and the Company, together with one related preferred share
purchase right for each share of Common Stock. No consideration was paid by the
shareholders of the Former Parent for the receipt of the shares of Common Stock
of the Company and preferred share purchase rights in the spinoff.
The spinoff is more fully described in an Information Statement made part
of the Registration Statement on Form 10 (No. 1-12897) under the Securities
Exchange Act of 1934, as amended, as previously filed with the Commission on
April 17, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits Required by Item 601 of Regulation S-K.
Exhibit 3.1 Amended and Restated Certificate of Incorporation of
the Company.
Exhibit 3.2 Amended Bylaws of the Company.
Exhibit 4.1 Certificate of Designation of Series A Junior Participating
Preferred Stock dated June 1, 1997.
Exhibit 10.1 Rights Agreement dated as of June 1, 1997 between the Company
and First Chicago Trust Company of New York.
Exhibit 10.2 1997 Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 (No. 333-28767)
filed on June 9, 1997).
Exhibit 10.3 Stock Ownership Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 (No. 333-28767)
filed on June 9, 1997).
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on June 25, 1997 containing
pro forma condensed financial information of the Company and its subsidiaries,
giving effect to the spinoff and the issuance of capital securities by a
subsidiary trust of the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROVIDIAN FINANCIAL CORPORATION
-------------------------------
(Registrant)
Date: August 14 , 1997 By / s / David J. Petrini
-----------------------
David J. Petrini
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Signatory)
Date: August 14 , 1997 By / s / Daniel Sanford
-----------------------
Daniel Sanford
Vice President and Controller
(Chief Accounting Officer and
Duly Authorized Signatory)
<PAGE>
EXHIBIT INDEX
Exhibit No.
Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Company
Exhibit 3.2 Amended and Restated By-Laws of the Company
Exhibit 4.1 Certificate of Designations of Series A Junior Participating
Preferred Stock dated June 1, 1997
Exhibit 10.1 Rights Agreement dated as of June 1, 1997 between the Company
and First Chicago Trust Company of New York
Exhibit 10.2 1997 Stock Option Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 (No. 333-28767)
filed on June 9, 1997).
Exhibit 10.3 Stock Ownership Plan (incorporated by reference to the
Company's Registration Statement on Form S-8 (No. 333-28767)
filed on June 9, 1997).
Exhibit 27.1 Financial Data Schedule
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PROVIDIAN BANCORP, INC.
I, the undersigned, for the purpose of amending and restating the
certificate of incorporation of Providian Bancorp, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Corporation"), hereby
certify as follows:
1. This Amended and Restated Certificate of Incorporation was duly adopted
by unanimous written consent of the Board of Directors of the Corporation and by
its sole stockholder in accordance with the applicable provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
2. This Amended and Restated Certificate of Incorporation restates and
amends the Certificate of Incorporation of the Corporation in its entirety.
3. Pursuant to this Amended and Restated Certificate of Incorporation, the
name of the Corporation is hereby changed from Providian Bancorp, Inc. to
Providian Financial Corporation. The date of filing the Corporation's original
certificate of incorporation with the Secretary of State was April 13, 1984.
FIRST. The name of the Corporation is Providian Financial Corporation.
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 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
(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 Amended and Restated
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 of 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 Amended and
Restated Certificate of Incorporation to the contrary, Section 1.2 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 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 Amended
and Restated 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 terms expire 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.
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 Amended and Restated 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 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 Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80 percent of the voting power of 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 Amended and
Restated 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 Amended and Restated
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 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 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.
<PAGE>
IN WITNESS WHEREOF, said Providian Financial Corporation has caused this
certificate to be signed by its President and attested by its Secretary, this
30th day of May, 1997.
By: /s/ Shailesh J. Mehta
-----------------------
Name: Shailesh J. Mehta
Title: Chief Executive Officer
Attest: /s/ Mary Ellen Richey
----------------------
Name: Mary Ellen Richey
Title Secretary
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
PROVIDIAN FINANCIAL CORPORATION
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.
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, the Certificate of
Incorporation or these By-Laws, the 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.
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 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 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 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
terms expire 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-two (72) 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 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 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 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 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.
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.
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 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.
(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 Corporation's 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 there after 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 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 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 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 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.
Exhibit 4.1
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
PROVIDIAN FINANCIAL CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-----------------------------
Providian Financial Corporation, 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 March 27, 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 (in addition to the
provisions set forth in the Certificate of Incorporation of the Corporation,
which are applicable to the Preferred Stock of all classes and series):
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 1,000,000. 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 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 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) 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, 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 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 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.
<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 1st day of June, 1997.
/s/ Shailesh J. Mehta
----------------------
Chairman of the Board
Attest:
/s/ Mary Ellen Richey
- ---------------------
Secretary
Exhibit 10.1
PROVIDIAN FINANCIAL CORPORATION
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Rights Agent
Rights Agreement
Dated as of June 1, 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...........................................................15
Section 8. Cancellation and Destruction of Right Certificates...............17
Section 9. Availability of Preferred Shares.................................18
Section 10. Preferred Shares Record Date.....................................19
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights.................................................20
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares.................................................34
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power.......................................34
Section 14. Fractional Rights and Fractional Shares..........................36
Section 15. Rights of Action.................................................38
Section 16. Agreement of Right Holders.......................................39
Section 17. Right Certificate Holder Not Deemed a Stockholder................40
<PAGE>
Section 18. Concerning the Rights Agent......................................41
Section 19. Merger or Consolidation or Change of Name
of Rights Agent..................................................42
Section 20. Duties of Rights Agent...........................................43
Section 21. Change of Rights Agent...........................................47
Section 22. Issuance of New Right Certificates...............................48
Section 23. Redemption.......................................................49
Section 24. Exchange.........................................................50
Section 25. Notice of Certain Events.........................................53
Section 26. Notices..........................................................55
Section 27. Supplements and Amendments.......................................56
Section 28. Successors.......................................................56
Section 29. Benefits of this Rights Agreement................................57
Section 30. Severability.....................................................57
Section 31. Governing Law....................................................57
Section 32. Counterparts.....................................................58
Section 33. Descriptive Headings.............................................58
Signatures....................................................................59
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase
Preferred Shares
<PAGE>
RIGHTS AGREEMENT
Rights Agreement, dated as of June 1, 1997, between Providian Financial
Corporation, a Delaware corporation (the "Company"), and First Chicago Trust
Company of New York (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 at the close of business on
the day prior to the Spinoff (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:
(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 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 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 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 New York 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., New York
City time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business
Day.
(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.
(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.
(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) "Spinoff" shall mean the spinoff of the Company from its corporate
parent, Providian Corporation.
(z) "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.
(aa) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(ab) "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 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) 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 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 Financial
Corporation and First Chicago Trust Company of New York, dated as of June
1, 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 Financial Corporation Under
certain circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be evidenced
by this certificate. Providian Financial Corporation 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 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 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
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 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 June 30,
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) 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 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 such
holder's 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 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.
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 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 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 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 be come 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 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 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 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 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, 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 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 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 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.
(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, 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 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 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
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 in directly, 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 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 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 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 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 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 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, such holder's
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 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 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 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 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:
(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.
(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 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 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. 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 be, and to each transfer agent of the Common
Shares or Preferred Shares by registered or certified 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 New York or
California (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 New York or California), in good standing, having an office in the State of
New York or California, 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 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. 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 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 of the Spinoff (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 such redemption.
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 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 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.
(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 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 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 Financial Corporation
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 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:
First Chicago Trust Company of New York
525 Washington Boulevard
Suite 4660
Jersey City, New Jersey 07310
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 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 percent age 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 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 convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
<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 FINANCIAL CORPORATION
Attest:
By /s/ Mary Ellen Richey By /s/ Shailesh J. Mehta
--------------------- ---------------------
Name: Mary Ellen Richey Name: Shailesh J. Mehta
Title: Secretary Title: Chairman of the Board
FIRST CHICAGO TRUST COMPANY OF
NEW YORK
Attest:
By /s/ George Dalton By /s/ James Kuzmich
------------------ ------------------
Name: George Dalton Name: James Kuzmich
Title: Assistant Vice President Title: Assistant Vice President
<PAGE>
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
PROVIDIAN FINANCIAL CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Providian Financial Corporation, 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 March 27, 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 1,000,000. 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 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 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) 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, 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 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 other wise 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 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.
<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 1st day of June, 1997.
--------------------------------
Chairman of the Board
Attest:
- --------------------------
Secretary
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER June 30, 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 FINANCIAL CORPORATION
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 June 1, 1997 (the "Rights Agreement"), between Providian
Financial Corporation, a Delaware corporation (the "Company"), and First Chicago
Trust Company of New York (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., New York City time, on June 30, 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 _________________, 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-hundredths 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.
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.
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 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.
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of -----------------.
ATTEST: PROVIDIAN FINANCIAL CORPORATION
By__________________________ By____________________________
Countersigned:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By ______________________________________
Authorized Signature
<PAGE>
Exhibit B
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
<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 Financial Corporation:
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 identification 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 identification 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 bank or trust company having an office or correspondent in
the United States.
<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.
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On March 27, 1997, the Board of Directors of Providian Financial
Corporation (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 to
stockholders of record at the close of business on the day prior to the date of
the spinoff of the Company from its corporate parent, Providian Corporation (the
"Record 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 First
Chicago Trust Company of New York, 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 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 June 30, 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 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% 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 10 dated
April 17, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF PROVIDIAN FINANCIAL CORPORATION AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 189,616
<SECURITIES> 154,613
<RECEIVABLES> 2,864,782
<ALLOWANCES> 129,743
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 55,103
<DEPRECIATION> 0 <F2>
<TOTAL-ASSETS> 4,052,609
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 0
0
0
<COMMON> 954
<OTHER-SE> 513,646
<TOTAL-LIABILITY-AND-EQUITY> 4,052,609
<SALES> 0
<TOTAL-REVENUES> 559,949
<CGS> 0
<TOTAL-COSTS> 251,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72,752
<INTEREST-EXPENSE> 94,419
<INCOME-PRETAX> 140,863
<INCOME-TAX> 51,977
<INCOME-CONTINUING> 88,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,886
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Non-classified balance sheet
<F2>PP&E shown net
</FN>
</TABLE>
